2             CHIEF EXECUTIVE OFFICER'S STATEMENT

Overview

Our goal is to become a leading deeptech venture capital (VC) investor in the life sciences, sustainability, and industrials sectors in the UK and internationally. We believe the global VC industry is at the end of a cycle and is now shifting away from traditional investment models focused on software, internet, and digital-only ventures[1]. We anticipate that the next stage of the VC industry's focus will revolve around deeptech opportunities in our target sectors, driven by advancements in artificial intelligence, robotics, semiconductors, materials science, 'in silico' design and breakthroughs in life sciences.

These developments present a compelling investment theme that requires a different VC approach, encompassing skillsets, engagement models, expertise, and capital deployment strategies tailored to deeptech investments. After 10 years of operational VC experience in this field, we continue to refine our investment and portfolio development strategy, which has been designed around the challenges of investing in deeptech - often involving hardware or hardware/software models. Our core multi-disciplinary team possesses an appropriate skillset mix, and has built the right processes, 'playbooks' and portfolio support structures apt for the unique challenges of investing and scaling businesses in deeptech.

Early success and validation of our strategy are evident in our 2022 performance. Despite market volatility, we achieved a remarkable 35% increase in Fair Value to £41.8m, representing a 4x growth since implementing the new strategy nearly three years ago. This increase in valuations is not a passive or accidental outcome. It was in large measure driven by our team's hard work, and implementation of our model including: hands-on management; value creation efforts with select portfolio companies; capturing synergies between companies; and taking new or deeper stakes on advantageous terms, avoiding overvaluation. While exits through Initial Public Offerings or trade sales to corporations may remain challenging and at lower valuations, we have demonstrated modest profitable divestments through secondaries.

It is worth noting, as other market commentators have also done, that our current market cap is at a substantial discount to our Fair Value. Though operational challenges persist, we are confident in our position for the next phase of developments as we build our business.

Financial and Operational Highlights:

·      Directors' valuation of the Company's portfolio has increased by c.35% to £41.8 million (2021: 31.0 million), driven by valuation increases across several companies.[2]

·      Portfolio increased to 24 companies, through 2 additions during the year.

·      EMV Capital was profitable on increased revenues of £1.2 million, providing valuable infrastructure and services to the Group and its portfolio companies.

·      Group Loss for the year increased to £3.7 million (2021: £2.9 million), of which £1.5m was attributable to the 'core' of NetScientific PLC and EMV Capital, with the balance of £2.2 million consolidated from the subsidiary portfolio companies ProAxsis and Glycotest due to further commercialisation and development expenditure.

·      ProAxsis drive towards external fund-raise to fund next stage of growth, including planned launch of Point of Care diagnostic for COPD, and driving sales to pharma clients. Post-balance sheet £500k funding package from family office.

·      Glycotest progress towards completing clinical sample collection, raised $500k from Fosun (in addition to NetScientific support). Post-balance sheet announcement of a $2m investment package, combining private investment of $1m and funding of $1m by Fosun.

·      The company ends the year with a stronger balance sheet, with total assets of £28.9 million (2021: £20.7 million, a c. 40% increase), and net assets of £25.2 million (2021: £18.5 million, a c.36% increase).

·      Cash on the balance sheet was £0.9 million (2021: £2.7 million), with a further c.£9.3 million held as readily realisable quoted securities as at 26 May 2023.

·      The Group's 'capital light' investment model enabled NetScientific to continue to support its portfolio companies with a very selective use of its balance sheet: direct balance sheet investments of c.£3.2 million, together with £5.3 million of third party syndicated investments led by EMV Capital - while the portfolio overall raised c.£70m in equity and venture debt

·      Capital under advisory now stands at £23.5 million (2021: 22.1 million)[3].

·      Realisations of £0.5 million from a growing portfolio company, locking in a £0.3 million profit on that stake.

·      Raised £1.5 million in June 2022 PLC placing, strengthening the Company's balance sheet and with strong participation from the investor network of EMV Capital.

 

Portfolio highlights

In 2022, our portfolio experienced a successful year of value growth and fundraisings despite challenging markets. A total of £70 million was raised through equity and venture debt by 18 companies at various stages of investment. We selectively participated in 10 of these investments through both direct and syndicated means, aligning with our 'capital light' model. With two new additions, our portfolio now consists of 24 companies, including EMV Capital.  More details on the individual companies' developments are given in the Portfolio Update section later in the statement.

In terms of new investments, we introduced two companies to our portfolio:

·      Ventive Limited, in which we hold a 16% direct stake, received a £2.5 million financing package that included equity and debt matched funding. This unlocked a c.£1.5m BEIS grant, and the company's business lines include passive air ventilation systems and modular heat pumps.

·      Deeptech Recycling Technologies Limited, in which we hold a 30% direct stake, acquired the majority of assets from Recycling Technologies, a well known developer of plastic waste recycling technologies. Our Value Creation team is working on relaunching this business in the rapidly growing plastics waste management sector.

In addition, we restructured our participation in Vortex from capital under advisory into a direct 30% stake.

EMV Capital Ltd ("EMVC")

EMVC is a wholly-owned subsidiary and the corporate finance and venture capital arm of NetScientific. It was acquired in August 2020, and was founded and owned by our CEO Dr. Ilian Iliev.  It follows an investment model where it syndicates investments from its extensive network of private, institutional VC, and corporate investors in pre-Series A and Series A stages. It actively engages with portfolio companies to focus on venture capital returns.

EMVC plays a vital role in the Group's strategy by generating revenues, enabling a 'capital light' investment model, and providing specialised support and value creation services to portfolio companies. Additionally, it offers potential additional investment returns to the Group through its the Capital Under Advisory.

Key developments in 2022 for EMVC included syndicating £5.3 million, reaching now a total advisory capital of £23.5m (only slightly higher than 2021 due to the subtraction of £3.9m Vortex Biosciences restructuring). Revenues increased by 15% to £1.2m from corporate finance and value creation activities, resulting in a net profit of £85 thousand. EMVC successfully integrated its portfolio into NetScientific's Group strategy, facilitating advantageous acquisitions of stakes in Vortex, Ventive, and Deeptech Recycling. Furthermore, EMVC raised significant capital for portfolio companies including Q-Bot, SageTech, Sofant, DName-iT, Vortex, Wanda, Deeptech Recycling, Ventive, and FOx Biosystems.

To support growth at its portfolio companies, EMVC offers value creation services through its in-house operational team, venture partners, and suppliers, encompassing investment readiness, IP strategy, corporate collaborations, financial functions, and senior executive placements. It has retained contracts with several of its portfolio companies, helping them accelerate development, and execute strategy pivots.

The fair value of NetScientific's stake in EMVC remains unchanged at £3.5m since its acquisition in 2020. While its value is believed to be higher, as it is not seeking external finance, revaluation is not possible due to BVCA rules. However, growth projections indicate significant potential for upside, driven by expanding capital under advisory, proprietary deal flow, and recurring income from management and board fees.

 

Strategy update

As highlighted above, NetScientific's acquisition of EMV Capital in August 2020 has transformed our company from a standstill into a scalable VC business. In just over two years, many of the objectives of this turnaround have been successfully achieved:

·      Directors' Valuation of the Company's portfolio has increased almost fourfold, from £11.8 million at the end of 2019 to over £41.8 million by the end of 2022.

·      Capital under advisory more than doubled, from £9.6 million in early 2020 to £23.5 million in 2022.

·      Integrated portfolios of EMV Capital and NetScientific, growing from eight companies in early 2020 to 24 in 2022, with increased direct stakes and influence.

·      Shifted from solely relying on the balance sheet for funding portfolio companies to incorporating third-party funding through the 'capital light' investment approach.

·      Proactive investment approach with investor director representation in 13 companies and value creation or fundraising programs with 10 companies.

·      Expanded team and infrastructure offering corporate finance and value creation services, primarily covered through fees charged to portfolio companies.

·      Notable success stories include NASDAQ-listed PDS Biotech, rapidly growing companies Q-Bot (robotics) and Sofant (semi-conductors), and regenerative medicine company EpiBone.

·      Several additional companies in the portfolio show potential for value appreciation and growth as they are currently held at relatively low (or nil) valuations, and their valuation is expected to crystallise as they access external finance (e.g. Vortex, ProAxsis, Deeptech Recycling, Ventive, DName-iT).

·      Co-led the restructuring and acquired a valuable position in Cambridge-based early-stage VC Martlet Capital (itself with positions in 49 deeptech companies), now providing high-quality deal flow access from the Cambridge high-tech cluster.

·      Diversified portfolio across deeptech sectors to mitigate risk and increase return opportunities.

·      Assisting portfolio companies in collaborating with leading corporations globally for joint development agreements, corporate VC investments, licensing opportunities, and pre-purchase commitments.

·      Leveraging portfolio synergies and internationalisation efforts through collaborations and partnerships.

·      Identifying key value inflection points for profitable liquidity events and exits for many companies.

 

To continue to drive shareholder value and investment returns, we will employ and scale our differentiated investment and portfolio growth model, focusing on:

·      'Capital light' investment strategy.

·      Proactive investment approach.

·      Value creation services.

 

Our portfolio strategy entails:

·      Concentrating on a cohort of eight to ten companies at a time for growth and investment realisations through fundraising support and value creation services.

·      Making selective new investments that align with our model, offer good value, and can benefit from value creation services to drive growth.

·      Growing a funds practice to expand capital deployment capabilities and portfolio coverage.

 

Summary and Outlook

We now possess a robust investment model with ample room for growth and development, offering the potential for substantial investment returns from a maturing portfolio.  Our early advantage in the deeptech sector positions us to become a key player in the next phase of the VC industry.

Our focus for 2023 will be to progress our sustainable business model through the generation of more fees from EMV Capital, selective divestments, external funding for subsidiaries and by expanding our funds practice.  We aim to increase the net asset value and fair value of your business by progressing cohort companies through value creation stages, obtaining third party investment rounds, and proactive portfolio management.

We plan to generate investment returns through profitable exits of select portfolio companies and targeted growth of a curated portfolio, by focusing on value creation services and accelerate routes to exit and by scaling up our 'capital light' investment model we can move towards a more evergreen investment model.  We have a powerful investment model with potential for significant investment returns in the deeptech space and we are excited about the future prospects of our company.

Finally, I would like to express my gratitude to Jonathan Robinson for his interim leadership as Chair, supporting the final stages of our turnaround project. His measured and practical approach has greatly contributed to the execution of our strategy, and we eagerly anticipate his ongoing support. We are also excited to welcome Charles Spicer as our new Non-Executive Chair and look forward to working with him.

 

 

Dr. Ilian Iliev

CEO, NetScientific PLC

31 May 2023

 

 

 

Portfolio Performance

NetScientific's Directors' valuation of its direct owned portfolio is £41.8m (£31.0m in 2021). An additional £23.5m of capital under advisory (£22.1m in 2021) offers potential future returns through carried interest.

NetScientific's portfolio consists of 24 companies in the Healthcare, Sustainability, and Technology sectors across the UK, US, EU, and Israel. These companies vary in their development stages, with a significant portion generating commercial revenues or engaging in joint development agreements and corporate collaborations. Some are in earlier stages (pre-Series A) or turnaround projects, balancing higher risks with potential investment returns.  Note in the table below that EMV Capital is a core operational unit of the Group, rather than a portfolio company held for sale or further investment. 

NetScientific invests directly from its balance sheet, while its subsidiary EMV Capital syndicates investments as capital under advisory with a carried interest arrangement with investors. The Group's interest can combine both direct and carried interest holdings, providing increased returns and influence in the companies. The Group holds board seats and advisory roles in many portfolio companies, particularly those where its direct or advised holdings are larger. Its fee-based advisory roles encompass value creation services and corporate finance arrangements, generating fees for the Group and aiding businesses in reaching value inflection points.

Carried interest or profit share agreements are associated with the model, typically entailing 15% to 20% of profits earned for investors above a minimum return hurdle rate of 10%. Capital under advisory is expected to grow through further syndicated investments in existing and new portfolio companies. There is ongoing work for the potential launch of a new VC fund practice under EMV Capital, which (if successful) would further scale the capital under advisory. The Consolidated Statement of Financial Position reflects the owned portfolio as equity investments classified as fair value through other comprehensive income (FVTOCI) and financial assets classified as fair value through profit and loss (FVTPL), adhering to the British Venture Capital Association guidelines widely accepted in the VC community.

 

Portfolio Company	Country	Sector	Stage	Group Stake (%)	CAU (%)	Fair Value (m)		CAU (m)
						2022	2021	2022	2021
EMV Capital	UK	Venture capital	Sales	100%	-	£3.5	£3.5	-	-
PDS Biotechnology -Nasdaq Listed	US	Immuno-oncology	Phase II clinical	4.4%	-	£14.7	£8.0	-	-
Glycotest	US	Liver cancer diagnostics	Late clinical	62.5%	-	£11.0	£11.0	-	-
Q-Bot	UK	Robotics	Sales	17.6%	30.9%	£3.8	£1.3	£4.4	£2.3
ProAxsis	UK	Respiratory diagnostics	Sales	100%	-	£3.5	£3.5	-	-
EpiBone	US	Regenerative medicine	Early clinical	1.3%	0.3%	£1.2	£0.8	£0.2	£0.2
SageTech Medical Equipment	UK	Waste anaesthetic	Commercial	5.5%	25.5%	£0.9	£0.9	£3.8	£3.5
Vortex Biotech Holdings Ltd	UK/US	Liquid biopsy oncology	Sales	30%	-	£0.7	-	£0.7	£3.9
FOx Biosystems	BEL	Research equipment	Sales	3.9%	-	£0.6	£0.3	-	-
Sofant Technologies	UK	Semiconductors satellite coms	Early sales	1.5%	22.9%	£0.4	£0.3	£4.3	£3.0
CytoVale	US	Medical biomarker	Late clinical	1.0%	-	£0.4	£0.4	-	-
G - Tech Medical	US	Wearable gut monitor	Early clinical	3.8%	-	£0.4	£0.4	-	-
Martlet Capital	UK	Venture capital	Sales	1%	5.9%	£0.3	£0.3	£1.3	£1.3
DName-iT	BEL	Lab technology	Pre sales	61.5%	0%	£0.1	£0.1	£0.1	-
PointGrab	IL	Smart building automation	Sales	0.5%	20.8%	£0.1	£0.1	£4.1	£4.1
QuantalX Neuroscience	IL	Medical diagnostics	Late clinical	0.4%	-	£0.1	£0.1	-	-
Ventive	UK	Heat pumps and passive ventilation	Sales	15.9%	35.3%	£0.1	-	£0.1	-
Deeptech Recycling Limited	UK	Recycling	Industrial	30%	-	-	-	£0.5	-
CetroMed	UK	Holding company	Holding company	75%	-	-	-	-	-
Oncocidia	BEL	Cancer therapeutics	Early clinical	41.3%	-	-	-	-	-
Longevity Biotech	US	Neurology therapeutics	Early clinical	-	-	-	-	-	-
Wanda Health	UK/US	Digital health monitoring	Sales	-	74.7%	-	-	£3.2	£2.2
Nanotech Industrial Solutions	US	Material science	Sales	-	-	-	-	£0.8	£0.7
Insight Photonic Solutions	US	Semiconductors akinetic laser	Sales	-	-	-	-	-	£0.9
TOTAL	-	-	-	-	-	£41.8	£31.0	£23.5	£22.1

 

CORE PORTFOLIO COMPANIES[4] 

PDS Biotechnology Corporation ("PDS") (https://www.pdsbiotech.com/) (Stock symbol PDSB: NASDAQ) - 4.4% stake

PDS Biotech is a clinical-stage immunotherapy company focusing on cancer and infectious diseases. Using their Versamune® technology, they develop therapies and vaccines that activate T-cells and enhance immune responses. Their primary focus is on HPV-related head and neck cancers. PDS Biotech has four Phase 2 trials with partners such as Merck, the National Cancer Institute, MD Anderson, and Mayo Clinic, and an infectious disease vaccine program. The company also plans to launch a Phase 3 clinical trial for one of its programmes.

Key developments 2022: The company made significant clinical progress in its Phase 2 trials and secured a $35 million venture debt facility from Horizon amidst market turbulence. Its IP portfolio was strengthened through a licensing agreement with the NCI and a US patent for its Novel HPV 16 immunotherapy. Recent achievements include a licensing deal with Merck KgaA, plans for a Phase 3 trial, and promising data presented at the 2022 ASCO Annual Meeting. The combination of PDS0101 and KEYTRUDA® showed a 41% response rate and an 87% survival rate at nine months for HPV16-positive HNSCC patients. The combination was well-tolerated with no severe adverse events reported. The FDA granted Fast Track designation for this combination, on the back of which the company is preparing for a Phase 3 clinical trial.

NSCI Interest: NetScientific backed PDS as the first institutional investor in 2014, and has continued its support over the years, including by anchoring a NASDAQ placement in 2020, and supporting a subsequent placement in 2021. NetScientific currently owns 4.44% of the undiluted share capital (2021: 4.72%). The current value of NetScientific's stake as of 26 May 2023 at a share price of $8.56 per share is worth £9.3m, with a company market capitalization of $264m.

Dr. Ilian Iliev is on the Board of PDS Biotech Inc.

 

Glycotest, Inc. ("Glycotest") (https://www.glycotest.com/)  - 62.5% Subsidiary

Glycotest is a liver disease diagnostics company commercialising new and unique blood tests for life threatening liver cancers and fibrosis-cirrhosis. The company has exclusive, world-wide rights to over 50 patent-protected serum protein biomarkers, assay technology, and biomarker panels and algorithms that exploit novel sugar-based disease signals. Fosun Pharma, a leading global pharmaceutical company, is a co-investor in the business, and has a license for the distribution of the product in China.

Glycotest's lead product is its HCC Panel-a biomarker panel, driven by a proprietary algorithm, for curable early-stage hepatocellular carcinoma (HCC), the most common form of primary liver cancer. Glycotest is close to completing its HCC Panel clinical trial with 20 leading medical sites (hospitals and liver treatment centres) across the US and Israel. The clinical trial blood sample collection is now determined to be substantively complete, enabling progress toward HCC Panel test validation. The early Glycotest clinical studies gave encouraging results, despite a particular problem identified in the assays' calibration at a subcontractor laboratory, requiring some remedial fine-tuning action and consideration of alternative approaches. A leading contract research organisation was engaged to provide an independent perspective of the problem encountered. Potential solutions were identified, and further work will now be conducted to revise assays, carry out the test validation, and evaluate next development options.

There is a large and growing global need for liver disease diagnostics. Liver cancer is a growing global problem, with estimates of over 90million US patients and over 2 billion patients worldwide who could benefit from regular testing for liver cancers and fibrosis-cirrhosis.  Future potential market growth will come from the fatty liver disease and NASH pandemic.  The US and China represent major initial market entry points with existing go-to-market channels for Glycotest.  The initial target markets are the USA (market estimated to be over $800 million) and China (through a licensing arrangement with Fosun Pharma).

NetScientific setup Glycotest in 2012, based on technology that originated at the Blumberg Institute and Drexel University College of Medicine in Philadelphia. In 2019, NetScientific negotiated a $10m milestone-based investment and licensing deal with Shanghai Fosun Pharmaceutical Co., Ltd. ("Fosun Pharma"), whereby Fosun Pharma received a minority stake in Glycotest and the rights to develop and commercialise the HCC Panel and pipeline liver disease tests in China, for which Glycotest Inc. will receive a royalty, with Glycotest Inc. retaining rights to ex-China markets. Fosun has already invested $7m, with a further $3m remaining against milestones. Supporting its investment, Glycotest also closed a $1.46m convertible loan funding round with $500k from Fosun alongside NetScientific investment in December 2022.  Post-balance sheet, on 2^nd May 2023 EMV Capital setup a $1m Convertible Loan syndicated from private investors to provide additional working capital to the company, as it prepares for a larger external round later in 2023 to support commercialisation.

NSCI Interest: Company shareholding in Glycotest is 62.5% (2021: 62.5%). As of 31 December 2022, the Group has invested £3.9 million (2021: £3.9 million).  Based on the equity investment price by Fosun 's milestone-based investments, fair value of NetScientific's stake is £11.0m.

Dr Ilian Iliev is Chair, John Clarkson and Ed Hooper are Board members. Charles Swindell is COO.

 

Q-Bot Ltd ("Q-Bot) (https://q-bot.co/) - Direct Equity Holding 17.6%, Capital Under Advisory 30.9%

Q-Bot is an award-winning robotics developer for construction retrofit. Their AI-powered robotic tools are used to inspect, monitor, and retrofit insulation for residential buildings.  Specifically, Q-Bot is focused on the unmet market need for underfloor insulation, helping to reduce fuel poverty in social housing, improve energy efficiency, and align with new regulations around decarbonisation. As a market leader, Q-Bot is now scaling and seeking to capture a significant share of this market in the UK and internationally.

Key developments 2022: After a successful strategy review in 2021, Q-Bot has seen impressive growth. The energy market's volatility has fuelled demand for their retrofit offering, resulting in record-breaking monthly installations by major partners. Commercial sales nearly doubled to over £2m in FY2022, with an expected 80% revenue increase in FY2023. So far, over 3,500 homes have been insulated, with continued growth in the installation rate through partners and direct installs. The company is actively working on expanding internationally in the EU and US through partnerships, including operations now in France and the Netherlands. EMV Capital's value creation services team has supported the Board of Q-Bot since late 2021 in various growth acceleration and fund-raising projects. It has also led a £2.5m in EIS equity investment and debt facility raised in the company throughout 2022.

NSCI Interest: Direct equity holding of 17.6% (2021: 18.3%), and capital under advisory from syndicated investors representing 30.9% (2021: 12.3%). After a May 2022 conversion of loan note of c.£500k into equity, NetScientific total cost is £1.5m. Following a Q4 22 investment round, our stake has a fair value of £3,728k (2021: £1,025k), indicating a c.2.5x valuation uplift within an 18-month period. During 2022, a £140k working capital loan was extended to Q-Bot, carrying interest at 10% p.a.

On 30 December 2022, £48k was repaid, including interest and an arrangement fee.

Dr. Ilian Iliev is on the Board of Q-Bot Ltd.

 

ProAxsis Ltd ("ProAxsis") (https://proaxsis.com/) - 100% Subsidiary

ProAxsis is a commercial medtech company, with a focus on respiratory diagnostics, a growing global burden exacerbated in the aftermath of Covid. ProAxsis uses its proprietary ProteaseTag® technology to develop laboratory-based assays and rapid point-of-care tests for the measurement of active protease biomarkers associated with chronic respiratory diseases such as Chronic Obstructive Pulmonary Disease (COPD), cystic fibrosis and bronchiectasis.  The company is a spin-out of Queens University Belfast.

The company has refined its product portfolio alongside a quality laboratory, enabling commercialisation of its technology through clinical services to pharma industry clients, and via direct kit sales to both Pharma and University researchers. Development projects include a unique combination of its CE Marked Lateral Flow Test (NEATstik) in respiratory disease patients with a robust market-ready Virtual Care Platform, as well as enhancing its offering for ongoing patient monitoring at point-of-care.

Key developments 2022: The company won further pharma services contracts and entered into key R&D collaborations. A number of companies have published data detailing their utility of the ProAxsis technology, including Insmed (US), Chiesi (EU) and Mereo (UK). ProAxsis was announced as the NI Small Business of the Year at the Belfast Telegraph Awards. The company has secured further grant awards of some £420K, to support the ongoing development programme.

In February 2023, the company secured a £500,000 funding facility from AB Group, to facilitate growth and prepare the company for a fund-raise in 2023. ProAxsis has also started a collaboration with Wanda Health (another NetScientific portfolio company) to deliver a digitally enabled COPD diagnostic platform.

NSCI Interest: 100% owned subsidiary (95% fully diluted). The fair value of NetScientific's stake in ProAxsis is £3.5m on basis of last investment round. As of 31 December 2022, the Group has invested £3.7 million (2021: £2.8 million).  

John Clarkson is Chair and Dr. Ilian Iliev is a Board member of ProAxsis.

 

EpiBone, Inc. ("EpiBone") (https://www.epibone.com/) - Direct Equity Holding 1.3%, Capital Under Advisory 0.3%

EpiBone's bone reconstruction technology allows patients to "grow their own bone" by utilizing a scan of the patient's bone defect and their own stem cells to construct a defect-specific autologous-like bone graft. The company focuses on the $32bn bone and joint reconstruction market and offers bone reconstruction, cartilage replacement, and liquid cartilage joint treatment. EpiBone's proprietary bioreactor technology is a result of 20 years of research and experience with orthopaedic tissue engineering. It follows a three-step process to regenerate human bone.

Key developments 2022: All six Phase I/Iia patients successfully implanted in the clinical trial. Significant progress in biphasic bone and cartilage graft development. Positive feedback on the injectable cartilage product from preclinical work. First close on $22m Series A fundraise.

NSCI Interest: NetScientific's direct investment in EpiBone is valued at £1.2 million based on the Series A round closed in December 2022.

 

SageTech Medical Equipment Ltd ("SageTech") (http://www.sagetechmedical.com/) - Direct Equity Holding 5.5%, Capital Under Advisory 25.5%

SageTech developed a flexible, affordable modular system to capture waste anaesthetic gas in hospital operating theatres. It uses reusable canisters to collect and recycle the gas, addressing the significant problem of unaddressed air pollution caused by these gases. The solution reduces the carbon footprint of a midsized hospital, equivalent to 1,200 cars per year. This innovative technology contributes to a circular economy and offers substantial environmental benefits.

The system enables hospitals without fixed Anaesthetic Gas Scavenging Systems to utilize anaesthetic gas in various areas. SageTech recently launched the SID-Dock waste volatile anaesthetic gas capture machine, which seamlessly integrates into hospital operating theatres without requiring modifications to existing equipment. It has obtained the UK Conformity Assessed (UKCA) marking and ISO 13485:2016 certification, ensuring compliance with UK medical sector requirements.

The solution is currently being evaluated at renowned UK NHS hospitals, including Guy & St. Thomas' and Cromwell Hospital, with initial sales anticipated. SageTech aims to commercialize the technology, starting with the NHS and expanding to private hospitals in the UK, international markets, and the veterinary industry.

NSCI Interest: NetScientific has a direct equity investment of 5.5% (2021: 5.1%) with a fair value of £887k (2021: £887k), and an advised stake of 25.5% (2021: 21.0%).

John Clarkson serves as a Non-Executive Board member of SageTech.

Vortex Biotech Holdings Ltd ("Vortex") San Francisco/London (https://vortexbiosciences.com/) - Direct Equity Holding 30.0%

Vortex's core technology allows for the capture and isolation of high-quality Circulating Tumour Cells ("CTCs") from blood samples. Its mission is to be the innovation leader in Circulating Tumour Cell (CTC) capture technology that improves therapeutic decisions and saves lives. This exciting area is providing critical information from research to the clinic, contributing to a major shift in how cancer can be treated and monitored. Vortex was formed on the back of research at UCLA.

Vortex is focused on developing its position in the multi-billion dollar oncology liquid biopsy market. The combination of targeted therapies and precise diagnostics is allowing for the era of personalized medicine to emerge. The capture and enrichment of circulating tumour cells is expected to be a critical element of targeted companion diagnostics. Vortex' growth strategy aims to develop it into an industry leading platform that will help accelerate the translation of research insights into the clinic and help deliver to an affordable population health agenda. This will be done through the development of laboratories that will act as centres of excellences for the use of CTCs, combining its proprietary "no touch" microfluidic chip technology, with various assays and workflow integrations.

Vortex' VTX-1 platform has been placed and used for KOL published research in leading University and Research centres in the US, UK and EU, including UCLA, UC Berkeley, Stanford University, Ghent University (Belgium), University of Maryland, and Ecole Polytechnique Federale de Lausanne. In addition, Vortex is now seeing growing interest from pharma and biotech clients in the service model it is launching. The company has developed several workflow integrations of the VTX-1 instrument with third party instruments, opening further commercialisation opportunities.

Key Developments 2022: In August 2022, NetScientific announced the completion of the acquisition of a 30% equity stake in Vortex Biotech Holdings Limited ("Vortex") for a non-cash consideration, in line with NetScientific's 'capital light' investment model.  In support of its next phase of growth as a service provider, Vortex has recently opened a lab at The London Cancer Hub's Innovation Gateway, which is already home to The Institute of Cancer Research, London, and The Royal Marsden NHS Foundation Trust. This is in addition to their lab in San Francisco, providing the company with a trans-Atlantic coverage for its target Pharma customer base.

NSCI Interest: 30.0% Direct; £0.7m advance assurance agreement, indirect (advised)

Dr Ilian Iliev is Executive Chair, and Paul Jones is CEO.

 

FOx Biosystems (3.9% stake, NSCI effective stake 2.9%) (https://foxbiosystems.com/)

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 company was formed as a spin-out following a sponsored research agreement with K.U. Leuven that saw CetroMed invest €537k. Subsequently it saw investments by Belgian high-tech investors LRM, Heran Partners, K.U. Leuven's Gemma Frisius Fund.

Key developments 2022: FOx Biosystems received a €2.5m European Innovation Council (EIC) grant to accelerate the market introduction of unique EV analysis and isolation application, as well as closing a €2.5m investment round, providing the company with the funds to accelerate development.

NSCI Interest: December 2020 £150k convertible loan agreement (part of a £2.5m convertible loan agreement led by the current investors) converted in November 2022.  The NetScientific stake is valued at £495k.

 

Sofant Technologies Ltd ("Sofant") Edinburgh (http://www.sofant.com/) - Direct Equity Holding 1.5%, Capital Under Advisory 22.9%

An Edinburgh University spin-out, the company is developing phased array antennas for satellite and terrestrial communications that has high energy efficiency and a modular scalable design. The antenna enables access to low-latency, super-fast low Earth orbit (LEO) satellite broadband networks. The company is executing a €7.3m contract with the UK Space Agency and the European Space Agency.

Key Developments 2022: Signed with several corporations in the telecoms industry, including a Fortune Global 500 aerospace company. Post-balance sheet announcement of Joint Development Agreement with Inmarsat Government, focused on aircraft applications. EMV Capital led a £4.2m investment round, in which NetScientific participated led by EMV Capital in 2022. EMV Capital closed a further £1m of EIS funding into the company post-balance sheet.

NSCI Interest: Direct equity holding of 1.5% and "capital under advisory" of c.£4.3m at cost representing 22.9% of the cap table. The NSCI Group through its direct and indirect holdings is the largest shareholder of Sofant.

Dr. Ilian Iliev is on the Board of Sofant Technologies Ltd.

 

Martlet Capital Ltd ("Martlet") Cambridge (http://martletcap.com/) - Direct Equity Holding 1.0%, Capital Under Advisory 5.9%

Cambridge-based early-stage VC specializing in deep tech and life sciences, with a focus on the Cambridge high-tech cluster. Formed in September 2021 as a spin-out from Marshall Group. Advised by EMV Capital and co-led initial funding round of £12m. The company has a portfolio of 49 investments companies in the life sciences, sustainability, and industrials sectors, primarily in the Cambridge region, and often with IP and links to Cambridge University. Key Investments include Paragraf, a producer of  novel graphene-based semiconductors; Echion Technologies,  Li-ion battery technology supplier using proprietary anode materials; and Dogtooth, a developer of robotic solutions for the agricultural sector. 

Key Developments 2022: Completed second close of additional £9.6m in 2022. The company saw early exit from the portfolio, including acquisitions and IPOs. The EMV Capital, Martlet Capital and SARANAC teams are working toward the establishment of a follow-on investment vehicle, which would be owned 40% by the Group. Focus on follow-on growth investment opportunities from Martlet Capital and the Cambridge innovation ecosystem.

NSCI Interest: Fair value of direct investment: £250k (2021: £250k). Total syndicated amount as capital under advisory by EMV Capital: £1.48m. Total direct and syndicated amount represents 1.0% (2021: 11.2%) of issued share capital. Convertible Loan Notes: £0.52m (£0.075m direct holding and £0.445m advised).

Dr. Ilian Iliev is on the Board of Martlet Capital Ltd.

 

PointGrab (https://www.pointgrab.com/) Israel - Direct Equity Holding 0.5%, Capital Under Advisory 20.8%

PointGrab provides IoT-based office workspace optimization solutions. Its AI-powered edge analytics sensing solution is used by Fortune 500 companies globally, helping them save up to 40% on real estate and facility management expenses. The solution offers features like occupancy data, energy saving, air quality monitoring, and smart facilities management. PointGrab's AI system prioritizes privacy and data security. The company has deployed 10,000+ sensors in 40 countries, serving 45 Fortune 500 companies. PointGrab's offering helps transform workplaces for COVID-19 adaptations, including workplace density monitoring and social distancing.

Key Developments 2022: Increased demand for real estate restructuring in major markets. Growing adoption of smart space solutions for flexible working. PointGrab expanded sales and introduced new digital features for international growth.

NSCI Interest: Direct equity holding: 0.5% (2021: 0.5%), Indirect capital under advisory: 20.8% (2021: 27.2%). Fair valued at the most recent investment round: £76k (2021: £68k).

Dr. Ilian Iliev is on the Board of PointGrab.

 

CetroMed Group

On 20 December 2021, NetScientific acquired 75% of the issued share capital of CetroMed Limited ("CetroMed") for a non-cash consideration. CetroMed is a life sciences holding company with several portfolio companies spun out of the University of Leuven, Belgium, a leading European research institution. CetroMed was previously owned by the Azima Trust (through Zahra Holdings Ltd), the family trust of Farad Azima, the founder and ex-CEO of NetScientific. The acquisition of the majority stake in CetroMed resulted in significant stakes in three new portfolio companies (FOx Biosystems, DName-iT and Oncocidia) and the establishment of commercial relationships with K.U. Leuven and other players in this key European high-tech cluster. Consistent with the Group's 'capital light' strategy, the transaction of £192k was funded through £150k of NetScientific PLC new ordinary shares at £1.02, and the issue of £42k worth of warrants at a strike price of £1.30 per share. Following the acquisition, EMV Capital undertook detailed development plans for the various CetroMed portfolio companies, with early results outlined in the section on FOx and DName-iT.  It was decided to focus investments on the CetroMed portfolio companies directly, and therefore no further investment will be made into CetroMed itself. 

NSCI Interest: The fair value of the investment in CetroMed is £228k (2021: £228k), with significant growth potential. 

 

Wanda Health, US and UK (https://www.wandahealth.com/)  - no direct holdings, capital under advisory 75% stake

Wanda Health is an intelligent platform for remote patient monitoring and virtual care. Wanda Health is empowering healthcare providers and payers with early detection of exacerbations in patients with acute, chronic, and specialty diseases, helping them speed interventions, prevent adverse events, and improve patient adherence. The company is a UCLA-spin-out focused on intelligent remote monitoring of physiological data, patient engagement and healthcare analytics for post-acute care, chronic disease patients and population health. Wanda's platform enables the control and reduction of hospitalisation and readmission rates through a Remote Patient Monitoring System that collects data from patients' homes or community settings and provides it to clinicians, highlighting high risks cohorts.  Wanda also uses its comprehensive multi-modality patient engagement tools to ensure that adherence to treatment protocols increases, improving patient outcomes. This patient centric approach to care model delivery, combined with secure computing and revolutionary data mining and analytics provides actionable insights to the care provider to improve patient outcomes, whilst reducing cost of care of chronic conditions. 

Key Developments 2022: Wanda partnered with Smart Meter Corporation to ensure reliable patient data capture regardless of access to smart devices and internet connectivity and is in a position to sign two strategic partnerships with blue chip companies to deliver RPM in both domestic and international markets. The company has filed for FDA clearance for software as a Medical Device status and the implementation of a Quality Management System, which will form the foundation for UKCA an CE marking submissions in the first half of 2023. Wanda has also signed further US-based reimbursement customers, with a growing international pipeline and platform training delivered to medical staff. Wanda is exploring pilot projects for the delivery of Virtual Wards and Population Health Management for Integrated Care Systems in the NHS and continued to build on its US client base throughout 2022 with delivery of Remote Patient Monitoring services against enhanced reimbursement models for Medicare.   Wanda also has a collaboration with ProAxsis (another NetScientific company) around integrating a digital platform with ProAxsis' COPD test.

NSCI Interest: capital under advisory of a 75% investors' stake, which is a related party due to common substantial shareholders. 

Dr Ilian Iliev is Executive Chair, with ex-IBM sales executive Tom Smith as CEO.

 

NEW INVESTMENTS

During the period, the Group made new investments in two companies (Ventive and Deeptech Recycling) and restructured two existing portfolio companies (DName-iT and Vortex). The Group utilized a 'capital light' investment model, acquiring and safeguarding stakes without using cash, thereby preserving NS balance sheet.

Ventive Limited

Ventive (http://ventive.co.uk/) specializes in passive and energy-efficient ventilation systems for schools and a unique modular heat pump for newbuild residential applications. Their innovative heat pumps, which utilize Phase Change Material for heat transfer, are well-positioned in the growing market for heat pumps. In September 2022, EMV Capital collaborated with the Ventive team to facilitate a £2.5m financing round, including debt and equity, enabling the company to secure a £1.5m matching funding grant from the Department for Business, Energy & Industrial Strategy (BEIS). This funding has propelled Ventive's modular heat pump production project in partnership with QM Systems (part of Pipehawk PLC), resulting in cost and carbon dioxide emissions reductions.

Notable developments post-investment include an accelerated development program with Clear Blue Energy and QM Systems, a pre-purchase agreement with a leading non-UK heat pump distributor, and increased sales in the Natural Ventilation range. NSCI's interest in Ventive includes a 15.9% direct holding and a 35.3% indirect holding as "capital under advisory."

Deeptech Recycling Technologies Limited (https://recyclingtechnologies.co.uk/ ) - Direct stake of 30%

In December 2022, Deeptech Recycling Technologies acquired the majority of assets from Recycling Technologies Limited, which aimed to have an AIM IPO in early 2022. Recycling Technologies had developed advanced and environmentally sound technologies for recycling mixed plastic waste, generating valuable naptha, lubricants, and feedstock for the plastics industry. Deeptech Recycling Technologies, with support from NSCI's Value Creation team, has focused on consolidating assets and intellectual property, assessing market opportunities, and adopting a customer-centric and cost-effective approach. The company aims to establish a profitable presence in the plastics waste management industry, capitalizing on the increasing demand for recycling solutions driven by environmental regulations and fiscal pressures. Noteworthy areas of exploration include TetraPak recycling, as well as recycling of polystyrene, medical waste, and film extensively used in food packaging. NSCI holds a 30% direct holding in Deeptech Recycling Technologies.

DName-iT Ltd (https://www.dnameit.com/) - Direct stake of 61.5%, NSCI effective stake 46.1%

A University of Leuven spin-out, DName-iT has developed a platform to avoid sample authentication errors and to correct for sample contamination in genetic sequencing laboratory tests. DName-iT  has created a proprietary molecular barcoding system, called DName® barcodes that allows the detection of sample swaps and contamination. Prior to EMV Capital's involvement the company was mothballed. In 2022 EMV Capital's value creation team restarted development of the business, refreshed business plan, working alongside the founder and other experts.

EMV Capital advised on the creation of a new UK holding company that oversees the Belgian subsidiary and facilitated the launch of a £500k EIS investment round. NSCI has an effective ownership of 46.1% through CetroMed's ownership of 61.5% in DName-iT Ltd. University of Leuven is a co-investor in the project.

 

MONITORING PORTFOLIO

 

We have minority investments in several companies that we monitor, but have no active involvement or board representation. Some of these may well result in significant returns to NetScientific upon exit.

1.     CytoVale, Inc., USA applies machine learning and high-speed imaging to detect diseases in real time. Key developments include published data demonstrating the potential of their IntelliSep test. https://cytovale.com/

NSCI Interest: Direct investment valued at £415,000.

2.     G-Tech Medical, Inc., USA is developing a wearable technology to measure gastrointestinal motility. Key developments include FDA 510k clearance submission and improved second-generation patches. http://www.gtechmedical.com/

NSCI Interest: Direct investment valued at £442,000.

3.     QuantalX Neuroscience, Israel is developing DELPHI MD, a precise and objective brain evaluation tool for early prevention of brain degeneration. Key developments include FDA breakthrough designation and upcoming commercialization in 2023. https://quantalx.com/

NSCI Interest: Direct investment valued at approximately £100,000, no board representation.

4.     Longevity Biotech, Inc., USA:  focuses on developing Hybridtides®, therapeutic candidates for neurological disorders. Key developments involve DOD grant and Michael J Fox Foundation support. https://www.longevitybiotech.com/

NSCI Interest: Convertible loan fully impaired

5.     Oncocidia Ltd., UK: is developing a targeted radiopharmaceutical cancer treatment using Iodine-131. http://www.oncocidia.com/

NSCI Interest: Effective stake of 31%

6.     Nanotech Industrial Solutions Inc., USA: develops inorganic nanomaterials for industrial applications. Key developments include an ongoing management-led restructuring. https://nisusacorp.com/

NSCI Interest: "Capital under advisory" of $1 million convertible loan agreement

7.     Insight Photonics, USA: has developed an Akinetic, all semiconductor laser with improved performance for various applications. https://www.sweptlaser.com/

NSCI Interest: "Capital under advisory" of $1.25m warrants.

 

Consolidated INCOME Statement

For the year ended 31 December 2022

 

Continuing Operations	Notes	2022 £000's	2021 £000's
Total Income		1,820	1,260
Revenue		1,004	1,107
Cost of sales		(222)	(118)
Gross profit		782	989
Other operating income		816	153
Research and development costs		(1,371)	(1,322)
General and administrative costs		(3,729)	(2,573)
Other costs		(248)	(207)
Loss from continuing operations		(3,750)	(2,960)
Finance income		94	23
Finance expense		(55)	(22)
Gain on purchase		-	36
Loss before taxation		(3,711)	(2,923)
Income tax credit		37	61
Total Loss for the year all from continuing operations		(3,674)	(2,862)
Owners of the parent		(3,094)	(2,385)
Non-controlling interests		(580)	(477)
		(3,674)	(2,862)
Basic and diluted loss per share from continuing and discontinued operations attributable to owners of the parent during the year:
Continuing operations	5	(13.9p)	(13.2p)
From loss for the year		(13.9p)	(13.2p)

 

 

 

 

 

 

Consolidated Statement OF Comprehensive Income

For the year ended 31 December 2022

 

		2022	2021	2020
		£000's	£000's	£000's
Loss for the year		(3,674)	(2,862)	(2,338)
Other comprehensive income/(loss):
Exchange differences on translation of foreign operations		26	(99)	(3)
Change in fair value of equity investments classified as FVTOCI		8,773	6,009	(97)
Total comprehensive profit for the year		5,125	3,138	(2,438)

 

 

Attributable to:
Owners of the parent		5,732	3,624	(1,724)
Non-controlling interests		(607)	(486)	(714)
		5,125	3,138	(2,438)

 

 

 

Consolidated Statement of Financial Position

As at 31 December 2022

 

	Notes	2022 £000's	2021 £000's
Assets
Non-current assets
Property, plant and equipment	7	144	136
Right-of-use assets	8	420	158
Intangible assets	9	3,367	3,045
Equity investments classified as FVTOCI*	10	22,743	11,516
Financial assets classified as FVTPL**	11	693	1,462
Total non-current assets		27,367	16,317
Current assets
Inventory		76	67
Trade and other receivables		658	1,598
Cash and cash equivalents		852	2,710
Total current assets		1,586	4,375
Total assets		28,953	20,692
Liabilities Current liabilities
Trade and other payables		(2,457)	(1,529)
Lease liabilities		(168)	(32)
Loans and borrowings		(99)	(59)
Total current liabilities		(2,724)	(1,620)
Non-current liabilities
Lease liabilities		(268)	(131)
Loans and borrowings		(719)	(432)
Total non-current liabilities		(987)	(563)
Total liabilities		(3,711)	(2,183)
Net assets		25,242	18,509

 

Issued capital and reserves Attributable to the parent
Called up share capital		1,174	1,056	746
Warrants		42	42	-
Share premium account		74,175	72,792	65,594
Capital reserve account		237	237	237
Equity investment reserve		13,277	4,504	(1,505)
Foreign exchange reserve		1,421	1,368	1,368
Accumulated losses		(64,486)	(61,499)	(59,702)
Equity attributable to the owners of the parent		25,840	18,500	6,738
Non-controlling interests		(598)	9	158
Total equity		25,242	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 2022

 

			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 2021	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
Loss for the period	-	-	-	-	-	(3,094)	-	(3,094)	(580)	(3,674)
Other comprehensive loss/income -
Foreign exchange differences	-	-	-	-	-	-	53	53	(27)	26
Change in fair value of equity investments classified as FVTOCI	-	-	-	-	8,773	-	-	8,773	-	8,773
Total comprehensive profit/(loss)	-	-	-	-	8,773	(3,094)	53	5,732	(607)	5,125
Issue of share capital	118	-	1,439	-	-	-	-	1,557	-	1,557
Cost of share issue	-	-	(56)	-	-	-	-	(56)	-	(56)
Share-based payments	-	-	-	-	-	107	-	107	-	107
31 December 2022	1,174	42	74,175	237	13,277	(64,486)	1,421	25,840	(598)	25,242

 

 

 

 

Consolidated Statement of Cash Flows

As at 31 December 2022

 

		Notes		2022 £000's		2021 £000's
Cash flows from operating activities
Loss after income tax including discontinued operations				(3,674)		(2,862)
Adjustments for:
Depreciation of property, plant and equipment		7		45		54
Depreciation of right-of-use assets		8		76		31
Amortisation of intangibles		9		226		163
Estimated credit losses on trade receivables				18		2
Bad debt expense				-		9
Gain on purchase of subsidiary				-		(36)
Gain on available for sale investments				(254)		-
Fair value movement during the year on convertible debt				(466)		(28)
Capitalisation of development costs		9		(548)		(585)
Share-based payments				107		141
R&D tax credit				(46)		(81)
Loss on disposal of property, plant and equipment				1		-
Share of associate loss				11		-
Foreign exchange movement				(71)		2
Finance income				(95)		(23)
Finance costs				24		10
Tax credit				(37)		(61)
				(4,683)		(3,264)
Changes in working capital
(Increase)/decrease in inventory				(9)		7
Decrease/(Increase) in trade and other receivables				610		(1,148)
Increase in trade and other payables				879		864
Cash used in operations				(3,203)		(3,541)
Income tax received Income tax paid				96 -		78 (12)
Net cash (used) in operating activities				(3,107)		(3,475)
Cash flows from investing activities
Acquisition of subsidiary, net cash acquired				-		3
Purchase of property, plant and equipment				(53)		(62)
Purchase of available for sale investments				(267)		(2,192)
Purchase of derivative financial assets				(710)		(1,207)
Disposal of available for sale investments				451		-
Receipt of derivative financial assets				48		-
Interest received				1		-
Interest paid				-		(5)
Net cash (used in) investing activities				(530)		(3,463)
Cash flows from financing activities
Proceeds received on change in stake in subsidiary			-		700
Lease payments			(88)		(38)
Repayment of loans and borrowings			(89)		(502)
Proceeds from loans and borrowings			415		550
Proceeds from share issue			1,558		7,746
Share issue costs			(56)		(437)
Net cash from financing activities			1,740		8,019
(Decrease)/Increase in cash and cash equivalents			(1,897)		1,081
Cash and cash equivalents at beginning of year			2,710		1,628
Exchange differences on cash and cash equivalents			39		1
Cash and cash equivalents at end of year			852		2,710

 

 

Notes to the Financial Information for the Year Ended 31 December 2022

 

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 2022 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 2022.

 

The report of the auditors on the statutory accounts for the year ended 31 December 2022 was qualified and did not contain a statement under Section 498 of the Companies Act 2006. Investments are stated at £21.7million in the Parent Company Statement of Financial Position and £23.4million in the Consolidated Statement of Financial Position. The Directors did not perform year end valuations for some of the hard to value investments worth c.£1million for the year ended 31 December 2022.  Therefore, BDO were unable to obtain sufficient and appropriate evidence for the valuation of such investments at this date. The financial statements for the year ended 31 December 2022 included in this announcement were authorised for issue in accordance with a resolution of the Board of Directors on 30 May 2023.

 

3.            GOING CONCERN

               

NetScientific is in a strong position, with net assets of £25.2 million. In addition to cash-in-bank, NetScientific holds readily realisable quoted assets of c.£9.3 million as at 26 May 2023. Services provided by EMV Capital to the Group's portfolio companies generate a regular Group fee income, including from corporate finance fees, value creation fees, and profits from secondary sales of the Group's position in certain portfolio companies. These fees have contributed significantly to covering the operating costs of NetScientific itself and EMV Capital. With ProAxsis and Glycotest now having access to third party finance, they no longer draw on the Company's balance sheet.

The Board has prepared and reviewed budget cashflows and stress-tested the assumptions and sensitivities involved in the context of the broader economic environment. For the period to June 2024, the Group requires a minimum of approximately £1.5 million to continue as a going concern, assuming that its subsidiary portfolio companies continue to be fully funded by external financing as expected. This amount can be financed through several options, either on their own or in combination, including accelerating revenues at Group level, partial or full exits from portfolio company stakes, soft and non-dilutive finance, and/or a placement of NetScientific shares. Whilst a placement of NetScientific shares remains an available option, the Board has no current intention to pursue that in light of the Company's current share price relative to its net assets. These options have not been executed, and some or all may not be executed, and accordingly, this indicates that a material uncertainty exists which may cast significant doubt on the Group's and Company's ability to continue as a going concern and therefore that it may be unable to realise its assets and discharge its liabilities in the ordinary course of business. The Board will continue to tightly manage its cashflow, closely monitor events, and maintain a flexible approach to new opportunities.

The Directors are confident that NetScientific remains a going concern, and it is appropriate to prepare the financial statements on this basis. Accordingly, the financial statements do not include any adjustments that would be necessary if the Group and Company were unable to continue as a going concern.

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 2022. 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 6 June 2023.

 

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 2022 of 1,431,050 (2021: 1,064,498) are not treated as dilutive as the entity is loss making.

 

	2022 £000's	2021 £000's
Loss attributable to equity holders of the Company
Continuing operations	3,094	2,385
Total	3,094	2,385
Number of shares
Weighted average number of ordinary shares in issue	22,266,560	18,050,724

6.         INVESTMENTS IN SUBSIDIARY UNDERTAKINGS

 

             The Group had the following subsidiaries at 31 December 2022:

Name	Primary trading address	Country of incorporation or registration	Proportion of ownership interest at 31 December 2022	Proportion of ownership interest at 31 December 2021	Proportion of ownership interest held by non-controlling interests at 31 December 2022	Proportion of ownership interest held by non-controlling Interests at 31 December 2021
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%	75%	25%	25%
Frontier Biosciences Limited *	(a)	UK	75%	75%	25%	25%
Frontier Oncology Limited *	(a)	UK	75%	75%	25%	25%
NetScientific America, Inc.	(d)	USA	100%	100%	-	-
Glycotest, Inc. (i), (ii)	(e)	USA	62.5%	62.5%	37.5%	37.5%

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 1% respectively.

 

                      Registered office address:

 

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

(b)   20 St Andrew Street, Holborn Circus, London, EC4A 3AG

(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.

 

7.         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 2021	100		35			170			305
Additions	-		20			42			62
At 31 December 2021	100		55			212			367
Additions	5		16			32			53
Disposals	-		(3)			(1)			(4)
Foreign exchange movement	-		1			-			1
At 31 December 2022	105		69			243			417
Depreciation
At 1 January 2021	42		18			117			177
Charge for the year	10		11			33			54
At 31 December 2021	52		29			150			231
Charge for the year	11		12			22			45
Disposals	-		(3)			-			(3)
At 31 December 2022	63		38			172			273
Net book value
At 31 December 2022	42		31			71			144
At 31 December 2021	48		26			62			136

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

 

8.         RIGHT-OF-USE-ASSETS

 

				2022 £000's		2021 £000's
Cost
At 1 January				253		253
Additions				338		-
At 31 December				591		253
Amortisation
At 1 January				(95)		(64)
Charge for the year				(76)		(31)
At 31 December				(171)		(95)
Net book value
At 31 December				420		158

There are now three long term leases with two additions in 2022. The Group decided it would 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%.

The rate applied to the new leases in 2022 is 5.0%

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 £10k (2021: £29k) that are now all expired.

 

9.         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 2021	669	1,627	337	17	50	2700
Additions	-	-	585	-	-	585
At 31 December 2021	669	1,627	922	17	50	3,285
Additions	-	-	548	-	-	548
At 31 December 2022	669	1,627	1,470	17	50	3,833
Accumulated amortisation and impairment
At 1 January 2021	-	76	-	-	1	77
Amortisation charge	-	140	18	-	5	163
At 31 December 2021	-	216	18	-	6	240
Amortisation charge	-	163	56	-	7	226
At 31 December 2022	-	379	74	-	13	466
Net book value
At 31 December 2022	669	1,248	1,396	17	37	3,367
At 31 December 2021	669	1,411	904	17	44	3,045

 

Further ProAxsis development costs of £548k (2021: £585k) 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.

 

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.

 

10.       EQUITY INVESTMENTS CLASSIFIED AS FVTOCI

Represent equity securities classified as FVTOCI
	2022 £000's	2021 £000's
At 1 January	11,516	2,970
Additions	555	2,192
Disposals	(451)
Conversion of financial assets classified as FVTPL	2,004	-
Acquired through business combinations	-	342
Change in fair value during the year	9,119	6,012
At 31 December	22,743	11,516

 

Name	Country of incorporation	% of issued share capital	2022 £000's	£2021 £000's
PDS Biotechnology Corporation	USA	4.4%	14,680	8,047
EpiBone, Inc.	USA	1.3%	1,179	290
CytoVale, Inc.	USA	1.0%	415	371
G-Tech, Inc	USA	3.8%	354	317
PointGrab	Israel	0.5%	76	68
FOx Biosystems NV	Belgium	3.9%	495	336
Q-Bot Limited	UK	17.6%	3,728	1,025
SageTech Medical Equipment Limited	UK	5.5%	887	887
Sofant Technologies Limited	UK	1.5%	402	-
Vortex Biotech Holdings Limited	UK	30.0%	300	-
Martlet Capital Limited	UK	1.0%	175	175
Ventive Limited	UK	15.9%	52	-
DeepTech Recycling Limited	UK	30.0%	-	-
At 31 December			22,743	11,516

 

Below we provide some additional detail on the composition of the Fair Value estimates. When reviewing these estimates, we have taken into consideration both third party investment rounds, and whether the company continues to progress on their roadmap.

·      NASDAQ-listed PDS Biotechnology Corporation (4.4% stake) year end fair value was based on the listed share price (Nasdaq under the ticker PDSB) of $13.20 per share at 31 December 2022 (2021: $8.10). At 31 December 2022 NetScientific owns 1,338,833 shares of PDS' common stock, valuing the stake at £14,680k (2021: £8,047k). The current share price as of 19 May 2023 was $7.41 giving a fair value of the PDS investment of £7,977k. The Company periodically reviews its investment strategy with respect to this asset.

·      CytoVale Inc., (1.0% stake) 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 VC, private investor and government sources. At the time this was the only observable valuation on which to value CytoVale. Fair value at year end was £415k (2021: £371k). This last observable price has been used to value the CytoVale equity investment at year end.

·      EpiBone, Inc., (1.3% stake) executed a first close on a Series A fund-raise as part of which on 1 November 2022 the convertible loan note of £650k converted to equity. Fair value at year end was £1,179k (2021: £290k) based on the last round price.

·      G-Tech, Inc., continues to be valued at the Series A funding round of $6 million as of May 2020. This is the last observable price which values our 3.8% stake at £354k (2021: £316k).

·      PointGrab, (0.5% stake) - Valued at the most recent investment round as of April 2021, valuing our holding at £76k (2021: £68k).

·      FOx Biosystems (3.9% stake) - On 23 November 2022 the €150k convertible loan note plus interest converted to equity at the last investment round share price, valuing the stake at £495k (2021: £336k) as part of a c.€3.0m round (supported by an additional €2.5m EIC grant.

·      Q-Bot Limited (17.6% stake) - After a May 2022 conversion of a loan note of £549k into equity, NetScientific total cost is £1.5m. Following a November 2022 investment round, our stake has a fair value of £3,728k (2021: £1,025k), indicating a c.2.5x valuation uplift within an 18 month period.

·      SageTech Medical Equipment Limited, (5.5% stake) - Continues to be valued at the last round price as of 24 December 2021, valuing the stake at £887k (2021: £887k).

·      Sofant Technologies Limited, (1.5% stake) - On 6 July 2022 the convertible loan note converted to equity. The stake is valued at the last round price, resulting in £402k (2021: £Nil), at a cost of £300k.

·      Vortex Biotech Holdings Limited (30.0% stake) - On 16 August 2022, NetScientific announced the acquisition of 300,000 ordinary shares, translating into a 30% stake in the business for a non-cash consideration. This last round price of £1.00 was used to value the stake at £300k (2021: £Nil).

·      Ventive Limited, (15.9% stake) - Following a September 2022 rescue financing package led by EMV Capital, which also unlocked a c.£1.5m BEIS grant, the Group received a 15.9% stake in partial settlement of fees (and no cash investment). The stake is currently valued at £52k (2021: £Nil), based on the 'rescue round' equity price.

 

·      Martlet Capital Limited, (1.0% direct equity stake) - Our direct investment in the early-stage VC platform in Cambridge is currently valued at £175k (2022: £175k).

 

11.       FINANCIAL ASSETS CLASSIFIED AS FVTPL

 

Warrants & Convertible Loans classified as FVTPL	2022 £000's	2021 £000's
Balance at 1 January	1,462	78
Additions	710	1,332
Repayment	(48)	-
Additional accrued interest	93	24
Conversion to equity investments classified as FVTOCI	(2,004)	-
Change in fair value during the year	480	28
Balance at 31 December	693	1,462

 

Below is further detail on the various debt instruments used in financing portfolio companies during the year. For completeness, please refer to the above note 10, especially where convertible loans convert into equity:

·      EpiBone, Inc., a $734k convertible loan note (carrying interest at 6% p.a., and a conversion discount of 15%) was converted to equity on 1 November 2022, with accrued interest of £29k (2021: £3k). Fair value at year end was £Nil (2021: £543k).

·      G-Tech Medical, Inc., holds £88k of common form convertibles (2021: £78k), which remain as financial assets classified as FVTPL. No interest accrued.

·      Q-Bot Limited, £300k 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. On 27 January 2022 a further £200k was invested in the convertible loan note, with accrued interest during the period of £16k (2021: £5k). On 10 May 2022 the convertible loan note of £549k converted to equity. Fair value at year end was £Nil (2021: £312k). During 2022, a £140k working capital loan was extended to Q-Bot, carrying interest at 10% p.a. On 30 December 2022, £48k was repaid, including interest and arrangement fee of £9k. Fair value at year end was £101k (2021: £Nil). Warrants of £41k in Q-Bot were also received for services.

·      Vortex Biotech Holdings Limited was advanced loans of £370k during the period. The loan carries interest at 8% p.a. Accrued interest during the period was £15k (2021: £Nil). Fair value at year end was £385k (2021: £Nil).

·      Sofant Technologies Limited, a £300k convertible loan alongside BBB's Future Fund with 10% pa coupon convertible loan note, with a 20% discount on conversion was converted into equity in July 2022. Accrued interest during the period was £14k (2021; £13k). The fair value at year end was £Nil (2021: £324k).

·      Martlet Capital Limited, £75k unsecured convertible loan note. Fair value at year end was £80k (2021: £76k). The convertible loan note carries interest at 5% p.a. and is repayable by the seventh anniversary from the grant date. Accrued interest during the period is £4k (2021: £1k).

·      FOx Biosystems, €150k loan note with 5% p.a. coupon was converted to equity on 23 November 2022, with accrued interest during the period of £7k (2021: £Nil). Fair value at year end was £Nil (2021: £128k).

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