The directors present the strategic report for the year ended 31 October 2022.
The results for the year ended 31 October 2022 are set out in the profit and loss account on page 8.
Quai Administration and it's Subsidiaries ("the group") continued to make good progress during the year with ongoing regular administration fees increasing to £1.8m. Assets under Administration (“AUA") increased to £640m which together with a strong pipeline of new business provides a solid platform for further growth in year on year fee income.
The group continues to make significant investment in developing its proprietary technology platform extending the range of products and services it supports and automating process flows whilst making integration with customers and their investors simpler, more cost effective and secure. At 31 October 2022 almost 188,000 investor accounts were supported by the platform.
The board and senior executive management team regularly reviews risks and uncertainties facing the business and maintains a risk register outlining the nature of the analysed risk, categorised by impact (inherent risk) and in each case setting out risk mitigation activities and residual risk.
The principal risks faced by the business are considered below.
Liquidity Risk – there is a risk that cashflow is insufficient to meet ongoing overheads. The board review cash forecasts on a monthly basis and considers action that might need to be taken in order to improve cash flow and make available additional working capital. The group has been able to raise additional capital when necessary and as revenue grows (underpinned by a stable cost base) and new clients from an already strong pipeline launch their products on the platform, the Board are confident that when necessary further capital could be raised
Regulatory Risk – the group operates in a highly regulated environment, providing services to customers who undertake activities as regulated financial service businesses. There is risk associated with the activities undertaken in the provision of savings and investment products, in the governance of the products and documentation supporting the products. The outsourced administration services involve provision of services designed to support customers’ ability to comply with FCA rules. To mitigate this risk the group employs suitably qualified senior managers with wide-ranging financial sector expertise in other regulated businesses. In addition third party systems and third party consulting expertise is utilised as and when required. Regulatory change is routinely monitored and planned for where it impacts the business.
Operational Risk – This risk arises from processes undertaken within and transactions flowing through the firms’ technology platform. The risks associated with technological and operational process failure is carefully reviewed by the senior management team and where necessary discussed with the board. The group continues to invest in improving its internal controls around data processing; ensuring that issues when they arise are logged, analysed and remedial action taken.
The parent company result for the year ended 31 October 2022 includes revenue of £1.88m and administrative expenses of £2.32m leading to a reported operating loss for the year of £697k. Cash resources were strengthened in the year as a result of raising £1.13m of additional capital (a combination of debt and equity). The subsidiary result for the subsidiary includes administrative expenses of £11k leading to a reported operating loss for the year of £11k.
The key financial performance indicators used by the business are revenue, gross margin, forecast cash resources and EBITDA. These are complemented by KPI’s associated with AUA growth, number of investor accounts supported and target operational performance linked to customer Service Level Agreements. Turnover increased by £146k from the previous financial year and Operating Loss increased by £282k as the Company continues to develop its business post Covid-19. Other KPIs have increased within the financial year, customer numbers have grown by 40k and customer AUA by £40m.
Research & development activities
The group has several innovative projects underway this year which will again be recognised for Research & Development specifically around functionality for customers to take income from their pension schemes, alongside a new transactional cash movement based app.
Future developments
The group continues to develop new products in the financial space and will continue to improve these products with different features and efficiency projects to ensure that its clients get best of breed services and system efficiencies to service the underlying customer. Further IT development will add simpler integration for clients as well as providing more scalability as the company continues to grow. Further partnerships will also continue to help grow the business.
Important events occurring since the year end
The group has undergone 2 further rounds of investment since the year end, raising additional working capital in March 23 totalling £790,000 and £665,000 between August 2023 and October 2023 in the form of both equity investment and loan funding. The directors have also been engaged in positive ongoing correspondence with both funders to secure loan extensions in respect of the two loans which are repayable during 2024.
Streamlined Energy and Carbon Reporting
As an online and paperless group with a workforce of 36 employees and a small office footprint, the group falls under the definition of a low energy user and is therefore exempt from the reporting requirement under SECR.
Section 172 (1) Statement and statement of engagement with other stakeholders
The directors provide the following statement pursuant to the Companies Act 2006 (as amended by Companies (Miscellaneous Reporting) Regulations 2018) (the “Act”) to describe how they have acted in accordance with their duty under Section 172 of the Act (“Section 172”) to promote the success of the Company for the benefit of its member(s) as a whole, and in so doing, how they have had regard to those factors set out in Section 172, (1) (a) to (f) during the financial year.
Furthermore, in compliance with the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended by the Companies (Miscellaneous Reporting) Regulations 2018), the directors provide the statement which follows to describe how they have engaged with employees, and how they have had regard to employee interests and the need to foster the Company’s business relationships with suppliers, customers and others, and in each case, the effect of that regard, including on the principal decisions taken by the Company during the financial year
Section 172 requires a director to have regard to the following matters, among others, when discharging their duty;
the likely consequences of any decision in the long term;
the interests of the Company’s employees;
the need to foster the Company’s business relationships with suppliers, customers and others;
the impact of the Company’s operations on the community and the environment;
the desirability of the Company maintaining a reputation for high standards of business conduct; and
the need to act fairly as between members of the Company.
The board directors of the Company (“the Board”) is collectively responsible for managing the affairs of the Company to achieve its long-term prosperity by making important decisions, monitoring the underlying performance of the Company, as well as being a means for establishing ethical standards. Understanding the interests of key stakeholders is an important part of the Company’s strategy and helps inform the directors’ decision making throughout the year.
Board meetings are held monthly where the directors will consider the Company’s principal activities and make decisions. Board and Ad-hoc Meetings are scheduled to provide adequate time for consideration and discussion by the directors of the interests of stakeholders, and for the directors to seek further information from management, as required. As a part of those meetings, the directors receive information in a range of different formats to assist them in discharging their responsibilities under Section 172 when making relevant decisions. This information may include, among other things, reports and presentations on financial and operational performance, business updates, budget planning and forecasts, HR matters, as well as specific areas of engagement, such as employee opinion surveys. When making decisions, the Board seeks to understand the impact on each of its stakeholders, including the likely consequences of a decision in the long term, whilst acknowledging that a decision will not necessarily be favourable for all stakeholders, as there may be competing interests between them.
The Company follows a range of policies in place to protect employees and provide a safe working environment, to ensure compliance with all regulatory requirements and adherence to the highest professional and ethical standards in dealing with customers, suppliers and colleagues. In doing so, and by balancing the interests of the Company’s stakeholders when making decisions, the Board seeks to maintain a reputation for high standards of business conduct. The directors seek to engage directly with stakeholders wherever possible on certain issues.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 October 2022.
The results for the year are set out on page 9.
No ordinary dividends were paid. The directors do not recommend payment of a further dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
Price Bailey LLP were appointed auditor to the company and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.
We have audited the financial statements of Quai Administration Services Ltd (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 October 2022 which comprise the group profit and loss account, the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows, the company statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty relating to going concern
We draw your attention to note 1.4 to the financial statements which indicates a material uncertainty which may cast doubt over the group’s ability to continue as a going concern.
The financial statements do not include the adjustments that would result if the group were unable to continue as a going concern.
At the balance sheet date, the group is in a net liability position and day to day working capital requirements are met through existing cash and banking facilities, bank loans and investor financing.
The board have assessed the adequacy of the financial facilities available to the group using management information, including a recent review of forecasts which extend beyond one year from the date of approval of these financial statements.
The funding requirement for the group is uncertain and depends upon significant uncertainties relating to:
The assumptions relating to the level of activity and income generated in addition to the minimum entitlements under existing contracts.
The extension of the maturity date for the loan notes redeemable in March 2024, as disclosed in note 1.4.
This creates a material uncertainty which may cast doubt over the group’s ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the parent company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
We identified the laws and regulations applicable to the company through discussion with directors and our knowledge of the business.
In addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments;
Assessing whether the judgements made in accounting estimates are indicative of a potential bias;
Evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business;
Analytical procedures are performed as well as substantive testing to identify any potential misstatement due to fraud;
The audit procedures would also involve being aware of any such items from reviewing reports and discussions held with staff and management to obtain an understanding;
Enquiring of management as to actual and potential litigation and claims; and
Making enquires of management as to their knowledge of actual and suspected fraud.
We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations. The primary responsibility for the prevention and detection of fraud rests with those charged with the governance of the company and management.
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s loss for the year was £865,129 (2021 - £504,701 loss).
Quai Administration Services Ltd (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is 16 Tesla Court, Innovation Way, Lynch Wood, Peterborough, PE2 6LF.
The group consists of Quai Administration Services Ltd and all of its subsidiaries.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.
The consolidated group financial statements consist of the financial statements of the parent company Quai Administration Services Ltd together with all entities controlled by the parent company (its subsidiaries) and the group’s share of its interests in joint ventures and associates.
All financial statements are made up to 31 October 2022. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Subsidiaries are consolidated in the group’s financial statements from the date that control commences until the date that control ceases.
Entities in which the group holds an interest and which are jointly controlled by the group and one or more other venturers under a contractual arrangement are treated as joint ventures. Entities other than subsidiary undertakings or joint ventures, in which the group has a participating interest and over whose operating and financial policies the group exercises a significant influence, are treated as associates.
Investments in joint ventures and associates are carried in the group balance sheet at cost plus post-acquisition changes in the group’s share of the net assets of the entity, less any impairment in value. The carrying values of investments in joint ventures and associates include acquired goodwill.
If the group’s share of losses in a joint venture or associate equals or exceeds its investment in the joint venture or associate, the group does not recognise further losses unless it has incurred obligations to do so or has made payments on behalf of the joint venture or associate.
Unrealised gains arising from transactions with joint ventures and associates are eliminated to the extent of the group’s interest in the entity.
The directors continue to assess going concern and the company's ability to service working capital caused by both historical and current trading losses and the cashflow impact thereon. However the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future and on that basis the directors continue to adopt the going concern basis of accounting in preparing the financial statements.
As at 31 October 2022 net current liabilities have reduced to £229k (2021: £529k).
Since the year end the directors have successfully raised additional working capital in March 2023 of £790,000 in respect of additional loans and equity funding and have also raised a further £665,000 between August 2023 and October 2023 to further support the company's working capital requirement.
The directors are confident that the trading forecasts for the coming 12 months to October 2024 adequately reflect the good progress made during the year ended 31 October 2022 in terms of ongoing regular administration fees and also Assets under Administration and are regularly updated to reflect the current trading expectations.
The forecasts are dependent upon key assumptions around the level of activity and income generated in addition to the minimum entitlements, under existing contracts.
As detailed in note 16, the parent undertaking issued secured loan notes in March 2022 which are redeemable in March 2024. At the date of approval of these financial statements, the noteholder has indicated that they remain supportive of the company and has proposed terms for an extension of the loan notes for a further two years from 23 March 2024, although formal agreement to do so has not yet been entered into by the company. Until a contractual extension is agreed, the offer is not legally binding.
The funding requirement for the group is uncertain and depends upon significant uncertainties relating to:
The assumptions relating to the level of activity and income generated in addition to the minimum entitlements under existing contracts.
If required, the agreement by the noteholder to extend the maturity date for the loan notes described above
The board acknowledges the existence of material uncertainties which may cast significant doubt over the group’s ability to continue as a going concern.
On the basis of the information available at the current time, the board believes that there is a reasonable expectation that the group will have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis of preparation in the accounts.
Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.
When cash inflows are deferred and represent a financing arrangement, the fair value of the consideration is the present value of the future receipts. The difference between the fair value of the consideration and the nominal amount received is recognised as interest income.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the profit and loss account.
Equity investments are measured at fair value through profit or loss, except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably, which are recognised at cost less impairment until a reliable measure of fair value becomes available.
In the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.
A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
At each reporting period end date, the group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the 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 asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's balance sheet when the group becomes party to the contractual provisions of the instrument.
Debtors and creditors with no stated interest rate and receivable or payable within one year are recorded at transaction price. Any losses arising from impairment are recognised in the profit and loss account in other administrative expenses.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
The proceeds received from the issue of the convertible loan notes are allocated between their financial liability and equity components. The financial liability is initially recognised at fair value (being the discounted cash flows using a market rate of interest that would be payable on a similar instrument that does not include an option to convert). The equity component is assigned to the residual amount after deducting this fair value liability from the fair value of the financial instrument as a whole. It is recognised in the ‘Equity reserve’ within shareholders’ equity. More information is provided in note 12.
The financial liability is subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet. The difference between the interest expense and the coupon payable is added to the carrying amount of the liability in the balance sheet. Issue costs are apportioned between the liability and equity components of the convertible loan notes based upon their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity.
Upon conversion of the financial liability to shares, the amortised cost carrying value of the liability is derecognised in the balance sheet and an amount equal to this value is recognised within equity. The original equity component recognised at inception is reclassified from equity reserve to share premium. Upon redemption of the financial liability for cash consideration, the consideration is allocated to the amortised cost carrying value of liability and equity components at the date of the redemption. To the extent that the amount of the consideration allocated to the liability differs from the amortised cost carrying amount of the liability, the difference is recognised in the statement of comprehensive income.
Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset if, and only if, there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.
The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.
Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
The company has taken the exemption relating to share-based payments on transition to FRS102 and has not applied FRS102 to equity instruments that were granted before the date of the transition.
In the case of options granted after the transition date, fair value is measured by reference to the Black-Scholes pricing model.
Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation in the period are included in profit or loss.
Research and development
Research and development expenditure is written off to the profit and loss account in the year in which it is incurred.
Associated tax credit claims are only included in the profit and loss account when they are certain and have been agreed by and received from H M Revenue and Customs.
In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
Investment income includes the following:
The actual credit for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
At 31 October 2022 the group had accumulated trading losses totalling £6,588,915 (2021: £6,144,978).
Details of the company's subsidiaries at 31 October 2022 are as follows:
Bounce back loan
The parent company holds a bounce back loan. This loan is due for repayment by 1 June 2030. Interest is charged at a fixed rate of 2.5% per annum.
Convertible loan notes
The 2 year convertible loan notes were issued by the parent company in March 2022. Effective interest accrues on the debt at 10% per annum. The loan is repayable on the second anniversary of the loan note, dated 22 March 2022.
The debt is convertible into 75,000 £0.01 ordinary shares before the 10th anniversary of the option agreement, dated 22 March 2022, at the lower price of £13.01 per £0,01 ordinary share or the lowest price paid per share after the date of the agreement. The loan notes are secured by a fixed and floating charge over all the property or undertaking of the company.
Further details on the convertible loan notes are in note 18.
Loan notes
The 5 year loan notes were issued by the parent company in July 2019. Interest accrues on the principal amount of £150,000 at 10% per annum, payable quarterly in arrears.
Net proceeds received from the issue of the convertible loan notes are split between the financial liability element and an equity component, representing the fair value of the embedded option to convert the financial liability into equity. At 31 October 2022 the fair value of the equity component is considered to be negligible and is not separately recognised.
The liability component is measured at amortised cost, and the difference between the carrying amount of the liability at the date of issue and the amount reported in the Balance Sheet represents the effective interest rate less interest paid to that date.
The effective rate of interest is 10%.
A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.
Since the 31 October 2022 a further 32,500 £0.01 ordinary shares options have been granted, with an exercise option price of £10 per share.
Of the 152,375 £0.01 ordinary share options issued during the financial year ended 31 October 2022, 25,125 £0.01 ordinary share options have since been forfeited. No equity settled share-based payment expense has been recognised on the basis that the fair value of the option is negligible.
The outstanding options issued during 2022 have a 10 year option period.
Since the 31 October 2022 a further 32,500 £0.01 ordinary shares options have been granted, with an exercise option price of £10 per share.
Of the 135,032 £0.01 ordinary share options issued during the financial year ended 31 October 2022, 25,125 £0.01 ordinary share options have since been forfeited.
The outstanding options issued during 2022 have a 10 year option period.
During the year the company issued 39,750 £0.01 ordinary shares for £397,500, including share premium of £397,103.
As recorded in note 17, the remaining share options in respect of 76 £0.01 ordinary shares were exercised during the year, at par value.
A Ordinary shares and Ordinary shares carry no restrictions on voting rights and the distribution of dividends. A Ordinary shares have enhanced priority rights to the return of capital and distribution on exit. Deferred shares carry no voting rights, no rights to dividends or rights to participate in a return of assets on disposal or a capital reduction.
At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
Since the year end the directors have successfully raised additional working capital in March 2023 of £790,000 in respect of additional loans and equity funding and have also raised a further £665,000 between August 2023 and October 2023 to further support the company's working capital requirement.
The following amounts were outstanding at the reporting end date:
Between December 2018 and January 2019 £150,000 was received from a company in which one of the minority shareholders is connected. Under the terms of the loan agreement the loan was repayable on 30 April 2019, however should the loan remain unpaid after a period of 7 days the company has complete discretion to convert the amount of loan into fully paid ordinary shares in the company. Interest is payable at 4% above the Bank of England base rate. At the year end £25,000 remained outstanding (2021: £83,953).
On 3 July 2019, £150,000 fixed rate unsecured loan notes with a maturity date of July 2024 were issued to a venture capital trust linked to the A ordinary shareholders. Interest is at the rate of 10% per calendar year, payable quarterly. The accrued interest at the year end is £1,270 (2021: £1,270).