29 April 2022

Celadon Pharmaceuticals Plc (formerly Summerway Capital Plc)

("Celadon", the "Company" or the "Group")

Results for the period ended 31 December 2021

The Board of Celadon Pharmaceuticals Plc present the financial results for Summerway Capital Plc for the 16 month period ended 31 December 2021, prior to its change of name to Celadon Pharmaceuticals Plc, and  following the change in the Company's financial year end to 31 December as announced on 29 November 2021.

Following completion of the acquisition of Vertigrow Technology Ltd ("Vertigrow", t/as "Celadon"), Celadon Pharmaceuticals Plc is now a UK-based pharmaceutical company targeting the research, cultivation, manufacturing and supply of cannabinoid-based medicines.

Highlights for the period ended 31 December 2021

·      Loss before tax of £720,369 (2020: £174,511)

·      Cash at 31 December 2021 of £4,462,965 (2020: £5,487,991) after taking into account a loan made to Vertigrow in the period of £2,125,000

·      Unaudited cash at 22 April 2022 of £12.1 million following completion of the placing associated with the Vertigrow acquisition

·      A number of Board changes occurred during the period and post the period end, to reflect the change in investing policy and latterly the acquisition of Vertigrow

·      Change in investing policy in September 2021 to focus on the healthcare and pharmaceutical sector, specifically, emerging therapeutic areas

·      Announcement in October 2021 of the proposed £80 million acquisition of Vertigrow, which subsequently completed post the period end on 28 March 2022

Enquiries:           

Celadon Pharmaceuticals Plc

Tony Morris                                          020 7440 7520

Canaccord Genuity Limited (Nominated Adviser and Broker)            

Andrew Potts / Patrick Dolaghan     020 7523 8000

About Celadon Pharmaceuticals Plc

Following completion of the acquisition of Vertigrow Technology Ltd ("Celadon"), Celadon Pharmaceuticals Plc is a UK based pharmaceutical company targeting the research, cultivation, manufacturing and supply of cannabinoid-based medicines. Its primary focus is on improving quality of life for chronic pain sufferers, as well as exploring the potential of cannabinoid-based medicines for other conditions such as autism. Its UK facility comprises a laboratory designed to meet UK-GMP standards, and capacity for a large indoor hydroponic growing facility that has received a Home Office Licence to legally grow high THC medicinal cannabis for the purpose of producing test batches of cannabis oil to support its application to the MHRA. The Company's subsidiary, LVL, owns a MHRA conditionally approved cannabis trial using cannabis based medicinal products to treat chronic pain in the UK.

For further information please visit our website www.celadonpharma.com

STRATEGIC REPORT

INTRODUCTION

We are pleased to present the financial results for Summerway Capital Plc ("Summerway" or the "Company") for the 16 month period ended 31 December 2021, following the change in the Company's financial year end to 31 December as announced on 29 November 2021, and prior to its change of name to Celadon Pharmaceuticals Plc, which occurred post period end on 28 March 2022.

The financial period ended 31 December 2021 has been one of significant change for the Company, culminating in the completion of its inaugural acquisition post the period end in March 2022 of Vertigrow Technology Ltd ("Vertigrow" t/as "Celadon").  Vertigrow is one of the first pharmaceutical companies in the UK to receive a Home Office licence to grow high tetrahydrocannabinol ("THC") cannabis for the purpose of producing test batches of cannabis oil to support its application to the Medicines and Healthcare products Regulatory Agency for registration as a manufacturer of medicinal product active pharmaceutical ingredients, which will be used in medicinal products, initially focusing on chronic pain.  The acquisition provides the Company with an exciting entry point into the growing, highly regulated UK market for medicinal cannabis and a compelling foundation from which accretive and complementary M&A opportunities can be executed alongside Vertigrow's existing organic growth initiatives. 

Since establishing the Company on AIM in 2018, as a team we have remained focused and determined in seeking to secure high quality management teams and exciting opportunities with the potential to deliver significant value for our loyal Shareholders, most of whom have supported us since our IPO.

In January 2021, we amended the Company's then investing policy to focus on investment and acquisition opportunities across the software, Software-as-a-Service and digital technologies and services sectors.  In conjunction with the change in strategy, a number of directorate changes occurred, including the appointment of Vin Murria as Chairman of the Company, and Paul Gibson and Tony Morris as Non-Executive Directors, and the resignations of Alexander Anton and Mark Farmiloe.  The Company also raised an additional £1.7 million through a placing at that time.

During the period, it became clear that securing a technology asset of sufficient size and scale, and at an appropriate valuation level was going to be challenging in the near term given the prevailing market conditions.  Whilst this was disappointing, certain other sector opportunities presented themselves to the Directors, which despite being outside of the Company's technology focus, were attractive options for the Company's existing Shareholders to consider.  Specifically, opportunities across the healthcare and pharmaceutical sector, and in particular, the emerging therapeutic areas.

As a result, in September 2021 the Company proposed a further change in its strategic direction away from the technology sector.  The Company announced the resignations of Vin Murria, Paul Gibson and Tony Morris, with Benjamin Shaw taking over as interim Chairman of the Summerway, and the appointment of Liz Shanahan as independent Non-Executive Director.  Liz is a life sciences entrepreneur with extensive experience advising leading global pharmaceutical and healthcare organisations, and her skill set continues to be a valuable addition to the Board as we execute the Company's new growth strategy.  At the same time, trading in Summerway's shares were suspended as a result of discussions with an immediate opportunity within the healthcare and pharmaceutical sector, that if successful, would be classified as a reverse takeover under the AIM Rules and therefore subject to shareholder consent.

In October 2021, Summerway Shareholders approved the Company's new investment policy and the pivot towards the healthcare and pharmaceutical sector.  On 28 October 2021, the Company announced the proposed acquisition of Vertigrow for £80 million consideration and a proposed placing. Concurrently, the Company also made available a loan of up to £4.25 million to Vertigrow in order to accelerate its capital expenditure in its Midlands based facility ahead of completion of the proposed acquisition. 

In February 2022, the Company published its Admission Document and posted the circular to Shareholders calling the general meeting pertaining to the proposed acquisition of Vertigrow and a proposed placing.  At the same time, trading in Summerway's shares was restored.

In March 2022 at the Company's general meeting, Shareholders of Summerway approved the acquisition of Vertigrow, the associated placing (which raised gross proceeds of £8.5 million) and issuance of consideration shares to the Vertigrow vendors, among other matters.  On 28 March 2022, the acquisition of Vertigrow completed, the Company's name was changed to Celadon Pharmaceuticals Plc, and the enlarged share capital of the Company was admitted to trading on AIM.

As part of the Company's re-admission process to AIM, we reconstituted the Board of the Company, and we would like to take this opportunity to welcome fellow new executive and non-executives to the Board, including Jim Short, Founder and CEO of Vertigrow to the Board as Chief Executive Officer, Katie Long as Chief Financial Officer, Robbie Barr as Senior Independent Non-Executive Director and Steve Hajioff as Independent Non-Executive Director, working alongside Alexander Anton as Chairman, and our existing Independent Non-Executive Directors, David Firth and Liz Shanahan.

We would also like to thank Ben Shaw for his role as a director of Summerway from our initial AIM IPO in 2018, and his recent stewardship of the Company as Interim Chairman, which has been invaluable as we have navigated this critical period in the Company's development.

BUSINESS REVIEW

For the financial period ended 31 December 2021, the Group has actively pursued its investment policy, which culminated in the announcement of its proposed acquisition of Vertigrow on 28 October 2021, which subsequently completed on 28 March 2022.

During the period, Summerway recorded a loss of £720,369 (2020: £174,511) and the loss per share was 9.60p (2020: 2.85p).  The Company had cash reserves at the end of the period (and therefore prior to the recently completed placing) of £4,462,965 (2020: £5,487,991) after taking into account a loan made to Vertigrow in the period of £2,125,000.  The step up in losses were as a result of increased M&A activity and a portion of transaction expenses being incurred and settled in pursuit of the Company's inaugural acquisition which completed on 28 March 2022.

Following completion of the placing associated with the Vertigrow acquisition and after costs, Summerway held unaudited cash balances of £12.1 million as at 22 April 2022.

Post the period end, and following completion of the acquisition of Vertigrow, the Company ceased to be an investing company under the AIM Rules, and as such, is no longer required to seek approval for its investing policy annually from Shareholders at its AGM.

FUTURE DEVELOPMENTS

Following the completion of the acquisition of Vertigrow, as a Board we are committed to executing the ambitious growth plan for Group, as well as remaining cognisant of accretive investment and acquisition opportunities, which can augment organic growth and provide for tangible operational synergies.

Key Performance Indicators, Risk Management and Section 172 of the Companies Act 2006 are included in the Group's audited annual financial statements.

Consolidated Statement of Comprehensive Income for the period ended 31 December 2021

Consolidated Statement of Comprehensive Income for the period ended 31 December 2021

Consolidated Statement for Changes in Equity for the period ended 31 December 2021

Consolidated Statement Cash Flows for the period ended 31 December 2021

Notes to the Financial Statements for the period ended 31 December 2021

1.   GENERAL INFORMATION

Summerway Capital plc, which was renamed Celadon Pharmaceuticals Plc post the period end on 25 March 2022, was an investing company (for the purposes of the AIM Rules for Companies) during the period.  On completion of the acquisition of Vertigrow, which occurred on 28 March 2022, the Company ceased to be an investing company under the AIM Rules.  The Company is incorporated in England and Wales and domiciled in the United Kingdom (company number: 11545912). It is a public limited company and the address of the registered office is 32-33 Cowcross Street, London EC1M 6DF. The Company is the parent company of Summerway Subco Limited (company number: 11565845). During the period, the activity of the Company was the investment, acquisition and subsequent development of companies where the Directors believe there were tangible opportunities to drive strategic, operational and performance improvement, either as a standalone entity or as a result of broader initiatives.

2.   BASIS OF PREPARATION

These financial statements have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006.  The financial statements have been prepared under the historical cost convention.

The financial statements are presented in Pounds Sterling.  All amounts, unless otherwise stated, have been rounded to the nearest Pound.

The financial information set out in this preliminary announcement does not constitute the Group's statutory financial statements for the periods ended 31 December 2021 or 31 August 2020. The financial information has been extracted from the Group's statutory financial statements for the period ended 31 December 2021. The auditors have reported on those financial statements; their report was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

The statutory accounts for the period ended 31 December 2021 will be filed with the Registrar of Companies following the Company's Annual General Meeting. The statutory accounts for the period ended 31 August 2020 have been filed with the Registrar of Companies. The report of the auditors on those statutory accounts was also unqualified, and also did not contain a statement under section 498(2) or (3) of the Act.

The preparation of financial statements in compliance with adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006 requires the use of certain critical accounting estimates.  It also requires management to exercise judgement in applying those accounting policies.  The areas where significant judgements and estimates have been made in preparing these financial statements and their effect are disclosed in Note 5.

The principal accounting policies adopted in the preparation of the financial statements are set out below.  The policies have been consistently applied to all periods presented unless otherwise stated.  As a result of the change in accounting reference date for the Company during the period to the 31 December, the results for 31 December 2021 include 16 months of trading, whereas the results for the comparative period, being 31 August 2020, only include 12 months of trading for that financial year ended 31 August 2020.

3.   PRINCIPAL ACCOUNTING POLICIES

3.1     NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

The Group applied standards, amendments and interpretations which are effective for annual periods commencing on or after 1 September 2020. There were no material effects of adopting these. There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the group has decided not to adopt early. The most significant of these are:

·      Amendments to IFRS 3: Business Combinations (applicable for accounting periods beginning on or after 1 January 2022);

·      IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (applicable for accounting periods beginning on or after 1 January 2023);

·      IAS 12: Income Taxes (applicable for accounting periods beginning on or after 1 January 2023); and

·      IAS 37: Provisions, Contingent Liabilities and Contingent Assets (applicable for accounting periods beginning on or after 1 January 2022).

The Group does not currently expect any material impact of the above standards or any other standards issued by the IASB, but not yet effective.

3.2     BASIS OF CONSOLIDATION

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiary undertakings).  Where necessary, adjustments are made to the financial statements of the subsidiaries to bring their accounting policies in line with those of the Group.  All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

3.3     GOING CONCERN

The Group's unaudited cash balance as at 22 April 2022 was £12.1 million, which was subsequent to the recently completed placing announced on 28 March 2022 that raised gross equity placing proceeds of £8.5 million concurrently with the completion the acquisition of Vertigrow. As part of the Company's readmission to AIM, substantial working capital sensitivity analysis was performed by the Company to model various scenarios under which the Company's performance may deviate from its plan.  The resultant analysis was presented to the Board of the Company and included scenarios whereby the Company was unable to generate revenue at the rate it expected to do so, or indeed at all, as well as modelling theoretical cost overruns. The Company's unaudited cash balance was shown to be sufficient in funding the ongoing expenditure requirements of the Company and its subsidiaries under all of the modelled scenarios, and as such, the Company has adequate resources to continue in business for at least twelve months from approval of this financial information.

For this reason, they continue to adopt the going concern basis in preparing the financial information.

3.4     SEGMENT REPORTING

The accounting policy for identifying segments is based on internal management reporting information which is reviewed by the chief operating decision maker.  The Group is considered to have a single business segment, being the identification and acquisition of companies or businesses.

3.5     FOREIGN CURRENCIES

Assets and liabilities in foreign currencies are translated into Sterling at the rates of exchange ruling at the statement of financial position date.  Transactions in foreign currencies are translated into Sterling at the rates of exchange ruling at the date of the transaction.  Exchange differences are taken into account in arriving at the operating result.

3.6     TAXATION

Current taxes are based on the results shown in the financial statements and are calculated according to local tax rules, using tax rates enacted or substantively enacted by the statement of financial position date.

The tax currently payable is based on the taxable profit for the year.  Taxable profit/(loss) differs from the net profit/(loss) reported in the statement of comprehensive income as it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method.  Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which the deductible temporary differences can be utilised.  Such assets and liabilities are not recognised if the temporary differences arise from the initial recognition (other than in a business combination) of other assets or liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised.  Deferred tax is charged or credited in the statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case deferred tax is also dealt with in equity.

3.7     CURRENT VERSUS NON-CURRENT CLASSIFICATION

The Group present assets and liabilities in the statement of financial position based on current/non-current classification.  An asset is current when it is:

·      expected to be realised or intended to be sold or consumed in the normal operating cycle; or

·      held primarily for the purpose of trading; or

·      expected to be realised within twelve months after the reporting period; or

·      cash or cash equivalents unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.

All other assets are classified as non-current.

A liability is current when:

·      it is expected to be settled in the normal operating cycle; or

·      it is held primarily for the purpose of trading; or

·      it is due to be settled within twelve months after the reporting period; or

·      there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting date.

The Group classify all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

3.8   FINANCIAL INSTRUMENTS

Financial assets and liabilities are recognised in the Group's statement of financial position when the Company and Group becomes a party to the contractual provisions of the instrument.  The Group's financial instruments comprise cash, trade and other receivables and trade and other payables.

Trade, group and other receivables

For purposes of subsequent measurement, trade and other receivables are classified as financial assets measured at amortised cost.

The Group does not have any financial assets classified as measured at fair value through OCI or financial assets at fair value through profit or loss.

These financial assets of the Group are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Any interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.

The Group will write-off financial assets, either in their entirety or a portion therefor, if there is no reasonable expectation of its recovery. A write-off constitutes a derecognition of a financial asset.

Cash and cash equivalents

The Group manage short-term liquidity through the holding of cash and highly liquid interest-bearing deposits.  Only deposits that are readily convertible into cash with maturities of three months or less from inception, with no penalty of lost interest, are shown as cash and cash equivalents.

Impairment of financial assets

An impairment loss is recognised for the expected credit losses on financial assets when there is an increased probability that the counterparty will be unable to settle an instrument's contractual cash flows on the contractual due dates, a reduction in the amounts expected to be recovered, or both.  The probability of default and expected amounts recoverable are assessed using reasonable and supportable past and forward-looking information that is available without undue cost or effort. 

The Group does not currently have trade receivables. For group and other receivables, the measurement of impairment losses depends on whether the financial asset is 'performing', 'underperforming' or 'non-performing' based on the company's assessment of increases in the credit risk of the financial asset since its initial recognition and any events that have occurred before the year-end which have a detrimental impact on cash flows. The financial asset moves from 'performing' to 'underperforming' when the increase in credit risk since initial recognition becomes significant.

In assessing whether credit risk has increased significantly, the company compares the risk of default at the year-end with the risk of a default when the investment was originally recognised using reasonable and supportable past and forward-looking information that is available without undue cost.

The risk of a default occurring takes into consideration default events that are possible within 12 months of the year-end ("the 12-month expected credit losses") for 'performing' financial assets, and all possible default events over the expected life of those receivables ("the lifetime expected credit losses") for 'underperforming' financial assets.  

Impairment losses and any subsequent reversals of impairment losses are adjusted against the carrying amount of the receivable and are recognised in profit or loss.

Financial liabilities and equity

Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument. 

Trade, group and other payables

Trade and other payables are initially measured at fair value, net of direct transaction costs and subsequently measured at amortised cost.

Derecognition of financial assets (including write-offs) and financial liabilities

A financial asset (or part thereof) is derecognised when the contractual rights to cash flows expire or are settled, or when the contractual rights to receive the cash flows of the financial asset and substantially all the risks and rewards of ownership are transferred to another party. 

When there is no reasonable expectation of recovering a financial asset it is derecognised ('written off'). The gain or loss on derecognition of financial assets measured at amortised cost is recognised in profit or loss.

A financial liability (or part thereof) is derecognised when the obligation specified in the contract is discharged, cancelled or expires.

3.9   EQUITY

An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities. Equity instruments issued by the Company are recorded at fair value on initial recognition net of transaction costs.

Equity comprises the following:

·      Called up share capital represents the nominal value of the equity shares;

·      Share premium represents the excess over nominal value of the fair value of consideration received from the equity shares, net of expenses of the share issue;

·      Capital redemption reserve is a statutory, non-distributable reserve into which amounts are transferred following the redemption or purchase of a Company's own shares;

·      Retained deficit represent accumulated net gains and losses from incorporation recognised in the Statement of Comprehensive Income

4    CAPITAL MANAGEMENT

The Company defines capital as the total equity of the Company.  The objective of the Company's capital management is to ensure that it makes the maximum use of its capital to support its business and to maximise shareholder value.  There are no external constraints on the Company's capital.

5    CRITICAL JUDGEMENTS AND ACCOUNTING ESTIMATES

The Group makes certain estimates and assumptions regarding the future.  Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.  In the future, actual expenditure may differ from these estimates and assumptions.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Valuation and classification of incentive share scheme

The Board amended its previously implemented incentive scheme on the 15 January 2021.  This resulted in the buyback and cancellation of the 999,999 B shares of £0.01 in the subsidiary undertaking, to the Executive Directors of the Company at a price of £0.012 per share, and the issuance of 1,450,000 new B shares of £0.01 in the subsidiary undertaking to certain new participants, including Directors and advisers to the Company.

Critical judgements and accounting estimates have been exercised by management in respect of the incentive shares:

·      in determining the classification of the incentive shares as a financial liability rather than equity in the statement of financial position, as the B shares issued in the subsidiary do not contain any voting rights and are not permitted to participate in any ordinary dividends declared by the Company;

·      in presenting the financial liability as non-current in the statement of financial position as the valuation mechanism in the incentive share arrangement is measured over a three-year and five-year period; and

·      in assessing the most appropriate valuation method to apply to estimate the fair value of the incentive share liability as at 31 December 2021. See Note 16 for further details.

Valuation and classification of warrant instrument

On 15 January 2021, the Company issued Vin Murria with 3,246,062 warrants which provided for a right to subscribe for an addition 3,246,062 additional new ordinary shares of the Company at an exercise price of 88 pence per share. The warrants were exercisable in whole or in part during an exercise period commencing on the date of issue of the warrants and terminating 18 months after the date of issue.  

Critical judgements and accounting estimates have been exercised by management in respect of the warrant in estimating the fair value of the Company's underlying share price at the date of issue of the warrant instrument and calculation of any share-based payments charge as at 31 December 2021. Specifically, management calculated the fair value of the Company's underlying share price to be 88 pence per share as at 15 January 2021, which is in line with the exercise price of 88 pence per share.  This management judgement was based upon the following factors:

·      88 pence per share equated to the net asset value per share for the Company at the time of issue of the warrants;

·      Vin Murria, the then holder of the warrants, concurrently with the issue of the warrants acquired shares from an existing shareholder in the Company for 85 pence per share and subscribed for new shares in the Company at 88 pence per share; and

·      The warrant exercise price was determined prior to the announcement of the proposed directorate changes on 15 December 2020 where such undisturbed pre-announcement price per share was 85 pence per share.

As a result of management determining that the exercise price of 88 pence per share was in line with the fair market value price of 88 pence per share at the time of the warrant issue, the share-based payment charge attaching to the warrant is nil.

6    SEGMENTAL REPORTING

For management purposes, the Group is considered to have one single business segment, being the identification and acquisition of companies and businesses.  The Group comprises Celadon Pharmaceuticals Plc (formerly Summerway Capital Plc) and its subsidiary company Summerway SubCo Limited.  The two companies do not transact with each other.  Further segment information is therefore not presented in these financial statements. 

7    ADMINISTRATION EXPENSES

8    EMPLOYEES AND DIRECTORS

The average monthly number of employees during the period year, including the Directors, was 4.

Key management personnel

The Directors are currently considered to be the key management personnel of the Group. The total remuneration paid to Directors during the period was £135,945 (2021: £54,000). There were no pension contributions paid on behalf of the Directors. The breakdown of individual Director's remuneration is shown in the Report of the Remuneration Committee within the Company's annual report and accounts.

9    FINANCE INCOME

10  LOSS BEFORE INCOME TAX

The loss before income tax is stated after charging:

11  INCOME TAX

The Group has reported a loss of £720,369 (2020: £174,511). No revenue has been generated in the period and no significant differences exist between the tax charge of £Nil recognised in these financial statements and that calculated by applying the standard rate of United Kingdom corporation tax. No deferred tax asset is recognised on these losses as at 31 December 2021 due to uncertainty over the expected timing of future profits with which to offset the losses.

Following the change announced in the UK Government's 2021 Budget, the standard rate of UK corporation tax will rise from 19% to 25%, effective from 1 April 2023.

12  LOSS PER SHARE

Basic loss per ordinary share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period.

13  OTHER RECEIVABLES

All receivables are current. There is no material difference between the book value and the fair value of receivables.

14  CALLED UP SHARE CAPITAL

On 15 January 2021 1,903,409 ordinary shares of £0.01 each were issued to Vin Murria at a placing price of 88 pence per share and were admitted to trading on AIM.

15  TRADE AND OTHER PAYABLES

There is no material difference between the book value and the fair value of the trade and other payables.

16  NON-CURRENT LIABILITIES

The incentive shares liability is estimated at fair value through profit and loss using level 3 fair value measurement techniques.

Fair values are categorised into different levels in a fair value hierarchy based on the degree to which the inputs to the measurement are observable and the significance of the inputs to the fair value measurement in its entirety:

·      Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.

·      Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

·      Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The B shares issued by the subsidiary under the incentive scheme were deemed to have an implied aggregate subscription price of £20,300, based on the nominal value per B share plus a premium. The initial subscription price of the incentive shares remains the best estimate of the fair value of the liability associated with the incentive shares as none of the criteria for potential value creation have been met as at 31 December 2021. The fair value of the liability is assessed at each reporting date with any changes accounted for as a fair value gain or loss and recognised directly in the statement of comprehensive income.

Further details regarding the incentive scheme and B shares are included in Notes 18 and 20.

17  FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS - GROUP

Carrying amount of financial assets

The carrying amounts of financial assets by category were:

Carrying amount of financial liabilities

The carrying amounts of financial liabilities by category were:

The carrying amounts of financial assets and financial liabilities reasonably approximate to fair value.

Risks arising from financial instruments

Credit risk

The risk that counterparties will fail to settle amounts due to the company predominantly arises from cash and cash equivalents. Credit risk on cash and cash equivalents is limited by depositing funds with banks with high credit ratings assigned by international credit rating agencies.

Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group closely monitors its cash position to ensure that it has sufficient funds to meet the obligations of the Group as they fall due.

18  RELATED PARTY DISCLOSURES

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party, or the parties are under common control or influence, in making financial or operational decisions.

Service agreements

Between 1 September 2020 and up until 15 January 2021, under the terms of their respective service agreements, the Executive Directors during the period were each paid a salary of £1,000 per calendar month, monthly in arrears. The Non-Executive Director was paid a monthly fee of £1,500 per calendar month.

On 15 January 2021 a number of directorate changes occurred, and from this date through to 21 September 2021, the Non-Executive Directors were each paid a monthly fee of £1,500 per calendar month.

On 21 September 2021, a further set of directorate changes occurred, and the Non-Executive Director fees were increased to £3,333 per calendar month for David Firth and Liz Shanahan, with Benjamin Shaw entering into a new Interim Chairman's service agreement, remaining on £1,500 per calendar month.

The Directors holding office as at 31 December 2021 and their connected persons held a total of 500,000 ordinary shares in the Company, representing 6.2 per cent of the issued share capital of the Company as at 31 December 2021.

Administrative and accounting services

The Company engaged Fraser Real Estate, a company in which Alexander Anton, the current Chairman of the Company is an indirect shareholder to provide administrative and accounting services during the period. The Company paid Fraser Real Estate £2,964 during the period for the provision of these services.

Placing agreement and issue of warrants

On 15 January 2021, the Company raised gross proceeds of £1,675,000 through the issuance of 1,903,409 new ordinary shares of the Company to Vin Murria, the then Chairman of the Company, at a placing price of 88 pence per share. At the same time, the Company issued Vin Murria with 3,246,062 warrants which provided for a right to subscribe for an addition 3,246,062 additional new ordinary shares of the Company at an exercise price of 88 pence per share. The warrants were exercisable in whole or in part during an exercise period commencing on the date of issue of the warrants and terminating 18 months after the date of issue. Vin Murria also purchased 500,000 existing ordinary shares at 85 pence per share from a shareholder on 15 January 2021.

Corporate advisory agreements

The Corporate Advisory Agreement entered into between the Company and AFS Advisors LLP (an entity wholly-owned by Alexander Anton, Benjamin Shaw and Mark Farmiloe, Directors of the Company during the period) was terminated at nil cost to the Company on 15 January 2021.

At the same time, the Company entered in a new agreement with Tessera Investment Management Limited ("Tessera") pursuant to which Tessera has agreed to provide strategic and general corporate advice, and M&A and capital raising transaction support services to the Company (the "Tessera Corporate Advisory Agreement"). Tessera charged £12,500 per month (plus VAT) payable monthly in arrears from the date of the agreement. On 21 September 2021, Tessera and the Company entered into a termination agreement under which it was agreed between the parties that the Tessera Corporate Advisory Agreement would terminate on 28 March 2022. Tony Morris was a Non-Executive Director of the Company during the period, and is a director and shareholder of Tessera.

Resignation Letters

On 15 January 2021, Alexander Anton and Mark Farmiloe resigned as directors of the Company.  Under the terms of the resignation letters, each exiting director received accrued but unpaid directors' fees up to the 15 January 2021.

On 21 September 2021, Vin Murria, Paul Gibson and Tony Morris resigned as directors of the Company.  Under the terms of the resignation letters, each exiting director received a compensation payment for loss of office of £9,000.  In addition, it was agreed with Vin Murria that the warrant instrument issued on 15 January 2021 be cancelled. Vin Murria also agreed to the buyback of her B Shares acquired under the Subsidiary Incentive Scheme.  In addition, Tony Morris agreed to the buyback of 50,000 of his B Shares acquired under the Subsidiary Incentive Scheme.  Both buybacks were completed at the original subscription cost of £0.014 per B Share.

Irrevocable Undertakings

Vin Murria also entered into an irrevocable undertaking with the Company under which, as beneficial owner of 1,403,409 ordinary shares of the Company, agreed to vote those shares in favour of the Company's change of investing policy and also in favour of the Company's proposed acquisition of Vertigrow and other related resolutions to be tabled to Shareholders as part of the AIM reverse takeover transaction approval process.

Benjamin Shaw, Interim Chairman of the Company during the period entered into an irrevocable undertaking on behalf of himself and Romana Capital LLP under which he agreed to vote 500,000 ordinary shares of the Company in favour of the Company's proposed acquisition of Vertigrow and other related resolutions to be tabled to Shareholders as part of the AIM reverse takeover transaction approval process.

Subsidiary Incentive Scheme

On 15 January 2021, the Company made certain adjustments to the Subsidiary Incentive Scheme in order to recognise the proposed change in strategic direction of the Company at that stage and the expectation that the incoming team and others would be instrumental in leading the execution of this revised strategy, and in turn, the anticipated creation of Shareholder Value.

A summary of the key amendments compared to the original Subsidiary Incentive Scheme are set out in the following table.

Under the Subsidiary Incentive Scheme, participants are only rewarded if a predetermined level of Shareholder value is created over a three-year period, a five-year period, or upon a change of control of the Company (whichever occurs first), which is calculated by reference to the growth in market capitalisation of the Company, following adjustments for the issue of any new ordinary shares and taking into account dividends and capital returns.

From 15 January 2021, participants are entitled to up to 20 per cent. of the Shareholder value created, subject to such Shareholder value having increased by 7.5 per cent. per annum compounded over a period of between three and five years from 15 January 2021 or following a change of control of the Company or the Subsidiary.

Under the amendments to the Subsidiary Incentive Scheme, Alexander Anton's, Benjamin Shaw's and Mark Farmiloe's original B share allocations were subject to a buyback by the Company at their original subscription price of £0.012 per B share for a total consideration of £4,000 each (£12,000 in aggregate) (see Note 16).

Following this buyback, the articles of the Subsidiary were amended in order to implement the proposed changes to the Subsidiary Incentive Scheme. Alexander Anton, Benjamin Shaw, Mark Farmiloe, Tony Morris, Vin Murria and Paul Gibson subscribed for newly issued B shares at a revised subscription price of £0.014 per B share.   Under certain circumstances, the Company is entitled to buy back the B shares at the price paid by Subsidiary Incentive Scheme participants. (see Note 16).

The allocation of B shares in issue as at 31 December 2021 are set out below.

Name                                               B Shares held

Alexander Anton                             75,000

Benjamin Shaw                                75,000

Mark Farmiloe                                 75,000

Tony Morris                                    175,000

Vin Murria                                       1,000,000

Paul Gibson                                     50,000

Total                                                1,450,000

On 21 September 2021, and in conjunction with the resignations of Vin Murria, Paul Gibson and Tony Morris, Vin Murria (former Chairman of the Company) agreed with the Company the buyback of her 1,000,000 B Shares at the original subscription price of £0.014 per B Share. In addition, Tony Morris (former Non-Executive Director of the Company) agreed with the Company the buyback of 50,000 B Shares at the original subscription price of £0.014 per B Share. Both buybacks and certain amendments to the Subsidiary Incentive Scheme were undertaken in conjunction with the completion of the acquisition of Vertigrow, and are summarised further in the Company Admission Document which was published on 28 February 2022, and in Note 20.

19    COMMITMENTS AND CONTINGENT LIABILITIES

There were no commitments or contingent liabilities outstanding at 31 December 2021 that require disclosure or adjustment in these financial statements.

20  POST BALANCE SHEET EVENTS

Placing Agreement

The Company and Canaccord Genuity entered into a placing agreement ("Placing Agreement") on 28 February 2022. Pursuant to the Placing Agreement, Canaccord Genuity has agreed, subject to certain conditions, to act as agent for the Company and to use its reasonable endeavours to procure placees to subscribe for the placing shares that are not subscription shares as part of the Enlarged Group's readmission to AIM.

The Placing Agreement contains warranties from the Company and Directors in favour of Canaccord Genuity in relation to, inter alia, the accuracy of the information in the Circular and other matters relating to the Company and its business. In addition, the Company has agreed to indemnify Canaccord Genuity in respect of certain liabilities it may incur in respect of the placing. Canaccord Genuity has the right to terminate the Placing Agreement in certain circumstances prior to completion of the placing and Admission respectively, in particular, in the event of a material breach of the warranties or a force majeure event.

The Placing Agreement is governed by English law.

Canaccord Nomad and Broker Agreement

This agreement was mutually amended on 25 February 2022 so as to be replaced by a new nominated adviser and broker agreement covering Canaccord Genuity's role as nominated adviser and broker to the Group. The agreement contains certain undertakings, warranties and indemnities given by the Company to Canaccord Genuity. The agreement is terminable upon not less than 3 months prior written notice by either the Company or Canaccord Genuity.

The nominated adviser and broker agreement is governed by English law.

General Meeting and Admission of the Company's enlarged share capital to AIM

On 25 March 2022, the Company held its General Meeting which was called on 28 February 2022 to approve the acquisition of Vertigrow and certain other related matters including the issuance and allotment of shares pursuant to the placing, subscription, and consideration shares, as well as the change of name for Summerway Capital Plc.  All resolutions were successfully passed and as such, the acquisition of Vertigrow completed on 28 March 2022, and the Company's name was changed to Celadon Pharmaceuticals plc.  At the same time, the Company's enlarged share capital was admitted to trading on AIM.

Placing and issue of equity

On 28 March 2022, the Company raised gross proceeds of £8.5 million through the issuance of 5,151,516 new ordinary shares of the Company to certain institutional and high net worth investors at a placing price of 165 pence per share.  

Acquisition

On 28 March 2022, the Company completed the acquisition of Vertigrow for total consideration of £80 million, which was satisfied through the issuance of 48,484,848 consideration shares to the Vertigrow vendors at a price of 165 pence per share. 

The Company are currently in the process of undertaking a valuation exercise to fair value the acquired assets of Vertigrow and anticipate completing this process during the new financial year ending 31 December 2022.

Directorate changes

On 28 March 2022, the Company reconstituted its Board of Directors in line with its Admission Document which was published on 28 February 2022.  This included the resignation of Benjamin Shaw, Interim Chairman of the Company during the period, and the appointment of a number of new directors to the Company, including Alexander Anton, Robert Barr and Dr Steven Hajioff as Non-Executive Directors and James Short and Kathleen Long as Executive Directors.

Following these directorate changes, the current Board of Directors for the Company is set out below.

Alexander Anton - Chairman (appointed 28 March 2022)

Robert Barr - Senior Independent Non-Executive Director (appointed 28 March 2022)

David Firth - Independent Non-Executive Director

Elizabeth Shanahan - Independent Non-Executive Director (appointed 21 September 2021)

Dr Steven Hajioff - Independent Non-Executive Director (appointed 28 March 2022)

James Short - Chief Executive Officer (appointed 28 March 2022)

Kathleen Long - Chief Financial Officer (appointed 28 March 2022)

Share capital and Directors' holdings

As a result of the completion of the placing and acquisition of Vertigrow, the Company issuance of 53,636,364 new ordinary shares, and the Company's total issued share capital is 61,669,773 ordinary shares of 1p each.

As at 21 April 2022, the Directors and their connected persons hold a total of 27,424,072 ordinary shares in the Company, representing 44.5 per cent. of the Company's total issued share capital.

Amendments to Subsidiary Incentive Scheme

On 28 March 2022, the Company amended its Subsidiary Incentive Scheme in order to incentivise and retain certain key employees and directors of, and advisers to, the Company.

Under the terms of the Subsidiary Incentive Scheme, the principles will remain in line with the Company's existing scheme such that participants are entitled to subscribe for Subsidiary B Shares. Subsidiary B Shares provide the holder with a right to participate in any Shareholder value that is created over a predetermined level and over a three- to five-year period (or upon a change of control of the Company or the Subsidiary, whichever occurs first). This is calculated on a formula basis by reference to the growth in market capitalisation of the Company, following adjustments for the issue of any new Ordinary Shares and taking into account dividends and capital returns ("Shareholder Value"), and realised by participants through the exercising of a put option in respect of their Subsidiary B Shares and satisfied either in cash or by the issue of new Ordinary Shares at the election of the Company.

On 28 March 2022, the Subsidiary Incentive Scheme was amended to create three classes of Subsidiary B Shares in issue under the Subsidiary Incentive Scheme:

The 400,000 Subsidiary B Shares held by participants under the current Subsidiary Incentive Scheme (which commenced on 15 January 2021) were converted into B1 Shares. These B1 Shares will participate in up to 4 per cent. of Shareholder Value created above a current threshold of £96,305,000 ("B1 Initial Value"), being the initial market cap of the Company, plus the amount of funds raised on 15 January 2021, plus the total subscription value of the Consideration Shares and the Placing Shares. The B1 Shares will only participate in that Shareholder Value, however, if the individual elements of the B1 Initial Value grow at an annual rate of 7.5 per cent. (compounded), measured over a period of three to five years commencing on 15 January 2021.

650,000 B2 Shares were issued to advisers of Celadon. These B2 Shares will participate in up to 6.5 per cent. of Shareholder Value created above a current threshold of £81,755,125 ("B2 Initial Value"), being the pre-Acquisition value of the Company plus a discounted value of the Celadon Group (to reflect pre-agreed incentive arrangements and the advisers' contribute to date) plus the total subscription value of the Placing Shares. The B2 Shares will only participate in that Shareholder Value, however, if the individual elements of the B2 Initial Value grow at an annual rate of 17.5 per cent. (compounded), measured over a period of three to five years commencing on 28 March 2022.

600,000 B3 Shares were issued to selected management of Celadon. These B3 Shares will participate in up to 6 per cent. of Shareholder Value created above a current threshold of £101,755,125 ("B3 Initial Value"), being the pre-Acquisition value of the Company plus the total subscription value of the Consideration Shares and the Placing Shares. The B3 Shares will only participate in that Shareholder Value, however, if the individual elements of the B3 Initial Value grow at an annual rate of 17.5 per cent. (compounded), measured over a period of three to five years commencing on 28 March 2022.

Overall, therefore, the maximum dilution from the Subsidiary Incentive Plan will be 16.5 per cent. of the Shareholder Value generated above the specified threshold amounts (and this is contingent on achieving the specified annual growth rates) across each individual class of Subsidiary B Share.  A summary of the changes made to the Subsidiary Incentive Scheme post the period end are set out in the following table.

If a participant ceases to be employed or engaged by the Company for a 'bad leaver' reason (fraud or gross negligence), the Company Subsidiary will have the right to buy-back their Subsidiary B Shares for a price equal to the original subscription price paid by the participant. In relation to the new awards of B3 Shares to selected members of the Celadon management team, the Subsidiary B Shares will also be subject to time-based annual vesting over 3 years. If a participant ceases to be employed by the Company (not as a 'bad leaver') then the Company will also have the right to buy-back their unvested Subsidiary B Shares for a price equal to the original subscription price paid by the participant.

Related Party Disclosures

In conjunction with the completion of the acquisition of Vertigrow and the admission of the Company's enlarged share capital to AIM on 28 March 2022, the Company has entered into, amended and terminated a number of related party arrangements.  These are set out below.

Service agreements

On 25 February 2022 the Company entered into a service agreement with James Short. The contract provides for James Short to act as Chief Executive Officer of the Company at a salary of £245,000 per annum. The service agreement is terminable by either party giving not less than six months' prior notice in writing. Under the service agreement, James Short is entitled to 25 paid working days' holiday each year in addition to public holidays in England and Wales, to participate in a discretionary bonus scheme, participate in the Enlarged Group's pension scheme, and to participate in any benefit schemes provided by the Company, including medical and employee life insurance. James Short is subject to non-competition and non-solicitation covenants for a period of 12 months following termination of his employment with the Company and to a confidentiality undertaking.

On 25 February 2022 the Company entered into a service agreement with Kathleen Long. The contract provides for Kathleen Long to act as Chief Financial Officer of the Company at a salary of £100 per hour, capped at £750 per day and £3,750 per week. The service agreement is terminable by either party giving not less than six months' prior notice in writing. Under the service agreement, Kathleen Long is entitled on a pro rata basis to 25 paid working days' holiday each year in addition to public holidays in England and Wales, to participate in a discretionary bonus scheme, participate in the Group's pension scheme, and to participate in any benefit schemes provided by the Company, including medical and employee life insurance. Kathleen Long is subject to non-competition and non-solicitation covenants for a period of 12 months following termination of her employment with the Company and to a confidentiality undertaking.

Alexander Anton is engaged by the Company as a Non-Executive Director on the terms of a letter of appointment dated 25 February 2022 for an initial term of 12 months or until the first annual general meeting of the Company, terminable thereafter on not less than three months' prior written notice. Alexander Anton receives a fee of £50,000 per annum and is subject to confidentiality undertakings. He is not entitled to any payment on termination of his appointment by the Company, other than for fees due in respect of his notice period and reimbursement of any expenses properly incurred before the date of termination.

Robert Barr is engaged by the Company as a Non-Executive Director on the terms of a letter of appointment dated 25 February 2022 for an initial term of 12 months or until the first annual general meeting of the Company, terminable thereafter on not less than three months' prior written notice. Robert Barr receives a fee of £50,000 per annum and is subject to confidentiality undertakings. He is not entitled to any payment on termination of his appointment by the Company, other than for fees due in respect of his notice period and reimbursement of any expenses properly incurred before the date of termination.

Dr Steven Hajioff is engaged by the Company as a Non-Executive Director on the terms of a letter of appointment dated 25 February 2022 for an initial term of 12 months or until the first annual general meeting of the Company, terminable thereafter on not less than three months' prior written notice. Steven Hajioff receives a fee of £35,000 per annum and is subject to confidentiality undertakings. He is not entitled to any payment on termination of his appointment by the Company, other than for fees due in respect of his notice period and reimbursement of any expenses properly incurred before the date of termination.

Subsidiary Incentive Scheme

On the 11 April 2022, and pursuant to the amended Subsidiary Incentive Scheme, a number of new B Shares were issued to former and current Directors of the Company at subscription prices ranging from £0.0139 to £0.0144 per B Share.  The current allocation of B shares in issue to former and current Directors of the Company are set out below.

Shortly after the issuance of the new B Shares detailed above, in accordance with the terms of the resignation letters of Vin Murria and Tony Morris, all of Vin Murria's B Shares and 50,000 of Tony Morris' B Shares were bought back from the Subsidiary on 11 April 2022 at their original subscription cost of £14,000 and £700 respectively.

Irrevocable undertakings

During February 2022, Alexander Anton and Benjamin Shaw entered into irrevocable undertakings pursuant to which they each agreed to vote their direct and indirect holdings in favour of the resolutions being tabled to the Company's General Meeting which was held on 25 March 2022.

Subscription agreements

During February 2022, David Firth and Robert Barr entered into subscription agreements with the Company pursuant to which they agreed to subscribe for 12,121 and 45,454 ordinary shares respectively as part of the Company's placing, which completed on 28 March 2022.

Relationship agreement

The Company has entered into a relationship agreement dated 25 February 2022 with James Short to regulate aspects of the continuing relationship between the Company and James Short. In particular, for so long as James Short and his associates (within the meaning of the AIM Rules for Companies) hold an aggregate interest in voting rights representing at least 20 per cent. of the voting rights of the issued ordinary share capital of the Company, James Short has agreed to ensure that, amongst other matters, the Company is capable at all times of carrying on its business independently and that transactions between the parties are on arm's length basis terms and on normal commercial terms.

Lock-ins

The Directors who held ordinary shares following admission of the enlarged share capital of the Company to AIM, entered into an undertaking to Canaccord Genuity and the Company not to dispose of any interests in ordinary shares owned by them (subject to, and to the extent permitted by Rule 7 of the AIM Rules, certain limited exceptions) without the prior consent of Canaccord Genuity for one year from the date of admission, with such shares remaining subject to a further 12 month orderly market provision thereafter.

Market purchases

On 10 March 2022, Alexander Anton acquired 10,000 ordinary shares of the Company as part of a secondary market transaction, which was announced on 10 March 2022.  Following this and 209,569 ordinary shares held indirectly as a result of the share consideration paid by the Company to Vertigrow shareholders, Alexander Anton's shareholding in the Company increased to 1,319,569 ordinary shares, representing 2.1 per cent. of the Company's share capital.