CEO REVIEW

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Artificial intelligence is�expected to have�a significant impact on�medical imaging over the next decade and�we aim to be at the forefront of that change as it happens,�in�ultrasound imaging.�

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To achieve this, we�have�organised�the Group into�two divisions - Clinical�AI and Simulation, both of which are supported by�a management and administrative resource.�The report below details�how each division operates, the progress made over the year and the key challenges that each division faced.�

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CLINICAL AI DIVISION�

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Our aim is to be a global leader in the�provision of�AI-based�clinical ultrasound software that can�boost scanning quality and streamline sonographer workflow in medical ultrasound specialties, such as anaesthesiology, obstetrics, gynaecology, radiology and primary care medicine,�as well as making�ultrasound accessible to more medical professionals.���

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The Division is�built around�the 2017 acquisition of�The University of Oxford AI software company, Intelligent Ultrasound�Limited�that�supplemented�our in-house image analysis and ultrasound know-how and�has enabled�us to develop potentially ground-breaking AI image analysis tools for the professional ultrasound scanning market.��

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The�algorithms�are based on�a growing database of�over 4 million�images�that�drive our machine learning; combined with�sophisticated deep learning models originally developed by Professor Alison Noble FRS OBE (a founder of Intelligent Ultrasound Limited) and her team�from The University of Oxford. This has enabled us to develop our ScanNav image analysis software�and the first releases of the ScanNav family of products�are in the process of being brought to market in 2020.�

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On 4 July�2019�the Group announced that it�had�signed its first long-term licence and co-development agreement for certain of its AI software products in development with one of the world's leading ultrasound equipment manufacturers.� The long-term agreement will enable the integration of�our�real-time image analysis software onto a range of specialty specific ultrasound systems marketed in the global healthcare market. The�first�royalty per unit revenues are expected during 2021. Terms of the agreement remain confidential and undisclosed for commercial reasons.�

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Software products in development include:

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ScanNav Audit�

The ScanNav Audit software provides real-time support for ultrasound practitioners performing the 20-week fetal anomaly scan. ScanNav Audit aims to ensure that a complete set of scan images, that conform to the required�global�scanning protocols,�are captured during the procedure.� The ScanNav software acts as a live 'virtual' peer-review, ensuring that the scan is performed correctly by highlighting issues to the sonographer as he or she saves each image. The software will also provide a record of each sonographer's performance, allowing managers to monitor staff and form part of the record keeping and audit requirements of the clinic. ScanNav Audit requires�regulatory approval�prior to launch.�

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The Group expects to develop multiple obstetrics variants of ScanNav�Audit�to complement the 20-week protocol software described above.�

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ScanNav AutoCapture�

The ScanNav AutoCapture software automatically captures and analyses all the ultrasound image planes in real-time, as the sonographer moves the ultrasound probe over the patient's�abdomen�during the 20-week fetal anomaly scan.� The software then automatically selects and saves the key images required to meet the�global�protocols.�The Directors believe that the ScanNav AutoCapture software has the potential to:��

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������� speed up workflow - as the software automatically captures the correct images, operators do not need to manually freeze and save each image required by the protocol - allowing them to focus on their dynamic assessment of the�fetus; and�

������� improve accuracy and consistency - the use of AI software should reduce the operator variability from the procedure, which is expected to result in more accurate and consistent image capture.��

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ScanNav�AutoCapture�requires further development and regulatory approval�prior to launch.�

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The Group�also�expects to develop multiple obstetrics variants of ScanNav AutoCapture to complement the 20-week protocol software described above.��

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ScanNav AnatomyGuide�

ScanNav AnatomyGuide is an AI based ultrasound software product which can�automatically and in real-time, identify anatomical structures on the live ultrasound scan image, highlighting structures such as arteries that must be avoided during a needling procedure.��The software is currently being developed for use during Peripheral Nerve Block (PNB) procedures to support less experienced practitioners�and its development�has been partly funded by Innovate UK.�

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PNB is a form of anaesthesia using needling that can be used for certain surgical procedures as an alternative to general anaesthesia�and�as a form of pain relief (potentially reducing the need for opioid analgesia).�The PNB procedure requires less time and resource and is safer than general anaesthetic.� However, PNB requires significant skill to guide the needle safely through the patient's anatomical structures and AnatomyGuide aims to assist the anaesthetist during the procedure.��

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In May 2019, we made the first live demonstration of the ScanNav AnatomyGuide software to clinicians at the Annual Scientific Meeting of Regional Anaesthesia United Kingdom (RA-UK).

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The�product development�was�substantially completed�during 2019 for the first five nerve blocks and�the regulatory and commercial partner�process has started, with�the�aim of bringing the first variant of the product to market by the end of 2020.�

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Future ScanNav products��

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ScanNav Assist��

The�successful placing and open offer in�August 2019�enabled the�Group�to start the process of building a third�software development team that will look to begin the process of�developing�ScanNav Assist. ScanNav�Assist�aims to�facilitate the automatic recognition of abnormalities within a general ultrasound scan confirming�that a clinician has correctly scanned the anatomical area of interest and then�flagging�any areas of�potential�abnormality, so the patient can be triaged�to the appropriate specialist. The Directors believe that ScanNav Assist will have the potential to allow more point-of-care medical practitioners to use ultrasound imaging for frontline diagnosis. The Directors believe that�once developed�such a device would be likely to support a broad range of medical professionals including GPs, midwives, paramedics and doctors working in Emergency Rooms.��

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ScanNav HealthCheck��

In the longer term, we are investigating the potential development of AI software that could enable consumers to scan themselves at home. ScanNav�HealthCheck�aims�to�develop the current ScanNav technology�to�enable�consumers to perform scans on themselves. When combined with the next generation of low-cost ultrasound devices, this�software could have the potential to enable health conscious individuals to benefit from the ability to scan themselves at home.�

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AI image database�

In March 2019, we announced an alliance with Mediscan Systems, a premier fetal medicine and ultrasound research and training centre based in India, under which the Group provides�ScanTrainer�ultrasound training simulators in return for�access to their�large ultrasound�image libraries. This has enabled us to significantly�expand our�AI image database by over�one million�images and we are proud to support Mediscan in its goal of improving the quality of ultrasound practise in India and throughout the world.�

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The Division's�AI image database currently�has in excess of 4 million images acquired from several providers and we expect the growth in this database to continue in 2020 and beyond.�

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The curation and management of this data is of paramount importance to the Group and, as such, all externally sourced ultrasound imaging data is anonymised before it is sent to us.� Patient consent and the right to use the data are obtained under a GDPR-compliant data sharing agreement for each image library. Ultrasound scans recorded by the Group from volunteers are also stored anonymously and always obtained with their consent and conform to the GDPR.�

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Notwithstanding the data anonymisation, all image data is stored�securely,�and its use is restricted to those who require access for development work.� None of the source images are used in products sold to end-users as they are only used to train and create the deep-learning models of the product.

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Challenges to the Clinical Division�

AI image analysis in ultrasound is a new area of medical innovation and we are attempting to open up markets in which the market size and the revenue models are unproven. We are also attempting to do this with relatively limited funds, compared to some of the AI based medical image analysis companies already operating in the US, China and Israel.

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The threat from COVID-19 has resulted in very necessary restrictions being imposed on access to medical facilities, travel, conferences and face-to-face meetings to try to control the spread of the pandemic.� This may compromise some aspects of our research and development projects; however, our Clinical Division currently still expects to meet its key milestone of first revenues in H1, 2021.

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Our approach to these challenges is as follows:�

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������ continue to progress all internal milestones for the ScanNav range of AI products;

������ accelerate the development of any variants of these products;

������ focus on developing AI software that has both a clinical need and a clear economic rationale for its�purchase;��

������ partner the development of our first products with OEMs who can access the large ultrasound market more quickly with their existing product ranges and sales networks and facilitate faster regulatory approvals; and�

������ continue to build our�AI image database�to ensure we have high quality, curated images that�will enable us to build AI algorithms in the field of�anaesthesiology, obstetrics, gynaecology, radiology and primary care medicine.�

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The�signing of our�first agreement with one of the world's�leading ultrasound machine manufacturers,�combined with the encouraging�reception to our products under development, has given us confidence that�we can�turn them into commercial products that can generate long-term revenue for the Division.�

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SIMULATION DIVISION���

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Based in Cardiff (UK), Alpharetta (US) and with representation in Beijing (China), our Simulation Division designs, develops and sells some of the world's leading hi-fidelity ultrasound training systems for teaching ultrasound scanning to medical professionals in institutions and medical device companies.��

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This is the original business of the Group which was created out of Cardiff University Medical School and is the foundation of�our�expertise in ultrasound imaging and�understanding of the�clinical needs of the�medical professionals�who rely on�ultrasound's growing diagnostic�capabilities.�

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Our�comprehensive range of ultrasound�training�simulators�are,�in the main,�high value, cap-ex sales made to the global medical institution market and sold through our direct sales forces in the US and UK and a network of almost 30 resellers in the rest of the world.� The Division has continued to grow sales year-on-year, and it is recognised�as one of the gold standard providers of ultrasound training simulators in the obstetrics/gynaecology (OBGYN), echocardiography/anaesthesiology (ECHO) and emergency medicine/point-of-care (PoCUS) markets.

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During the year, the division�reduced�its net cash consumption impact on the Group.�

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Research & Development��

During 2019 the Simulation R&D team focussed�much of its�resource on the�development�of a new Compact version of the�ScanTrainer�for the OBGYN markets�that aims to extend�ScanTrainer's�appeal to smaller hospitals�and medical simulation centres in the US and around the world.��

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In addition,�a�new augmented reality (AR) app was developed, based on the HeartWorks�software, aimed at�broadening its appeal to the global cardiac and echocardiography teaching market and�potentially to individual�doctors�who will benefit from�access to the�system's�market leading 3D cardiac anatomy and ultrasound capabilities.�

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Post year end we launched a COVID-19 version of our BodyWorks Point-of-Care simulator, designed to train healthcare providers to use lung ultrasonography. Ultrasound has major utility for the management of respiratory related COVID-19 due to its safety, repeatability, absence of radiation, low cost, ease of disinfection and point of care use. This new training simulator, as well as the free COVID-19 upgrade training module for all our existing BodyWorks customers, includes a number of examples of lung ultrasound appearances typical of COVID-19 infection to enable frontline clinical staff to practise and train in the use of lung ultrasound. The module was made available to the market on 24 March 2020 and the first systems are already in use in the UK and US. We hope this initiative will help with the training of healthcare professionals working in the frontline of this global emergency.

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Territory review��

Our Simulation Division sales grew by�11% to �5.9m in 2019 (2018: �5.3m) and there are positive signs that the ultrasound simulator market for hi-fidelity training simulators will continue this growth once we are through the disruption currently being experienced as a result of the COVID-19 pandemic.�

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North America��

Revenue in 2019�increased by�over 50%�to��2.6m�(2018: �1.7m).��

This was an excellent performance by the�North America�team and the region�remains a key market for medical simulation.�Based in Alpharetta, Georgia,�the team�are�now able to provide full sales,�marketing, shipping, technical�support and small-scale�local system�build�and�we believe�this capability was an important element�in enabling us to�enter�into a�marketing�agreement with�Fujifilm�SonoSite, Inc.�to�deliver a training solution to the point-of-care ultrasound (PoCUS) market.��

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The agreement utilises Intelligent Ultrasound's BodyWorks Eve PoCUS training solution and the HeartWorks transthoracic echocardiography (TTE) and�transoesophageal�echocardiography (TEE) simulator training platforms to accelerate training for all Fujifilm SonoSite's PoCUS systems.�Both companies�will co-exhibit at numerous conferences, as well as providing hands-on workshops where clinician training is needed.�

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During the year sales of HeartWorks and BodyWorks on the new Eve manikin platform were particularly encouraging�and we�expect the Fujifilm�SonoSite�marketing agreement will generate increased awareness and therefore demand for these simulators. ��

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Rest of the World��

Revenue in 2019�was steady at��2.6m (2018: �2.6m).��

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Revenue in the Rest of the World is mainly generated by our reseller network of just under 30 resellers and included simulation system sales of �0.5m (2018: �Nil) at fair value, which were exchanged for ultrasound images under the alliance with Mediscan referred to above. As well as a landmark sale of multiple systems to universities in Romania, we were encouraged by good growth in the Iberian market. France however, proved to be a more challenging market in 2019, but a refreshment of the reseller parties is expected to strengthen our position in the region.

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United Kingdom��

Revenue in 2019�declined�by�28% to �0.7m (2018: �1.0m).��

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The UK�had a difficult�year, which is believed to be in part due to the�inertia�in�NHS non-essential spending caused by�the continued delay in completing Brexit.�Despite significant interest being shown by�hospital departments wishing to buy our systems, many found�their purchase requests being delayed or blocked by the hospital procurement departments. After a very challenging 2019, the Chancellor's budget on 11 March 2020 offered some comfort through his commitment to provide more funding for the NHS. �

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Challenges to the Simulation Division�

High values sales in the medical training sector�remain�affected by health budgets, which can be both hard to access and predict, especially during times of�political upheaval or�global pandemics, which can divert funds from training to frontline care. Like many markets, medical simulation�is subject to�competitive products�and�associated�pricing and margin pressures.��

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The Division has historically responded well to these�pressures�by focussing on offering products that provide a gold standard in training ultrasound.� This�has traditionally�been�important�to�end-users�whose�careers depend on their ability to scan and diagnose using ultrasound�and as a consequence, purchasing decisions tend to be based on quality of training and value for money rather than the lowest price solution. ���

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Clearly the�potential impact on sales from both the ongoing�exit of the UK from the EU�and �COVID-19 are difficult to quantify at this�time, but�are being closely monitored�by the Group�to assess the impact�on inventory, its supply chain and staff availability, as well as revenue.�The development of a new simulation system aimed at training medical professionals working in response to the threat from COVID-19 is an example of the Division's agile response to unpredictable market conditions.

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Quality Management System�

In 2018 the UK operation implemented a Quality Management System�and I'm pleased to say that�post year-end on 4 March 2020, we received ISO 13485:2016 certification following an audit of our systems by the certification body, LRQA.

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ISO 13485:2016 is the internationally recognised quality standard to ensure the consistent design, development, production, installation and sale of medical devices that are safe for their intended purposes. The Group's Clinical AI Division is in the process of bringing a range of AI-based image analysis software products to market and obtaining ISO 13485:2016 certification is an essential step in taking these products through regulatory approval.�

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Workplace�environment�

We recently merged our two UK sites into the Cardiff office but, in response to the threat from COVID-19, we have now implemented a working from home policy for the majority of our staff. In the longer term, we intend to move to larger, more modern and flexible office�space�in the centre of Cardiff, but until then, we will continue to host live demonstrations�of all our latest technology at our current head office facility at the Cardiff Medicentre. We were recently proud to host a visit by the�Chancellor�of�the�Duchy�of�Lancaster, The Rt�Hon Michael Gove MP�and The Secretary of State for Wales,�The Rt Hon Simon Hart MP,�when they experienced first-hand the advances�the Group has made over the last two years.�

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We would be delighted to welcome any shareholders�or prospective investors should they also wish to visit us to see our technology for themselves.

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Looking ahead�

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Despite the understandable concerns over COVID-19, we aim to continue to�be both ambitious and�successful�in our quest to train medical professionals in the use of ultrasound, which, more than ever, is a key medical diagnostic tool; as well as develop cutting-edge AI software technology that will generate long-term licence revenue for the Group over the coming years.

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Stuart Gall�

Chief Executive Officer�

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