NetScientific plc

("NetScientific", "NSCI", the Group" or the "Company")

 

Preliminary Results for the year ended 31 December 2021

 

Good results demonstrate excellent progress in growth strategy to realise shareholder returns

 

NetScientific plc (AIM: NSCI), the international life sciences and sustainability, technology investment and commercialisation group, announces its preliminary results for the year ended 31 December 2021.

 

This was an excellent year of progress for the company as shown in the results. Implementation of its planned growth strategy  has accelerated and delivered a step change, both strategically and tactically.

 

Highlights:

·      Practical completion of the business turnaround

·      Proactive management focused on delivering significant returns

·      Raised £7.7 million in an oversubscribed placing 

o  Enabled acceleration of investment and growth

·      Further expansion of the well-balanced portfolio from 17 to 22 companies in targeted sectors

o  Deeper involvement in selected companies, potential for greater returns;

o  Judicious investments, combining direct balance sheet with "capital light" approach

o  Direct investments of c.£4.5m in 9 portfolio companies, plus Cetromed acquisition and new stake in Martlet Capital - supplemented with syndicated investments adding £7.5m to "capital under advisory"

o  Key value inflection points identified for profitable liquidity events and exits

·      Loss for the year of £2.9m (2020: loss £2.3m) reflecting substantial expensed R&D investment and continued building of the NetScientific platform

·      Transformed financial position

o  Increases of around 50% in "fair value" and "capital under advisory"

o  Strengthened balance sheet, 69% increase in cash to £2.7 million (2020: £1.6 million)

o  156% increase in total assets £20.7 million (2020: £8.1 million)

·      Progress in "Trans-Atlantic bridges" programme and international expansion

·      Strong position, well placed to realise optimal shareholder value

 

Post Period Highlights:

·      Acquisition of 30% of Vortex Biotech Holdings

 

Analyst Briefing: 09.30, Thursday 12 May

Management will be hosting a remote presentation via web conference today at 09.30 BST. Analysts wishing to join should register their interest by emailing [email protected] or by telephoning 020 7933 8780.

 

Investor Presentation: 16.00, Thursday 12 May

The Company will be hosting a presentation to discuss the results through the digital platform, Investor Meet Company, at 16.00 today.

 

Investors can sign up to Investor Meet Company for free and add to meet NetScientific via the following link https://www.investormeetcompany.com/netscientific-plc/register-investor

 

Dr. Ilian Iliev, CEO and John Clarkson, Executive Chairman of NetScientific commented: "We are delighted with the Company's performance during the period. The business has been transformed and we have a clear, planned route and growth strategy to optimise shareholder value from our investments."

 

"We remain extremely excited by the growth trajectory of our current portfolio and look forward to adding to this further in due course. This will be supplemented by the creation of a hub in America, which we believe will further enable us to drive value, with our focus on identifying liquidity events and exits at the appropriate juncture."

 

For more information, please contact:

 

NetScientific	Via Walbrook PR
Ilian Iliev, CEO
WH Ireland (NOMAD, Financial Adviser and Broker)
Chris Fielding / Darshan Patel	+44 (0)20 7220 1666
Walbrook PR	+44 (0)20 7933 8780 or [email protected]
Nick Rome / Tom Cooper	07748 325 236 / 07971 221 972

 

 

About NetScientific

NetScientific plc (AIM: NSCI) is a holding company, that invests in, develops, commercialises and realises shareholder value in life sciences/healthcare, sustainability and technology companies, which offer significant growth potential predominately in the UK,  USA, EU and beyond. 

 

The Group has nearly trebled its portfolio from 8 to 22 companies, either through subsidiary, direct balance sheet investment or capital under advisory, varying from start-up private companies to publicly listed equities. 

 

NetScientific delivers shareholder returns through a proactive and hands-on management approach to their portfolio companies; identifying, investing in, and helping to build game-changing companies. The Group targets value inflection points and the release of value through partial or full exits from trade sales, public listings, or equity sales. The Company has a strong transatlantic and growing international presence, providing attractive expansion prospects. 

 

NSCI can deploy a capital-light investment structure; utilising the power of the PLC Brand, and the NetScientific balance sheet to anchor future investments and achieve a multiplier effect by attracting 3rd party investment for the portfolio companies. 

 

NetScientific is headquartered in London, United Kingdom, and was admitted to trading on AIM, a market operated by the London Stock Exchange, in 2013 (website: netscientific.net).

 

CHAIRMAN'S AND CHIEF EXECUTIVE OFFICER'S STATEMENT

Overview

We are pleased to present the NetScientific Plc ("NetScientific", the "Group" or the "Company") annual report and accounts for 2021, which as the results show, proved to be a year of excellent progress for the company.

NetScientific Plc is an active holding company, that invests in, develops, commercialises and aims to realise significant increases in capital returns from healthcare/life sciences, sustainability and technology companies. The Group builds and leverages trans-Atlantic relationships and global opportunities to optimise shareholder value from its investments.

The Group has continued its planned implementation of the new  growth strategy agreed in 2020 (ref: Annual Report 2020), and delivered a step change in 2021, both strategically and tactically. Highlights include:

·    practical completion of the planned turnaround of NetScientific and its subsidiary companies;

·    a successful over-subscribed placing, raising additional funds of £7.7 million (£7.3 million net of costs);

·    accelerated implementation of the agreed growth strategy;

·    further expanded the well-balanced portfolio from 17 to 22 companies in targeted sectors and high-tech clusters in Cambridge, UK and Leuven, Belgium;

·    using our "capital light" in a number of transactions, including further investments in the portfolio, deeper involvement in selected companies, which offer the potential for greater returns;

·    applying our proactive management approach to support and drive the portfolio companies, utilising group synergies and with the requisite commercial focus to deliver significant returns;

·    strengthening our balance sheet, with encouraging increases of 46% in "fair value" and 51% in "capital under advisory" (exemplified in the KPIs below);

·    progressing the "trans-atlantic bridges" programme, which is particularly appropriate in the current global situation; and

·    building the holding company platform, with the necessary resources and infrastructure, to develop, expand and drive business growth through appropriate key value inflection points and ultimately delivery of profitable liquidity events and exits.

The Group was able to take advantage of a range of investment opportunities particularly in the latter part of 2021, in both existing and new portfolio companies, totaling some £4.5m of direct investments.

As a result of the noted progress above, the company is ahead of where previously anticipated.

This is despite the difficult external environment, primarily caused by the pandemic, tech markets weakness and the more recent conflict in Ukraine. Reflecting this situation, the last few months have seen significant turmoil in the public markets in the UK and globally. Consequently, as with other biotech and tech focused stocks, our share price has been adversely impacted. which is disappointing for shareholders. However, having completed the turnround and transformed the business, the Group is now in a strong position.

The Board will closely monitor events and maintain a flexible approach to new opportunities, both for investment and generating returns from our investments. NetScientific's portfolio is focused on fundamentally good businesses, with high growth prospects. These will generate returns through increased value of direct company holdings and a carry fee on "capital under advisory". We will build on this now established business model and operating template, to drive significant growth and realise shareholder value.

The Group also continues to be well positioned in the environmental, social and corporate governance ("ESG") and the impact investment space, with long-standing investments in sustainability and healthcare impact areas (such as chronic and infectious diseases) for both therapeutics and diagnostics. 

In summary, the Group is focused on sustainable value creation and forming a strong base. We continue to build key processes and infrastructure to enable increased transactional, portfolio management and investment realisation capacity. We finished 2021 with strong momentum, a rebuilt balance sheet and made further progress towards the realisation of key value inflection points.

Highlights and KPIs of the year

During 2021, the company continued to perform successfully against the stated objectives and milestones as follows.

·    The "fair value" (unaudited Directors' estimated value based on BVCA valuation principles) of direct owned stakes increased by c. 46% from £21.2m to £31.0m, with further growth anticipated.

·    The value of "capital under advisory increased by c. 51% from £14.6m to £22.1m.

·    "Capital under advisory" is associated with carried interest or profit share agreements, typically between 15% and 20% of the profit on advised funds above a minimum return hurdle rate of up to 10%. While it is difficult to value or estimate the current value of these stakes, for illustrative purposes an average 2x return on the portfolio of £22.1m investments could result in carry returns to EMV Capital of £3.3m to £4.4m (2020: £2.2m to £2.9m) depending on the specific carry arrangements.

·    Increased total Group portfolio from 17 to 22 companies (including EMVC).

·    The share price increased on average by 63% from the 2020 average point of 55.3p to a 2021 average of 90.4p. Current share price is 80.0p as of 27 April 2022. The high share price for the year was 180.0p on 8 June 2021 and the low point was 43.0p on 6 January 2021. Analysts continue to value the Group at 180.0p, more than double the current share price. 

·    Loss for the year increased slightly by 22% on increased activity, R&D, and infrastructure spend, from the previous year's loss of £2.3 million, to £2.9 million in 2021.

·    As a result of the actions taken in 2021, the company ends the year with a stronger balance sheet.

§ Cash on the balance sheet £2.7 million (2020: £1.6 million) a 69% increase.

§ Total assets £20.7 million (2020: £8.1 million) a 156% increase.

§ Net assets £18.5 million (2020: £6.9 million) a 168% increase.

§ Working Capital percentage 270% (2020: 289%).

§ Debt to Equity percentage 12% (2020: 17%).

·    Increased deal execution and revenues.

 

Portfolio Summary

In addition to the portfolio at the start of the year, the Group's base has been broadened and strengthened, through the successful acquisition of Cetromed and its related companies and the investment in Martlet Capital, Cambridge. This reinforces our position in strategic sectors, which are well positioned for significant growth. Our approach is to assess, facilitate and support each company to be a successful independent businesses, while always looking to realise the potential and deliver optimal shareholder returns.

Our broader and stronger portfolio is well-balanced, facilitates risk management and provides synergistic benefits, through coordinated management action across the Group. The portfolio includes: subsidiaries, direct balance sheet investments and capital under advisory, in companies which range from start-up private companies to publicly listed equities.

Finance

NetScientific is not a trading company. It invests in opportunities to realise capital returns, but seeks to realise revenues, and offset costs where possible. For the year, the Group made a loss of £2.9 million (2020: £2.3 million), all from continuing operations. The loss reflects the loss making of the subsidiaries, primarily due to continued expensed investment in R&D at Glycotest and ProAxsis, delayed sales at ProAxsis due to COVID disruption, and further expensed infrastructure and resource buildout at NetScientific and EMV Capital.

Total comprehensive profit for the year £3.1 million (2020: loss of £2.4 million) after taking into account increases in fair value of equity investments classified as fair value through other comprehensive income.

Direct investments made during 2021 were as follows:

 

Date	Company	Country	Type of Investment	Amount
				£'000s
March	SageTech Medical Equipment	UK	Equity	201
April	PointGrab	IL	Equity	58
April	Sofant	UK	Convertible Loan Note	100
June	PDS Biotechnology	US	Equity	363
August	SageTech Medical Equipment	UK	Equity	266
September	Sofant	UK	Convertible Loan Note	200
September	Martlet Capital	UK	Equity	175
September	Martlet Capital	UK	Convertible Loan Note	75
October	Q-Bot	UK	Convertible Loan Note	300
October - December	Q-Bot	UK	Equity	1,025
November	Epibone, Inc.	US	Convertible Loan Note	531
November	PointGrab	IL	Equity	5
December	Cetromed	BEL	Equity	192
December	Cetromed	BEL	Debenture	200
December	SageTech Medical Equipment	UK	Equity	100
Sub total				3,791
Subsidiary investments
EMV Capital				259
ProAxsis				200
Glycotest				293
Sub total				752
Total Investments made during 2021				4,543

 

As a result of the actions taken in 2021, the company ends the year with a stronger balance sheet as shown below: 

·      Cash on the balance sheet £2.7 million (2020: £1.6 million) a 66% increase.

·      Total assets £20.7 million (2020: £8.1 million) a 157% increase.

·      Net assets £18.5 million (2020: £6.9 million) a 168% increase.

·      Working Capital percentage 270% (2020: 289%).

·      Debt to Equity percentage 12% (2020: 17%).

Cash

Cash on the balance sheet as at 31 December 2021 was £2.7 million (2020: £1.6 million), of which £2.1 million (2020: £0.9 million) is held in the parent company.

Cash used in operations in 2021, was £3.5 million (2020: £2.8 million), the increase mainly due to investment in infrastructure, further investments, and additional management resources as build out proactive management team and continued research and development work.

The cash held within the subsidiary Glycotest, of which £0.4m (2020: £0.6m) is not freely available for use within the wider group as it would need the consent of a minority shareholder.

Going Concern

Having made substantial investments in 2021 and recognising the market conditions, various alternative scenarios were examined, prior to determining the appropriate base budgets. These were reviewed and assessed by the Board at their meeting on 1st of February 2022, before approval.

The review included the key budget assumptions, sensitivities, and contingency plans to cover eventualities, including the associated cash flow projections. The review has also taken into consideration the potential impact of changing market conditions and other risks. Having made substantial progress and as shown on the balance sheet, the Group is now in a much stronger position compared to previous years. The Board will closely monitor events and maintain a flexible approach to new opportunities, both for investment and realising returns/financing. Also, there may be additional opportunities to generate new revenue streams, further ensuring the Group has options and cash to mid-2023 and beyond. The financial statements have therefore been prepared on a going concern basis.

COVID

The Group continues to monitor the pandemic and follow Government advice. It generally has been able to manage the negative impact on the Group. The consequences have varied across the portfolio, including opening up new opportunities and the individual companies have adjusted accordingly. Group companies have received minimal amounts of Government Covid-19 business support. The approach has been to respond proactively to the operating environment, particularly to minimise downside risks and concentrate on upside opportunities. For example, as a leading respiratory company, ProAxsis has focused on research and commercial development, winning substantial grants (mainly Covid related), which is expected to result in five new products, new revenue streams and further capital gains coming online during 2022.

Given the core focus of the Group, the Board believes that in the aftermath of the COVID pandemic there is increased potential across several of its portfolio companies, and the Group's model overall.

Global Environment

The Group is operating in an increasing uncertain macroeconomic environment. Capital markets saw significant volatility and uncertainty at the start of 2022. More recently geopolitical concerns, most notably Russia's recent invasion of Ukraine, are causing additional global market volatility and uncertainty.

Summary and Outlook

NetScientific has transformed from the inherited situation in 2020 and ended 2021 in a strong position; with a clear, planned route and growth strategy to optimise shareholder value from its investments. We have achieved this transformation by:

·    Proactive management, with commercial discipline and effective risk management, focused on delivering results, increased revenue and added value, in the portfolio companies.

·    Applying the "capital light" investment approach, which leverages NetScientific's balance sheet and Plc status to bring in syndicated funding across each portfolio company's life cycle, earning fees and capturing value through "capital under advisory".

·    Judicious direct and syndicated investments, targeted to reflect the post pandemic world, to produce enhanced returns.

·    Continuing to establish the necessary resources and infrastructure to drive the strategic and business plans.

·    Building the NetScientific platform for robust evaluation, quantified decisions and managed expansion to capitalise on the multiple prospects and potential for substantial returns.

·    Exploiting the transatlantic and global opportunities and harnessing the Group synergies, which is particularly appropriate in the current international and economic environment.

·    Realigning the market capitalisation, with both the underlying asset value and future potential with clear and focused investor relations.

·    Further developing and implementing performance driven plans, incorporating ESG criteria, with clearly defined milestones and KPIs to scale the business and maximising the profitable capital growth of the portfolio.

·    Targeted deeper investment involvement and influence in selected portfolio companies, which have the potential to realise £50m-100m+ in value which would enable NetScientific to achieve a £5m-10m+ return on liquidity events.

·    Structured evaluation and projections of value inflection points, plus exit opportunities and liquidity events, with the increased focus on realising shareholder returns.

 

The Board believes that the extended portfolio holds great potential; and remains assured in the Company's long-term prospects, despite the short-term market challenges. Management is committed to implementing and delivering the agreed strategy, and the Board is focused on realising optimal shareholder returns. 

John Clarkson	Ilian Iliev
Executive Chairman	Chief Executive Officer
11 May 2022	11 May 2022

 

Consolidated INCOME Statement

For the year ended 31 December 2021

 

Continuing Operations	Notes	2021 £000's	2020 £000's
Total Income		1,260	1,103
Revenue		1,107	394
Cost of sales		(118)	(46)
Gross profit		989	348
Other operating income		153	599
Research and development costs		(1,322)	(1,227)
General and administrative costs		(2,573)	(1,988)
Other costs		(207)	(195)
Loss from continuing operations		(2,960)	(2,463)
Finance income		23	110
Finance expense		(22)	(28)
Gain on purchase		36	-
Loss before taxation		(2,923)	(2,381)
Income tax credit		61	43
Total Loss for the year all from continuing operations		(2,862)	(2,338)
Owners of the parent		(2,385)	(1,611)
Non-controlling interests		(477)	(727)
		(2,862)	(2,338)
Basic and diluted loss per share from continuing and discontinued operations attributable to owners of the parent during the year:
Continuing operations	5	(13.2p)	(2.9p)
From loss for the year		(13.2p)	(2.9p)

 

 

Consolidated Statement OF Comprehensive Income

For the year ended 31 December 2021

 

		2021	2020
		£000's	£000's
Loss for the year		(2,862)	(2,338)
Other comprehensive income/(loss):
Exchange differences on translation of foreign operations		(99)	(3)
Change in fair value of equity investments classified as FVTOCI		6,009	(97)
Total comprehensive profit/(loss) for the year		3,138	(2,438)

 

 

Attributable to:
Owners of the parent		3,624	(1,724)
Non-controlling interests		(486)	(714)
		3,138	(2,438)

 

 

Consolidated Statement of Financial Position

As at 31 December 2021

 

	Notes	2021 £000's	2020 £000's
Assets
Non-current assets
Property, plant and equipment	8	136	128
Right-of-use assets	9	158	189
Intangible assets	10	3,045	2,623
Equity investments classified as FVTOCI*	11	11,516	2,970
Financial assets classified as FVTPL**	12	1,462	78
Total non-current assets		16,317	5,988
Current assets
Inventory		67	74
Trade and other receivables		1,598	376
Cash and cash equivalents		2,710	1,628
Total current assets		4,375	2,078
Total assets		20,692	8,066
Liabilities Current liabilities
Trade and other payables		(1,529)	(661)
Lease liabilities		(32)	(31)
Loans and borrowings		(59)	(28)
Total current liabilities		(1,620)	(720)
Non-current liabilities
Lease liabilities		(131)	(163)
Loans and borrowings		(432)	(287)
Total non-current liabilities		(563)	(450)
Total liabilities		(2,183)	(1,170)
Net assets		18,509	6,896

 

Issued capital and reserves Attributable to the parent
Called up share capital		1,056	746
Warrants		42	-
Share premium account		72,792	65,594
Capital reserve account		237	237
Equity investment reserve		4,504	(1,505)
Foreign exchange reserve		1,368	1,368
Accumulated losses		(61,499)	(59,702)
Equity attributable to the owners of the parent		18,500	6,738
Non-controlling interests		9	158
Total equity		18,509	6,896

*Fair value through other comprehensive income

**Fair value through profit and loss

 

 Consolidated Statement of Changes in Equity

As at 31 December 2021

 

			Shareholders' equity
	Share capital £000's	Warrants £000's	Share premium £000's	Capital reserve £000's	Equity investment reserve £000's	Accum-ulated losses £000's	Foreign exchange and capital reserve £000's	Total £000's	Non-controlling interests £000's	Total equity £000's
1 January 2020	3,928	-	58,006	237	(1,408)	(56,681)	1,384	5,466	(361)	5,105
Loss for the period	-	-	-	-	-	(1,611)	-	(1,611)	(727)	(2,338)
Other comprehensive loss/income -
Foreign exchange differences	-	-	-	-	-	-	(16)	(16)	13	(3)
Change in fair value of equity investments classified as FVTOCI	-	-	-	-	(97)	-	-	(97)	-	(97)
Total comprehensive loss	-	-	-	-	(97)	(1,611)	(16)	(1,724)	(714)	(2,438)
Share re-organisation	(3,535)	-	3,535	-	-	-	-	-	-	-
Issue of share capital	353	-	4,236	-	-	-	-	4,589	-	4,589
Cost of share issue	-	-	(183)	-	-	-	-	(183)	-	(183)
Increase/decrease in subsidiary shareholding	-	-	-	-	-	(1,463)	-	(1,463)	1,233	(230)
Share-based payments	-	-	-	-	-	53	-	53	-	53
31 December 2020	746	-	65,594	237	(1,505)	(59,702)	1,368	6,738	158	6,896
Loss for the period	-	-	-	-	-	(2,385)	-	(2,385)	(477)	(2,862)
Other comprehensive loss/income -
Foreign exchange differences	-	-	-	-	-	-	-	-	(9)	(9)
Change in fair value of equity investments classified as FVTOCI	-	-	-	-	6,009	-	-	6,009	-	6,009
Total comprehensive profit/(loss)	-	-	-	-	6,009	(2,385)	-	3,624	(486)	3,138
Issue of share capital	310	-	7,635	-	-	-	-	7,945	-	7,945
Cost of share issue	-	-	(437)	-	-	-	-	(437)	-	(437)
Issue of warrants	-	42	-	-	-	-	-	42	-	42
Decrease in subsidiary shareholding	-	-	-	-	-	447	-	447	337	784
Share-based payments	-	-	-	-	-	141	-	141	-	141
31 December 2021	1,056	42	72,792	237	4,504	(61,499)	1,368	18,500	9	18,509

 

 

 Consolidated Statement of Cash Flows

As at 31 December 2021

 

		Notes		2021 £000's		2020 £000's
Cash flows from operating activities
Loss after income tax including discontinued operations				(2,862)		(2,338)
Adjustments for:
Depreciation of property, plant and equipment		8		54		44
Depreciation of right-of-use assets				31		32
Amortisation of intangibles				163		77
Estimated credit losses on trade receivables				2		(37)
Bad debt expense				9		-
Gain on purchase of subsidiary				(36)		-
Fair value movement during the year on convertible debt				(28)		(120)
Release of loan provision				-		(224)
Capitalisation of development costs				(585)		(337)
Share-based payments				141		53
R&D tax credit				(81)		-
Foreign exchange movement				2		1
Finance income				(23)		(110)
Finance costs				10		14
Tax credit				(61)		(43)
				(3,264)		(2,988)
Changes in working capital
Decrease/(increase) in inventory				7		(44)
(Increase)/decrease in trade and other receivables				(1,148)		325
Increase/(decrease) in trade and other payables				864		(172)
Cash used in operations				(3,541)		(2,879)
Income tax received Income tax paid				78 (12)		88 -
Net cash (used) in operating activities				(3,475)		(2,791)
Cash flows from investing activities
Acquisition of subsidiary, net cash acquired				3		128
Purchase of property, plant and equipment				(62)		(39)
Purchase of available for sale investments				(2,192)		(999)
Purchase of derivative financial assets				(1,207)		-
Purchase of intangibles				-		(50)
Interest received				-		1
Interest paid				(5)		-
Net cash (used in) investing activities				(3,463)		(959)
Cash flows from financing activities
Proceeds paid on change in stake in subsidiary			-		(230)
Proceeds received on change in stake in subsidiary			700		-
Lease payments			(38)		(38)
Repayment of loans and borrowings			(502)		(200)
Proceeds from loans and borrowings			550		245
Proceeds from share issue			7,746		2,300
Share issue costs			(437)		(183)
Net cash from financing activities			8,019		1,894
Increase/(decrease) in cash and cash equivalents			1,081		(1,856)
Cash and cash equivalents at beginning of year			1,628		3,453
Exchange differences on cash and cash equivalents			1		31
Cash and cash equivalents at end of year			2,710		1,628

 

 

Notes to the Financial Information for the Year Ended 31 December 2021

 

1.            GENERAL INFORMATION

 

The Company is a public limited company incorporated on 12 April 2012 and domiciled in England with registered number 08026888 and its shares are listed on the Alternative Investment Market (AIM) of the London Stock Exchange. The address of the registered office is C/o Azets, Burnham Yard, London End, Beaconsfield, Buckinghamshire HP9 2JH.

 

 

2.            BASIS OF PREPARATION

 

The preliminary results of the year ended 31 December 2021 have been extracted from audited accounts which have not yet been delivered to Companies House.

 

The financial information set out in this announcement does not constitute statutory accounts for the year ended 31 December 2021.

 

The report of the auditors on the statutory accounts for the year ended 31 December 2021 was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The financial statements for the year ended 31 December 2021 included in this announcement were authorised for issue in accordance with a resolution of the Board of Directors on 11 May 2022.

 

 

3.            GOING CONCERN

               

NetScientific's financial position is positively transformed from the start of the previous year. The overall loss in the financial year of £2.9m (2020: £2.3m) includes investment in R&D, establishing the business infrastructure and platform for further expansion, as well as the ongoing management and development of portfolio companies. The successful £7.7m placement in June 2021 enabled NetScientific to accelerate its investment and growth strategy in the second half of the year. In this context, the Directors have prepared and reviewed budget cashflows which were approved by the Board of Directors in the Board meeting of 1 February 2022.

As a result, NetScientific is now in a fundamentally stronger position; with assets up from £8m to £18m, with an extended, increasingly valuable portfolio, and in addition to cash-in-bank, holding liquid assets of some £6m. In this context, the Directors have prepared and reviewed budget cashflows which were approved by the Board of Directors in the Board meeting of 1 February 2022.

NetScientific has reviewed the major budgeted assumptions and sensitivities in light of recovery from the impacts of COVID-19 and the broader economic environment. It has the option of cash preservation plans across the Group and delayed expenditure when appropriate. The review has also taken into consideration the potential impact of changing market conditions and other risks. Having made substantial progress, NetScientific is now in a secure position. The Board will closely monitor events and maintain a flexible approach to new opportunities, both for investment and realising returns/financing. 

With this approach, NetScientific will carefully manage its cash flow to maintain going concern status through to June 2023 and beyond. Over this period, the Group requires a minimum of approximately £1.6m to maintain going concern status. This finance can be covered through several options, either on their own or in combination. These options include: driving revenue, price increases, appropriate financing at both subsidiary and Group level, pursuit of further grant income, soft and non-dilutive finance, delaying of expenditures, deferring  projects, revised investments, partial sell-downs of stakes or full disposal, closely managing receipts and payments from third parties and achieving planned cost savings amongst others. Naturally NetScientific complies with accounting standards and regulatory guidance, which are reflected in the board's approach and commentary. As exemplified above, going forward NetScientific now has financial strength and an excellent range of options and financing alternatives which are yet to be finalised. These events and conditions indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. Recognising the various factors, there will be vigilant management of events and implementation of necessary actions to ensure NetScientific's ability to continue as a going concern. The proactive management approach is not only applied to the portfolio companies, but throughout the organisation. This is reflected in both strategic planning and tactical decisions. Hence having evaluated potential risks and the range of scenarios, NetScientific looks forward to a very positive future.

 The financial statements do not include any adjustments that would be necessary if NetScientific was unable to continue as a going concern. Based on the success in the implementation of the new strategy since 2020, the Directors are confident that NetScientific remains a going concern, and it is appropriate to prepare the financial statements on this basis.

 

4.            SIGNIFICANT ACCOUNTING POLICIES

 

The Group financial statements have been prepared in accordance with UK adopted international accounting standards as they apply to the financial statements of the Group for the year ended 31 December 2021. The principal accounting policies adopted in the preparation of the financial information are set out below. The policies have been consistently applied to all the years presented.

While the financial information included in this preliminary announcement has been prepared in accordance with IFRS, this announcement does not in itself contain sufficient information to comply with IFRS. The Group expects to publish full financial statements by 27 May 2022.

 

 

5.         LOSS PER SHARE

 

The basic and diluted loss per share is calculated by dividing the loss for the financial year by the weighted average number of ordinary shares in issue during the year. Potential ordinary shares from outstanding options at 31 December 2021 of 1,064,498 (2020: 656,729) (see note 31) are not treated as dilutive as the entity is loss making.

	2021 £000's	2020 £000's
Loss attributable to equity holders of the Company
Continuing operations	2,385	1,611
Total	2,385	1,611
Number of shares
Weighted average number of ordinary shares in issue	18,050,724	56,129,350

In the prior year on 24 August 2020, a share capital re-organisation took place. This had the effect of consolidating each ten existing options into one new option. The effect of the share capital re-organisation was that the exercise price of the options issued in the past was also multiplied by ten to be fair and equitable. The total number of options in the Company post the share capital re-organisation was 385,598.

 

6.         BUSINESS COMBINATIONS ACQUIRED DURING THE PERIOD

 

Cetromed acquisition

On 20 December 2021, NetScientific Plc acquired 75% of the voting equity of Cetromed Limited a life science holding company with several portfolio companies spun out of the university of Leuven, Belgium. Cetromed was a holding company owned by the Azima Trust (through Zahra Holdings Ltd), the family trust of Farad Azima, the founder and ex-CEO of NetScientific (who passed away in 2020). The portfolio was formed around several life sciences investments commercialised out of the Belgium-based K.U. Leuven, a leading European research institution with strengths in Medical Technologies, Bio-Sciences and Environment, and others. Its core assets include:

·    FOx Biosystems (5.059% stake) which provides real-time, label-free analysis technology based on an innovative fibre-optic-based surface plasmon resonance biosensor, enabling users to generate high quality biomolecular data such as affinity data, kinetic data and concentration measurements. The stake was valued at c. €400k at the last investment round of €7.91m in 2020. The company was formed as a spin-out following a sponsored research agreement with K.U. Leuven that saw Cetromed invest €537k. The company is backed by LRM, Heran Partners, K.U. Leuven's Gemma Frisius Fund, and Leuven University. 

·    DName-iT (61.54% stake) which is developing biological barcodes to provide improved quality assurance through the entire genetic testing process. This technology offers a new level of traceability and quality control to the workflow of genetic tests based on Next Generation Sequencing (NGS) and beyond. The previous funding round was £1.3m of which Cetromed invested £0.8m for its stake in 2015. 

·    Oncocidia (41.27% stake) which is developing a targeted radiopharmaceutical cancer treatment, which involves extending the already successful use of Iodine-131 in treating thyroid cancer, to treat solid cancers elsewhere in the body. Cetromed invested £0.2m for its stake in 2015.

Details of the fair value of identifiable assets and liabilities acquired purchase consideration and goodwill are as follows:

		Book Value £000's		Adjustments £000's		Fair Value £000's
Assets
Intangible assets		427		(427)		-
Equity Investments classified as FVTOCI		342		-		342
Financial assets classified as FVTPL		129		-		129
Bank		3		-		3
Prepayments		2		-		2
Other Debtors		5		-		5
Total assets		908		(427)		481
Liabilities
Trade Payables		(13)		-		(13)
Accruals		(118)		82		(36)
Loan		(128)		-		(128)
Total liabilities		(259)		82		(177)
Net assets		649		(345)		304
Minority interest	25%					(76)
Net Assets Acquired	75%					228

Fair value of consideration paid is as follows:

						2021 £000's
Issue of 146,542 NetScientific Plc 5p ordinary shares						150
Issue of 146,542 NetScientific Plc warrants at a strike price of £1.30 per share exercisable within five years						42
Total Consideration Paid						192
No separately identified intangibles						-
Gain on purchase						36
Total net assets acquired						228

 

Acquisition costs of £15k arose as a result of the transaction. These have been recognised as part of administrative expenses in the statement of comprehensive income.

Zahra Holdings Limited has agreed to lock-in provisions, for a 12-month period following completion of the acquisition, relating to the Consideration Shares and the existing 938,952 NetScientific shares held by Zedra Trust Company (Jersey) Limited. Zahra Holdings Limited and Zedra Trust Company (Jersey) Limited are Azima Trust companies.

Since the acquisition date, Cetromed has contributed operating losses of £3k to Group. If the acquisition had occurred on 1 January 2021, the acquisition would have increased the overall Group loss by £83k net of minority interest.

EMVC Acquisition

In the prior year on 25 August 2020, the Group acquired 100% of the voting equity of EMV Capital Limited from Futura Messis Group Limited, a company owned and managed by Dr Ilian Iliev. The principal activity is venture capital and corporate finance with interests in the industrials, energy and healthcare sectors. Key reasons for the acquisition were to add scale, operational and investment capabilities, team and additional revenue channels that NetScientific did not have in-house. Taken in combination, the acquisition continues to unlock additional value creation opportunities for NetScientific shareholders.

Details of the fair value of identifiable assets and liabilities acquired purchase consideration and goodwill are as follows:

		Book Value £000's		Adjustments £000's		Fair Value £000's
Assets
Property, plant and equipment		6		-		6
Intangible assets		17		-		17
Bank		139		-		139
Trade Receivables		34		-		34
Prepayments		4		-		4
Accrued Income		76		(11)		65
Other Debtors		1		-		1
Total assets		277		(11)		266
Liabilities
Trade Payables		(59)		-		(59)
Accruals		(93)		-		(93)
Other Creditors		(39)		-		(39)
Corporation Tax		(32)		-		(32)
Bank loan		(50)		-		(50)
Total liabilities		(273)		-		(273)
Net assets/liabilities		4		(11)		(7)

 

Fair value of consideration paid is as follows:

						2020 £000's
Issue of NetScientific Plc 5p ordinary shares						2,289
Total Consideration Paid						2,289
Separately identifiable intangible assets
Carry interest arrangements (Capital Gain Based Value)						1,627
Investment acquisition costs						17
Goodwill (see note 17)						669
Total intangibles acquired						2,313

 

Acquisition costs of £179k arose as a result of the transaction. These have been recognised as part of administrative expenses in the statement of comprehensive income.

The consideration settled in shares is subject to a number of warranties over a three-year period following the date of acquisition.

The main factors leading to the recognition of goodwill are:

·      The presence of certain intangible assets, such as the assembled workforce of the acquired entity, EIS practice, infrastructure, thought leadership, brand, deal flow and investor network and relationships, which do not qualify for separate recognition.

·      Economies of scale which result in the Group being prepared to pay a premium.

·      Carry interest arrangements and profit share are a material identifiable class of asset that has been recognised separately.

 

The goodwill recognised will not be deductible for tax purposes.

 

7.         INVESTMENTS IN SUBSIDIARY UNDERTAKINGS

 

The Group had the following subsidiaries at 31 December 2021:

Name	Primary trading address	Country of incorporation or registration	Proportion of ownership interest at 31 December 2021	Proportion of ownership interest at 31 December 2020	Proportion of ownership interest held by non-controlling interests at 31 December 2021	Proportion of ownership interest held by non-controlling Interests at 31 December 2020
NetScientific UK Limited	(a)	UK	100%	100%	-	-
EMV Capital Limited	(b)	UK	100%	100%	-	-
ProAxsis Limited * (i)	(c)	UK	100%	100%	-	-
Cetromed Limited	(a)	UK	75%	-	25%	-
Frontier Biosciences Limited *	(a)	UK	75%	-	25%	-
Frontier Oncology Limited *	(a)	UK	75%	-	25%	-
NetScientific America, Inc.	(d)	USA	100%	100%	-	-
Glycotest, Inc. (i), (ii)	(e)	USA	62.5%	65.6%	37.5%	34.4%

 

For all undertakings listed above, the country of operation is the same as its country of incorporation or registration.

 

*       Held via an intermediate holding company.

All of the ownerships shown above relate to ordinary shareholdings.

(i)      Options have been issued by ProAxsis Ltd and Glycotest, Inc. which if exercised would dilute the Company's shareholding by 5% and 66% respectively.

(ii)     Following issue of further shares during the prior year the Group's interest was reduced to 64.0% on the 30 March 2021 and then to 62.5% on 27 October 2021.

 

                      Registered office address:

(a)   Azets, Burnham Yard, London End, Beaconsfield, Buckinghamshire, HP9 2JH

(b)   Level 39, One Canada Square, Canary Wharf, London, E14 5AB

(c)   Unit 1B, Concourse Building, 3, Catalyst Inc, Titanic Quarter, 6 Queens Road, Belfast, BT3 9DT, Northern Ireland

(d)   1650 Market Street, Suite 4900, Philadelphia, Pennsylvania, 19103-7300, United States of America

(e)   613 Schiller Avenue, Merion, Philadelphia, Pennsylvania, PA 19066, United States of America

 

The addresses listed above are also the registered offices of the relevant entities.

 

8.         PROPERTY, PLANT AND EQUIPMENT

 

	Leasehold Improvement £000's	Furniture, fittings and equipment £000's				Plant and machinery £000's		Totals £000's
Cost
At 1 January 2020	100	22			139			261
Additions	-	8			31			39
Acquired	-	6			-			6
Disposals	-	(1)			-			(1)
At 31 December 2020	100	35			170			305
Additions	-	20			42			62
At 31 December 2021	100	55			212			367
Depreciation
At 1 January 2020	32	15			86			133
Acquired	-	1			-			1
Charge for the year	10	3			31			44
Disposals	-	(1)			-			(1)
At 31 December 2020	42	18			117			177
Charge for the year	10	11			33			54
At 31 December 2021	52	29			150			231
Net book value
At 31 December 2021	48	26			62			136
At 31 December 2020	58	17			53			128

(i)            Leasehold improvements of £100k are funded by a loan.

 

 

9.         RIGHT-OF-USE-ASSETS

 

				2021 £000's		2020 £000's
Cost
At 1 January				253		253
At 31 December				253		253
Amortisation
At 1 January				(64)		(32)
Charge for the year				(31)		(32)
At 31 December				(95)		(64)
Net book value
At 31 December				158		189

There is one long term lease, the Group has decided it will apply the modified retrospective approach to IFRS 16, and therefore will only recognise leases on balance sheet as at 1 January 2019. In addition, it has decided to measure right-of-use assets by reference to the measurement of the lease liability on that date. This will ensure there is no immediate impact to net assets on that date.

 

The lease liabilities were measured at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate as at 1 January 2019. The Group's incremental borrowing rate is the rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions. The rate applied was 3.5%.

Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset.

Short term leases still expensed as operating amount to £29k (2020: £28k) with a maturity of three to six months.

 

10.       INTANGIBLE ASSETS

            

	Goodwill	Carry Interest Arrangements	Development costs	Investment Acquisition Costs	Licenses and Patents	Total
	£000's	£000's	£000's	£000's	£000's	£000's
Cost
At 1 January 2020	-	-	-	-	-	-
Additions	-	-	337	-	50	387
Acquired through business combinations	669	1,627	-	17	-	2,313
At 31 December 2020	669	1,627	337	17	50	2,700
Additions	-	-	585	-	-	585
At 31 December 2021	669	1,627	922	17	50	3,285
Accumulated amortisation and impairment
At 1 January 2020	-	-	-	-	-	-
Amortisation charge	-	76	-	-	1	77
At 31 December 2020	-	76	-	-	1	77
Amortisation charge	-	140	18	-	5	163
At 31 December 2021	-	216	18	-	6	240
Net book value
At 31 December 2021	669	1,411	904	17	44	3,045
At 31 December 2020	669	1,551	337	17	49	2,623

Further ProAxsis development costs of £585k (2020: £337k) have been capitalised during the year in line with the accounting policy as certain projects meet all the criteria for development costs to be recognised as an asset as it is probable that future economic value will flow to the Group.

In the prior year on 25 August 2020, the Group acquired 100% of the voting equity of EMV Capital Limited from Futura Messis Group Limited, a company owned and managed by Dr Ilian Iliev. The acquisition has the potential to unlock additional value creation opportunities for NetScientific shareholders and reduce the risk of further value erosion. The consideration settled in shares is subject to a number of warranties over a three-year period following the date of acquisition. The Group acquired through business combinations total intangibles of £2,313k.

The main factors leading to the recognition of this intangible are:

·      the presence of certain intangible assets, such as the assembled workforce of the acquired entity, EIS fund practice, infrastructure, thought leadership, brand, deal flow and investor network and relationships, which do not qualify for separate recognition;

·      economies of scale which result in the Group being prepared to pay a premium; and

·      carry interest arrangements and profit share that are a material identifiable class of asset that has been recognised separately.

In the prior year ProAxsis acquired a key patent as part of the buyout of the founders and Queens University for £50k which will be amortised over the economic life of the patent.

 

11.       EQUITY INVESTMENTS CLASSIFIED AS FVTOCI

Represent equity securities classified as FVTOCI
	2021 £000's	2020 £000's
At 1 January	2,970	1,468
Additions	2,192	999
Conversion of financial assets classified as FVTPL	-	645
Acquired through business combinations	342	-
Change in fair value during the year	6,012	(142)
At 31 December	11,516	2,970

 

 

Name	Country of incorporation	% of issued share capital	Currency denomination	£000's
PDS Biotechnology Corporation	USA	4.72%	US$	8,047
CytoVale, Inc.	USA	1.00%	US$	371
EpiBone, Inc.	USA	0.84%	US$	290
G-Tech, Inc	USA	3.80%	US$	317
PointGrab	Israel	0.49%	US$	68
Fox Biosystems NV	Belgium	5.06%	EUR€	336
Q-Bot Limited	UK	18.28%	GBP£	1,025
SageTech Medical Equipment Limited	UK	5.89%	GBP£	887
Martlet Capital Limited	UK	1.51%	GBP£	175

 

The value of PDS Biotechnology Corporation at year end was based on the listed share price (Nasdaq under the ticker PDSB) of $8.10 per share at 31 December 2021 (2020: $$2.14). On 15 June 2021, Netscientific subscribed for £363k for 60,000 shares of PDS common stock at a price of $8.50 per share. In the prior year on 12 February 2020, Netscientific subscribed for £503k for 500,000 shares of PDS common stock at a price of $1.30 per share. On 12 August 2020, NetScientific subscribed for £496k for 236,000 shares of PDS common stock at a price of $2.75 per share as the Board did not wish to be unduly diluted if it did not participate. At 31 December 2021 Netscientific owns 1,338,833 shares of PDS' common stock (2020: 1,278,833 shares), representing approximately 4.72% of the undiluted share capital (2020: 5.75%). The current share price as of 27 April 2022 was $5.19 giving a fair value of the PDS investment of £5,558k. It is the Company's intention to hold the shares and to make a decision on its position in due course. The Group's interest in PDS Biotechnology is non-controlling.

CytoVale Inc. remains privately held, and fair value has been established using the share price and company valuation from investments by third parties during December 2019. CytoVale raised $15.0m all at the same price per share from a Venture Capital, private investor and government sources. At the time this was the only observable valuation on which to value CytoVale.

In the prior year on 23 January 2020, EpiBone, Inc., an early-stage investment announced a Series A funding round raising $8 million. NetScientific's convertible loan note and accrued interest of £299k converted into Series A preferred shares. This last observable price has been used to value the EpiBone, Inc., equity investment at year end.

In the prior year on 21 May 2020, G-Tech, Inc., an early-stage investment announced a Series A funding round raising $6 million. NetScientific's fully impaired convertible loan note and accrued interest of £346k converted into Series A preferred shares. This last observable price has been used to value the G-Tech, Inc., equity investment at year end.

On 22 April 2021 NetScientific purchased 225,000 ordinary shares in PointGrab at 0.40c and a further 31,522 ordinary shares. At 31 December the last round price of 0.40c has been used to value the stake at £68k. The holding represents 0.49% of the overall share capital.

FOx Biosystems (5.06% stake) which provides real-time, label-free analysis technology based on an innovative fibre-optic-based surface plasmon resonance biosensor, enabling users to generate high quality biomolecular data such as affinity data, kinetic data and concentration measurements. The stake was valued at £336k at the last investment round share price of €75.51 per share, valuing 100% at €7.91m in 2020. The company was formed as a spin-out following a sponsored research agreement with K.U. Leuven that saw Cetromed invest €537k. The company is backed by LRM, Heran Partners, K.U. Leuven's Gemma Frisius Fund, and Leuven University. The Fox Biosystems stake of 5,297 ordinary shares was acquired on 20 December 2021 when acquired a controlling 75% of Cetromed Limited.

In December 2021 NetScientific purchased 5,370 Q-Bot Limited ordinary shares at £190.00 per share from various individuals. The buyout results in a significant direct equity holding of 18.28% (from Nil). At year end the fair value was unchanged and £190.00 per share was used to value the holding. The Board considers that these transactions will result in a broadening of the Group's portfolio, via its hands-on investment approach, and deepening its participation in a proven pioneering robotics and AI business with rapid scale-up potential.

On 31 March 2021 NetScientific purchased via the secondary market 5,215 SageTech Medical Equipment Ltd ordinary shares at a 35% discount to fair value for £200k. On 24 August 2021 a further 6,889 ordinary shares were purchased at a 35% discount via the secondary market. On 24 December 2021 1,539 SageTech ordinary shares were purchased at £65.00 per share for £100. At year end the last round of £65.00 per share was used to determine the fair value of the 5.59% stake at £887k an increase on cost of £320k during the period. SageTech's flexible, low-capex, modular system allows hospitals to capture waste anaesthetic gas exhaled by patients in absorbent, reusable canisters in the operating theatre. These canisters are emptied, the gas stored in bulk tanks and then collected by SageTech. The firm is currently developing technology which will allow this gas to be recycled, purified and sold commercially.

On 16 September 2021 NetScientific purchased 210,844 Martlet Capital Ltd ordinary shares, the Cambridge technology cluster of over 50 minority investments at 0.83p per share for £175k. At year end the last round of 0.83p was used to fair value the holding which remained unchanged. NetScientific's direct investment in Martlet is 1.51%, it retains a significant interest through its "capital under advisory".

12.       FINANCIAL ASSETS CLASSIFIED AS FVTPL

 

Warrants & Convertible Loans classified as FVTPL	2021 £000's	2020 £000's
Balance at 1 January	78	262
Additions	1,332	-
Additional accrued interest	24	109
Release of provision	-	224
Conversion to equity investments classified as FVTOCI	--	(645)
Change in fair value during the year	28	128
Balance at 31 December	1,462	78

 

On 30 April 2021, NetScientific Plc purchased a £100k, 10% pa coupon convertible loan note, with a 20% discount on conversion and a duration of up to 36 months in Sofant Technologies a leading UK SatCom operator and global semiconductor OEMs. It purchased a further £200k on 10 September 2021 at the same terms. Accrued interest during the period was £13k. The change in fair value during the period was £11k.

On 16 September 2021 NetScientific purchased £75k unsecured convertible loan note in Martlet Capital, the Cambridge technology cluster of over 50 minority investments. The convertible loan note carries interest at 5% p.a. and is repayable by the seventh anniversary from the grant date. NetScientific's direct investment in Martlet is 1.51%, it retains a significant interest through its "capital under advisory". Accrued interest during the period is £1k.

On 27 October 2021 NetScientific Plc purchased a £300k convertible loan note in Q-Bot. The convertible loan note carries interest at 10% p.a., a discount on conversion of 20% on the next investment round and is repayable within two years. Accrued interest during the period was £5k. The change in fair value during the period was £7k. Q-Bot is a London-based award-winning robotics and AI company that has pioneered cutting edge technology and digital solutions for the inspection, maintenance, insulation and upgrade of buildings and homes.

On the 26 November 2021, NetScientific Plc purchased a $734k loan note in Epibone Inc. The convertible loan note carries interest at 6% p.a., a discount on conversion of 15% on the next investment round and is repayable by 31 December 2022. The investment is in line with NetScientific's Trans-Atlantic strategy, supporting its portfolio companies to build a presence and links on both sides of the Atlantic. Post-investment, NetScientific is looking to support EpiBone in building a presence in the UK and Europe. Accrued interest during the period was £3k. The change in fair value during the period was £8k. The funding will take EpiBone through to a scale-up round expected in late 2022 and enables the company to accelerate development of its pipeline. In the prior year on 23 January 2020, EpiBone, Inc., an early-stage investment announced a Series A funding round raising $8 million. NetScientific's convertible loan note and accrued interest of £299k converted into Series A preferred shares.

On 20 December 2021 NetScientific acquired via business combination a €150k loan note in FOx Biosystems, which provides real-time, label-free analysis technology based on an innovative fibre-optic-based surface plasmon resonance biosensor, enabling users to generate high quality biomolecular data such as affinity data, kinetic data and concentration measurements. The Loan note carries interest at 5% p.a., a discount on conversion of 25% on the next investment round and is repayable within three years of grant date. The change in fair value during the period was £2k.

In the prior year on 21 May 2020, G-Tech Medical, Inc., an early-stage investment announced a Series A funding round raising $6 million. NetScientific's fully impaired convertible loan note and accrued interest of £424k converted into Series A preferred shares of £346k and common form convertibles of £78k which remain as financial assets classified as FVTPL.

The Neumitra, Inc., and Longevity Inc., convertible loan notes do not have a material value individually or collectively and have been fully impaired.