DEEPSCALE TECHNOLOGIES LTD

Executive Summary

DEEPSCALE TECHNOLOGIES LTD is in an early but fragile financial state, marked by negative net assets and limited cash reserves. These symptoms suggest liquidity challenges and dependency on directors' loans, common in start-ups but requiring urgent cash flow management and capital strengthening. Immediate action to enhance liquidity and control costs is essential to stabilise and improve the company’s financial health.

DEEPSCALE TECHNOLOGIES LTD - Analysis Report

Company Number: 14239257

Analysis Date: 2025-07-29 12:25 UTC

Financial Health Assessment of DEEPSCALE TECHNOLOGIES LTD

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1. Financial Health Score: D

Explanation:
DEEPSCALE TECHNOLOGIES LTD exhibits several warning signs in its financial statements. While it is a very young company (incorporated in 2022) and in the early stages of its lifecycle, the current financial metrics reveal distress signals such as negative net assets and significant long-term liabilities relative to cash on hand. These symptoms suggest fragile financial health that requires careful management to avoid insolvency risks.

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2. Key Vital Signs

Metric	Value (£)	Interpretation
Cash at Bank	3,814	Very low cash reserves; limited buffer to cover immediate expenses or unexpected costs.
Current Liabilities	16,069	Debts due within one year; higher than cash, indicating potential liquidity pressure.
Net Current Assets	3,814	Positive, which means current assets exceed current liabilities by a small margin—a modest working capital.
Creditors due after one year	16,069	Significant non-current liabilities, mainly directors’ loans; indicates reliance on internal financing.
Net Assets	-12,255	Negative net assets indicate liabilities exceed assets; a symptom of financial distress in accounting terms.
Shareholders’ Funds	-12,255	Negative equity; shareholders’ investment is effectively eroded or overdrawn.
Average Number of Employees	9	Moderate headcount for a start-up; payroll likely a significant expense.

Additional Notes:

• The company falls within the "Micro" to "Small" category given its recent incorporation and financial scale.
• The company operates in IT services and software development, sectors where initial losses are common but cash flow management is critical.

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3. Diagnosis

Symptoms Analysis:

• Negative Equity: The company’s total liabilities exceed its assets by £12,255, indicating an accounting deficit. This is a red flag that the company is currently insolvent on a balance sheet basis. This may be typical for a start-up in investment or development phase but is unsustainable long term without capital injection or profitability.
• Cash Reserves vs. Liabilities: The low cash balance (£3,814) compared to current liabilities (£16,069) suggests liquidity stress. Although net current assets are positive, the buffer is very thin, exposing the company to cash flow difficulties.
• Director’s Loan: The large amount (£15,409) owed to directors indicates internal borrowing to fund operations. While this can be supportive, it also signals external financing constraints and potential personal financial risk to directors.
• No Audit Required: As a small company, the accounts are unaudited, so the financial health relies heavily on management’s accuracy and honesty.
• Young Company Stage: Incorporated in 2022, it is common for early-stage tech firms to show losses and negative equity as they invest in growth, but this "symptom" requires close monitoring.
• Employee Count: With 9 employees, the company has a modest operational scale, which implies ongoing payroll and operational cash burn.

Overall Diagnosis:
DEEPSCALE TECHNOLOGIES LTD is currently in a precarious financial condition—akin to a patient with low vital signs and signs of internal strain. The negative net assets and thin liquidity represent symptoms of financial distress, although these may reflect early-stage investments rather than chronic illness. Immediate attention is needed to avoid worsening condition.

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4. Recommendations

1. Strengthen Cash Flow Management:

   • Prioritize maintaining or increasing cash reserves to cover at least 3-6 months of operational expenses.
   • Explore short-term financing or equity investment to improve liquidity buffer.

2. Address Negative Equity:

   • Consider capital injection from shareholders or external investors to restore positive net assets.
   • Alternatively, negotiate with directors or creditors to restructure loans or convert debt to equity.

3. Cost Control and Operational Efficiency:

   • Review staffing and overheads to reduce cash burn rate.
   • Focus on revenue-generating activities to improve profitability and cash inflow.

4. Financial Forecasting and Monitoring:

   • Implement robust monthly cash flow forecasts and management accounts to detect early warning signs of distress.
   • Track key metrics regularly to guide strategic decisions.

5. Governance and Transparency:

   • Although audit exemption applies, consider voluntary independent review or accountant consultation to ensure financial integrity.
   • Maintain transparent communication with directors, shareholders, and creditors.

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