Drumz : Annual Report, December 2020

Building Value in Technology

Drumz plc

Report and Accounts

For the year ended

31 December 2020

C o n te n ts

Strategic Report ..........................................................................................................................	1
Chairman's Statement .......................................................................................................................................................	1
Chief Executive's Report....................................................................................................................................................	3
Investment Report..............................................................................................................................................................	7
Principal Risks and Uncertainties ......................................................................................................................................	9
Governance ...............................................................................................................................	10
Chairman's Introduction to Governance...........................................................................................................................	10
Board of Directors ............................................................................................................................................................	11
Corporate Governance Statement ...................................................................................................................................	12
Audit Committee Report...................................................................................................................................................	15
Remuneration Report.......................................................................................................................................................	17
Director's Report ..............................................................................................................................................................	19
Financial Statements ..................................................................................................................	23
Independent Auditors Report ...........................................................................................................................................	23
Group statement of comprehensive income ....................................................................................................................	28
Group statement of financial position...............................................................................................................................	29
Company statement of financial position .........................................................................................................................	30
Group statement of changes in equity .............................................................................................................................	31
Company statement of changes in equity ........................................................................................................................	32
Group statement of cash flows ........................................................................................................................................	33
Company statement of cash flows ...................................................................................................................................	34
Principal accounting policies ............................................................................................................................................	35
Notes to the Financial Statements ...................................................................................................................................	39
Additional Information ................................................................................................................	50
Advisors and Key Services Providers ..............................................................................................................................	50

Strategic Report

Drumz plc

Strategic Report

Chairman's Statement

I am pleased to present the results of Drumz plc ("Drumz" or "Company" or "Group") for the year ended 31 December 2020.

On 30 June 2020 shareholders approved changes to the Company's strategic direction from a company, which had principally invested in real estate to one focused on the technology sector. Simultaneously there were a number of Board changes with Angus Forrest, John Wakefield and I being appointed and Stephen Wicks and John Depasquale stepping down. I would like to thank Stephen and John for their stewardship and collective contributions to the Company over the past few years.

Results and performance

The Group's results for the year ended 31 December 2020 showed revenues of £12,000 (2019: £2,000) and an

operating loss of £149,000 (2019: profit £43,000).

At 30 June the principal asset of the Group was its legacy holding in KCR Residential REIT plc ('KCR'), which owns property in the private rented residential sector, in particular blocks of studio, one and two bedroom apartments which are rented to private tenants in the UK.

The share price performance of KCR has been disappointing over the year and the value of the KCR holding has declined from £1,181,000 to £573,000, equating to an unrealised loss of £608,000. I am also disappointed to report that the KCR share price has fallen further since the year end.

During the period under review Drumz made its first investment in Acuity Risk Management Limited ("Acuity"), an award winning business, specialising in risk management for cybersecurity. Acuity's proprietary software platform STREAM™ provides its blue chip customer base on a SaaS basis, with a comprehensive view of risk and compliance on an enterprise wide basis. Drumz has invested £500,000 in cash for an initial 20 per cent. shareholding in Acuity and has an option to acquire an additional 5 per cent. shareholding for a further £125,000. Further details on the progress achieved by Acuity is in the CEO report and Investment report.

Therefore, the overall results of the Group for the year ended 31 December 2020, as set out on pages 28 to 34, show a loss before taxation of £757,000 (2019: loss of £72,000), of which £608,000 (2019: £134,000) was due to the fall in value of the Group's investment in KCR. The shareholders' funds have increased to £1,518,000 (2019: £1,204,000), principally as a result of the two separate fund raisings undertaken by the Company in July and October 2020.

New investment Policy

The Company's new investment policy is to invest principally, but not exclusively in the technology sector in Europe. The Directors consider that there are opportunities to invest in and acquire established technology businesses which own their own intellectual property and improve them through a combination of the management skills and expertise available from Drumz and further investment capital as required.

Whilst it is not possible to be entirely prescriptive, it is likely that the opportunities would generally have some or all of the following characteristics, namely:

• Established business
• Software is proven and a key tool for users
• SaaS ("Software as a Service") business model
• Significant B2B market opportunity

Macroeconomic impacts

During the current period there have been two major macroeconomic factors which have impacted the economy, namely:

• Brexit - as regulations change with Britain's withdrawal from the EU, the software industry, particularly those selling on a SaaS basis, appear at present to be relatively unaffected by this new environment and

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Strategic Report

Drumz plc

• COVID-19- this global pandemic has had a major impact on the world economy and the ways in which people work. On the positive side, the software industry lends itself well to employees working effectively from remote locations, but the broader impact of the pandemic on global demand remains uncertain. At Acuity, there was a decline in new business sales in the second quarter of its financial year, after the first lockdown announced by the UK Government, but since then new business has picked up strongly.

Outlook

The first phase of the planned change programme at Acuity, with a complete overhaul of its commercial infrastructure and strengthening of the sales and marketing operations has now been completed. The Board believe that the benefits of the actions already taken will be seen over the coming months. We are now considering several new investment opportunities. I would like to welcome all new shareholders and thank all shareholders for their continuing support. I should also like to thank my colleagues and our advisors for their respective contributions and look forward to further progress in the current financial year.

Simon Bennett

Chairman

20 May 2021

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Strategic Report

Drumz plc

Chief Executive's Report

The six-month period following the 2020 AGM, when shareholders approved changes to the business to focus on the technology sector, was one of change as your Company transitioned and made its first technology investment. In that time changes have been made to the Board of directors, a pipeline of technology investment opportunities has been generated and a new corporate name has been adopted.

Our strategy

Drumz's strategy is to invest, predominantly but not exclusively in the technology sector, to achieve capital growth in the medium term, three to five years. We invest in operating companies whose activities include the sale of software or the use of software. The Board seeks to make investments where the associated risks are acceptable given the expertise available to the Company.

Our business model

Our business model is to identify established software companies with potential, that we can acquire or invest in and which would benefit from our expertise in order to exploit their market opportunity and thereby transform value. The skills and experience we inject, mainly relate to commercial, sales and marketing activities. Our objective is to transform the value of our investments by increasing growth rates and scale. Having achieved these goals the Company will determine whether the investee companies should be retained or whether their value can be realised by way of a trade sale or Initial Public Offering ("IPO").

By acquiring established businesses whose software is valuable to its customers, Drumz is investing in businesses with a validated product / service so should be able to accelerate growth and value faster than for earlier stage companies, whilst being better able to identify and manage the associated risks.

Our business model is designed to allow all parties to benefit. It is achieved by investing in opportunities where the Board sees growth and if necessary, can provide expertise and assistance to management to accelerate growth and drive scale, two of the principal drivers of value for potential buyers.

In a typical scenario:

Year 1: Initial review with key changes identified, and actions taken to set the foundations (business model, pricing, marketing, sales channels, partners);

Year 2: Build on the initial changes with any necessary refinements and implementation of business drivers; and

Year 3: Continue to accelerate growth (by this stage the business will be bigger and is likely to be growing at a far faster rate than previously)

Investments and Portfolio update

Acuity Risk Management

This 15 year old company has developed a software platform which is used for risk management mainly for cybersecurity, but which also has the flexibility to be adapted for management of other risks including supplier management or health and safety. Acuity has won awards for its principal product STREAM™ which has a 5-star rating in Gartner's 2021 Peer Insights review of recent software buyers and has won a five star rating for five consecutive years from leading security trade journal, SC MEDIA. The product is in use by Acuity's customers in the UK, Europe and the United States.

There has been considerable progress at Acuity in the time Drumz has been involved and some of the resulting contract wins have been announced on the Stock Exchange's Reach News Service. All sales are now made on a SaaS basis with improved commercial terms and new pricing structures, which has substantially improved the company's recurring revenues and average order values. A new digital marketing agency is generating increased and

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