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Location Sciences Group PLC Annual Financial Report

02/04/2019 7:01am

UK Regulatory (RNS & others)


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Location Sciences Group PLC

02 April 2019

Location Sciences Group PLC

("Location Sciences", the "Company" or the "Group")

Final Results for the year ended 31 December 2018

Location Sciences Group PLC, (AIM: LSAI), the pre-eminent global location verification provider to the $106 billion digital advertising industry, is pleased to announce its audited final results for the year ended 31 December 2018.

Key company milestones

* Brought Verify to the UK market, helping customers to detect location ad-fraud and cut ad wastage

* Hired Warren Zenna from Havas Media as president of the Americas to lead Location Sciences' market entrance, strategy, partnerships and growth in North America

* Signed new core customers, including CACI and Talon Outdoor Limited

KPI success

Location Sciences exceeded all published KPIs in 2018. The Board is now committed to delivering updated KPIs it has set for the year ahead:

* 50 new brands to have adopted Verify, following the successful onboarding of nine customers by the end of 2018

* 250 million verified ad impressions for the first six months of 2019 and one billion verified ad impressions by year end. The number of verified ad impressions by 31 December 2018 was 53,658,939

* At least six major suppliers (demand or supply side platforms used to facilitate programmatic advertising) to become Verify-accredited during 2019

Enhanced financial position through funding

* The Group completed two funding rounds in 2018, raising combined gross funds of approximately GBP3.36 million (GBP3.08 million net of expenses)

* As at 31 December 2018, the Group's net assets were GBP4,187,730 (2017: GBP2,551,731)

* Cash and cash equivalents at year end were GBP2,615,455 (2017: GBP1,140,239)

Improved financial performance

* Achieved a 519% increase in like-for-like sales; revenue from location data and Insights delivered GBP697,931 (2017: GBP144,813) and Verify GBP53,922 (2017: GBPNil)

* Reduced administrative costs (excluding amortisation and depreciation and non-recurring items) by 60.6% to GBP1,706,083 (2017: GBP4,333,073)

* Significantly reduced loss per share from continuing operations by 80.1% to 0.98p in 2018 (2017: 4.92p)

Commenting on the results, Mark Slade, Chief Executive of Location Sciences, said:

"With Verify we intend to make significant waves in the ad-tech market. There is a huge market opportunity here and our key differentiators set us apart.

"The Company's independence is extremely important as we strive to become the default choice for location-based ad campaign authentication. Being a highly talented relatively small team means that we can react to our customers' requirements rapidly and always deliver client-oriented outcomes.

"We are also media-agnostic, meaning that we do not sell media or own any media assets. For our customers, this means there is no conflict of interest. Our only purpose is to provide verification services to our clients. We are uniquely positioned to be the kitemark in the location based advertising industry, bringing trust, integrity and transparency back to brands.

"All these things combined set Location Sciences up for a successful 2019. I look forward to delivering significant value to shareholders in the year ahead."

Change of AIM Rule 26 website

Location Sciences has launched its new Verify customer focused website today utilising the existing locationsciences.ai domain, as such it is moving its AIM Rule 26 website to www.locationsciencesgroup.ai with the AIM Rule 26 disclosures being found at https://www.locationsciencesgroup.ai/investor-relations/aim-rule-26/

A copy of this announcement and the Company's report & accounts are available on the Company's website www.locationsciencesgroup.ai

For further information please contact:

Location Sciences Group PLC via Milk and Honey PR

Mark Slade, Chief Executive Officer

David Rae, Chief Financial Officer

Stockdale Securities Limited Tel: +44 (0)20 7601 6100

Tom Griffiths

David Coaten

Milk & Honey PR Tel: +44 (0)20 3637 7310

Kirsty Leighton

Jessica Ballinger

About Location Sciences Group PLC:

Location Sciences is the pre-eminent global location verification provider to the $106 billion digital advertising industry. Working in partnership with brands, media agencies and suppliers to reduce ad-wastage and improve the effectiveness of location-based advertising campaigns.

The digital advertising market place remains unregulated and un-monitored, with an estimated $19 billion wasted on ad-fraud in 2018. Location Sciences has developed Verify, the world's first independent location verification product. Utilising sophisticated machine learning and pattern recognition technologies Verify detects location ad-fraud and shines a light on location data inaccuracy with the aim of bringing back integrity, transparency and trust to the market place.

Chairman's Statement

2018 - A Landmark Year

2018 was a landmark year for Location Sciences Group PLC as it completed its transformation from a digital payments and proximity marketing business into a location intelligence specialist and with the launch of Verify carving a crucial role in the rapidly growing $106 billion global advertising market (Source: Magna 2018).

Last year saw the Company evolve enormously. It started with the name change to Location Sciences Group PLC in February 2018, setting our new focus and direction, and ended with us welcoming some new and key investors to our share register while securing the backing of existing shareholders through an open offer. Critically, we have also added new proven leaders to the team and new platform innovation.

Following the name change, the Company launched Verify, the world's first independent location verification product. With the global location intelligence market anticipated to reach $25.25 billion by 2025(i) , the business took the opportunity to establish a presence in North America, which remains the largest advertising market globally(ii) and a key pillar of growth for the Company.

Location Sciences' new focus and direction led to the following key milestones in 2018:

* The UK launch of Verify in May, helping customers to detect location ad-fraud and verify the authenticity of location data;

* The hiring of Warren Zenna from Havas Media as president of the Americas in late 2018 to lead Location Sciences' market entrance, strategy, partnerships and growth in North America; and

* The signing of new core customers, including CACI and Talon Outdoor Limited.

The Company has been backed by strong support from new and existing shareholders:

* A June placing raised GBP412,272 (before expenses) to launch Verify in the UK; and

* A November placing and open offer raised GBP2.95 million (before expenses) with funds being used to launch Verify in North America.

In addition to the support from existing shareholders in the open offer, we welcomed some important institutional investors. These included Canaccord Genuity Group Inc and Herald Investment Management.

The new funding has already resulted in increasing sales and recurring revenues, delivering value for investors. Having exceeded all published KPIs in 2018, the Board is now committed to delivering new KPIs for 2019, updated to reflect the changes in the business namely:

1. The number of brands which had adopted Verify at the end of 2018 was nine. The Board has set a target for 2019 for 50 new brands.

2. The number of verified ad impressions by year end was 53,658,939. The Board has set a target of 250 million verified ad impressions for the first six months of 2019 and 1 billion by the year end.

3. At least six major suppliers (demand or supply side platforms used to facilitate programmatic advertising) to become Verify accredited during 2019. "Verify Supply" is a significant new product currently being developed by our engineers for customers seeking a hallmark of quality as a differntiator in the location based advertising market.

The Board believes that completion of these targets will deliver significant value to shareholders.

Huge Market Opportunity

The global digital advertising market was expected to reach $106 billion in 2018 and it continues to grow at pace. Mobile is at the heart of this, with ad spend last year surpassing TV(iii) .

With location targeted advertising estimated to be 43% of mobile advertising spend(iv) , spotting inaccurate or fraudulent location data is a huge priority for brands and agencies.

Verify is the solution to this growing problem. The Location Sciences platform verifies the authenticity and quality of location signals, enabling brands and agencies to deliver more impactful advertising campaigns and drive better results.

Location Sciences is the first company to bring an independent and media-agnostic location verification product to the market. Our impartiality is key as we can never be accused of 'marking our own homework'.

The opportunity is for Location Sciences to become the kitemark for location-based advertising and a key player in the large and growing ecosystem.

Mobile Ad Spend Worldwide

 
    YEAR    USD BILLIONS   % OF DIGITAL AD SP 
    2017           143.5                   56.7% 
    2018           189.2                   67.6% 
    2019           232.3                   71.0% 
    2020           279.5                   73.5% 
    2021           318.5                   75.8% 
    2022           354.8                   77.5% 
 

Sources: IAB internet advertising revenue report 2017

US Mobile Ad Spend

 
    YEAR       USD BILLIONS   % OF DIGITAL AD SP 
    2017              60.70                   67.2% 
    2018              74.97                   69.9% 
    2019              90.34                   71.8% 
    2020             105.25                   74.0% 
    2021             118.93                   76.0% 
    2022             131.41                   77.1% 
 

Source: eMarketer US Mobile Ad Spending 2017-2022

Expansion of the Leadership Team

During the course of 2018 and subsequently, the following changes were made to the Board to strengthen various areas of expertise:-

In February 2018, David Rae joined the Board as Chief Financial Officer (CFO) on a part-time basis. He enhanced the Board's financial and strategic capabilities and brought experience in delivering rapid growth for ambitious companies. Since his appointment, David has become full time and taken on the role of Chief Operating Officer (COO), allowing the business to utilise his full set of skills and experience.

In March 2018, Benjamin Chilcott was appointed as a non-executive director. Benjamin co-founded the management consultancy Concise Consultants Limited, which was acquired by Iris Worldwide, the integrated marketing agency, in 2008. Following this, Benjamin became CEO of Iris Concise Limited, the strategy and consulting arm, and served on the board of Iris Worldwide. Benjamin is also non-executive chairman of the electronic receipts company, yReceipts Limited.

In late January 2019, non-executive director Shaun Gregory resigned from the Board with immediate effect. The appointment of a replacement non-executive director is expected to be announced in the first half of this year.

Dan Francis, who played a key role in the transformation of the business as Executive Director, left the Company in June 2018.

The Board would like to thank these individuals, as well our superb sales, technical and operations teams, for their important contribution in building Location Sciences to this stage.

Delivering on the Global Potential of Verify

By exceeding its 2018 KPIs, Location Sciences demonstrated significant commercial traction and evidenced the transformation from a failed venture in digital payments. I am also encouraged by the speed of adoption of Verify, demonstrating a growing awareness of ad-fraud and an urgent need for full transparency across location-based advertising campaigns.

In 2019, Location Sciences will continue to invest in its team and its products to help brands and agencies make the most of the opportunities of location-based mobile advertising.

This will be an exciting year for the Group and its management team. With new markets and new products there will always be challenges to overcome. However, the rewards will be significant if Location Sciences delivers on the early enthusiasm seen for Verify.

I looked back at my report in last year's financial statements and noted that "the Company was in its strongest position yet (at the end of 2017), strategically, financially, operationally and in terms of its market position." I am pleased to advise that since then we have further enhanced our position and look to the future with cautious optimism.

The opportunity for Location Sciences is significant. However, execution is key and I believe that we have assembled a high-performance team to deliver a successful outcome for all stakeholders.

Sources:

(i) https://www.prnewswire.com/news-releases/global-location-intelligence-market-report-2015-2025---market-is-anticipated-to-reach-usd-25-25-billion-300743014.html

(ii) https://www.emarketer.com/content/emarketer-total-media-ad-spending-worldwide-will-rise-7-4-in-2018 (iii) https://www.emarketer.com/content/mobile-advertising-is-expected-to-surpass-tv-ad-spending

(iv) Posterscope, 2017

Kelvin Harrison

Chairman

2 April 2019

Chief Executive's Report

Many significant milestones were achieved in 2018, demonstrating traction and interest in Location Sciences' disruptive technology. This included signing our first significant multi-year contracts and launching Verify, a product with true global potential.

At the same time, we avoided legislative pitfalls which tripped up some of our competitors and successfully re-structured the business, reducing costs without reducing our ability to deliver on the ambitious targets set at the beginning of the year.

This was all achieved thanks to our highly dedicated and experienced team. With our smaller and more focused management team, 2018 was the year Location Sciences established itself as the pre-eminent location specialist in the UK and launched the world's first independent location verification product.

Insights Driving Success

Location Sciences officially launched in September 2017 and now has two core platform products.

The first is the UK Insights platform which draws upon Location Sciences' data lake of more than 40 billion data points, our world class big data infrastructure and the team's location data science expertise. This self-service client dashboard allows clients to query the data, in an aggregated and anonymised way, to gain insights relevant to them and their customers.

Clients are able to use the Insights dashboard for a variety of purposes, including:

1. Transportation: in 2018, Location Sciences designed features to enable a demand-led transportation system, giving the ability to improve the quality of public transport systems.

2. Attribution: this is the measurement and analysis of out-of-home and digital advertising on driving store visits.

3. Competitor analysis: clients can understand the competition through enhanced location insights. This helps them to plan marketing strategies in a more focused and meaningful way.

4. Location planning: the dashboard provides footfall analysis, allowing clients to plan the next location, whether that is a retail unit, bar or restaurant.

5. Audience analysis: clients can create audiences based on locations visited and obtain insights into the behaviour of these audiences.

6. Mergers and acquisitions: the platform can provide insights related to a wide range of corporate activity. For example, if two supermarkets are planning a merger, the M&A team can understand the overall level of customer overlap per region and per store.

The Launch of Verify

Verify is the world's first independent location verification product. This global cloud-based client dashboard is designed to tackle location ad-fraud and provide advertisers with true transparency on their location based advertising campaigns. Ad-fraud cost advertisers $19 billion in 2018 and is a growing issue which Verify has been developed to solve. The GBP3.36 million raised, in aggregate, by the Company in 2018 was, in large part, raised to develop and grow this product.

Seizing the Market Opportunity

According to the Location Based Marketing Association (LBMA) in 2017 "96 per cent. of marketers say they consider location data to be important". This same report also highlights the growing problem of ad-fraud, stating that "65% of marketers have also expressed concern around the quality of location data available in the market and it is widely perceived that up to 80% may be imprecise or fraudulent."

Industry recognition is building, making it the right time for Location Sciences to address this emerging issue. Until Verify was brought to market, there were no companies offering the independent verification of location signals. This first mover advantage is something we are proud of and are seeking to capitalise on for the benefit of our shareholders.

The Science Behind Location Verification

Verify uses machine learning and distribution analysis to identify location ad-fraud and provide advertisers with full transparency throughout ad campaign delivery.

The team's technologists implant a small amount of code into each ad impression served during a digital ad campaign. This code delivers key data to Location Sciences during the campaign. Location Sciences is then able to detect location ad-fraud and inaccuracies in ad campaign delivery.

The Verify platform shows advertisers the real-time performance of their campaign, allowing them to improve the effectiveness of their advertising, in real-time, as well as to cut waste from their digital advertising budgets.

Verify's pattern recognition technology detects a wide range of computer generated "fake" location signals the simplest include centroid's, linear patterns, gaussian and uniform distributions. There are many more sophisticated "fake" location patterns and the Verify platform is being developed to spot these ever more advanced fraudulent location signals.

There is high demand for premium location data to increase the effectiveness of advertising campaigns. However, the economics, and a lack of policing, has resulted in inaccurate and fraudulent location data being poured into the market by bad actors.

Verify does not simply detect fraud, it delivers full transparency of the quality of location signals to the advertiser.

Understanding Location Data

Broadly speaking, you can divide location sources into two categories: GPS data and IP data. GPS data is the latitude/longitude coordinate data from a GPS enabled mobile device. IP-based geo information is derived by taking the internet IP address and using it to infer a location. GPS and IP data have varying degrees of accuracy and different challenges.

Whilst IP targeting is a legitimate form of location advertising, it is inherently less accurate than GPS targeting. If you are an advertiser targeting at a store level - or anything that requires an accuracy under one kilometre - then IP targeting will introduce invalid traffic. An advertiser will be paying for this if they are unaware of what is happening.

The biggest problem with GPS data is that it is open to abuse. Good quality GPS data is only available where the user has consented to share their location with the publisher app. This makes it scarce from an advertising inventory point of view. Due to the value of good quality location data in advertising, location availability is highly valuable to publisher apps.

An additional challenge with GPS data, when it comes to programmatic bidstream data, is the level of data accuracy inherent in the signal. The table below shows the correlation between the number of decimal places received and the targeting accuracy possible. Whilst it is understood that Geo-to-IP location data typically has a signal accurate to one to two decimal places, there is a belief that GPS data is far more accurate. This can be true when the signal has more than four decimal places, however verified bidstream inventory at this level is scarce.

The table below from Maxmind shows how the distance accuracy changes with the number of decimal places present in the latitude/longitude.

Decimal Place Degrees Distance

   0                       1                       111km 
   1                       0.1                    11.1km 
   2                       0.01                  1.11km 
   3                       0.001                111m 
   4                       0.0001              11.1m 
   5                       0.00001           1.11m 

As demonstrated here, location data is not straightforward, and the quality of the location signals is paramount to the advertiser to optimise the effectiveness of their ad campaign. This ensures advertising budgets are deployed wisely.

Tackling ad-fraud and inaccuracy

Verify is the world's first independent global location verification product. It provides advertisers, agencies and suppliers complete transparency on the quality and authenticity of location signals during a digital ad campaign. Results are shown in an intuitive and easy to understand format.

Verify shows the advertiser a point of interest ("POI") health score, combined with the number of ad impressions which were correctly targeted. In addition, Verify visualises a simple location health score. This is the number of impressions which were real and not fraudulent (i.e. computer generated).

The dashboard also maps impressions and POIs, allowing the advertiser to drill down per POI. This gives a clear picture on performance at a glance.

The accuracy of the location signals are displayed in a clear and informative manner, allowing the advertiser and media agency to analyse them in detail optimising the advertising campaign whilst minimising waste.

In summary, Location Sciences provides the tools for advertisers and agencies to succeed in an unregulated and un-monitored location data marketplace.

Becoming the Kitemark for Location Based Advertising

Location Sciences' key differentiators have set the foundations for it to seize a huge market opportunity in the next few years.

The fact that the Company is independent is extremely important as we strive to become the default choice for location-based ad campaign authentication. Being a highly talented relatively small team means that we can react to our customers' requirements rapidly and always deliver client-oriented outcomes.

We are also media-agnostic, meaning that we do not sell media or own any media assets. For our customers, this means there is no conflict of interest. Our only purpose is to provide verification services to our clients. We are uniquely positioned to be the kitemark in the location based advertising industry, bringing back trust, integrity and transparency to brands.

It is our intention to use Verify to make significant waves in the ad-tech market and deliver value to our shareholders.

All these things combined give me confidence in our future and I look forward to an exciting year ahead.

Mark Slade

Chief Executive

2 April 2019

Chief Financial Officer's Report

Introduction

2018 was a year of significant progress for the Company. Raising more than GBP3.1 million in new funds (after expenses) has considerably strengthened the Company's financial position while the launch of Verify, to address the $19 billion ad-fraud market, gives us global market potential.

The launch of Verify in the US in January 2019 has already resulted in commercial test requests from several top brands, agencies and location intelligence data providers. The key to our success will be turning these paid trials into "always-on" contracts, which would significantly increase our recurring revenues. Based on our experience in the UK, we expect trial participants to convert into "always-on" customers in a three to nine-month period. Consequently, the Board anticipates accelerating growth throughout 2019 as more and more Verify customers move to "always-on".

Financial Performance

In 2018, revenue increased to GBP751,853 (2017: GBP471,993) with location data and insights delivering GBP697,931 (2017: GBP144,813) and Verify GBP53,922 (2017: GBPNil), representing approximately five times increase in like-for-like revenues year-on-year.

The Group received GBP157,927 of grant income in 2018 (2017: GBP283,361) and the expectation is for grant income in 2019 to be reduced further with the Group's shift towards commercial sales.

Reflecting the rationalisation of the cost base during the year, administrative costs for continuing operations reduced by 56% to GBP2,160,468 (2017: GBP4,893,319).

The Group also experienced one-off exceptional restructuring costs during the year of GBP99,801, compared to one-off income relating to the write-off of debt in 2017 of GBP637,006.

The business delivered a loss before exceptional items, amortisation and depreciation of GBP1,178,576 (2017:

GBP3,743,438), an operating loss of GBP1,732,762(2017: GBP3,660,000) and a loss after taxation of GBP1,487,534 (2017:

GBP5,374,380).

Loss per share from continuing operations was significantly reduced to 0.98p (2017: 4.92p), a reduction of 80.1%.

Restructuring Impact

Bringing costs under control during the year led to some one-off exceptional costs of GBP99,801 which were predominantly related to staff changes made to refocus the business on sales and product delivery for our two core products.

No restructuring costs are expected in 2019, with the emphasis being on building momentum in the US for Verify and delivering sales growth.

Fundraisings

The Company completed two funding rounds in 2018, raising combined gross funds of approximately GBP3.36 million (GBP3.08 million net of expenses).

On 14 June 2018, Location Sciences completed a fundraising of GBP412,372 (before expenses) by way of an equity placing. On 26 November 2018, the Company completed a second equity placing raising approximately GBP2.76 million (before expenses) and a further GBP188,748 (before expenses) in an open offer which was very well supported by shareholders.

The funds are being used to commercialise Verify and, in particular, to penetrate the US market, where a significant investment is being made in business development.

Costs Under Control

At the beginning of the year, the task for the Board was to bring the cost base fully under control. This involved a comprehensive rationalisation of resources in every department and led to our headcount being reduced to 14 (2017: 23).

Excluding amortisation and depreciation and non-recurring items, administrative costs were reduced by 60.6% to GBP1,706,083 (2017: GBP4,333,073).

With the investment into Verify and, in particular, the spend on new business development in the US market, the Board expects administrative costs to increase during 2019. There will also be an increase in product development costs during the year to ensure the Group maintains its first mover advantage in the location verification market place.

The Board expects the investment in the US and in the Company's products to realise significant sales during the year, with meaningful cash flow generation and long-term contracts.

Statement of Financial Position

Following the cost base rationalisation and the funding rounds during the year, the Group's financial position has significantly improved.

As at 31 December 2018, the Group's net assets were GBP4,187,730 (2017: GBP2,551,731) of which GBP2,615,455 (2017: GBP1,140,239) were cash and cash equivalents.

Net current assets were GBP2,839,916 as at 31 December 2018, compared to net current liabilities of GBP1,155,979 as at 31 December 2017. The main impact on net current assets was the new funding secured by the Group.

Group borrowings were GBP152 (representing finance lease agreements) as at 31 December 2018 (2017: GBP4,756). The Group's improved financial position is a reflection of its new management team and strategy.

Enhancing Shareholder Value

The Board's aim is to deliver increasing and sustainable shareholder value. As such, we have focused the Group's resources into the areas which the Board believes will give the Group its greatest chance of success.

David Rae

Chief Financial Officer

2 April 2019

Consolidated Income Statement

 
                                                                            2018                        2017 
  Continuing Operations                              Note                    GBP                         GBP 
Revenue                                              4                   751,853                     471,993 
Cost of sales                                                          (382,273)                   (165,719) 
                                                           ---------------------   ------------------------- 
Gross profit                                                             369,580                     306,274 
Administrative expenses                                              (1,706,083)                 (4,333,073) 
Other operating income                               5                   157,927                     283,361 
Other income                                                                   -                       6,678 
                                                           ---------------------   ------------------------- 
Operating loss before exceptional administative 
 expenses, amortisation and depreciation                             (1,178,576)                 (3,743,438) 
Amortisation and depreciation                                          (454,385)                   (560,246) 
Administrative expenses - non-recurring 
 items                                               7                  (99,801)                     637,006 
                                                           ---------------------   ------------------------- 
Operating loss                                                       (1,732,762)                 (3,660,000) 
Finance income                                       8                       246                       1,498 
Finance costs                                        8                         -                   (143,279) 
                                                           ---------------------   ------------------------- 
Loss before tax                                                      (1,732,516)                 (3,801,781) 
Income tax receipt                                  12                   244,982                     280,113 
Discontinued operations 
Discontinued operations                                                        -                 (1,852,712) 
                                                           ---------------------   ------------------------- 
Loss for the year attributable to owners 
 of parent                                                           (1,487,534)                 (5,374,380) 
                                                           ---------------------   ------------------------- 
 
  Earnings per share 
Loss per share - basic and diluted                                      (0.98p)                   (7.51p) 
Loss per share from continued operations 
 - basic and diluted                                                    (0.98p)                   (4.92p) 
Loss per share from discontinued operations 
 - basic and diluted                                                       0.00p                  (2.59p) 
 
                                                                            2018                      2017 
                                                    Note                     GBP                       GBP 
Loss for the year                                                    (1,487,534)               (5,374,380) 
Items that may be reclassified subsequently 
 to profit or loss 
Foreign currency translation gains                                             -                   111,043 
                                                           ---------------------   ----------------------- 
Total comprehensive income for the 
 year attributable to owners of the 
 parent                                                              (1,487,534)               (5,263,337) 
                                                           ---------------------   ----------------------- 
 
 

Consolidated Statement of Financial Position as at 31 December 2018

 
                                                31 December   31 December 
                                                       2018          2017 
                                         Note           GBP           GBP 
Assets 
Non-current assets 
Intangible assets 14                              1,332,915     1,379,902 
Property, plant and equipment 15                     14,899        16,437 
                                               ------------  ------------ 
                                                  1,347,814     1,396,339 
                                               ------------  ------------ 
Current assets 
Trade and other receivables 17                      359,264       233,387 
Tax asset 12                                        235,723       269,428 
Cash and cash equivalents 18                      2,615,455     1,140,239 
                                               ------------  ------------ 
                                                  3,210,442     1,643,054 
                                               ------------  ------------ 
Current liabilities 
Trade and other payables 19                       (370,374)     (482,906) 
Loans and borrowings 20                               (152)       (4,169) 
                                               ------------  ------------ 
                                                  (370,526)     (487,075) 
                                               ------------  ------------ 
Net current assets                                2,839,916     1,155,979 
                                               ------------  ------------ 
Total assets less current liabilities             4,187,730     2,552,318 
                                               ------------  ------------ 
Non-current liabilities 
Loans and borrowings 20                                   -         (587) 
Net assets                                        4,187,730     2,551,731 
                                               ------------  ------------ 
Equity 
Share capital 23                                 13,713,498    11,677,628 
Share premium                                    18,168,965    15,189,919 
Merger relief reserve                            11,605,556    11,605,556 
Capital reserve                                     209,791       209,791 
Equity reserve                                            -     1,934,797 
Reverse acquisition reserve                     (9,225,108)   (9,225,108) 
Retained earnings                              (30,284,972)  (28,840,852) 
                                               ------------  ------------ 
Equity attributable to owners of the company      4,187,730     2,551,731 
                                               ------------  ------------ 
 

Statement of Financial Position as at 31 December 2018

 
                                                 31 December   31 December 
                                                        2018          2017 
                                        Note             GBP           GBP 
Assets 
Non-current assets 
 Investments                              16       3,443,414     3,400,000 
                                              --------------  ------------ 
Current assets 
Trade and other receivables               17          31,932        50,342 
Cash and cash equivalents                 18               -       594,388 
                                              --------------  ------------ 
                                                      31,932       644,730 
                                              --------------  ------------ 
Current liabilities 
Trade and other payables                  19        (44,507)      (84,507) 
                                              --------------  ------------ 
Net current assets                                  (12,575)       560,223 
                                              --------------  ------------ 
Total assets less current liabilities              3,430,839     3,960,223 
                                              --------------  ------------ 
Net assets                                         3,430,839     3,960,223 
                                              --------------  ------------ 
Equity 
Share capital                             23      13,713,498    11,677,628 
Share premium                                     18,168,965    15,189,919 
Equity reserve                                             -     1,934,797 
Merger relief reserve                             11,605,556    11,605,556 
Retained earnings                               (40,057,180)  (36,447,677) 
                                              --------------  ------------ 
Total equity                                       3,430,839     3,960,223 
                                              --------------  ------------ 
 

The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its own statement of comprehensive income in these financial statements. The loss after tax for the parent Company for the year was GBP3,652,917 (2017: GBP8,987,313)

Consolidated Statement of Changes in Equity for the Year Ended 31 December 2018

 
                                                Merger 
                      Share          Share       relief     Translation         Capital       Equity       Other          Retained 
                      capital        premium     reserve    reserve             reserve       reserve      reserve        earnings          Total 
                          GBP            GBP     GBP            GBP             GBP           GBP          GBP                 GBP             GBP 
At 1 January 
 2017              10,475,177     10,991,445  11,605,556          (44,679)       209,791       44,160  (9,225,108)    (23,620,582)      435,760 
Loss for the 
 year                       -              -           -                 -             -            -            -     (5,374,380)  (5,374,380) 
Other 
 comprehensive 
 income                     -              -           -           111,043             -            -            -               -      111,043 
                -------------  -------------  ----------  ----------------  ------------  -----------  -----------  --------------  -------------- 
Total 
 comprehensive 
 income                     -              -           -           111,043             -            -            -     (5,374,380)  (5,263,337) 
New share 
 capital 
 subscribed         1,202,451      4,198,474           -                 -             -            -            -               -    5,400,925 
Translation 
 transfer                   -              -           -          (66,364)             -            -            -          66,364               - 
Share-based 
 payments                   -              -           -                 -             -            -            -          87,746        87,746 
Equity element 
 of 
 convertible 
 loan                       -              -           -                 -             -    1,934,797            -               -    1,934,797 
Equity 
 transfer                   -              -           -                 -             -     (44,160)            -               -      (44,160) 
                -------------  -------------  ----------  ----------------  ------------  -----------  -----------  --------------  -------------- 
At 31 December 
 2017              11,677,628     15,189,919  11,605,556                 -       209,791    1,934,797  (9,225,108)    (28,840,852)    2,551,731 
                -------------  -------------  ----------  ----------------  ------------  -----------  -----------  --------------  -------------- 
 
                                                  Merger 
                       Share          Share       relief      Translation Capital             Equity        Other         Retained            Total 
                    capital     premium         reserve        Reserve reserve              reserve       reserve         earnings         equity 
                          GBP            GBP     GBP                GBP GBP                   GBP          GBP                 GBP               GBP 
At 1 January 
 2018              11,677,628     15,189,919  11,605,556                   - 209,791        1,934,797  (9,225,108)    (28,840,852)     2,551,731 
Loss for the 
 year                       -              -           -                   - -                      -            -     (1,487,534)   (1,487,534) 
                -------------  -------------  ----------                                  -----------  -----------  --------------   --------------- 
Total 
 comprehensive 
 income                     -              -           -                     - -                    -            -     (1,487,534)   (1,487,534) 
New share 
 capital 
 subscribed         2,035,870      2,979,046           -                   - -            (1,934,797)            -               -     3,080,119 
Share-based 
 payments                   -              -           -                   - -                      -            -          43,414         43,414 
                -------------  -------------  ----------                                  -----------  -----------  --------------   --------------- 
At 31 December 
 2018              13,713,498     18,168,965  11,605,556                     - 209,791              -  (9,225,108)    (30,284,972)     4,187,730 
                -------------  -------------  ----------                                  -----------  -----------  --------------   --------------- 
 
 

Statement of Changes in Equity for the Year Ended 31 December 2018

 
                                       Share        Merger                             Retained 
                   Share               premium      relief      Equity                 earnings        Total 
                   capital                         reserve      reserve 
                          GBP              GBP       GBP            GBP                     GBP          GBP 
At 1 January 
 2017              10,475,177       10,991,445     11,605,556         44,160       (27,548,110)    5,568,228 
Loss for the 
 year                       -                -              -              -        (8,987,313)  (8,987,313) 
                -------------  ---------------  -------------  -------------  -----------------  ----------- 
Total 
 comprehensive 
 income                     -                -              -              -        (8,987,313)  (8,987,313) 
New share 
 capital 
 subscribed         1,202,451        4,198,474              -              -                  -    5,400,925 
Share-based 
 payments                   -                -              -              -             87,746       87,746 
Equity 
 transfer                   -                -              -       (44,160)                  -     (44,160) 
Equity element 
 of 
 convertible 
 loan                       -                -              -      1,934,797                  -    1,934,797 
                -------------  ---------------  -------------  -------------  -----------------  ----------- 
At 31 December 
 2017              11,677,628       15,189,919     11,605,556      1,934,797       (36,447,677)    3,960,223 
                -------------  ---------------  -------------  -------------  -----------------  ----------- 
 
 
                                       Share        Merger                             Retained 
                   Share               premium      relief      Equity                 earnings        Total 
                   capital                         reserve      reserve 
                          GBP              GBP       GBP            GBP                     GBP          GBP 
At 1 January 
 2018              11,677,628       15,189,919     11,605,556      1,934,797       (36,447,677)    3,960,223 
Loss for the 
 year                       -                -              -              -        (3,652,917)  (3,652,917) 
                -------------  ---------------  -------------  -------------  -----------------  ----------- 
Total 
 comprehensive 
 income                     -                -              -              -        (3,652,917)  (3,652,917) 
New share 
 capital 
 subscribed         2,035,870        2,979,046              -    (1,934,797)                  -    3,080,119 
Increase in 
 capital 
 contribution 
 of investment              -                -              -              -             43,414       43,414 
                -------------  ---------------  -------------  -------------  -----------------  ----------- 
At 31 December 
 2018              13,713,498       18,168,965     11,605,556              -       (40,057,180)    3,430,839 
                -------------  ---------------  -------------  -------------  -----------------  ----------- 
 
 
Consolidated Statement of Cash Flows                                   2018           2017 
 for the Year Ended 31 December 2018                 Note               GBP            GBP 
 
 Cash flows from operating activities 
Loss for the year 
 Adjustments to cash flows from non-cash 
 items                                                          (1,487,534)    (5,374,380) 
Depreciation and amortisation                                       454,385      1,113,245 
Impairment of intangible assets                                           -        350,431 
Loss from disposals of assets                                             -      1,388,196 
Foreign exchange loss                                                 7,739          8,065 
Finance income                                     8                  (246)        (1,498) 
Finance costs                                      8                      -        143,279 
Share based payment transactions                                     43,414         87,746 
Income tax expense                                   12           (244,982)      (280,113) 
                                                           ----------------  ------------- 
 
  Working capital adjustments                                   (1,227,224)    (2,565,029) 
(Increase)/decrease in trade and 
 other receivables                                   17           (133,615)        842,068 
Decrease in trade and other payables                 19            (36,217)    (1,826,315) 
                                                           ----------------  ------------- 
Cash generated from operations                                  (1,397,056)    (3,549,276) 
Income taxes received                                12             202,372        456,260 
                                                           ----------------  ------------- 
Net cash flow from operating activities                         (1,194,684)    (3,093,016) 
                                                           ----------------  ------------- 
Cash flows from investing activities 
Interest received                                  8                    246          1,498 
Acquisitions of property plant and 
 equipment                                                         (12,421)        (6,316) 
Acquisition of intangible assets                     14           (393,440)      (687,639) 
Proceeds from disposal of subsidiary                                      -        773,106 
                                                           ----------------  ------------- 
Net cash flows from investing activities                          (405,615)         80,649 
                                                           ----------------  ------------- 
Cash flows from financing activities 
Interest paid                                      8                      -      (143,279) 
Proceeds from issue of ordinary shares, 
 net of issue costs                                               3,080,119      5,400,925 
Repayment of bank borrowing                                               -    (2,500,000) 
Convertible loan note redeemed                                            -      (738,775) 
Payments to finance lease creditors                                 (4,604)        (4,072) 
                                                           ----------------  ------------- 
Net cash flows from financing activities                          3,075,515      2,014,799 
                                                           ----------------  ------------- 
Net increase/(decrease) in cash and 
 cash equivalents                                                 1,475,216      (997,568) 
Cash and cash equivalents at 1 January                            1,140,239      2,026,764 
Effect of exchange rate fluctuations 
 on cash held                                                             -        111,043 
                                                           ----------------  ------------- 
   Cash and cash equivalents at 31 December                       2,615,455      1,140,239 
                                                           ----------------  ------------- 
                                                                       2018         2017 
                                                 Note                   GBP          GBP 
Net Cash Flows 
Net cash flow from continuing activities                    1,475,216        (1,052,817) 
                                                           ----------------  ----------- 
Net cash flow from discontinued activities                  -                     55,249 
                                                           ----------------  ----------- 
Non-cash financing activities: 
Discount on share options                                                 -      190,203 
Loans written-off                                                         -      482,935 
Share warrants granted on release of 
 bank loan                                                                -    1,934,797 
Share warrants exercised in year                                  1,934,797            - 
 
 
 
 
Statement of Cash Flows for the                          2018         2017 
 Year Ended 31 December 2018                Note          GBP          GBP 
 
 Cash flows from operating activities 
Loss for the year 
 Adjustments to cash flows from 
 non-cash items                                   (3,652,917)  (8,987,313) 
Loss on disposal of assets                                  -      855,081 
Impairment to investments                                   -    2,321,236 
Finance income                                           (42)      (1,495) 
Finance costs                                               -      132,272 
Share based payment transactions                            -       15,446 
                                                  -----------  ----------- 
 
  Working capital adjustments                     (3,652,959)  (5,664,773) 
Decrease in trade and other receivables       17       18,410    1,860,024 
Decrease in trade and other payables          19     (40,000)      (8,763) 
                                                  -----------  ----------- 
Net cash flow from operating activities           (3,674,549)  (3,813,512) 
                                                  -----------  ----------- 
Cash flows from investing activities 
Interest received                                          42        1,495 
Proceeds from sale of investments                           -      758,586 
                                                  -----------  ----------- 
Net cash flows from investing 
 activities                                                42      760,081 
                                                  -----------  ----------- 
Cash flows from financing activities 
Interest paid                                               -    (132,272) 
Proceeds from issue of ordinary 
 shares                                             1,449,567    1,202,451 
Share premium raised                                1,630,552    4,198,474 
Repayment of bank borrowing                                 -  (2,500,000) 
Convertible loan note redeemed                              -    (738,775) 
                                                  -----------  ----------- 
Net cash flows from financing 
 activities                                         3,080,119    2,029,878 
                                                  -----------  ----------- 
Net decrease in cash and cash 
 equivalents                                        (594,388)  (1,023,553) 
Cash and cash equivalents at 1 
 January                                              594,388    1,617,941 
                                                  -----------  ----------- 
Cash and cash equivalents at 31 
 December                                                   -      594,388 
                                                  -----------  ----------- 
 

Notes to the Financial Statements for the Year Ended 31 December 2018

1 General information

The company is a public company limited by share capital, incorporated and domiciled in England. The address of its registered office is:

20 Eastbourne Terrace Paddington

London W2 6LG

The company's ordinary shares are traded on the Alternative Investment Market (AIM) of the London Stock Exchange.

Principal activity

Location Sciences has two distinct products. Firstly, its UK Data and Insights platform, which gives customers access to its data lake of over 36 billion location data points. This helps customers in a variety of ways, for example, competitor and footfall analysis, attribution services for advertisers, and even the ability to enhance the sustainability of transport systems. Secondly, Location Sciences has developed a global platform called Verify, which brings transparency to the location based mobile advertising market. Verify allows marketeers to authenticate where their adverts have been viewed and uses proprietary technology to detect location ad-fraud, which would otherwise go unnoticed.

2 Accounting policies Statement of compliance

The group financial statements have been prepared in accordance with International Financial Reporting Standards and its interpretations adopted by the EU ("adopted IFRS's") and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The consolidated financial statements have been prepared under the historical cost convention basis as discussed in the accounting policies below.

Summary of significant accounting policies and key accounting estimates

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Going concern

The directors have taken a view of the Group as a whole.

The Group made significant strides forward during the year, including nearly quintupling Location Data and Insights sales and more than halving administrative costs compared to 2017. The launch of Verify was also a significant milestone for the Group, opening up the global ad-fraud verification market. However, the Group continued to operate with a trading loss during the year and the same is expected throughout 2019. The Group raised an additional GBP3.36 million in new investment during the year, which will be utilised for the growth of Verify and for working capital purposes. The Group also remains debt free.

Notwithstanding the positive progress in 2018, there remains a sensitivity to the timing and forecast pipeline of sales. Consequently, near term cash resources will continue to be closely monitored and controlled due to the associated working capital requirements of the Group in delivering its growing order pipeline and winning new business. To deliver its growth plans, the Board may also consider raising additional capital in 2019.

Based on the current status, after making enquiries and considering the progress of the Group during 2018, the directors have a reasonable expectation that the Group will be able to execute its plans in the medium term such that the Group will have adequate resources to continue in operational existence for the foreseeable future. This provides the directors assurance on the Group's ability to continue as a going concern, and therefore adopt the going concern basis of accounting in preparing the annual financial statements.

Basis of consolidation

The group financial statements consolidate the financial statements of the company and its subsidiary undertakings drawn up to 31 December 2018.

A subsidiary is an entity controlled by the company. Control is achieved where the company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the group.

The purchase method of accounting is used to account for business combinations that result in the acquisition of subsidiaries by the group. The cost of a business combination is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the business combination. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Any excess of the cost of the business combination over the acquirer's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised is recorded as goodwill. If the cost of acquisition is less than fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the Income Statement. Acquisition costs are expensed as incurred.

Inter-company transactions, balances and unrealised gains on transactions between the company and its subsidiaries, which are related parties, are eliminated in full.

Intra-group losses are also eliminated but may indicate an impairment that requires recognition in the consolidated financial statements.

Changes in accounting policy

For the purpose of the preparation of these consolidated financial statements, the Group has applied all standards and interpretations that are effective for accounting periods beginning on or after 1 January 2018. The adoption of new standards and interpretations in the year has not had a material impact on The Group's financial statements.

IFRS 15

The Group has adopted IFRS 15 retrospectively in its consolidated financial statements for the year ended 31 December 2018. IFRS 15 replaces all existing revenue requirements in IFRS and sets out principles for recognising revenue that must be applied using a 5-step model. Revenue should only be recognised when (or as) control of goods or services is passed to the customer, when distinct 'performance obligations' are met, at the amount to which the entity expects to be entitled. The Group has completed its assessment of IFRS 15 and has not identified any material differences between the Group's current revenue recognition policy and the requirements of IFRS 15.

New standards, interpretations and amendments not yet effective

No new standards, amendments or interpretations to existing standards that have been published and that are mandatory for the Group's accounting periods beginning on or after 1 January 2019, or later periods, have been adopted early. The following standards are not yet applied:

IFRS 9 Financial Instruments (effective 1 January 2019)

IFRS 16 Leasing (effective 1 January 2019)

IAS 12 Income Taxes (effective 1 January 2019)

Other than IFRS 16 Leasing, none of the other standards, interpretations and amendments which are effective for periods beginning after 1 January 2019 and which have not been adopted early, are expected to have a material effect on the financial statements.

The adoption of IFRS 16 Leasing will require the Group to recognise in its Statement of Financial position the asset and financial commitment associated with properties under operating leases. As at 31 December 2018 this would increase the asset and the liabilities of the Group by GBP187,635, with GBPnil overall effect on the net liabilities of the Group.

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker for the use in strategic decision making and monitoring of performance. The Group considers the chief operating decision maker to be the Executive Board.

Revenue recognition

Revenue represents the invoice value of services and software licences provided to external customers in the period, stated exclusive of value added tax.

Consideration received from customers in respect of services is only recorded as revenue to the extent that the Group has performed its contractual obligations in respect of that consideration. Management assess the performance of the Group's contractual obligations against project milestones and work performed to date.

Revenue from software licences sold in conjunction with services is invoiced separately from those services and recognised over the period of the license.

Revenue from software licences for the use of the technology platform is recognised over the period of the license.

Revenue from software development is recognised to the extent that the Group has obtained the right to consideration through its performance.

The IFRS 15 Practical expedient has been applied whereby the promised amount of consideration has not been amended for the effects of a significant financing component as at the contract inception there are no contracts where the period between transfers of promised goods or services and customer payment is expected to exceed one year.

Grants

Grants received on capital expenditure are initially recognised within accrued income on the Group's Statement of Financial position and are subsequently recognised in the Income Statement on a systematic basis over the useful life of the related capital expenditure.

Grants for revenue expenditure are presented as part of the Income Statement in the periods in which the expenditure is recognised.

Foreign currency transactions and balances

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The consolidated financial statements are presented in sterling, which is the Parent's presentational currency.

Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date.

The results and financial position of all Group entities that have a functional currency different from the presentational currency of the Group are translated into sterling follows:

-- Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet;

-- Income and expenses for each income statement are translated at the average exchange rate for the month where these approximate the exchange rate at the date of the transaction; and

-- All resulting exchange differences are recognised within other comprehensive income and taken to the foreign exchange reserve.

Tax

The tax expense for the period comprises current tax. Tax is recognised in profit or loss, except that a change attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in other comprehensive income.

The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the group operates and generates taxable income.

Deferred tax is provided for using the liability method on temporary differences at the balance sheet date between tax basis of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised in full for all temporary differences other than those relating to goodwill on investments in subsidiaries. Deferred tax assets are recognised for all deductible temporary differences carried forward of unused tax credits and unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carry-forward of unused tax credits and unused tax losses can be utilised.

The carrying amount of deferred tax assets is assessed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it is probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised, or the liability settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date.

The tax currently receivable is based on the taxable loss for the period and relates to R&D tax credits. Taxable loss differs from net loss as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductable in other periods and it further excludes items that are never taxable or deductible. This is calculated using rates and laws enacted or substantively enacted at the reporting date

Financial instruments

The Company recognises financial instruments when it becomes a party to the contractual arrangements of the instrument. Financial instruments are de-recognised when they are discharged or when the contractual terms expire. The Company's accounting policies in respect of financial instruments transactions are explained below:

Financial assets

The Company classifies all of its financial assets as loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary assets. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial.

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterpart or default or significant delay in payment) that the company will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the Income Statement. On confirmation that the trade receivable will not be collected, the gross carrying value of the asset is written off against the associated provision.

Financial liabilities

The Company classifies all of its financial liabilities as liabilities at amortised cost. Liabilities are classified as

current liabilities when the Company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Intangible assets Goodwill

Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over the group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is not subject to amortisation but is tested for impairment annually. Goodwill is held in the currency of the acquired entity and revalued to the closing rate at each reporting period date.

For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Goodwill is allocated to those cash-generating units that are expected to benefit from the synergies of the related business combination and represent the lowest level within the Group at which management monitors the related cash flows. the recoverable amount is tested annually or when events or changes in circumstances indicate that it may be impaired. The recoverable amount is higher of the fair value less costs and the value in use in the Group. An impairment loss is recognised to the extent that the carrying value exceeds the recoverable amount. In determining a value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the cash generating unit that have not already been included in the estimate of future cash flows.

Internally developed software

Intangible assets are predominantly internally generated software development costs for Location Sciences technologies. Development costs are capitalised when certain criteria are met. The product must be technically feasible, sale is intended, a market exists, expenditure can be measured reliably, and sufficient resources are available to complete the project. The extent of capitalisation is limited to the amount, which taken together with further related costs, will be recovered from the future economic benfits related to the asset. When the Board is sufficiently confident that all of the criteria for capitalisation are met, development costs are amortised over the expected useful life, currently 5 years, from the date the asset is available for use. Development costs that have been capitalised, but where amortisation has not yet commenced are reviewed annually for impairment. If no intangible asset can be recognised based on the above then development costs are recognised within administrative expenses in the Consolidated Income Statement.

Other intangibles

Acquired trademarks and intellectual property rights are recognised as an asset at cost, or deemed cost, less accumulated amortisation and any recognised impairment loss.

Amortisation

Amortisation is provided on intangible assets so as to write off the cost, less any estimated residual value, over their expected useful economic life as follows:

Asset class Amortisation method and rate

Development costs 20% straight line

Trademarks and intellectual property rights 10% straight line

Amortisation is recognised within administrative expenses and disclosed separately on the consolidated Income Statement.

Property, plant and equipment

Property, plant and equipment is stated in the statement of financial position at cost, less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

The cost of property, plant and equipment includes directly attributable incremental costs incurred in their acquisition and installation.

Depreciation

Depreciation is charged so as to write off the cost of assets, other than land and properties under construction over their estimated useful lives, as follows:

Asset class Depreciation method and rate

Computer equipment 33.33% straight line

Office equipment 33.33% straight line

Depreciation is recognised within administrative expenses and disclosed separately on the Consolidated Income Statement

Impairment of non-financial assets

At each Statement of Financial Position date, the Group performs an impairment review in respect of goodwill and any intangible assets not yet ready for use and reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered any impairment. If any such indication exists, the recoverable amount of the asset (being the higher of fair value less costs to sell and value in use) is estimated in order to determine the extent of any impairment. Any impairment loss is recognised as an expense in the Income Statement in the period in which it was identified.

Investments

Investments are carried at cost, less any impairment in value.

The Company grants options over its equity investments to the employees of its subsidiaries. The carrying value of the investment in this subsidiary is increased by an amount equal to the value of the share-based payment charge attributable to the option holder in the subsidiary.

Dividends on equity securities are recognised in income when receivable.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and call deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value, and have a maturity of less than 3 months from the date of acquisition. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash in hand and bank deposits.

Trade receivables

Trade receivables are amounts due from customers for licences sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognised initially at the transaction price. They are subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for the impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables.

Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Trade payables are recognised initially at the transaction price and subsequently measured at amortised cost using the effective interest method.

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.

Assets held under finance leases are recognised as non-current assets of the group at the lower of their fair value at the date of commencement of the lease and at the present value of the minimum lease payments. These assets are depreciated on a straight-line basis over the shorter of the useful life of the asset and the lease term. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance costs in the income statement and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability

Leases in which a significant proportion of the risks and rewards are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the Income Statement on a straight-line basis over the period of the lease.

Equity

Equity comprises:

Share capital - the nominal value of ordinary share is classified as equity.

Share premium - represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.

Merger relief reserve - the difference between cost or fair value and the nominal value of shares issued on the exchange of shares with Location Sciences AI Limited and on acquisition of subsidiaries where shares are issued as part of the consideration.

Translation reserve - the foreign exchange difference arising on consolidation. Capital reserve - represents a capital contribution to the Company.

Equity reserve - represents the fair value of warrants over shares issued to Barclays in return for debt waiver in 2017. During the year the equity reserve has been transferred to share premium upon exercise of the warrants.

Reverse acquisition reserve - the balance of the amount recognised as issued equity instruments arising on restatement of Location Sciences AI Limited to reflect the parent equity structure, further to the reverse acquisition basis of accounting adopted in 2013 on the share exchange by Location Sciences Group Plc for 100% of the shares of Location Sciences AI Limited.

Retained earnings - includes all current and prior period retained profits/(losses).

Equity instuments issued by the Group are recorded as the proceeds received, net of direct issue costs.

Share capital

Ordinary shares are classified as equity. Equity instruments are measured at the fair value of the cash or other resources received or receivable, net of the direct costs of issuing the equity instruments. If payment is deferred and the time value of money is material, the initial measurement is on a present value basis.

Defined contribution pension obligation

A defined contribution plan is a pension plan under which fixed contributions are paid into a separate entity and has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

For defined contribution plans contributions are paid publicly or privately administered pension insurance plans on a mandatory or contractual basis. The contributions are recognised as employee benefit expense when they are due. If contribution payments exceed the contribution due for service, the excess is recognised as an asset.

Share based payments

The Group operates an equity-settled, share-based compensation plan. Equity-settled share-based payements are measured at fair value at date of grant. The fair value determined at the grant date of the equity -settled share based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. Fair value is measured by use of the Black Scholes or a binomial options valuation model as appropriate depending on the terms of the options.

   3     Critical accounting judgements and key sources of estimation uncertainty 

The preparation of financial information in conformity with IFRS requires the directors to make critical accounting estimates and judgements that affect the application of policies and reported amounts of assets and liabilities, income and expenses. An assessment of the impact of these estimates and judgesments on the financial staements is set out below,

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results could differ from these estimates and any subsequent changes are accounted for with an effect on income at the time such updated information is available.

Fair values for employee share schemes

The establishment of fair values in respect of employee services received in exchange for share options require the exercise of judgement and estimation in respect of the life of the option, the expected dividend yield and, in particular, the volatility of the underlying shares. A calculated value for the latter may not accurately reflect the future share price movements given the Group's stage of development.

Assessing whether development costs meet the criteria for capitalisation

The point at which development costs meet the criteria for capitalisation is critically dependent on management's judgement of the point at which technical feasibility is demonstrable. Commercial success of the development projects remains uncertain at the time of recognition and therefore impairment reviews are undertaken based on current estimates of future revenues streams. This assessment has resulted in the impairment of GBPnil (2017: GBP359,431) of development costs, previously capitalised for which the underlying projects are no longer being pursued.

Classification and valuation of financial instruments

The Group previously issued financial instruments including conversion features and warrants. The valuation of these financial instruments, including Level 3 fair values where there are no observable market inputs, are performed in consultation with third party valuation specialists, with the overall aim of maximising the use of market based information.

Impairment of goodwill and other intangible assets

There are a number of assumptions management have considered in performing impairment reviews of goodwill and intangible assets, as determining whether such assets are impaired requires an estimation of the value in use of the cash generating units to which goodwill and other intangible assets have been allocated. The value in use calcualtion requires the directors to estimate the future cash flows expected to arise from the the cash generating unit and a suitable discount rate in order to calculate the present value. An impairment of goodwill of GBPnil has been recognised in the year.

Assessing whether revenue meets the criteria for recognition

Contracts can include both the sale of licences and provision of services including integration and development. Revenue is recognised based on the analysis of individual contracts and the point at which significant risks and reward of ownership transfer is dependent on the contractual terms. In respect of a licence, this would usually be on delivery of the software. Software development and other consulting services generally recognised on the basis of work done but where issues of client acceptance are identified, then revenue is deferred until issues are resolved.

   4     Segmental analysis 

Operating segments are based on internal reports about components of the Group, which are regularly reviewed and used by the Board for strategic decision making, to allocate resources across segments and to assess performance by segment.

During 2018, the Group maintained a holding company structure with one operating subsidiary. For financial reporting, Location Sciences segments the Group based on its two distinct products. Firstly, its UK Data and Insights platform, which gives customers access to its data lake of over 36 billion location data points. This helps customers in a variety of ways, for example, competitor and footfall analysis, attribution services for advertisers, and even the ability to enhance the sustainability of transport systems. Secondly, Location Sciences has developed a global platform called Verify, which brings transparency to the location based mobile advertising market. Verify allows marketeers to authenticate where their adverts have been viewed and uses proprietary technology to detect location ad-fraud, which would otherwise go unnoticed.

Note, the location aspects of the proximity marketing product have been absorbed into the Location Sciences UK Data and Insights platform, and as such, proximity marketing is no longer reported on as an individual segment.

It should be noted that a segmental analysis of the Balance Sheet is not part of routine management reporting and consequently no segmental analysis of assets is shown here.

The analysis of the Group's revenue from contracts with customers for the year from continuing operations is as follows:

 
                                                         2018         2017 
                                                          GBP          GBP 
Verify                                                 53,922            - 
Location Data and Insights                            697,931      144,813 
Proximity Marketing                                         -      327,180 
                                                     --------    --------- 
                                                      751,853      471,993 
                                                     --------    --------- 
An analysis of the Group's revenue by geographical 
 segment is as follows: 
                                                         2018       2017 
                                                          GBP        GBP 
UK                                                    481,530     34,077 
Europe                                                 20,166          - 
Rest of World                                         250,157    437,916 
                                                     --------   -------- 
                                                      751,853    471,993 
                                                     --------   -------- 
 
 

During the year there was revenue from individual customers that represented more than 10% of revenue totalling GBP303,793 (2017: GBP330,372).

Average payments terms are set out in Note 17. There are no significant financing components, nor variable consideration elements in customers' contracts.

 
 
An analysis of EBITDA is as follows:              2018         2017 
                                                   GBP          GBP 
Proximity Marketing                                  -  (2,932,139) 
Location Data and Insights                 (1,186,464)  (1,297,795) 
Verify                                        (91,666)            - 
                                           -----------  ----------- 
Total EBITDA for continuing operations     (1,278,130)  (4,229,934) 
Total EBITDA for discontinued operations             -    (464,516) 
                                           -----------  ----------- 
Total EBITDA                               (1,278,130)  (4,694,450) 
                                           -----------  ----------- 
 
 
 
  An analysis of loss before tax is as follows: 
                                                           2018         2017 
                                                            GBP          GBP 
Proximity Marketing                                           -  (2,512,966) 
Location Data and Insights                          (1,608,262)  (1,288,815) 
Verify                                                (124,254)            - 
                                                    -----------  ----------- 
Total loss before tax for continuing operations     (1,732,516)  (3,801,781) 
Total loss before tax for discontinued operations             -  (1,852,712) 
                                                    -----------  ----------- 
Total loss before tax                               (1,732,516)  (5,654,493) 
                                                    -----------  ----------- 
 

The impairment in 2017 of GBP350,431 is associated with the sale of the Digital Payments segment within discontinued operations.

   5    Other operating income 

The analysis of the group's other operating income for the year is as follows:

 
                             2018     2017 
                              GBP      GBP 
Government grants         157,927  283,361 
Other operating income          -    6,678 
                         --------  ------- 
                          157,927  290,039 
                         --------  ------- 
 
 
6 Loss before taxation 
 Arrived at after charging/(crediting) 
                                                  2018        2017 
                                                   GBP         GBP 
Depreciation expense                            13,959      34,449 
Amortisation expense                           440,426   1,078,797 
Impairment loss                                      -     350,431 
Research and development expenditure           313,375      65,127 
Government grants                            (157,927)   (283,361) 
Operating lease rentals                         79,702      96,027 
Share based payments                            43,414      87,746 
Net foreign exchange losses                      7,739       8,065 
Auditors remuneration 
 - Company audit                                15,000      15,000 
- Subsidiary audit                              10,000      15,000 
Non-audit services: 
 - Compliance services                           7,500           - 
- Other non-audit services                      11,000           - 
                                             ---------  ---------- 
 
  7 Exceptional items 
                                                  2018        2017 
                                                   GBP         GBP 
Irrecoverable VAT                               10,467           - 
Restructuring costs                             89,334      36,132 
Discount on settlement of bank loan                  -   (190,203) 
Discount on settlement of convertible loan           -   (482,935) 
                                                99,801   (637,006) 
                                             ---------  ---------- 
 
   8    Finance income and costs 

Finance income

                                                                                                                                                      2018                      2017 
                                                                                                                                                            GBP                             GBP 

Interest income on bank deposits

                                                                                                                                                         246                         1,498 

Finance costs

Interest on bank overdrafts and borrowings

               -                    (11,069) 

Interest on obligations under finance leases and hire purchase contracts

 -                         (500) 

Finance cost on convertible loan note

                   -                  (131,710) 

Total finance

                                  -                  (143,279) 

Net finance income/(costs) 246 (141,781)

   9    Staff costs 

The aggregate payroll costs (including directors' remuneration) were as follows:

                                                                                                                                                 2018                       2017 
    GBP                            GBP 

Wages and salaries

                  1,162,981              2,657,101 

Social security costs

                       132,378             303,854 

Pension costs, defined contribution scheme

         16,119             14,801 

Share-based payment expenses

              43,414             87,746 
                                1,354,892           3,063,502 

Included within the above totals, GBPnil (2017: GBP1,198,869) relates to the discontinued operation.

The average number of persons employed by the group (including directors) during the year, analysed by category was as follows:

 
                                 2018  2017 
                                  No.   No. 
Finance and Operations              4     8 
Research and development            8    29 
Commercial and client services      2    10 
                                 ----  ---- 
                                   14    47 
                                 ----  ---- 
 

Included within the above totals, 0 (2017: 10) research and development staff relate to the discontinued operation.

 
 
  10 Key management compensation and directors remuneration 
  Details of aggregate key management emoluments for 
  the year are as follows: 
                                                       2018       2017 
                                                        GBP        GBP 
    Salaries and other short-term employee benefits 448,043    734,761 
                                        Pension costs 2,303        773 
                     Expense of share-based payments 15,987     17,134 
                                  Redundancy payment 27,625          - 
                                                               ------- 
                                                    493,958    752,668 
                                                               ------- 
 

The directors are of the opinion that the key management of the Group comprises the executive and the non-executive directors of Location Sciences Group Plc. These persons have authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly.

 
11 Auditors' remuneration 
                                                       2018      2017 
                                                        GBP       GBP 
Audit of the financial statements of subsidiaries 
 of the company pursuant to legislation               7,500    15,000 
 
 
12 Income tax 
 Tax charged/(credited) in the income statement 
                                                        2018       2017 
                                                         GBP        GBP 
Current taxation 
UK R&D tax credit                                  (235,723)  (193,113) 
UK R&D tax credit adjustment to prior periods        (9,259)          - 
                                                  ----------  --------- 
                                                   (244,982)  (193,113) 
Deferred taxation 
Arising from origination and reversal of 
 temporary differences                                     -   (87,000) 
                                                  ----------  --------- 
Tax receipt in the income statement                (244,982)  (280,113) 
                                                  ----------  --------- 
 

The tax on profit before tax for the year is higher than the standard rate of corporation tax in the UK (2017 - higher than the standard rate of corporation tax in the UK) of 19% (2017 - 19.25%).

 
The differences are reconciled below: 
                                                        2018         2017 
                                                         GBP          GBP 
Loss before tax                                  (1,732,516)  (3,801,781) 
                                                ------------  ----------- 
Corporation tax at standard rate                   (329,178)    (731,843) 
Decrease in current tax from adjustment 
 for prior periods                                   (9,259)            - 
Effect of expenses not deductible                     41,039      215,069 
Unrecognised deferrred tax asset                     209,940      346,477 
Surrender of tax losses for R&D tax credit            73,155       66,247 
Other differences                                   (56,096)       62,765 
Additional deduction for Research development 
 expenditure                                       (174,583)    (151,828) 
                                                ------------  ----------- 
Total tax credit                                   (244,982)    (193,113) 
                                                ------------  ----------- 
 

Subject to the UK tax authority's agreement, the Group has UK tax losses of approximately GBP18,750,000 (2017:

GBP19,200,000) available to carry forward and offset against future taxable profits arising from the same trade. The Group has a potential deferred tax asset of GBP3,190,000 (2017: GBP3,260,000) which will not be recognised until it is regarded as more likely than not that there will be sufficient taxable profits from which the tax losses can be deducted. In addition, no deferred tax asset is recognised in respect of future tax deductions on exercise of share options.

13 Loss per share

The calculation of loss per share is based on the loss of GBP1,487,533 (2017: GBP5,374,380) and on the number of shares in issue, being the weighted average number of equity shares in issue during the period of 151,100,816 1p ordinary shares (2017: 7,157,915,871 0.01p ordinary shares, 71,579,159 1p shares after consolidation). A separate adjusted loss per share calculation has been prepared related to the loss before exceptional items.

Note prior year loss per share is reported assuming the share consolidation that took place during the year to facilitate comparability.

 
                                                                   2018                      2017 
                                                                    GBP                       GBP 
                                                            (1,487,533)               (5,374,380) 
Loss for year Add back: 
 Exceptional items                                           99,801                    (637,006) 
                                               ------------------------      -------------------- 
Adjusted loss                                         (1,387,732)                   (6,011,386) 
                                               ------------------------      -------------------- 
Loss per share - basic and diluted Adjusted                     (0.98p)                  (7.51p) 
 loss per share - basic and diluted 
 Loss per share from continued operations                       (0.92p)                   (8.40p) 
  - basic and diluted 
 Loss per share from discontinued operations                    (0.98p)                   (4.92p) 
  - basic and diluted 
                                                                      -                   (2.59p) 
 

Dilutive instruments

Instruments that could potentially dilute basic loss per share in the future but are not included in the calculation of diluted loss per share because they are anti-dilutive, related to share options in the period. See note 24 for further details of the share options.

14 Intangible assets

Group

 
                           Goodwill  Trademarks         Customer     Internally  Intellectual          Total 
                                GBP         GBP    relationships      generated      property            GBP 
                                                             GBP       software     rightsGBP 
                                                                       develop. 
                                                                       costsGBP 
Cost or valuation 
At 1 January 2017           659,289       5,102        1,000,000      5,560,590         6,001      7,230,982 
Additions                         -           -                -        687,639             -        687,639 
Disposals                 (659,289)           -      (1,000,000)    (4,011,399)             -    (5,670,688) 
                        -----------  ----------  ---------------  -------------  ------------  ------------- 
At 31 December 2017               -       5,102                -      2,236,830         6,001      2,247,933 
                        -----------  ----------  ---------------  -------------  ------------  ------------- 
At 1 January 2018                 -       5,102                -      2,236,830         6,001      2,247,933 
Additions                         -           -                -        393,440             -        393,440 
Disposals                         -     (5,102)                -      (137,524)       (6,001)      (148,627) 
                        -----------  ----------  ---------------  -------------  ------------  ------------- 
At 31 December 2018               -           -                -      2,492,746             -      2,492,746 
                        -----------  ----------  ---------------  -------------  ------------  ------------- 
Amortisation 
At 1 January 2017           399,394       2,384          500,000      1,573,996         3,600      2,479,374 
Amortisation charge               -         603          200,000        877,544             -      1,078,147 
Amortisation 
 eliminated 
 on disposals             (399,394)           -        (700,000)    (1,941,177)           650    (3,039,921) 
Impairment                        -           -                -        350,431             -        350,431 
                        -----------  ----------  ---------------  -------------  ------------  ------------- 
At 31 December 2017               -       2,987                -        860,794         4,250        868,031 
                        -----------  ----------  ---------------  -------------  ------------  ------------- 
At 1 January 2018                 -       2,987                -        860,794         4,250        868,031 
Amortisation charge               -       2,115                -        436,561         1,751        440,427 
Amortisation 
 eliminated 
 on disposals                     -     (5,102)                -      (137,524)       (6,001)      (148,627) 
                        -----------  ----------  ---------------  -------------  ------------  ------------- 
At 31 December 2018               -           -                -      1,159,831             -      1,159,831 
                        -----------  ----------  ---------------  -------------  ------------  ------------- 
Carrying amount 
At 31 December 2018               -           -                -      1,332,915             -      1,332,915 
                        -----------  ----------  ---------------  -------------  ------------  ------------- 
At 31 December 2017               -       2,115                -      1,376,036         1,751      1,379,902 
                        -----------  ----------  ---------------  -------------  ------------  ------------- 
At 1 January 2017           259,895       2,718          500,000      3,986,594         2,401      4,751,608 
                        -----------  ----------  ---------------  -------------  ------------  ------------- 
 

Internal development represents the cost incurred in developing the Group's DaaS platform and software development, split between the two distinct products UK Data and Insights and Verify, with net book value of

GBP1,146,550 and GBP186,365 respectively. These internal costs have been capitalised in accordance with the Group's accounting policies where all the conditions for capitalisation have been met.

The Verify and Location Data and Insights intangible assets have on average a remaining amortisation period of 5 and 3 years respectively.

Impairment of research and development is considered within the conditions of capitalisation. Amortisation charges are included in administrative expenses, disclosed separately on the Consolidated Income Statement.

Other intangible assets represent amounts paid to third parties for acquiring trademarks and intellectual property rights.

In the prior year the directors identified a number of R&D projects related to the Digital Payments business (reported within Proximity Marketing segmental analysis) sitting within Location Sciences AI Limited that were not transferred as part of the disposal. Due to the fact that the directors see the likelihood of future revenues attributable to these products as low, a decision was made to fully impair the value of these products.

The amount of impairment loss included in profit and loss is GBPNil (2017 - GBP350,341)

 
15 Property, plant and equipment 
 Group 
                                            Computer                  Office Equipment 
                                            Equipment                                       Total 
                                                  GBP                              GBP        GBP 
Cost or valuation 
At 1 January 2017                             178,617                           83,951    262,568 
Additions                                       6,316                                -      6,316 
Disposals                                     (5,944)                          (4,435)   (10,379) 
                                   ------------------  -------------------------------  --------- 
At 31 December 2017                           178,989                           79,516    258,505 
                                   ------------------  -------------------------------  --------- 
At 1 January 2018                             178,989                           79,516    258,505 
Additions                                      12,421                                -     12,421 
Disposals                                   (157,734)                         (79,516)  (237,250) 
                                   ------------------  -------------------------------  --------- 
At 31 December 2018                            33,676                                -     33,676 
                                   ------------------  -------------------------------  --------- 
Depreciation 
At 1 January 2017                             156,515                           61,128    217,643 
Charge for year                                11,775                           22,674     34,449 
Eliminated on disposal                        (4,080)                          (5,944)   (10,024) 
                                   ------------------  -------------------------------  --------- 
At 31 December 2017                           164,210                           77,858    242,068 
                                   ------------------  -------------------------------  --------- 
At 1 January 2018                             164,210                           77,858    242,068 
Charge for the year                            12,301                            1,658     13,959 
Eliminated on disposal                      (157,734)                         (79,516)  (237,250) 
                                   ------------------  -------------------------------  --------- 
At 31 December 2018                            18,777                                -     18,777 
                                   ------------------  -------------------------------  --------- 
Carrying amount 
At 31 December 2018                            14,899                                -     14,899 
                                   ------------------  -------------------------------  --------- 
At 31 December 2017                            14,779                            1,658     16,437 
                                   ------------------  -------------------------------  --------- 
At 1 January 2017                              22,102                           22,823     44,925 
                                   ------------------  -------------------------------  --------- 
 

Assets held under finance leases and hire purchase contracts

The net carrying amount of property, plant and equipment includes the following amounts in respect of assets held under finance leases and hire purchase contracts:

   31 December    31 December 
   2018                  2017 
   GBP                        GBP 
                  1,265                    5,524 
   16   Investments 

Group subsidiaries

Details of the group subsidiaries as at 31 December 2018 are as follows:

Proportion of ownership interest and voting rights held

   2018       2017 

Name of subsidiary

Location Sciences AI Limited* 100% 100%

Principal activity Location Data and Insights and Verify

Registered office Same registered office address as group

* indicates direct investment of the company

 
Summary of the company investments 
                                                         31 December        31 December 
                                                                2018                 2017 
                                                                 GBP                  GBP 
Investments in subsidiaries                          3,443,414                  3,400,000 
                                                                2018                 2017 
                                                                 GBP                  GBP 
Investment in Location Sciences AI Limited                 2,414,043            2,414,043 
Capital contributions arising from IFRS2 
 share based payments charge                               1,029,371              985,957 
                                                  ------------------  ------------------- 
                                                           3,443,414            3,400,000 
                                                  ------------------  ------------------- 
Subsidiaries                                                                          GBP 
Cost or valuation 
At 1 January 2017                                                               3,400,000 
                                                                      ------------------- 
At 31 December 2017                                                             3,400,000 
                                                                      ------------------- 
At 1 January 2018                                                               3,400,000 
Capital contributions from share based payments                                    43,414 
                                                                      ------------------- 
At 31 December 2018                                                             3,443,414 
                                                                      ------------------- 
Carrying amount 
At 31 December 2018                                                             3,443,414 
                                                                      ------------------- 
At 1 January 2017                                                               3,400,000 
                                                                      ------------------- 
 

17 Trade and other receivables

   Group                                                       Company 
                                                                                   31 December   31 December        31 December           31 December 
                                                                                   2018                             2017                       2018                      2017 

GBP GBP GBP GBP

Trade receivables 138,511 34,095 - -

Accrued income 124,702 - - -

Prepayments 45,125 14,217 - 1,875

Other receivables 50,926 185,075 31,932 48,467

                       359,264                  233,387                          31,932                      50,342 

Trade receivables comprise amounts due from customers for services provided. All amounts are short term. The net carrying amount of trade receivables is considered a reasonable approximation of fair value. Average credit terms were 30 days (2017: 30) and average debtor days outstanding were 69 (2017: 26).

All of the Group's trade and other receivables have been reviewed for impairment. An impairment provision of

GBP5,340 (2017: GBP9,065) has been recognised in the year.

The group's exposure to credit and market risks, including impairments and allowances for credit losses, relating to trade and other receivables is disclosed in the financial risk management and impairment note.

Trade receivables above include amounts (detailed below) that are past due at the end of the reporting period and which an allowance for doubtful debts has not been recognised as the amounts are still considered recoverable and there hasn't been a significant change in credit quality.

Age of trade receivables that are past due but not impaired Group

 
                                                                                31 December      31 December 
                                                                                       2018             2017 
                                                                                        GBP              GBP 
7 to 30 days                                                                          6,771                - 
31 to 60 days                                                                        61,358            4,035 
61 to 90 days                                                                         (141)                - 
91 to 120 days                                                                       11,760                - 
                                                                           ----------------  --------------- 
                                                                                     79,748            4,035 
                                                                           ---------------- 
 
  18 Cash and cash equivalents 
                       Group 31 December                                                Company 
                                             31 December                         31 December 31 December 
                                                     2018            2017                       2018 2017 
                                                      GBP             GBP                        GBP GBP 
  Cash at bank                                  2,615,455       1,140,239                        - 594,388 
 
 
19 Trade and other 
 payables                                  Group 31 December                              Company 
                                                                31 December       31 December 31 December 
                                                        2018           2017                      2018 2017 
                                                         GBP            GBP                       GBP GBP 
Trade payables                                        91,543        152,394                            - - 
Accrued expenses                                     106,569        155,405                  19,000 59,000 
Social security and 
 other taxes                                         125,061         33,048                            - - 
Other payables                                        47,201        142,059                  25,507 25,507 
 
                                                     370,374        482,906                  44,507 84,507 
 

The directors consider that the carrying amount of trade and other payables approximated their fair value. Trade payables are paid between 30 and 60 days of receipt of the invoice.

The group's exposure to market and liquidity risks, including maturity analysis, related to trade and other

payables is disclosed in the financial risk management and impairment note.

20 Loans and borrowings

   Group                                                       Company 
                                                                                31 December   31 December        31 December           31 December 
                                                                                2018                             2017                       2018                      2017 

GBP GBP GBP GBP

Finance lease liabilities 152 4,169 - -

   Group                                                       Company 

Non-current loans and borrowings

   Group                                                       Company 
                                                                                31 December   31 December        31 December           31 December 
                                                                                2018                             2017                       2018                      2017 

GBP GBP GBP GBP

Finance lease liabilities - 587 - -

The group's exposure to market and liquidity risk; including maturity analysis, in respect of loans and borrowings is disclosed in the financial risk management and impairment note.

Finance lease agreements are secured on the assets concerned. Interest rates are fixed for the term of the agreements which are payable by equal fixed monthly amounts where applicable.

 
21 Obligations under operating leases 
Group 
Operating leases 
The total future value of minimum lease 
 payments is as follows: 
                                          31 December  31 December 
                                                 2018         2017 
                                                  GBP          GBP 
Within one year                               107,220       11,347 
In two to five years                           80,415            - 
                                          -----------  ----------- 
                                              187,635       11,347 
                                          -----------  ----------- 
 

The amount of non-cancellable operating lease payments recognised as an expense during the year was GBP79,702 (2017 - GBP299,913)

22 Financial risk management and impairment of financial assets Treasury risk management

The Group manages a variety of market risks, including the effect of changes in foreign exchange rates, liquidity and counterparty risks.

Credit risk

The Group's principal financial assets are bank balances, cash, trade and other receivables.

The credit risk on liquid funds is limited because the counterparties are UK banks or "Blue Chip" companies with high credit ratings assigned by international credit rating agencies.

As a result, investment returns and credit risk to the Group in this regard are not material to the financial statements.

The Group's maxiumum exposure to credit risk is limited to the carrying amount of financial assets at the reporting date. No collateral is held in respect of these amounts which are expected to be received in full. In order to manage credit risk, credit limits are reviewed on a regular basis in conjuction with debt ageing and collection history.

Currency risks

The Group's operations are primarily located in the United Kingdom, with an increasing investment into the United States. The Group's transactions during 2018 were predominantly denominated in sterling, with consequently little exposure to foreign currency risks. Due to the limited risks to the Group, forward exchange contracts are not considered necessary and are not used. At the year end, the Group operated sterling bank accounts only. Going forward the Directors will monitor the currency risk and monitor the potential impact of increasing trade and investment into the United States.

The translation risk on the Group's foreign exchange payables and receivables is considered to be immaterial due to their short-term nature.

Liquidity risk

The Group has sufficient capital resources to meet its external current liabilities as they fall due in 2019.

Operational cash flow represents on going trading revenue and costs, administrative costs and research and development activities. The Group manages its liquidity requirements by the use of both short-term and long-term cash flow forecasts. The Group's policy is to ensure facilities are available as required or to issue equity share capital to ensure cash resources available are in accordance with long-term cash flow forecasts. The Group currently has no overdrawn committed facilities as at 31 December 2018.

The Group actively manages its working capital to ensure it has sufficient funds for operations and planned research and development activities.

The Group's main financial liabilities include trade payables and operational costs. All amounts for trade and other payables are due for payment in accordance with agreed settlement terms with suppliers or statuatory deadlines. All such payment terms are within six months.

Capital management

The Group's activities are of a type and at a stage of development where the most suitable capital structure is that of one primarily financed by equity. The directors will reassess the future capital structure when projects under development are sufficiently advanced.

The Group's financial strategy is to utilise its resources and current trading revenue streams to commercialise its products and grow revenues. The Group keeps investors informed of its progress with its projects through regular announcements and raises additional equity finance at appropriate times.

The Group manages capital on the basis of the carrying amount of equity, and debt with regard to maintaining sufficient liquidity to enable the Group to continue to trade and invest in commercialisation. As at the year end the equity to overall financing ratio is 1 (2017:1).

Categories of financial instruments

All of the Group's financial assets are classified as loans and receivables; see note 17. The directors consider that the carrying amount of trade and other receivables approximates their fair value.

All of the Group's financial liabilities are classified as liabilities at amortised cost: see note 19. The directors consider that the carrying amount of trade and other payables approximates their fair value. The contractual maturity of financial liabilties is set out in notes and 19.

The accounting policies applied are set out in note 2.

22 Share capital

Allotted, called up and fully paid shares

31 December

2018

31 December

2017

No. GBP No. GBP

 
Ordinary shares of GBP0.01 
 (2017 - 
 GBP0.0001) each               341,044,439    3,410,444    13,745,747,069               1,374,575 
Deferred shares of GBP0.01 
 each                        1,040,712,398   10,303,053    1,040,712,398               10,303,053 
                             1,381,756,837   13,713,497   14,786,459,467               11,677,627 
 
  Reconciliation of shares 
                                                                                        Number of 
                                                                                         shares 
 

Total number of shares as at 1 January 2018

14,786,459,467

19 June 2018 1,374,574,705

12 September 2018 5,863,021,931

21 November 2018 95

Total shares pre-consolidation 22,024,056,198

Number of shares after consolidation

209,833,438

29 November 2018 122,822,221

13 December 2018 8,388,780

Total number of shares as at 31 December 2018 341,044,439

New shares allotted

* On the 19th June 1,374,574,705 new shares were allotted with a nominal value of GBP137,457 for aggregate consideration of GBP412,372.

* On the 12th September 5,863,021,931 new shares were allotted further to Barclays exercising their warrants, with a nominal value of GBP586,302. No consideration was received for them, further to waiver of a loan in the prior year. The fair value of the warrants was determined to be GBP1,934,797, which is the deemed value of the shares issued.

* On the 21st November there was a share consolidation, whereby every 100 existing Ordinary shares of 0.001p was consolidated into one new Ordinary share of 1p. As a result of the consolidation 95 fragment shares were allotted.

* On the 29th November 122,822,221 new shares were allotted with a nominal value of GBP1,228,222 for aggregate consideration of GBP2,763,500.

* On the 13th December 8,388,780 shares were alloteted under an open offer, with a nominal value of GBP83,888 for aggregate consideration of GBP188,748.

Share rights

Ordinary shares have attached to them full voting, dividend and capital distribution (including on winding up) rights; they do not confer any rights of redemption.

Deferred shares have attached to them no voting, dividend or capital distribution (including on winding up) rights; they do not confer any rights of redemption.

Share Warrants

Mike Staten (formerly held by Darwin Capital Limited) holds 5,583,522 share warrants at the year end with an

exercise price of 16.92 pence per share. These warrants are exerciseable at 16.92 pence per share. For

comparison the closing share price on 29 March 2019 was 2.4 pence per share. The fair value of the warrants is

not material for adjustment.

23 Share-based payments

The share option scheme was originally adopted by the company on 29 September 2011. It was established to attract and retain the best available personnel for positions of responsibility, to provide additional incentive to employees, officers or consultants of the company and to promote the success of the company's business. Further to the acquisition of the business by Location Sciences Group plc (formerly Proxama plc), the options were granted over shares in the parent entity. The share option scheme was and continues to be administered by the directors.

All outstanding options as at 1 January 2018 and outstanding options issued in March 2018 and May 2018 were surrendered and replaced by options issued in November 2018. Share options surrendered are accounted for as modified options under IFRS 2. The incremental value of the modified share options is not material.

Share options issued in November 2018 are to be settled by way of issues of Ordinary Shares. The options have no vesting period, but cannot be exercised until target share prices are achieved and have a maximum term of 10 years.

Further, Location Sciences Group plc consolidated its shares during the year whereby every 100 existing ordinary shares of 0.01 pence was consolidated into one new ordinary share of 1 pence each. As a result the number of shares subject to any option held under share options decreased to one hundredth. This consolidation is reflected in the comparative information below to facilitate comparability.

The target share prices are as follows:

Target A: GBP0.048 Target B: GBP0.073 Target C: GBP0.097

The movements in the number of share options during the year were as follows:

 
                                     31 December                 31 December 
                                                 2018                   2017 
                                            Number                   Number 
  Outstanding, start of period             15,664,210                388,653 
Granted during the period                  39,177,222             15,537,237 
Forfeited during the period               (3,081,372)              (261,680) 
Surrendered during the period            (17,537,838)                      - 
Outstanding, end of period        34,222,222                      15,664,210 
 

None of the options outstanding at the end of the period are yet exercisable as the target share prices have not yet been achieved.

The movements in the weighted average exercise price of share options during the year were as follows:

 
                                31 December  31 December 
                                       2018         2017 
                                        GBP          GBP 
Outstanding, start of period           0.40         1.70 
Granted during the period              2.25         0.40 
Forfeited during the period            2.15         1.60 
Surrendered during the period          2.80            - 
Outstanding, end of period             2.25         0.40 
 

The weighted average contractual life of options outstanding at the year end is 3 years (2017: 6.6 years). The weighted average share price as at the date of grant is 2.35p (2017: 0.48p).

The fair value of the equity instruments granted was determined using the Black Scholes Model. This model was selected as it is an industry standard model. The exercise price of all the options in issue is 2.35p per ordinary share. The performance condition includes three target share prices, as set out above. The inputs into the model for options granted in November 2018 were as follows:

   Average share price                            2.35p 
   Exercise price                                      2.25p 
   Expected volatility                             53% 

Risk-free interest rate 2% Probability of achieving criteria 50%

The expected volatility was determined with reference to historic volatility. The expected life used in the model has been adjusted, based on management's best estimate for the effects of non-transferability, exercise restrictions and behavioural consideration and is estimated at 3 years.

The share-remuneration expense for the year recognised in the Profit and Loss is GBP43,414 (2017 - GBP84,000). Expenses are allocated to Location Sciences AI Limited, the company that receives the employee services.

24 Pension and other schemes

The group operates a defined contribution pension scheme. The pension cost charge for the year represents contributions payable by the group to the scheme and amounted to GBP16,119 (2017: GBP9,570). Contributions totaling GBP1,835 (2017: GBPNil) were payable to the scheme at the end of 2018 and are included in creditors.

25 Commitments

No capital expenditure was committed to as at 31 December 2018 (2017: GBPNil).

26 Related party transactions

As at 31 December 2018, S Gregory (a director), was owed GBPNil (2017: GBP2,000) by the Company.

During the year sales of GBP15,000 were made to Concise Consultants Limited, a company in which B Chilcott is a director. As at 31 December 2018, the balance owed by Concise Consultants Limited was GBPNil.

27 Discontinued operations Disposal of Aconite Group

On 31 October 2017, the group entered into a sale agreement to dispose of Aconite Technology Limited, Aconite Solutions Limited and Aconite Consulting Limited, which carried out all of the group's digital payments operations. The disposal was affected in order to generate cash flow for the expansion of the group's other businesses. The disposal was completed on 31 October 2017, on which date control of Aconite Technology Limited, Aconite Solutions Limited and Aconite Consulting Limited passed to the acquirer.

The results of the discontinued operations, which have been included in the consolidated income statement, were as follows:

2017

GBP

Revenue

1,056,935

Expenses

(1,521,451)

Loss before tax

(464,516)

Loss on sale of discontinued operation

(1,388,196)

Net loss attributable to discontinued operations

(1,852,712)

The discontinued operations results contributed the following to the group cash flow:

2017

GBP

Net cash inflows from operating activities

195,779

Net cash outflows from investing activities

(301,826)

Net cash outflows from financing activities

(2)

Net cash outflows arising on disposal (106,049)

Details of the sale of the subsidiary

Period ended 31 October

2017

Consideration received or receivable:

GBP

Cash

758,586

Total disposal consideration

758,856

Carrying amount of net assets sold

(2,146,782)

Loss on sale

(1,388,196)

The carrying amounts of assets and liabilities as at the date of sale (31 October 2017) were:

Period ended

31 October

2017

GBP

Intangible assets

2,630,621

Trade and other receivables

195,854

Cash and cash equivalents

10,455

Total assets

2,836,930

Trade and other payables

(422,748)

Deferred tax

(267,400)

Total liabilities

(690,148)

Net assets

2,146,782

28. Publication of non-statutory accounts

The financial information set out in this announcement does not constitute statutory accounts as defined in the Companies Act 2006.

The Group Statement of Comprehensive Income, Group Statement of Financial Position, Group Statement of Changes in Equity, Group Statement of Cash Flows and associated notes have been extracted from the Group's 2018 statutory financial statements upon which the auditor's opinion is unqualified, which includes an emphasis of matter paragraph for going concern and does not include any statement under section 498 of the Companies Act 2006.

Those financial statements will be delivered to the Registrar of Companies following the release of this announcement.

This announcement and the annual report and accounts are available on the Company's website www.locationsciences.ai . A copy of the report and accounts will be sent to shareholders who have elected to receive a printed copy with details of the annual general meeting in due course.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

FR UAOKRKNASRAR

(END) Dow Jones Newswires

April 02, 2019 02:01 ET (06:01 GMT)

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