Replacement - Half Yearly Report to 30 June 2019

16 September 2019

IQ-AI Limited (the "Company" or the "Group")

Replacement - Half Yearly Report for the Period Ended 30 June 2019

This announcement has been re-released to address certain formatting issues in RNS number 3163M released at 07.00 today.

 

Chief Executive's Statement

I am pleased to announce IQ-AI Limited's unaudited financial results for the six months ended 30 June 2019.

Highlights

·    Increased momentum in the Gadolinium free project

·    Increased investment in Artificial Intelligence ("AI") projects

·    Auto segmentation project initiated

·    Marketing preparations commenced in anticipation of FDA approval for the Stone Checker product

 

For further information, please contact:

IQ-AI Limited Trevor Brown/Dr Qu Li/Mr Vinod Kaushal	0207 469 0930
Peterhouse Capital Limited Lucy Williams/ Fungai Ndoro	0207 220 9797

 

 

IQ-AI : Setting new standards in imaging technologies

Gadolinium free project

The Company's Gadolinium free project, known as "Simulated T1+C", increased momentum during the first half of 2019. A patent application was filed by the Company with the US Patent Office in October 2018. Preliminary research conducted in association with the Medical College of Wisconsin has shown that images captured with no injection of specific gadolinium-based contrast agents ("GBCA"), manipulated with an innovative proprietary algorithm, have the potential of yielding diagnostic results no different to those using GBCAs.

GBCAs have been used by radiologists for the last 30 years in increasing quantities because they are preferentially attracted to diseased and damaged tissue and they allow radiologists to examine the extent and damage to compromised tissue using magnetic resonance ("MR") scanners. They are extensively used worldwide to foster easier visualisation between healthy and diseased tissue. For instance, in patients with tumours they are used to help assess whether chemotherapeutic drugs and surgery are effective. An estimated 30 million scans are undertaken annually and this estimate is expected to grow in the future as new imaging techniques are integrated into clinical practice. The cost of each dose of GBCA is approximately US$60 and is often associated with patient distress since it is administered intravenously. Specific to dynamic contrast susceptibility ("DSC") perfusion imaging, patients often receive two doses: a 'preload' dose, before the imaging procedure starts; and then an additional dose, when the MR machine is actually scanning. The pre-load dose helps enhance the signal-to-noise ratio and produces higher quality images.

Approximately ten years ago, radiologists started to become aware of problems with GBCAs. There is now substantial evidence that gadolinium is retained within the body after a procedure. While the long-term effects are not understood, this retention is known to cause problems such as nephrogenic systemic fibrosis ("NSF") in patients with compromised renal function as well as other patients, manifesting itself as joint pain, or skin rashes. Indeed, in a publication of Science of the Total Environment, German researchers found evidence of gadolinium in the water supply as a result of the excreted compound after the patients had undergone MR scans. Researchers reported that wastewater plants featured filters that were incapable of removing gadolinium from the water supply and it was therefore present in drinks obtained from fast food restaurants and being consumed by customers of those restaurants who had never undergone an MR procedure. (Source: Anthropogenic gadolinium in tap water and in tap water-based beverages from fast-food franchises in six major cities in Germany: Schmidt et al, Science of the Total Environment 687 (2019) 1401-1408.)

IQ-AI's subsidiary, Imaging Biometrics™, LLC ("IB"), is committed to reducing the use of GBCAs. Our Simultaneous Perfusion Imaging with Consecutive Echoes ("SPICE") and Low Flip Angle technologies, available in IB Neuro, eliminate the pre-load dose of GBCAs, halving patients' potential exposure.

Our new initiative would, if successful, eliminate the necessity of GBCAs in MR imaging altogether. It is estimated that the growing worldwide market for these agents approximates US$1.8 billion. Over the first half of 2019, the Company has strengthened its development team and committed significant resource to the acceleration of this product.

In conjunction with the Medical College of Wisconsin ("MCW"), IB has completed the foundational work necessary to accelerate the development of this Simulated T1+C. Specifically, an AI workstation was procured and installed onsite including the required software and remote access capabilities. It is anticipated that an additional investment in AI computing power will be completed during the second half of 2019.

 

A dedicated resource with AI experience was hired to supplement the development of AI technologies with the existing IB Team. Discussions have begun with various offices at MCW to allow IB access to additional AI personnel as well as a proven AI model. The AI model has demonstrated promising potential of providing IB with multiple commercial opportunities, including short-term and impactful enhancements to IB's current product portfolio.

The pathway to market is a lengthy one. Whilst we are not aware of any commercially available product that can completely eliminate GBCAs in MR scans as ours will, we recognise the significance and value of being the first to do so. Our goal is to complete our product development within two years and be in position to submit the product to the relevant regulatory authorities for market clearance at that time.

Artificial Intelligence ("AI") - Machine Learning

The Company's other development foci at this stage are AI and Machine Learning.

The Company has committed increased developer time and capital expenditure to this area during the first half of 2019.

All the Company's products are based upon digitising information from medical imaging equipment on a voxel-wise basis. Each individual voxel (a value on a regular grid in 3D space) is examined and compared to surrounding voxels. This allows us to determine whether a specific voxel exhibits individual characteristics that are unique, or comparable to a surrounding region. This can often be the first sign of diseased or compromised tissue.

When a new patients' data is examined, it is compared to a reference set. The more patients represented by the reference set, the more accurate the diagnosis will be. Over time, reference sets are updated to make the diagnoses more accurate. A clinic may have up to 10,000 patients or more they have evaluated with the Imaging Biometrics software against the static reference set. That patient data sits within the clinic.

In a Machine Learning model, when patients are scanned, their anonymised data is sent over a secure internet feed to a server that is running Imaging Biometrics software. Two things then happen:

1.   The hospital/clinic receives back the patients' scans and the anonymising process is reversed so the IB processed images can be tied to individual patient identifiers in the hospital. This process is invisible and seamless.

2.   The anonymised data is used to improve the algorithm at IB over time. A database containing many thousands of patients will be far more accurate and effective than one containing several hundred.

The regulatory considerations are not trivial. The FDA, for example, is currently contemplating how to effectively 'approve' products that change over time. We envisage a process that is a hybrid of the FDA and current CE Marking processes, where a company is audited to ensure it has a methodology and processes that are robust enough to effect product changes that do no compromise the efficacy of the product or the safety of the patient.

IQ-AI expects to develop multiple technologies as a result of this initiative and incorporate those technologies into existing and new products.

Auto Segmentation

Neuroradiologists and neuroradiology technicians spend a lot of time identifying regions of interest ("ROI") on each slice of the MR scan. IB is working on an enhancement to the IB suite of products that automatically defines the ROI on each slice and can then assemble a 3D image of the ROI, to examine changes in the size of the tumour over time. Understanding changes in the shape, size and blood flow within an ROI is fundamental to determining whether all the tumour has been completely removed, whether chemotherapeutic drugs are effective and optimising treatment and in determining a likely treatment outcome for the patient.

It has been estimated that neuroradiologists and neuroradiology technicians spend up to 20 minutes manually drawing ROIs onto each slice of a brain image produced by the MR machine. If successful, our Auto Segmentation enhancement would reduce the time taken to make diagnostic decisions for each patient, reduce clinical operating expenses and increase patient throughput for enhanced efficiency.

During the first half of the year, the Company was focused on three additional growth areas:

1.   Expanding the sale of existing products in existing markets

The company attended and presented scientific abstracts at conventions attended by key opinion leaders during the first half of 2019, including the ISMRM Meeting in Montreal and the ASNR Meeting in Boston. In May, IB's software solutions were presented to an exclusive group of clinicians at a Quantitative Imaging Network (QIN) meeting in Washington DC. The focus was on IB Neuro, IB Delta T1 maps and IB's FTB maps for use in multi-centre clinical trials. IB maintains its dominant position among thought leaders as the only industry partner for this influential group. What is most attractive to this group is that IB presents the only biopsy-validated, commercially available, neuroradiology software package, giving clinicians with an interest in this area tremendous confidence in the accuracy and robustness of IB products.

 

Historically, IB has created awareness for its products through attending and exhibiting at clinical conventions, developing sales leads and then selling its products directly to interested hospitals and health authorities. Traditionally, these products have been installed on the hospital's server in the radiology department and have been remotely installed and serviced by IB staff. IQ-AI now also uses channel partners and resellers to promote its software in the USA and Europe. The company now has four partners that offer its software via cloud-based services, making it available on a 'click fee' basis to hospitals. Blackford Analysis became the fourth partner during this review period, supplementing QMENTA, EnvoyAI and Medimsight.

 

In a major development at the end of the review period, the Company has now also contracted with CorTechs Labs ("Cortechs"), providing it with direct sales representation in the US and international markets for the first time. CorTechs is a privately held company which specialises in providing software to neuroradiologists to monitor neuro degenerative diseases like Alzheimer's. Consequently, the respective products for IB and CorTechs are entirely complementary. CorTechs has approximately 10 field-based sales representatives and receive a sales commission, paid when a CorTechs discovered 'lead' culminates in a sale. All CorTechs sales representatives were trained by mid-July 2019.

 

The Company is gradually migrating from a traditional licensing model that includes an upfront license payment of $30,000-$40,000 and an annual maintenance fee, to fully automated software that resides on servers within the hospital and is paid on a monthly subscription (click-fee) basis ranging from an initial set-up fee of  $5,000 - $10,000. As overall deal sizes have increased, more approvals are required within the hospital networks and this has resulted in an extended sales cycle. The Company and its channel partners are currently pursuing several potential deals each with overall values in excess of $100,000. These opportunities often require us to compete against other companies' products and will likely eventually close as subscription-based sales.

 

StoneChecker

The Company originally filed for an FDA approval in August 2018 and received a request for additional information from the FDA towards the end of last year. During the US Government Shutdown in December 2018 and January 2019, IQ-AI submitted supplemental information to the FDA, including the results of additional testing that had been suggested. Over the first half of 2019, the Company fielded additional questions and is awaiting final approval.

 

In July 2019, in preparation for US launch through CorTechs and directly though our IB subsidiary, the Company has initiated a marketing campaign in Europe and based upon customer response to this campaign will fine tune our approach in preparation of the US launch.

 

2.   Expanding product sales into new markets

IB's products have now been sold into South Korea, Greece, The Netherlands, Germany, France, and the United Kingdom. The products are installed and supported from IB's head office in Elm Grove, Wisconsin, proving the ability to deliver and support the product remotely. The Company's sales partner CorTechs has two direct sales representatives based outside of the USA and will develop international sales through attendance at numerous medical conventions and meetings.

 

3.   Grant and contract work

IQ-AI's subsidiary IB has developed a reputation for producing high quality diagnostic software for a fee for third parties. These efforts, as well as providing valuable income also allow IQ-AI to evaluate the feasibility of entering other markets beyond our existing presence in kidney and brain.

In the first half of the year, IB completed contract work for a contract customer developing a breast cancer evaluation product.

The commercialisation efforts continue for Liver Surface Nodularity ("LSN"), a product for Dr Andrew Smith, MD, at the University of Alabama. A mutual interest exists in expanding this relationship after the launch of LSN and preliminary discussions to define this potential partnership are underway.

IB maintains strong collaborative relationships with leading academic research hospitals active in developing quantitative imaging biomarkers. Through an NIH grant awarded to Kathleen Schmainda PhD, IB became the only industrial partner as part of the Quantitative Imaging Network. The initial 5-year funding cycle concluded in Q1 2019. However, post-period end, a successful renewal grant was awarded in September 2019. This award represents another 5-year funding cycle with a total award amount of $2.8 million. The Company expects to receive 25% of this amount in equal monthly instalments and annual payments for license rights of IB Software.

 

4.   Finance

IQ-AI raised £723,500 net cash from the issue of convertible loans and the issue of new ordinary shares. The funds raised are being used by the Company to provide additional working capital to accelerate and expand operations.

 

 

Outlook

 

The Company has entered an exciting phase in its development, and we look forward to updating shareholders as events unfold

 

Trevor Brown

Chief Executive

 

 

 Summary Results for the 2019 interim financial period

A summary of the key financial results is set out in the table below:

	30 June 2019
	£
Revenue	142,375
Gross Profit	140,532
Operating expenses	(278,378)
Finance costs	(10,274)
Loss for the period	(141,721)

Interest

The net interest cost for the Group for the period was £10,274 (2018: £10,464).               

Loss before tax

Loss before tax for the period was £141,271 (2018: £401,708).

Taxation

Taxation charge was £nil for the period (2018: £nil). 

Earnings per share

Basic and diluted earnings per share for the period were 0.12p loss (2018: 0.59p loss).

Financial position

The Group's balance sheet as at 30 June 2019 can be summarised as set out in the table below:

	Net assets £'m
	£
Non-current assets	927,601
Net current assets	431,130
Net assets and total equity	1,358,731

Cash flow

Net cash inflow for the period was £210,299 (2018: £382,137 outflow). 

The net inflow is due to the proceeds raised on the convertible loan notes issued.

Interim 2018 restatement

The results for the six-month period ending 30 June 2018 were restated to correct an error on the consolidation of the subsidiary (Imaging Biometrics) purchased on 13 March 2018. The subsidiary was incorrectly consolidated for the full six-month period, and not from the date of acquisition as required by the accounting standards. The restated consolidated financial statements correctly reflect the position of the Group at 30 June 2018.

 

Consolidated Income Statement

For the six months ended 30 June 2019

	Half year ended	(Audited) Full year ended	(Restated) Half year ended
	30 Jun 2019	31 Dec 2018	30 Jun 2018
	£	£	£
Continuing operations
Revenue	142,375	164,971	47,021
Cost of sales	(1,843)	(34,962)	(1,156)
Gross profit	140,532	130,009	45,865
Administrative expenses	(278,378)	(878,648)	(437,109)
Other income	6,399	221	-
Operating loss	(131,447)	(748,418)	(391,244)
Finance costs	(10,274)	(15,662)	(10,464)
Loss before income tax	(141,721)	(764,080)	(401,708)
Income tax	-	-	-
Loss for the year attributable to owners of the Company	(141,721)	(764,080)	(401,708)
Loss per share attributable to owners of the Company
From continuing operations:
Basic & diluted (pence per share)	(0.12)	(0.82)	(0.59)

 

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2019

	Half year ended	(Audited) Full year ended	(Restated) Half year ended
	30 Jun 2019	31 Dec 2018	30 Jun 2018
	£	£	£
Loss for the period	(141,721)	(764,080)	(401,708)
Other comprehensive income
Items that may be subsequently reclassified as profit or loss
Exchange differences on translation of foreign operations	(1,549)	8,322	-
Total comprehensive loss for the year attributable to the owners of the Company	(143,270)	(755,758)	(401,708)

 

 

Consolidated Balance Sheet

As at 30 June 2019

	30 Jun 2019 £	(Audited) 31 Dec 2018 £	(Restated) 30 Jun 2018 £
Non-current assets
Property, plant and equipment	5,058	918	-
Goodwill	201,274	201,274	410,606
Intangible assets	721,269	721,269	46,716
Total non-current assets	927,601	923,461	457,322
Current assets
Trade and other receivables	308,185	65,568	27,924
Cash	237,533	28,783	4,817
Total current assets	545,718	94,351	32,741
Current liabilities
Trade and other payables	114,588	254,928	234,592
Total current liabilities	114,588	254,928	234,592
Net current (liabilities)/assets	431,130	(160,577)	(201,851)
NET ASSETS	1,358,731	762,884	255,471
Equity
Share capital	1,274,894	1,203,465	675,594
Share premium	19,159,037	19,025,466	18,418,001
Capital redemption reserve	23,616	23,616	23,616
Merger reserve	160,000	160,000	160,000
Convertible loan note reserve	673,711	145,033	379,397
Share based payment reserve	16,316	10,877	-
Foreign currency reserve	6,773	8,322	-
Retained losses	(19,955,616)	(19,813,895)	(19,401,137)
Equity attributable to owners of the Company	1,358,731	762,884	255,471
TOTAL EQUITY	1,358,731	762,884	255,471