REPORT OF THE DIRECTORS

FOR THE YEAR ENDED 30 June 2022

 

The Directors present their annual report on the affairs of the Group and Company, together with the audited financial statements for the year ended 30 June 2022.

PRINCIPAL ACTIVITIES

The principal activity of the Group and Company is that of development and commercialisation of the mCHP boiler and application of the stirling technology in other sectors such as marine, waste energy recycling and automotive  truck industries.

Details of the Group's principal activity can be found in the Strategic Report. 

GREENHOUSE GAS (GHG) EMISSIONS

The Group is aware that it needs to measure its operational carbon footprint in order to limit and control its environmental impact. However, given the very limited nature of its direct activities during the year under review, it has not been practical to measure its carbon footprint.

 

The Group only measures the impact of its direct activities, as the full impact of the entire supply chain

of its suppliers cannot be measured practically.

 

DIRECTORS

The Directors who held office in the period up to the date of approval of the Financial Statements and their beneficial interests in the Company's issued share capital at the beginning and end of the accounting year were:

*861,403,363 Ordinary Shares (direct 657,981,981 Ordinary Shares and indirect via GIS 203,421,382 Ordinary Shares)

 

SIGNIFICANT SHAREHOLDERS

 

INDEMNITY OF OFFICERS

The Company maintains appropriate insurance cover against legal action brought against its Directors and officers.

RESEARCH AND DEVELOPMENT

For details of the development activities undertaken in the year, please refer to principle 1 of the Corporate Governance Report.

BOARD OF DIRECTORS

The Board is responsible for strategy and performance, approval of major capital projects and the framework of internal controls. To enable the Board to discharge its duties, all Directors receive appropriate and timely information. All Directors have access to the advice and services of the Company Secretary, who is responsible for ensuring the Board procedures are followed and that applicable rules and regulations are complied with.

COMMUNICATIONS WITH SHAREHOLDERS

Communications with shareholders are given a high priority. In addition to the publication of an annual report and an interim report, there is regular dialogue with shareholders and analysts. The Annual General Meeting is viewed as a forum for communicating with shareholders, particularly private investors. Shareholders may question the Executive Chairman and other members of the Board at the Annual General Meeting.

INTERNAL CONTROL

The Directors acknowledge they are responsible for the Group's system of internal control and for reviewing the effectiveness of these systems. The risk management process and systems of internal control are designed to manage rather than eliminate the risk of the Group failing to achieve its strategic objectives. It should be recognised that such systems can only provide reasonable and not absolute assurance against material misstatement or loss. The Group has well established procedures which are considered adequate given the size of the business.

MATTERS COVERED IN THE STRATEGIC REPORT

The business review, results, review of KPI's and future developments are included in the Strategic Report and Chairman's Statement.

GOING CONCERN

As at 30 June 2022 the Group had a cash balance of £160,000 (2021: £561,000), net current liabilities of £366,000 (2021: net current assets of £87,000) and net assets of £2,657,000 (2021: £2,890,000). The Group has maintained its core spend during the year whilst still managing to move its projects forward and post year end secured a $250,000 loan facility. There can be no assurance that the Group's projects will become fully developed and reach commercialisation nor that there will be sufficient cash resources available to the Group to do so.

The Directors have reviewed a detailed forecast based on the funds expected to be raised and forecasted expenditure. Having made due and careful enquiry, the Directors acknowledge that funds will need to be raised within the next 12 months to enable the Group to meets its obligations as they fall due, however, the Directors are confident that the required funds will successfully be raised through the issue of equity and/or debt to fund its operations over the next 12 months.

The Directors, therefore, have made an informed judgement, at the time of approving financial statements, that the Group is a going concern but they acknowledge that the dependence on raising further funds during the next 12 months represents a material uncertainty. The Auditors have made reference to going concern by way of a material uncertainty.

EVENTS AFTER THE REPORTING DATE

On 8th December 2022, the Company announced that it has entered into a short-term, un-secured debt facility of up to US$250,000 (approximately £205,075) (the "Facility"). Under the Facility Inspirit initially drew down US$80,000 (approximately £65,624) (the "Initial Advance"). The Facility is with Riverfort Global Opportunities PCC Limited, and the proceeds of the advance are for general working capital.

 

The Facility has a 12-month term and allows Inspirit to draw down funds ("Advances") which will be repayable within 6 months in either cash or shares at the Noteholders' discretion in respect of the Initial Advance and thereafter at the agreement of the Company and Riverfort.  If the debt is repaid in shares, they will be repaid at 130% of the Reference Price being the average of the five (5) daily VWAPs preceding the Drawdown Date in respect of the relevant Advance (the "Fixed Premium Placing Price"). In the event that Inspirit completes any share placing during the Term of the relevant Advance and the share placing price is below the Fixed Premium Placing Price, the Fixed Premium Placing Price will be amended to be the relevant share placing price. Inspirit will issue the Noteholder with warrants in respect of each Advance so as to represent 50% of the value of the relevant Advance, divided by the relevant Reference Price; the warrants will have an exercise price of Fixed Premium Placing Price and a 48 month term.

 

Inspirit drew down US$80,000 as the Initial Advance and issued Riverfort with warrants to the value of 50% of the Initial Advance at the reference price of 0.03376 pence being 97,191,943 warrants. These warrants will have a term of 48 months and will be exercisable at 130% of the reference price being 0.04388 pence.

The Facility will attract 1.5% interest per month based on the value of the outstanding indebtedness payable in cash and an implementation fee of 6% of any Advances if settled in cash or 8% if issued in Shares.  Accordingly, Inspirit will issued 15,550,710 Ordinary Shares of 0.001p each ("Shares") at a price of 0.03376 pence each for the implementation fee in respect of the Initial Advance (the "Initial Shares"). The Facility contains a right of first refusal clause allowing Riverfort to match the terms of any alternative debt/ structured funding the Company may seek during the term of the Facility.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year.  Under that law the directors have prepared the group and parent company financial statements in accordance with UK-adopted international accounting standards. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the parent company and of the profit or loss of the group and the parent company for that period. In preparing these financial statements, the directors are required to:

·       select suitable accounting policies and then apply them consistently;

·       make judgments and accounting estimates that are reasonable and prudent;

·       state whether applicable UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

·       prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group's and company's transactions and disclose with reasonable accuracy at any time the financial position of the group and the parent company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the group and the parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.  Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Company is compliant with AIM Rule 26 regarding the Company's website. See www.inspirit-energy.com.

DISCLOSURE OF INFORMATION TO AUDITOR

In the case of each person who was a Director at the time this report was approved:

·       so far as that director is aware there is no relevant audit information of which the Company's auditor is unaware; and

·       that director has taken all steps that the director ought to have taken as a director to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

INDEPENDENT AUDITOR

A resolution that PKF Littlejohn LLP be re-appointed will be proposed at the annual general meeting. PKF Littlejohn LLP have indicated their willingness to continue in office.

 

ON BEHALF OF THE BOARD

 

N Jagatia

Director

5 January 2023

 

 

CORPORATE GOVERNANCE REPORT Inspirit Energy Holdings plc Quoted Companies Alliance Code ("QCA Code") Principles: Application:   1)   Strategy and business model to promote long-term values for shareholders   This section complies with the requirements of the QCA Code.   Inspirit Energy Holdings plc has maintained its focus on the application of the Stirling engine in various sectors as well as progressing the commercialisation efforts of the Group's micro combined heat and power ("mCHP") boilers and Waste Heat Recovery (WHR) applications. Inspirit achieved a number of significant milestones including increseing the output of its WHR to over 30kW. These milestones continue to demonstrate strategic direction as an R&D company in this niche sector. The operating Board has worked throughout to identify differing potential applications for the technology where there is significant potential for growth, as well as considering the future strategy and funding of its operating subsidiary.. The Directors believe that the positive progress over the last year in the alternative applications of the Stirling technology in the Marine and Waste Heat Recovery (WHR) sectors is strong evidence of the need to refocus our strategic objectives towards these areas. It should be noted that this is by no means an abandonment of our MicroCHP boiler technology - on the contrary, we are actively looking into the application of the technology in the rapidly emerging hydrogen market. Additionally, with the continued growth demand for electric cars, the Board will be looking at the automotive sector to utilise the Stirling engine to provide a source of power to charge electric motor cars.    The Group will also potentially make investments in complementary areas and technologies that will utilise the Group's existing technical expertise.         2)   Meeting and understanding shareholders needs and expectations This section complies with the requirements of the QCA Code.     The Company has a close and ongoing relationship with its shareholders. The Company also places great importance on effective and timely communication with its shareholders. Shareholders are encouraged to attend the Company's meetings (including the Annual General Meeting) to provide feedback and to actively engage with the management on a regular basis. Furthermore, the INSP's shareholders and investors can keep themselves updated about the current Company's position by visiting the INSP's website http://www.inspirit-energy.com.       3)   Considering stakeholders and social responsibilities and their implications for long term success This section complies with the requirements of the QCA Code.   The Board recognises that the long-term success of the Group is reliant on efforts of its employees, consultants, suppliers, regulators and stakeholders.   Employees: In order to support employees' growth and enforce social responsibilities the Board has implemented systems to monitor and evaluate employees' performance and to encourage well performing employees to progress further by supporting them to attend courses. Employees' performance is monitored through a process designed to encourage open and confidential communication between the management and the employees on a regular basis.   Consultants: The Board recognises that consultants play a vital part for INSP as they bring knowledge and expertise for specific areas, and in some instances, they also provide training for existing staff.   Suppliers: INSP maintains a good working relationship with its suppliers to provide for its growing business and to support its existing needs.   Regulators: The Board monitors and implements any legal or regulatory changes where possible both domestically and overseas and is fully committed to compliance.   Stakeholders: INSP encourages its shareholders to actively participate in meetings and shareholders are provided with the opportunity to give feedback on a regular basis.     4)   Risk Management This section complies with the requirements of the QCA Code.     The risks in the Group are managed by the audit committee which is responsible to the Board to work closely with the executive directors to identify, implement and manage risks faced by the Group.   INSP has robust controls and procedures in place to manage internal controls of the Company and these are considered to be appropriate to the size and complexity of the organisation. The audit committee has been set up to evaluate and manage significant risks faced by the Group.   Control is established mainly through the Group's directors who monitor and support the day to day running of the Group and where possible comply with the Board's and shareholders concerns and requirements.   INSP has identified and implemented the following risks and controls to mitigate risks:       Activity: Risk Impact Control(s) Management   High turnover of staff and other recruitment issues. Operational and reputational impact. Recognition and support for well performing existing employees.   Implementing and monitoring of robust health and safety measures at workplace.   Regulatory / legal adherence   Non-compliance.     Loss of licences resulting in inability to comply with the regulatory / legal requirements. Robust policies and procedures to be followed.    Maintaining effective communication with the Company's Auditors and NOMAD on a regular basis.   Strategic   Failure of systems and controls. Loss of key data and inability to operate effectively. Disaster recovery policy to be followed in case of crisis.   Maintaining strong IT systems and controls in place.   Financial Internal: Inadequate systems and controls of accounting in place and liquidity risk.   External: Market and credit crisis; Short term liquidity freezes; Commercialisation Brexit.   Covid 19 Loss of business.   Inability to continue trading as a going concern.                     Delays in activity internally and externally would lead to consumption of working capital     The Board to regularly review operating and strategic risks.   The audit committee to provide adequate and sufficient information to the Company's external auditors.   Robust capital and liquidity levels in place alongside effective accounting systems and controls.     Large proportion of the development work is successfully complete.   Diversification of suppliers and partners to meet delivery of activity.   Regulatory environment in domestic power market External: Changes in legislation regarding domestic power market.   Potential to undermine microchip boiler product. Understanding regulatory environment and adapting system accordingly.   Product Risk Internal: Failure to develop commercial product. Potential for significant financial loss. Testing of product Certification. Understanding of market place and competition.   The above matrix is kept up to date and regularly reviewed as changes arise in order to mitigate risks.     5)   Maintain the board as a well-functioning and balanced team led by the chair   This section does not comply with the requirements of the QCA Code as the board composition does not include a Non-Executive Chairman and two Non-Executive Directors.     At the date of this publication the Board comprises of the Chairman (John Gunn), the Chief Financial Officer (Nilesh Jagatia) and the independent Non-Executive Director (Anthony Samaha). Further detail about the skills and capabilities of these directors are set out in principle six below.   The letter of appointment of the Company's Directors and Secretary are available for inspection at the Company's registered office and all directors are subject to re-election at intervals of no more than three years.     The Board is responsible for strategy and performance of major capital projects and the framework of internal controls. All directors have access to seek independent advice should they feel that their knowledge of the given task is insufficient. There is a clear balance between the executive director and the non-executive director.   Furthermore, the directors liaise with the Company Secretary (Nilesh Jagatia), who is responsible for compliance with the Board procedures and that applicable rules and regulations are complied with.   The Board meets quarterly. The Board established the following committees; Audit Committee and Remuneration Committee. All Directors are encouraged to participate and attend meetings on a regular basis and the attendance is closely monitored.   Despite the QCA recommendation of having two independent directors INSP has opted to have only one non-executive director and a joint role of Chief Executive Director and the Chairman as they feel that this is appropriate to the current size and complexity of the organisation. INSP is still in the R&D phase of its business cycle and therefore relies on a team of consultants in developing the product. Following conclusion of this process, certification is managed externally, and then commercial trials would commence. As such the role of the Board, at this stage, is to oversee this process, review strategy, hold high level discussions regarding possible commercial trials and ensure adequate funding. As such, the current Board is deemed sufficient. As and when the business develops beyond this stage the Board will review its requirements at this stage. The Group is actively looking to appoint an additional non-executive director to provide a balance of the non-executive directors and executives as per the QCA.     6)   Directors experience, skills and capabilities   This section complies with the requirements of the QCA Code.   The Chairman: John Gunn Mr Gunn is the founder of INSP and a 20.2% ( Direct and indirect) shareholder of the Company. Mr Gunn is also the managing director and majority shareholder of Global Investment Strategy UK Limited and a majority shareholder of Octagonal Plc. With a career spanning over 30 years in the financial services industry, Mr Gunn began his career in 1987 at Hoare Govett and has since worked at Carr Sheppards Limited, Assicurazioni Generali S.p.A. and Williams de Broe, where he was a senior investment manager until 2002.   Chief Financial Officer: Nilesh Jagatia Mr Jagatia currently serves as Finance Director at INSP and also currently holds the Finance Director position with a Financial Services group Octagonal Ltd and AIM quoted Limitless Earth Plc (LME). Nilesh has been involved with several IPO's and was previously Group Finance Director of an AIM quoted Online Media and Publishing Company for a period of five years until July 2012. Nilesh has over 20 years' experience, including senior financial roles in divisions of both Universal Music Group and Sanctuary Group plc. He served as a Finance Director for an independent record label that expanded into the US. Nilesh is a qualified accountant and holds a degree in finance.   Non-Executive Director: Anthony Samaha Mr Samaha is a Chartered Accountant (Australia) who has over 20 years' experience in accounting and corporate finance. Mr Samaha has worked for over 10 years with international accounting firms, including Ernst & Young, principally in corporate finance, and mergers and acquisitions. He has extensive experience in the listing and management of AIM quoted companies and is currently Executive Director of AIM traded Reabold Resources Plc.   In addition to the Board directors above INSP uses Beaumont Cornish Limited as their nominated adviser (NOMAD), Hill Dickinson LLP to assist with legal and regulatory matters and FTB ITC Services Ltd to support the IT systems.       7)   Evaluation of the Board's performance   This section complies with the requirements of the QCA Code.   INSP is fully committed to uphold Directors' independence and to regularly evaluate their performance.   Where appropriate, INSP sets targets which the Directors have to adhere to. Each Director is assigned with an individual target which is linked to the corporate and financial targets of the Group. Career support, development and training may also be provided to the Directors where necessary.     8)   Promoting corporate culture, ethical values and behaviours   This section complies with the requirements of the QCA Code.   INSP is committed to ethical conduct and to the governance structures that ensure that the Group delivers long term value and earns the trust of its shareholders. The shareholders are encouraged at General Meetings to express their views and expectations in an open and respectful dialogue.   The Board is fully aware that their conduct impacts the corporate culture of the Group as a whole and that this will impact the future performance of the Group. The Directors are invited to provide an open comprehensive dialogue and constructive feedback to the employees, and to promote ethical values and behaviours within the Group.   INSP also believes that doing business honestly, ethically and with integrity helps to build long-term, trusting relationship with our employees, customers, suppliers and stakeholders. Our Code of business Conduct means that our employees understand that we pride ourselves in high ethical standards. INSP has zero tolerance for bribery and corruption among our employees.     9)   Maintenance of governance structures and processes to support good decision making by the board   This section complies with the requirements of the QCA Code.   The Board is responsible for the ultimate decision making, the structures and processes adopted by INSP. The Board is headed by the Chairman. In order to comply with the Companies Act 2006 or QCA code the Board recognises that it must comply with the following principles set out by the Act:   -       duty to exercise independent judgement; -       duty to exercise reasonable care, skill and due diligence; -       duty to avoid conflicts of interest; -       duty not to accept benefits from third parties; and -       duty to declare interest in a proposed transaction or arrangement.   The Chairman is responsible for leading the Board, sets the agenda and ensures it is an effecting working group at the head of the Company. The Chairman is also responsible for promoting a culture of openness and effective communication with shareholders and to ensure that all board members receive accurate, timely and clear information.   The Executive Directors are responsible for day to day running of the Company and effective communications with the Board and the Shareholders. They represent the Company to ensure quality of information provision, they challenge and monitor performance of the teams, and they set business plans and targets for the Company.   Non-Executive Director: INSP has one Non-Executive Director who is an independent director. This is to reinforce the Group's commitment to a transparent and effective governance structure which encourages and provides ample opportunity for challenge and deliberation. The Non-Executive Director's objective is to scrutinise the performance of the Board and senior management as well as to monitor performance, agree goals and objectives. They will satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and fit for purpose. The Non-Executive Director is also closely working with the Remuneration Committee as they are responsible for determining appropriate levels of remuneration of Executive Directors and have a prime role in appointing / removing senior management.   The Company established the following committees to help with processes, structures and support good decision making by the Board.   Audit Committee - The Audit Committee is currently chaired by Anthony Samaha and its other member is Nilesh Jagatia. The Committee provides a forum for reporting by the Group's external auditors. The committee is also responsible for reviewing a wider range of matters, including half-year and annual results before their submission to the board, as well as monitoring the controls that are in force to ensure the integrity of information reported to shareholders. The Audit Committee will advise the Board on the appointment of external auditors and on their remuneration for both audit and non-audit work, and it will also discuss the nature, scope and results of the audit with the external auditors. The committee will keep under review the cost effectiveness, the independence and objectivity of the external auditors.    Remuneration Committee - The Remuneration Committee is currently chaired by Anthony Samaha and its other member is John Gunn. The Committee is responsible for making recommendations to the Board, within agreed terms of reference, on the Company's framework of executive remuneration and costs. The Remuneration Committee determines the contract terms, remuneration and other benefits for the Executive Directors, including performance related bonus schemes and compensation payments. The Board itself determines the remuneration of the non-executive directors.   It is recognised that if the Group grows, it may be necessary to review the current structure in order to provide better segregation of the responsibilities and clear lines of reporting, that are consistent with industry standards.     10) Shareholders communication    This section complies with the requirements of the QCA Code.   The Company recognises that its shareholders are imperative for future growth and prosperity of the Company. The Shareholders are treated equally both in relation to participation at meetings and in the exercising of voting rights. INSP's shareholders are encouraged to attend the annual general meetings and the Company provides regulatory news updates and any other matters the Board feels fit. The Company maintains the following website https://www.inspirit-energy.com/investors for investor relations.

INDEPENDENT AUDITOR'S REPORT

TO THE MEMBERS OF INSPIRIT ENERGY HOLDINGS PLC

FOR THE YEAR ENDED 30 June 2022

 

Opinion

We have audited the financial statements of Inspirit Energy Holdings Plc (the 'parent company') and its subsidiaries (the 'group') for the year ended 30 June 2022 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statements of Financial Position, the Consolidated and Company Statements of Changes in Equity, the Consolidated and Company Statements 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 UK-adopted international accounting standards and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

In our opinion:

·      the financial statements give a true and fair view of the state of the group's and of the parent company's affairs as at 30 June 2022 and of the group's loss for the year then ended;

·      the group financial statements have been properly prepared in accordance with UK-adopted international accounting standards;

·      the parent company financial statements have been properly prepared in accordance with UK-adopted international accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and

·      the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

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 as applied to listed entities, 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 related to going concern

We draw attention to note 2 in the financial statements, which indicates that the group incurred a loss of £233k during the year ended 30 June 2022, the group's current liabilities exceeded its total assets by £366k at that date and that the group and company are reliant on raising further finance in the next 12 months in order to fund forecasted expenditure over this period. As stated in note 2, these events or conditions, along with the other matters as set forth in note 2, indicate that a material uncertainty exists that may cast significant doubt on the company'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 director's use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors' assessment of the company's ability to continue to adopt the going concern basis of accounting included reviewing and challenging cashflow forecasts, and related key assumptions, prepared by management covering the going concern period, discussing their strategies regarding future fund raises and assessing the likelihood of the required funds being successfully raised by considering the funds required and the group and company's ability to raise such funds.

 

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

 

Our application of materiality

The scope of our audit was influenced by our application of materiality. The quantitative and qualitative thresholds for materiality determine the scope of our audit and the nature, timing and extent of our audit procedures.  We also determine a level of performance materiality which we use to assess the extent of testing needed to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. In determining our overall audit strategy, we assessed the level of uncorrected misstatements that would be material for the financial statements as a whole.

 

Materiality for the consolidated financial statements was set as £79,000 (2021: £87,000) based upon net assets. Materiality has been based upon net assets which we determined, in our professional judgement, to be the key principal benchmark relevant to members of the parent company in assessing the financial performance of the group due to the number of risks identified relating to assets within the Consolidated Statement of Financial Position and the relative size of gross assets, liabilities and equity compared to the Consolidated Statement of Comprehensive Income. Performance materiality and the triviality threshold for the consolidated financial statements was set at £63,200 (2021: £69,600) and £3,950 (2021: £4,350) respectively given our accumulated knowledge of the group, the number of risks identified and the assessed risk level.

 

Materiality for the parent company was set as £64,000 (2021: £86,000) based upon net assets. Net assets was considered to be an appropriate basis due to the fact that the parent company is non-revenue earning and holds significant material balances through investments in its subsidiaries and other assets and cash held. Performance materiality and the triviality threshold for the parent company was set at £51,200 (2021: £68,800) and £3,200 (2021: £4,300) respectively given our accumulated knowledge of the group, the number of risks identified and the assessed risk level.

 

We also agreed to report any other differences below that threshold that we believe warranted reporting on qualitative grounds.

 

Our approach to the audit

In designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular we looked at areas involving significant accounting estimates and judgements by the directors and considered future events that are inherently uncertain, such as the recoverable value of the capitalised development costs. We also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

A full scope audit was performed on the complete financial information of both components of the group.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.  In addition to the matter described in the Material uncertainty related to going concern section we have determined the matters described below to be the key audit matters to be communicated in our report.

 

Key Audit Matter	How our scope addressed this matter
Carrying value of Intangible Assets
Carrying value of intangible assets of £3.0m (2021: £2.8m). Refer to Note 4: Critical Accounting Estimates.   Intangible Assets is the largest asset within the financial statements and represents the asset (development of its Stirling technology) from which, if successful, the group will generate revenue.   There is a risk that the development costs capitalised during the year do not meet the recognition criteria of IAS 38 Intangible Assets.   Since the Group are still in the process of developing their technology and have not yet begun generating revenue from said technology, there is also the risk that the carrying value of the intangible asset is impaired.	Our work in this area included: ·      Obtaining management's assessment of impairment and reviewing and challenging the key estimates and judgements used therein; ·      Performing sensitivity analysis on the key areas of estimation/judgement and verifying to supporting documentation where possible including benchmarking against companies in the same industry; ·      Substantive testing of the additions to intangible assets to ensure they are eligible to be capitalised under IAS 38; and ·      Reviewing disclosures in the financial statements to ensure compliance with IFRS.   The positive developments in the year with respect to the application of the Stirling technology to the marine industry demonstrated the commercial potential of Inspirit's technology and thus indicate that the capitalised development costs as at 30 June 2022 are materially recoverable. Successful commercialisation of the group's Stirling technology is reliant on project completion, the availability of sufficient funds (see the "Material uncertainty related to going concern" section above for our conclusion in respect of the directors' use of the going concern basis of accounting in the preparation of the financial statements) and the required regulatory approvals being obtained. It is drawn to the users' attention that none of these matters are certain. Failure to achieve the above may result in an impairment to the assets capitalised.
Carrying Value of Investment in Subsidiaries
Carrying value of investment in subsidiaries of £2.4m (2021: £2.4m). Refer to Note 4: Critical Accounting Estimates.   Investments in subsidiaries is the largest asset within the Parent Company's Statement of Financial Position and represents its investment in the subsidiary whose principal activity is the development of its Stirling technology from which, if successful, the group will generate revenue.   There is the risk that the carrying value of the investment in subsidiary is impaired since the subsidiary is loss making and has yet to become revenue generating.	Our work in this area included: ·      Obtaining the directors' assessment of impairment and reviewing and challenging the key estimates and judgements used therein; and ·      Performing sensitivity analysis on the key areas of estimation/judgement and verifying to supporting documentation where possible including benchmarking against companies in the same industry.   The positive developments in the year with respect to the application of the Stirling technology to the marine industries demonstrated the commercial potential of Inspirit's technology and thus indicate that the investment in the subsidiary, the entity conducting said development, as at 30 June 2022 is materially recoverable. Successful commercialisation of the group's Stirling technology is reliant on project completion, the availability of sufficient funds (see the "Material uncertainty related to going concern" section above for our conclusion in respect of the directors' use of the going concern basis of accounting in the preparation of the financial statements) and the required regulatory approvals being obtained. It is drawn to the users' attention that none of these matters is certain. Failure to achieve the above may result in an impairment to the carrying value of investments.

 

 

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 group and parent company 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 the 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.

Matters on which we are required to report by exception

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.

Responsibilities of directors

As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the group and parent company 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 group and parent company financial statements, the directors are responsible for assessing the group and 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 group or the parent company or to cease operations, or have no realistic alternative but to do so.

 

Auditor's responsibilities for the audit of the financial statements

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 obtained an understanding of the group and parent company and the sector in which they operate to identify laws and regulations that could reasonably be expected to have a direct effect on the financial statements. We obtained our understanding in this regard through management, industry research and experience of the sector.

 

·      We determined the principal laws and regulations relevant to the group and parent company in this regard to be those arising from UK Company Law, rules applicable to issuers on the AIM Market and UK-adopted international accounting standards.

 

·      We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our sector experience and through discussion with the directors. We considered the event of compliance with those laws and regulations as part of our procedures on the related financial statement items. We communicated laws and regulations throughout our audit team and remained alert to any indications of non-compliance throughout the audit of the group.

 

·      We designed our audit procedures to ensure the audit team considered whether there were any indications of non-compliance by the group and parent company with those laws and regulations. These procedures included, but were not limited to:

o  Discussions with management regarding compliance with laws and regulations by the parent company and the subsidiary;

o  Reviewing legal expenses incurred in the year;

o  Reviewing board minutes; and

o  Review of regulatory news announcements made.

 

·      We also identified the risks of material misstatement of the financial statements due to fraud. We considered, in addition to the non-rebuttable presumption of a risk of fraud arising from management override of controls, that there was potential for management bias in relation to the impairment of capitalised development costs and investments in subsidiaries and we addressed this by challenging the assumptions and judgements made by management when auditing these significant accounting estimates.

·      As in all of our audits, we addressed the risk of fraud arising from management override of controls by performing audit procedures which included, but were not limited to: the testing of journals; reviewing accounting estimates for evidence of bias; discussing with management as to whether there had been any instances or suspicions of fraud within the subsidiaries and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.

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 for the audit of the financial statements is located on the Financial Reporting Council's website at: 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.

 

 

Joseph Archer (Senior Statutory Auditor)                                                                        15 Westferry Circus

For and on behalf of PKF Littlejohn LLP                                                                                                            Canary Wharf

Statutory Auditor                                                                                                                                                      London E14 4HD

 

05 January 2023