Operational Review

As noted in the Group's final results announcement, the prolonged and multifaceted impact of the COVID-19 pandemic, which was compounded by Alchemist Codes being at a relatively early stage of development, resulted in negligible sales activity during the first half of the year to 30 April 2021. In particular, the forecast growth in registered users and customer spend on the OctaPLUS e-commerce platform did not materialise and the rate of commission from retailers was significantly below expectations. This reflected the impact of the pandemic on the OctaPLUS business model. The IT business in Malaysia continued to be subject to a series of strict government lockdowns - known as "movement control orders" (MCO) - as a result of the pandemic, including being prohibited from entering office premises, which restricted opportunities for management to meet physically with its customers, prospective customers and business partners. In addition, the economic downturn and uncertainty caused customers to delay purchasing decisions or reallocate resources.

Following the establishment of Alcodes International Limited ("Alcodes International"), a wholly-owned subsidiary of Alchemist Codes, in Hong Kong in July 2020, initial progress was made during the period in securing IT projects by leveraging the government grant schemes for IT solutions providers. This accounted for 69% of the Group's revenues for the six months to 30 April 2021, albeit an insignificant amount. 

Consequently, and combined with the continued significant uncertainty over the post-pandemic market recovery, in the results for the year to 31 October 2020, as announced on 30 April 2021, the Board recognised an impairment of goodwill and intangibles of £2.4 million from the investment in acquiring Alchemist Codes. The Board also undertook a series of cost-cutting measures and commenced a strategic review to determine the future of the business. This strategic review completed post period as described below.

Strategic review

The focus of the Board in its review was on preserving cash within the business whilst income levels remain depressed. This has resulted in decisions to cut costs, dispose of non-core activities and prioritise new sources of revenue. 

Summary of actions

·    Divestment of certain e-commerce software and technology developed in-house by Alchemist Codes to Wepin Sdn Bhd ("Wepin") for RM200,000 (approximately £35,000), which completed on 28 May 2021. 

·    Eight in-house developers from Alchemist Codes, along with six members of the sales team and administrative staff, are now employed by Wepin. 

·    Charles Yong, CEO of Alchemist Codes, is now also employed by Wepin. Mr Yong remains an Executive Director of AIQ. 

·   The OctaPLUS platform and a small team have been retained to develop the product and seek methods to monetise the registered user base. 

·     Alcodes International, headquartered in Hong Kong, has seen initial sales (albeit still very low amounts) from IT consultancy projects. Executive Director Edwin Li, who is based in Hong Kong, will focus on building the IT consultancy business and look to expand it into other technology areas such as digital assets. 

·     In addition to other reductions, total headcount of the Group has been cut by over 60% to 14 employees.  

·     The Board and senior management have taken a voluntary cut of 20% in their fees, backdated from 1 May 2021.  

·    As a result of these efficiency measures, the Group will recognise savings of approximately £400,000 on an annualised basis. 

Financial Review

Revenue for the six months to 30 April 2021 was £12,079, with sales being severely impacted by the pandemic as described above, compared with £25,409 for the first half of the previous year, a period which included an approximately one-month contribution from Alchemist Codes following the acquisition in March 2020. The majority of revenue during the period was based on the sale of software products and services, with a small contribution from cashback generated by OctaPLUS. Alcodes International contributed £8,383 with the remainder being generated by Alchemist Codes.

The Group recognised a gross loss for the period of £196,801 compared with a gross profit of £10,099 for the first half of the previous year. This was as a result of the lower revenue and the period to 30 April 2021 reflecting six months of operations of Alchemist Codes compared with approximately one month for the earlier period following the acquisition in March 2020.

Administrative expenses were £573,030 (H1 2020: £288,798) reflecting the inclusion of Alchemist Codes for the full six-month period against just one month in the comparative period of the prior year. The Group recognised losses on foreign exchange of £138,498 (H1 2020: gain £61,843) due to the weakness of the Malaysian Ringgit and Hong Kong Dollar against the Pound. However, the Group did not incur any transaction costs during the period compared with £406,070 in the first half of the prior year.

Operating loss was £908,329 (H1 2020: £622,926) with the increase reflecting the gross loss for the period offset by significant transaction costs in the prior period. Net finance costs were £7,096 compared with net finance income of £9,933 for the previous period. Consequently, loss before tax for the six months to 30 April 2021 was £915,425 (H1 2020: £612,993). The Group was not subject to taxation during the period or the first half of the prior year.

As a result of the greater net loss, the loss per share increased to 1.4 pence (H1 2020: 1.1 pence loss per share).

The Group had cash and cash equivalents of £1.0 million at 30 April 2021 (31 October 2020: £1.8 million; 30 April 2020: £3.2 million) and £0.7 million currently.

Current Trading and Outlook

Since period end, the Group has seen an increase in revenue run rate, albeit still very low amounts. The majority of the revenue continues to be generated by Alcodes International through the provision of IT solutions in Hong Kong. In addition, and as noted above, the Group has received approximately £35,000 in the second half of the year from the divestment of certain e-commerce software and technology.

Following the completion of the strategic review, the Group has commenced exploring opportunities for expanding its focus beyond e-commerce and to target potential customers in North Asia and Australia. The Group has received initial interest in its ability to provide digital asset support. While it is too early to determine if this strategy will be successful, any significant benefits would likely only be recognised from next year. The Board will update the market on these activities as appropriate in due course.

As a result, due to the impact of the pandemic in Malaysia in the first half and the early nature of the business in Hong Kong, the Group continues to anticipate that revenue for the year to 31 October 2021 will be lower than that for the year to 31 October 2020. The Board is closely monitoring the progress of the Group and will take further action to cut costs if required.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 April 2021

The accompanying notes form an integral part of these consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 April 2021

The accompanying notes form an integral part of these consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 April 2021

The accompanying notes form an integral part of these consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 April 2021

Material non-cash transactions:

The Company's acquisition of Alchemist Codes in March 2020 was a non-cash transaction satisfied wholly by the issue of shares in the Company, as described in Note 5 below.

The accompanying notes form an integral part of these consolidated financial statements.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1.   GENERAL INFORMATION

AIQ Limited ("the Company") was incorporated and registered in The Cayman Islands as a private company limited by shares on 11 October 2017 under the Companies Law (as revised) of The Cayman Islands, with the name AIQ Limited, and registered number 327983.

The Company's registered office is located at 5th Floor Genesis Building, Genesis Close, PO Box 446, Cayman Islands, KY1-1106.

On 20 March 2020, the Company completed the acquisition of the entire issued share capital of Alchemist Codes Sdn Bhd ("Alchemist Codes"), (together, the "Group"), a Malaysian incorporated information technology solutions developer focusing on the e-commerce sector. The comparative information therefore included one month's trading results compared with six months in the current period.

The Company has a standard listing on the London Stock Exchange.

The consolidated financial statements include the financial statements of the Company and its controlled subsidiaries (the "Group").

2.   PRINCIPAL ACTIVITIES

The principal activity of the Company is to seek acquisition opportunities and to act as a holding company for a group of subsidiaries that are involved in the technology sector, with a particular focus on e-commerce.

The principal activities of the subsidiaries comprise designing and developing information technology solutions for clients and, for Alchemist Codes, also the development of its own e-commerce solution. In addition, Alcodes International is now seeking to expand into further technology areas such as digital assets.

3.   ACCOUNTING POLICIES

a) Basis of preparation

The condensed consolidated interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and International Accounting Standard 34 "Interim Financial Reporting" (IAS 34). Other than as noted below, the accounting policies applied by the Group in these condensed interim financial statements are the same as those set out in the Group's audited financial statements for the year ended 31 October 2020. These financial statements have been prepared under the historical cost convention and cover the six-month period to 30 April 2021.

These condensed financial statements do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the audited financial statements for the year ended 31 October 2020.

The condensed interim financial statements are unaudited and have not been reviewed by the auditors and were approved by the Board of Directors on 29 July 2021.

The financial information is presented in Pounds Sterling (£), which is the presentational currency of the Company.

A summary of the principal accounting policies of the Group are set out below.

b) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to the end of the reporting period. Subsidiaries are entities over which the Group has control. The Group controls an investee if the Group has power over the investee, exposure to variable returns from the investee, and the ability to use its power to affect those variable returns.

The consolidated financial statements present the results of the Company and its subsidiaries as if they formed a single entity. Inter-company balances and transactions between Group companies are therefore eliminated in full. The financial information of subsidiaries is included in the Group's financial statements from the date that control commences until the date that control ceases.

On 20 March 2020, the Company completed a conditional share purchase agreement with Alchemist Codes for the acquisition by the Company of 100% of the issued share capital of Alchemist Codes, which is more fully described in Note 5.

The acquisition of Alchemist Codes by the Company does not meet the definition of a reverse acquisition under IFRS 3 due to:

-    a greater proportion of share capital in the Group being held by shareholders of AIQ Limited, rather than pre-acquisition shareholders of Alchemist Codes;

-    AIQ Limited's shareholders have the ability to appoint or remove a majority of the members of the Board;

-    greater Board representation in the Group of the AIQ Limited Board of directors rather than pre-acquisition members of the Alchemist Codes' Board; and

-    the composition of the senior management of the Group consists mostly of AIQ Limited management.

The acquisition of Alchemist Codes has therefore been accounted for under the acquisition method.

Under the acquisition method, the results of Alchemist Codes are included from the date of acquisition. At the date of acquisition, the fair values of the net assets of Alchemist Codes have been determined and these values are reflected in the consolidated financial statements. The cost of acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. Any excess of the purchase consideration of the business combination over the fair value of the identifiable assets and liabilities acquired is recognised as goodwill. Goodwill, if any, is not amortised but reviewed for impairment at least annually. If the consideration is less than the fair value of assets and liabilities acquired, the difference is recognised directly in the statement of comprehensive income.

Acquisition-related costs are expensed as incurred.

In July 2020, the Group established a wholly-owned Hong Kong subsidiary, Alcodes International Limited.

c) Going concern

The financial statements are required to be prepared on the going concern basis unless it is inappropriate to do so.

The Group incurred losses of £0.9 million during the period and cash outflows of £0.7 million. As at 30 April 2021, the Group had net current assets of £0.7 million and cash of £1.0 million. The Group's cash position was approximately £0.7 million at the date of this report.

The Group meets its day-to-day working capital requirements through cash generated from the capital it raised on admission to the London Stock Exchange and from the operations of its subsidiaries.

COVID-19 has been identified as having a significant impact on the Group in the period due to the prolonged public lockdown in Malaysia. The Board has taken, and continues to take, a number of actions to protect operating cash flow in the short term. In particular, the Board undertook a strategic review to assess the viability of Alchemist Codes and to stem the losses of the business and reduce the cost base, whilst also seeking to evaluate its future, as further explained in Note 10.

Notwithstanding these actions, a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern with the uncertainty of future trading performance giving rise to a material uncertainty over the going concern status of the Group. The Directors consider the Group to be a going concern but have identified a material uncertainty in this regard.

4.   SUBSIDIARIES

              * Held by Alchemist Codes Sdn Bhd

5.   ACQUISITION OF ALCHEMIST CODES SDN BHD

On 20 March 2020, the Company completed a conditional share purchase agreement (the "SPA") with Alchemist Codes for the acquisition by the Company of 100% of the issued share capital of Alchemist Codes (the "Transaction"), and, on 26 March 2020 readmission of the enlarged share capital to trading on the Main Market of the London Stock Exchange. Alchemist Codes is a Malaysian incorporated information technology solutions developer focusing on the e-commerce sector.

Under the terms of the SPA, the consideration was £2.3 million, which was settled through the allotment and issue of 12,921,346 ordinary shares of 1 pence each in the capital of AIQ (the "Consideration Shares") at 17.8 pence per share.

The following table summarises the consideration paid for Alchemist Codes, the fair value of assets acquired, and liabilities assumed at the acquisition date.

The goodwill and intangibles arising on the acquisition were fully impaired at 31 October 2020, as more fully described in the Company's annual report for the year.

Transaction costs of £380,495 were expensed in the year ended 31 October 2020 relating to the acquisition of Alchemist Codes and re-admission to the Official List of the London Stock Exchange. No amounts were directly attributable to issuing new shares which would otherwise be deducted from equity.

6.   INTANGIBLE ASSETS

All of the Group's goodwill and intangible assets related to the Alchemist Codes business and were fully impaired in the year ended 31 October 2020. No further amounts have been capitalised during the period ended 30 April 2021.

7.   REVENUE

A total of £8,386 of revenues were generated in Hong Kong and £3,693 of revenues were generated in Malaysia. In the six months ended 30 April 2020 and the year ended 31 October 2020, all revenues were generated in Malaysia. The period ended 30 April 2020 included one month's revenues from Alchemist Codes.

8.   LOSS PER SHARE

The Company presents basic and diluted earnings per share information for its ordinary shares. Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the reporting period. Diluted earnings per share are determined by adjusting the loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.

There is no difference between the basic and diluted loss per share, as the Company has no potential ordinary shares.

9.   SHARE CAPITAL

10.  SUBSEQUENT EVENTS

In April 2021, the Board initiated a strategic review to assess the viability of Alchemist Codes and to stem the losses of the business, whilst also seeking to evaluate its future.

The Board concluded this review in June 2021 and implemented the actions noted below.

The focus of the Board in its review was on preserving cash within the business whilst income levels remain depressed. This resulted in decisions to cut costs, dispose of non-core activities and prioritise new sources of revenue as follows:

-     Divestment of certain e-commerce software and technology developed in-house by Alchemist Codes to Wepin Sdn Bhd ("Wepin") for RM200,000 (approximately £35,000), which completed on 28 May 2021.

-     Eight in-house developers from Alchemist Codes, along with six members of the sales team and administrative staff, are now employed by Wepin.

-     Charles Yong, CEO of Alchemist Codes, now also employed by Wepin. Mr Yong remains an Executive Director of AIQ, with substantially all of his costs now being paid by Wepin.

-     OctaPLUS platform and small team retained to develop product and seek methods to monetise the registered user base.

-     Alcodes International, headquartered in Hong Kong, has seen initial sales from IT consultancy projects. Executive Director Edwin Li, who is based in Hong Kong, will focus on building the IT consultancy business and look to expand it into other technology areas such as digital assets.

-     In addition to other reductions, total headcount of the Group is being cut by over 60% to 14 employees.

-     Board and senior management have taken a voluntary cut of 20% in their fees, backdated from 1 May 2021.

As a result of these efficiency measures, the Group will recognise savings of approximately £400,000 on an annualised basis.