ANNUAL REPORT 2013 This page is intentionally blank NETSCIENTIFIC PLC ANNUAL REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
Index
Overview Page
✾ Chairman’s Statement 2
Strategic Report
✾ Chief Executive’s Report 4
✾ Strategic Report 6
✾ Financial Review 9
Corporate Governance
✾ Board of Directors 12
✾ Report of the Directors 15
✾ Corporate Governance Report 19
✾ Directors’ Remuneration Report 21
Financial Statements
✾ Report of the Independent Auditors 24
✾ Consolidated Statement of Comprehensive Income 25
✾ Consolidated Statement of Financial Position 26
✾ Consolidated Statement of Changes in Equity 27
✾ Consolidated Statement of Cash Flows 28
✾ Notes to the Consolidated Financial Statements 29
✾ Parent Company Financial Position 50
✾ Notes to the Parent Company Financial Statements 51
1 Chairman’s Statement
Introduction
In the twelve months ended 31 December 2013, NetScientific Plc (‘the Group’) successfully completed an IPO on the AIM market of the London Stock Exchange and continued to develop its strong portfolio of innovative technology companies.
During the period, the Group deployed a significant amount of its internal resource to preparing for its IPO, which culminated in the Admission of NetScientific plc to AIM in September 2013. The Group raised £30.0 million (£28.6 million net of expenses) through the issue of 18,750,000 new shares at a placing price of 160p. The market capitalisation of the Group at the placing price post fundraising was £57.4 million.
The Group’s current portfolio contains six standalone subsidiaries at a more advanced stage, two of which are close to key value inflection points and are currently the primary focus of the Group. It is planned that the net proceeds of the Placing will be used to fund working capital to accelerate to the market these two leading portfolio companies, Wanda , Inc. and Vortex BioSciences, Inc., whilst developing its other core subsidiary companies and pipeline projects. Within the Group’s portfolio there are now eleven pipeline opportunities currently undergoing evaluation and development.
Financial Results
The loss after tax for the year ended 31 December 2013 was £4.3 million (31 December 2012: £1.5 million)
Net funds held by the Group at 31 December 2013 amounted to £25.0 million and comprised cash and cash equivalents and short-term deposits of £25.5 million less long term loans of £0.5 million.
NetScientific Overview
NetScientific is a healthcare medical technology group that identifies, develops and commercialises research and technologies originating from leading universities, teaching hospitals and research institutes globally, particularly in the United Kingdom and the United States. The Group is primarily focused on identifying and developing research and technologies for use in five chronic disease areas within the healthcare diagnostics sector: (i) cardiovascular; (ii) liver; (iii) cancer; (iv) metabolic; and (v) digital health.
The Group’s core strategy is to fund and develop translational technologies that offer transformative benefits to peoples’ lives and society through improved diagnosis, monitoring and treatment of chronic disease. Chronic diseases account for more than 70 per cent of healthcare expenses in each of the United States and the United Kingdom, according to the Centers for Disease Control and Prevention and the UK Department of Health. Accordingly, reducing the cost of diagnosing, monitoring and treating chronic disease has become one of the key challenges to the global healthcare sector. Consequently, the Directors believe the Group’s five areas of focus represent highly attractive growth markets with significant unmet medical need for technological development, and in which the Group’s management has a significant amount of experience, expertise and strong existing networks. The Directors also believe that focusing on these areas will provide the Group with a competitive advantage over private equity funds and generalised IP commercialisation companies, enabling it to create value for shareholders.
Outlook
After a successful 2013 and the progress in the first few months of 2014, the Board looks ahead with confidence and expects to achieve significant progress with its portfolio companies in 2014.
2 Chairman’s Statement
Staff On behalf of the Board I would like to thank our staff. They have worked tirelessly to organise the Group for the AIM listing and continue the commercialisation of the Group’s portfolio. With this on-going commitment I am convinced we will achieve continued success in the coming year.
Sir Richard Sykes Chairman 18 March 2014
3 Chief Executive’s Report
Introduction
Since our IPO in September 2013, the Group has made good progress in line with its operational and financial objectives, with cash balances in excess of budget. The Group’s key subsidiaries have been the subject of intense development, with particular focus on Wanda and Vortex.
Wanda, Inc.
NetScientific’s telemedicine device company is developing a major platform in Big Data Healthcare Analytics, to improve the effectiveness of remote monitoring systems deployed in chronic disease management. Wanda’s achievements in the first six months since our IPO include:
• Appointed both a President and a CTO with strong backgrounds and experience in Fortune 500 companies. • Established operational headquarters in Silicon Valley and initiated the recruitment of a world-class team of engineers. • Ongoing clinical trials sponsored by the National Institute of Health (NIH) in seven California tier-1 hospitals, to complete later in 2014. Results continue to confirm statistically significant improvements in patient outcome and in reductions in re-hospitalisations, compared to conventional RMS without Wanda. • Completed pre-submission filing with FDA, with the expectation that FDA Class 1 & 2 will be achieved approximately one year from final submission. • Commenced active discussions for corporate partnership opportunities with a number of entities in Europe and the United States.
Vortex BioSciences, Inc.
NetScientific’s cancer diagnostics company is developing blood test cancer diagnostics by detecting, quantifying and harvesting Circulating Tumor Cells. These live CTCs offer important possibilities in advanced therapeutics and personalised medicine. The same post-IPO period has seen the following developments at Vortex:
• Clinical research and validation of Vortex systems have been expanded to breast, lung, pancreas and colon cancers - enabled by accelerated development of new techniques and instrumentation. • Important clinical collaboration has started with the Stanford Cancer Centre to exploit the technology’s ability to capture live cancer cells from blood samples for improved diagnosis and prognosis. This will potentially transform the selection of treatments for patients and the development of new classes of anticancer therapeutics. • Expanded clinical collaborations with physicians at UCLA through our dedicated new research facility. Particular focus will be on the analysis and identification of lung and pancreatic tumour cells. • IP portfolio strengthened, with brand new Patent filings and Disclosures.
Other Key Subsidiaries
• Glycotest, Inc. has initiated collaboration with the Baruch Blumberg Institute (formerly the Institute of Hepatitis & Virus Research), a leading liver cancer research centre. This collaboration will focus on development of liver cancer diagnostic panels and clinical analytics for liver disease. • QLIDA Diagnostics, Inc. has accelerated work on its commercial prototype for smartphone-enabled cardiovascular disease diagnostics and has expanded the team, with the appointment of VP Engineering. • Glucosense Diagnostics Limited completed an initial twelve patient clinical study of its non-invasive blood glucose sensor, with encouraging results. A different clinical model will now be implemented to extend and validate these.
4 Chief Executive’s Report
Other Progress and Outlook
Since September, NetScientific has strengthened its operational management, adding six new senior executives across the Group - bringing additional expertise in business development and product engineering.
Last month the Group announced an investment in the award-winning ProAxsis Ltd in partnership with Queen's University Belfast. ProAxsis will bring to the market novel point-of-care medical diagnostics devices to monitor patients with Cystic Fibrosis and other chronic respiratory conditions, such as Chronic Obstructive Pulmonary Disease (COPD).
In summary, the Group has accelerated the development of its existing subsidiaries, added an advanced diagnostics company and made significant progress with FDA - with major new initiatives underway for 2014.
Farad Azima Chief Executive Officer 18 March 2014
5 Strategic Report
Business Model The Group aims to identify promising research projects and The Group has active collaborations with a number of US, technologies that have the potential to be translated from UK and European institutions and has established dialogues research laboratory to clinical and commercial application. with several other institutions that may lead to future pipeline projects. The Group provides researchers and technologists with funding and funding support, technical guidance and Key Performance Indicators (‘KPIs’) commercial expertise in return for rights over their project IP. The Board considers that the most important KPIs are non- The Group aims to develop each project and IP through the financial and relate to the progress of the development proof of concept stage and onward to full commercialisation. programs in the subsidiaries which are identified in the As part of the process, the most attractive opportunities are business model and discussed in the Chairman’s and Chief formed into portfolio companies, in which the Group typically Executive’s Reports. takes a majority equity interest in return for further funding and guidance. The most important financial KPIs are the cash position and the operating loss of the Group. At 31 December 2013 cash The Group aims to grow the equity value of its interests in its and deposits balances amounted to £25.5 million and was portfolio companies through various key value inflection favourable to budget. The operating loss of £4.3 million was points such as clinical trials, regulatory approvals, in line with the budgeted loss for the year. collaborative funding arrangements, first revenues and follow- on growth. In turn, these value inflection points create exit or Risks and uncertainties out-licensing opportunities for the Group through trade sales, The Directors review the principal risks faced by the Company licensing arrangements with larger market participants or as part of the internal controls process. IPOs.
Risk Possible Consequence How the Board guards against risk
Investments made at an early stage To date the Group has invested in The Group is committed to managing early-stage research and the risk inherent within its investment technologies that are generally model, as well as minimising it, to regarded as higher risk than other the extent possible. First and forms of investment. In particular foremost, the Group principally early stage companies may not be invests in the “applied” phase of able to secure later rounds of research projects, meaning that such funding, or achieve the required rate projects have generally received of growth to make significant returns significant prior investment from for investors. universities, foundations and governments and have reached a stage where there are well-defined goals and processes to achieving IP and patent generation, proof of concept, market testing and regulatory approvals, all of which significantly de-risk a project when achieved. The Group is also able to spread risk by adopting a portfolio investment approach in its chosen field of transformative biomedical technology. In addition the Group plans to continue an investment strategy where potential new investments have been de-risked by prior investment or due diligence.
6 Strategic Report
Risk Possible Consequence How the Board guards against risk
Clinical development and Potential clinical trials and regulatory The Group seeks to reduce this risk regulatory risk approvals of the Group’s by closely monitoring the progress of subsidiaries’ products may not begin recruitment of its clinical trials, on time, may not be completed on drawing on the experience of its schedule, or at all, or may not be Executive Directors, seeking advice sufficient for registration of the from regulatory advisors, and products or result in products that holding consultations with can receive necessary clearances or appropriate regulatory bodies. approvals. Numerous unforeseen events during, or as a result of, clinical testing could delay or prevent commercialisation of such products.
Intellectual property risk The commercial success of the Group The Group seeks to reduce this risk depends on its ability to obtain by employing an experienced legal, patent protection for its own patent and licensing team along with discoveries and for technology it has external patent attorneys to review licensed from universities and the patent protection available research institutes. The intellectual before licensing in technology and property (“IP”) licensed to the Group by managing a policy of extensively is protected by patent, trademark, patenting all new discoveries copyright, as well as confidentiality generated in the subsidiaries. In procedures. These laws, procedures addition the Group is prepared to and restrictions provide only limited defend itself vigorously against protection and any such intellectual infringement of intellectual property, property rights may be challenged, should it be required. invalidated, circumvented, infringed or misappropriated. In particular, patents might not contain claims that are sufficiently broad to prevent others from utilising the covered IP. Third parties may independently develop similar or superior IP that does not infringe any protection afforded to the IP licensed to the Group. There can be no assurance that unauthorised use, disclosure or reverse engineering of the IP licensed to the Group will not take place.
7 Strategic Report
Risk Possible Consequence How the Board guards against risk
Competition risk There is intense competition among The Group seeks to minimize these healthcare, diagnostic and risks by having the Group’s Directors biotechnology companies. The and senior management team focus Group is aware of competitors in a significant amount of their time on both the United States and abroad those spin-outs, which the Directors who have developed or are believe are capable of achieving the developing diagnostic products that greatest value for the Group with address the same chronic diseases their current products. In addition risk that the Group’s spin-outs are is spread through strategic portfolio targeting. diversification within the targeted chronic disease areas. These companies’ diagnostic products or services could be more effective and/or cost-effective than the diagnostic products offered by the Group’s spin-outs.
Also, although the market for software products that provide advanced remote monitoring technology is still developing, the Group faces increasing competition from other companies in the healthcare information technology market. There is no assurance that other intellectual property may not be developed in other institutions which could render the Group’s products non-competitive or obsolete.
Dependence on key executives and A significant part of the Group’s The Group seeks to reduce this risk personnel value and the key to its future by a balanced compensation technology creation also lies with the package consisting of salary, scientists and engineers who partner benefits, performance related with the Group. Retention of key bonuses and equity incentive executives and personnel, and the schemes. The equity incentive maintenance of such a qualified schemes are implemented at a workforce, is a high priority for the Group level for NetScientific staff Group. However, it is not possible to and in specific schemes for guarantee retention of the services of subsidiary employees. key personnel and a failure to attract or retain key executives could have an adverse effect on the group’s business.
Business Review The business review has been covered in the Chief Executive's Report on pages 4 and 5 and in the Financial Review on pages 9 to 11.
Farad Azima Chief Executive Officer 18 March 2014 8 Financial Review
The Financial Review should be read in conjunction with the consolidated financial statements of the Company and its subsidiaries (together the ‘Group’) and the notes thereto on pages 29 to 49. The consolidated financial statements are presented under International Financial Reporting Standards as adopted by the European Union. The financial statements of the Company continue to be prepared in accordance with UK Generally Accepted Accounting Practice and are set out on pages 50 to 56.
Corporate Restructuring
In March 2013, NetScientific plc was registered as a public company and a reorganisation undertaken to bring all the NetScientific companies under the control of NetScientific plc. The Azima Family Trusts subscribed for 100% of the equity in the new plc and set off existing loan notes previously issued to fund the NetScientific companies, thereby extinguishing the debt of £4,062,497. Accrued interest of £236,745 due to the Azima Trusts was waived in the year ended 31 December 2013 and taken to Capital Reserves.
Comparative financial information for the year to 31 December 2012 incorporates the entities under common control at those dates.
Fundraising
In September 2013, the Company raised £30.0 million (£28.6 million net of expenses) through successful admission to AIM from institutional investors in the UK.
Research and Development
Research and development expenditure £763k (31 December 2012: £622k). Of the research and development costs incurred in the year, 55% of the costs were spent on the five key subsidiaries and the balance, which includes projects in receipt of grant income, was expended on pipeline projects.
Statement of Comprehensive Income
The loss from operations for the year ended 31 December 2013 was £4,326k (31 December 2012: £1,407k)
Administrative costs for the year amounted to £4,504k (31 December 2012: £1,423k) and the costs were represented by the following:
Research and development expenditure £763k (31 December 2012: £622k) Other administrative expenses £1,900k (31 December 2012: £801k) Legal costs, tax advice and advisory costs for the reorganisation, preparation for listing and listing costs not chargeable to share premium account £1,124k (31 December 2012 £Nil) Share based payment expense £717k (31 December 2012 £Nil)
The loss after tax for the year was £4,337k (31 December 2012: £1,532k) and the loss per share was 21p (31 December 2012: £704.53).
9 Financial Review
The exchange difference on translation of foreign operations relates to subsidiaries in the USA and the change in exchange rate from 31 December 2012 £1:1.626 to 31 December 2013 £1:1.649
Statement of Financial Position and Cash Flows
At 31 December 2013, net assets amounted to £24,900k (31 December 2012 net liabilities: £4,244k), including net funds, of £25,069k (31 December 2012: net borrowings £3,728k).
The principal elements of the £25,139k increase in cash and cash equivalents over the year ended 31 December 2013 (31 December 2012: decrease £393k) were:
• Net cash flow from operating activities £3,602k (2012: £1,403k) • Movement in working capital £78k (2012 (£173k)) • Cash used in investing activities £90k (2012: £25k) • Funding from loans £428k (2012: £861k) • Issue of shares on AIM listing (net of cash expenses) £28,465k (2012: £NIL)
Treasury policy and financial risk management
Credit risk The Group follows a risk-averse policy of treasury management. Sterling and US dollar deposits are held with one or more approved UK and US-based financial institutions. The Group’s primary treasury objective is to minimise exposure to potential capital losses whilst at the same time securing prevailing market rates.
Interest rate risk The Group’s cash held in current bank accounts is subject to the risk of fluctuating base rates. A substantial element of the Group’s financial assets is placed on interest earning deposits. The interest rate profile of financial assets is illustrated in note 20 to the financial statements.
Currency risk During the year under review, the Group was exposed to US dollar exposure as a substantial element of its research and development expenditure is denominated in this currency. The Group covered a proportion of its forward exposure for 2014 by converting US$12 million from sterling in December 2013.
Capital structure and funding
The Group is funded by equity capital, reflecting the early stage nature of its development programmes. The Group considers its capital to be its total equity, which at 31 December 2013 amounted to £25.6 million (31 December 2012: Deficit of £4.0 million). The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns to equity holders of the Company and benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group manages this objective through tight control of its cash resources.
10 Financial Review
Net funds held by the Group at 31 December 2013 amounted to £25.0 million and comprised cash and cash equivalents and short- term deposits as shown below:
2013 2012 £k £k
Short-term deposits 17,027 -
Cash and cash equivalents 8,520 411
Loans and Borrowings (478) (4,139)
Net Funds 25,069 (3,728)
Of the total share capital and share premium of £32,640k, £4,062k was from the conversion of the Azima Family Trust loan notes to equity and a further cash subscription of £13k, and the balance of £28,565k was raised on the AIM Listing.
Peter Thoms Chief Financial Officer 18 March 2014
11 Board Of Directors
Sir Richard Sykes, Non-executive Director and Chairman Sir Richard Sykes is Non-executive Director and Chairman of the Company. Sir Richard spent thirty years working in the biotechnology and pharmaceutical industries, including at Glaxo plc (subsequently Glaxo Wellcome plc), where he served as Chairman and CEO from 1995 to 2000, and then GlaxoSmithKline plc, where he served as Chairman until 2002. Sir Richard was also the senior independent Non-executive Director and Deputy Chairman of Eurasian Natural Resources Corporation from 2007 to 2011, Chairman of NHS London from December 2000 to 2010, Rector of Imperial College from 2000 to 2008 and a Non-executive Director of Rio Tinto plc from 1997 to 2007. He holds a BSc in Microbiology from the University of London, a PhD in Microbial Biochemistry from Bristol University and a DSc from the University of London.
In 1994, Sir Richard received a knighthood for services to the pharmaceutical industry. In 2004, he was awarded Honorary Citizenship of Singapore for his contribution to the development of the country’s biomedical sciences industry.
Sir Richard is a Fellow of the Royal Society and Academy of Medical Sciences, Imperial College London, Imperial College School of Medicine and King’s College London and an Honorary Fellow of the Royal Academy of Engineering, Royal Society of Chemistry, Royal Pharmaceutical Society, Royal College of Pathologists, Royal College of Physicians, the University of Wales and the University of Central Lancashire.
Farad Azima, Executive Director and Chief Executive Officer Farad Azima is founder, Executive Director and CEO of the Company. NetScientific represents the culmination of a thirty-five year career as a successful industrialist, technology entrepreneur and philanthropist. Most notably, Farad was the founder of the sound technology business, NXT plc (formerly Verity Group plc), which he built into a FTSE 250 company before stepping down as CEO in 2001. In 1997, Farad co-founded Eastern Counties Radio with the Daily Mail newspapers and Verity Group plc, of which Farad was then CEO. He also founded hi-tech businesses Mission Electronics Limited in 1977 and Cyrus Electronics Limited (now Cyrus Audio Limited) in 1983.
Farad has a passion for new technologies and has strong connections with academics and academic institutions. He is the inventor of numerous new technologies in diverse areas of engineering, which are the subject of international patents registered in his name. From 2001 to 2005, Farad served on the Industrial Key Advisers of Churchill College, Cambridge. He has remained an active alumnus of the University of Leeds, where he received his postgraduate degree in Development Economics.
12 Board Of Directors
Dr. Michael Boyce-Jacino, Executive Director Dr. Michael Boyce-Jacino is an Executive Director of the Company. He is also currently CEO of QLIDA, a subsidiary company. In the early part of his career, Michael completed a National Institute of Health (“NIH”) post-doctoral fellowship in 1993, after which he joined Molecular Tool, Inc., a genetics diagnostics start-up. After becoming President of Molecular Tool, Inc. in 1994, Michael spearheaded a merger with Genescreen, Inc. and subsequent acquisition of Molecular Tool, Inc. by Orchid BioSciences, Inc. (“Orchid”) in 1998. Michael acted as General Manager and Chief Scientific Officer of Orchid for four years, and had a key role in the commercialisation of diagnostics technologies, the acquisition of CellMark Laboratories, Inc., and Orchid’s successful $170 million initial public offering (“IPO”). After selling Orchid’s instrument business to Beckman Coulter, Inc. in 2002, Michael joined Beckman Coulter, Inc. as Vice President, Genomics, creating the global GenomeLab branding initiative for Beckman. Michael subsequently joined Princeton University spin-out, BioNanomatrix, Inc. (now BioNano Genomics, Inc.), as founding CEO, and was involved in raising more than $20 million for that company before founding and seed financing QLIDA, one of our subsidiary companies.
He holds a PhD in Microbiology and Human Molecular Genetics from the University of Minnesota and a BS from the University of Wisconsin, Madison.
David Gough, Executive Director David Gough is an Executive Director of the Company. David has spent forty years working in the pharmaceutical, healthcare and biomedical sectors, including in a number of senior sales, marketing and business development roles, followed by a research career, notably with Johnson & Johnson. Previously, David was Head of Healthcare and Biotechnology in the Technology division of PA Consulting Group. Leaving PA Consulting Group to join PowderJect Pharmaceuticals plc ahead of its IPO, David subsequently founded Vectura Limited (now Vectura Group plc). Since leaving Vectura Limited, David has been both an investor and an early-stage entrepreneur. He has worked for or advised several venture capital companies, including Avlar BioVentures Limited, Merlin Ventures Limited (with whom he co-founded Vectura Group plc) and Quester Capital Management Limited. He has extensive experience working with companies spun out from universities in both the United Kingdom and the United States.
David has a BSc in Physiology and Biochemistry, an MBA with finance options, the Diploma in Marketing and the Investment Management Certificate.
Peter Thoms, Executive Director and Chief Financial Officer Peter Thoms is Executive Director and Chief Financial Officer (“CFO”) of the Company. He was formerly CFO of NXT plc (formerly Verity Group plc), having served on its board since 1992. A Chartered Accountant, he worked for the Gillette Group for fifteen years, first as Vice-President & Director of Finance of Gillette Canada Inc., and then as Controller of Gillette Northern Europe.
Peter moved from the Gillette Group to the position of Group Finance Director of Amstrad plc. Peter joined NXT plc (formerly Verity Group plc) in 1992 as Finance Director and Company Secretary.
13 Board Of Directors
Nicholas Heckford, Executive Director, Commercial and Legal Nicholas Heckford is Executive Director, Commercial and Legal at the Company. Nicholas is an accountant with extensive experience in commercial management.
After graduating from Bristol University in 1970 with a degree in Economics, Politics and French, and working as an accountant with KPMG in London, Nicholas worked as a Financial Controller and Financial Director in the electrical and electronics industries. He then moved into broader commercial roles in a variety of businesses, including various start-ups. Before joining the Company, Nicholas was Director of Licensing Operations for an international technology licensing company, where he negotiated and managed licences for brands such as Samsung, Siemens, Philips, NEC and Bosch.
Barry W Wilson, Non-executive Director Barry W Wilson is Non-executive Director of the Company. He is an international executive with over 45 years of experience working in the healthcare industry. Previously, Barry served as President International of Medtronic, Inc., President International of the Lederle Division of American Cyanmid Company, prior to its merger with Wyeth, Inc. (now Pfizer, Inc.), and President Europe of Bristol-Myers Squibb Company. Additionally he had nine international assignments with Pfizer, Inc. Barry serves on the Board of Directors of Welch Allyn, Inc. and Anecova SA. He is currently a member of the Thematic Advisory Board of Lombard Odier Private Bank. Barry also advises several venture capital organisations and start¬ups. Barry previously was a Director of Malinckrodt, Inc., Bausch & Lomb, Inc. (both NYSE companies), Rezidor Hotel Group AB (Swedish Stock Exchange) and Healthcare Advisor to DLJ Credit- Suisse Alternative Investments.
Barry holds a BA (Hons), MA from Cambridge University, England and an MBA from The Wharton School, University of Pennsylvania.
Lady Barbara Judge, CBE, Non-executive Director Lady Barbara Judge is Non-executive Director of the Company. Lady Barbara is a lawyer with extensive international experience working in both the private and public sectors. Previously, she was a partner in a major US law firm and, in 1980, was appointed a Commissioner of the US Securities and Exchange Commission. Lady Barbara is Chairman of the UK Pension Protection Fund, an arms length Government body, and the Energy Institute of University College London. Previously, she was Chairman of the UK Atomic Energy Authority. In June 2010, she was awarded Commander of the British Empire in the Queen’s Birthday Honours for services to the nuclear and financial services industries.
14 Report Of The Directors
The Directors present their report with the audited financial statements of NetScientific plc (“NetScientific”) and its subsidiaries (“the Group”) for the year ended 31 December 2013.
CHANGE OF NAME The company passed a special resolution on 4 March 2013; the Company changed its name from Greybridge IT Limited to NetScientific Limited as part of a reorganisation of the Group's corporate structure.
It passed a further resolution on 11 March 2013; the Company re-registered as a public limited company and changed its name to NetScientific plc.
RESEARCH AND DEVELOPMENT The Group incurred research and development expenditure of £762,624 in the year (2012 £622,134). Commentary on the major activities is given in the Financial Review.
DIVIDEND The Directors do not propose the payment of a dividend.
FUTURE DEVELOPMENTS A review of anticipated future developments is included in the Chief Executive’s Report.
POST BALANCE SHEET EVENTS Since the 31 December 2013 the company has acquired a majority stake in ProAxsis Ltd a newly formed company involved in the development of a range of novel medical diagnostic tests to enable routine monitoring of patients with Cystic Fibrosis and other chronic respiratory conditions such as Chronic Obstructive Pulmonary Disease. The company invested £100,000 for a 57% equity holding in ProAxsis Ltd.
DIRECTORS The Directors shown below have held office during the whole of the period from 1 January 2013 to the date of this report.
N C Heckford P Y Thoms
Other changes in Directors holding office are as follows:
Sir R Sykes appointed 7 March 2013 F Azima appointed 7 March 2013 Dr M T Boyce-Jacino appointed 7 March 2013 D A Gough appointed 7 March 2013 B W Wilson appointed 7 March 2013 Lady B Judge appointed 9 May 2013
15 Report Of The Directors
Basis of Directors’ shareholdings and other interest
No. of shares as at No of shares as at 31-12-13 31.12.12
Sir Richard Sykes 62,500 - Farad Azima 156,250 - Dr. Michael Boyce-Jacino 1,563 - David Gough 6,250 - Peter Thoms 1,563 - Nicholas Heckford 3,125 - Barry W Wilson 15,525 - Lady Barbara Judge 3,125 -
Additionally Farad Azima and members of his family are beneficiaries of trusts who hold 100% of the issued share capital in the following shareholders in NetScientific Plc
Cyrus Holdings Limited 11,795,000 - Quantadyne Limited 3,430,000 - Zahra Holdings Limited 1,927,020 -
Between 31 December 2013 and the date of this report there has been no change in the interests of Directors in shares or share options as disclosed in this report.
Sir Richard Sykes, Farad Azima, David Gough, Nicholas Heckford and Lady Barbara Judge shares are held by nominees.
DIRECTORS’ REMUNERATION AND SHARE OPTIONS
Details of the Directors’ remuneration and share options are given in the Directors’ Remuneration Report on pages 21 to 23.
DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE
Qualifying indemnity insurance cover has been arranged in respect of the personal liabilities which may be incurred by Directors and officers of the Group during the course of their service with the Group. This insurance has been in place from 6 March 2013 and up to the date of this report.
FINANCIAL INSTRUMENTS
The Group’s use of financial instruments is discussed in the Financial Review on pages 9 to 11 and in note 20 to the financial statements.
16 Report Of The Directors
CHARITABLE AND POLITICAL DONATIONS
During the year ended 31 December 2013 the Group made no charitable donations (2012 £Nil) and no political donations (2012 £Nil).
DISABLED EMPLOYEES
The Group gives every consideration to applications for employment from disabled persons where the requirements of the job may be adequately covered by a handicapped or disabled person. Should any employee become disabled every practical effort is made to provide continued employment.
SUBSTANTIAL HOLDINGS
As at 17 March 2014 the Directors were aware of the following interest of 3 per cent or more in the issued ordinary share capital of the Company (other than Directors interests already disclosed) and have not been notified, pursuant to the provisions of the Companies Act 2006, of any further such interests.
No. of shares Per cent. of Name voting rights
Invesco Asset Management Limited 14,000,000 39.0% Zahra Holdings Limited 11,795,000 32.9% Quantadyne Limited 3,430,000 9.6% Cyrus Holdings Limited 1,927,020 5.4% Artemis Investment Management LLP 1,078,125 3.0%
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and the company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and Applicable Law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and the group and of the profit or loss of the group for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departure disclosed and explained in the financial statements; and; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
17 Report Of The Directors
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's and the group's transactions and disclose with reasonable accuracy at any time the financial position of the company and the group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Website publication The Directors are responsible for ensuring the Annual Report and Financial Statements are made available on a website. Financial statements are published on the Group’s website in accordance with AIM rules for companies and legislation in the United Kingdom governing the preparation and dissemination of Financial Statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the on-going integrity of the financial statements contained therein.
Going concern The Directors have prepared and reviewed financial forecasts. After due consideration of these forecasts and current cash resources, the Directors consider that the Company and Group have adequate financial resources to continue in operational existence for the foreseeable future (being at least twelve months from the date of this report), and for this reason the financial statements have been prepared on a going concern basis.
Auditors All the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Company’s Auditors for the purpose of their audit and to establish that the Auditors are aware of that information. The Directors are not aware of any relevant audit information of which the auditors are unaware.
The Auditors, BDO LLP, will be proposed for re-appointment at the forthcoming Annual General Meeting.
BY ORDER OF THE BOARD:
Ernest Schneider Company Secretary 18 March 2014
18 Corporate Governance Report
The Board is accountable to the Company’s shareholders for good corporate governance and it is the objective of the Board to attain a high standard of corporate governance. The Company does not seek to comply with the Code and it is not giving any statement of compliance. However, the Company has regard to the Code when determining its corporate governance processes which are set out below.
Board of Directors On 31 December 2013 the posts of Chairman and CEO are held by different Directors and the Board of Directors (the “Board”) is balanced by an appropriate Non-executive element with three out of the eight Directors being Non-executive Directors.
The Board meets regularly throughout the year (normally quarterly on a formal basis) and arrangements are made to enable information in a form and of a quality to be supplied to Directors on a timely basis to enable them to discharge their duties. Additionally, special meetings take place or other arrangements are made when Board decisions are required in advance of regular meetings. Certain matters are reserved for consideration by the Board (with other matters delegated to Board committees). The Board is responsible for leading and controlling the Company and in particular, setting the Company’s strategy, its investment policy and approving its budget and major items of expenditure, acquisitions and disposals.
The Board of Directors has a procedure through which the Directors are able to take independent advice in the furtherance of their responsibilities. The Directors have access to the advice and services of the Company Secretary.
During the year ended 31 December 2013, the board met 8 times, with each member attending as follows.
Number of meetings held Number of Director whilst a Board Member meetings attended
Sir Richard Sykes 88
Farad Azima 88
Dr. Michael Boyce-Jacino 88
David Gough 87
Peter Thoms 88
Nicholas Heckford 88
Barry Wilson 88
Lady Barbara Judge 51
As appropriate, the Board has delegated certain responsibilities to Board committees.
Audit Committee The Audit Committee which was formed on the 9 May 2013 is chaired by Barry W Wilson, and its other members are Sir Richard Sykes and Lady Barbara Judge. The Audit Committee has responsibility for considering all matters relating to financial controls, reporting and external audits, the scope and results of the audits, the independence and objectivity of the auditors and keeping under review the effectiveness of the Group’s internal controls and risk management.
The committee monitors the scope, results and cost-effectiveness of the audit. It has unrestricted access to the Group’s auditors. In certain circumstances it is permitted by the Board for the auditors to supply non-audit services (in the provision of tax advice, or non-specific projects where they can add value). The committee has approved and monitored the application of this policy in order to safeguard auditor objectivity and independence.
During the year ended 31 December 2013 the Audit Committee met once and all members attended.
Remuneration Committee The Remuneration Committee which was formed on the 7 March 2013 is chaired by Sir Richard Sykes and its other members are Farad Azima and Barry W Wilson. The Directors consider that the composition of this committee is appropriate given the Company’s size and circumstances.
19 Corporate Governance Report
The committee meets at least twice a year. The Remuneration Committee has responsibility for making recommendations to the Board on the Company’s policy for remuneration of senior executives, for reviewing the performance of Executive Directors and senior management and for determining, within agreed terms of reference, specific remuneration packages for each of the Executive Directors and members of senior management, including pension rights, any compensation payments and the implementation of executive incentive schemes. The committee administers the Company’s share option scheme and approves grants under the scheme. The committee is responsible for all senior appointments that are made within the Group. Non-executive Directors’ fees will be determined by the full Board. Farad Azima, in his capacity as a member of the remuneration committee, does not have a vote in determining or approving his executive pay. During the year ended 31 December 2013, the committee met four times and Sir Richard Sykes, Barry W Wilson and Farad Azima attended all meetings
Nomination Committee The Nomination Committee which was formed on the 9 May 2013 is chaired by Lady Barbara Judge, and its other members are Barry W Wilson and Farad Azima. The committee has responsibility for considering the size, structure and composition of the Board, and the retirement and appointment of Directors, and will make appropriate recommendations to the Board about these matters. During the year ended 31 December 2013, the committee did not meet prior to or following the listing of the Company on AIM in September 2013.
Investor relations The Directors seek to build a mutual understanding of objectives between the company and its shareholders by meeting with major institutional investors after the Company’s preliminary announcement of its year-end results and its interim results. The company also maintains investor relations pages on its website (www.netscientific.net) to increase the amount of information available to investors.
There is an opportunity at the Annual General Meeting for individual shareholders to question the Chairman, and the Chairs of the Audit, Remuneration and Nomination Committees.
Internal control The Directors are responsible for establishing and maintaining the Group’s system of internal control and reviewing its effectiveness.
The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable but not absolute assurance against material misstatement or loss.
The main features of the internal control system are as follows:
• a control environment exists through close management of the business by the Executive Directors. The Group has a defined organisation structure with delineated approval limits. Controls are implemented and monitored by personnel with the necessary qualifications and experience • a list of matters reserved for Board approval • regular management reporting and analysis of variances • standard financial controls operate to ensure that the assets of the Group are safeguarded and that proper accounting records are maintained.
BY ORDER OF THE BOARD:
Ernest Schneider Company Secretary 18 March 2014
20 Directors’ Remuneration Report
This report is non-mandatory for AIM-quoted companies and has been produced on a voluntary basis. It includes and complies with the principal disclosure obligations of the AIM Rules and with the principal disclosure requirements of Schedule 5 of the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008.
Remuneration Committee The Company’s remuneration policy is the responsibility of the Remuneration Committee (the “Committee”) which was established in March 2013. The terms of reference of the Committee are summarised in the Corporate Governance Report on pages 19 and 20. The members of the Committee are Sir Richard Sykes, Barry W Wilson and Farad Azima.
The Committee, which is required to meet at least twice in the year, met four times during the year ended 31 December 2013. The Chief Executive, Farad Azima, was not present when his own remuneration was discussed.
Remuneration policy The objective of the remuneration policy is to provide packages for executives that are designed to attract, retain and motivate people of high quality and experience.
The remuneration for the Chief Executive and Executive Directors consists of an annual salary, an annual performance-related bonus and private health cover. In addition the Executive Directors have received grants from the Company’s share option scheme.
The Committee believes that the base salary and benefits for the Executive Directors should represent a fair return for employment but that the maximum total potential remuneration may only be achieved in circumstances where the Executive has met challenging personal objectives that contribute to the Group’s overall performance.
The basic salaries of the Chief Executive and the Executive Directors are reviewed annually and take effect from 1 October each year. The basic salary is determined by reference to relevant market data and the individual’s experience, responsibilities and performance.
Chairman and Non-executive Directors’ remuneration. The Chairman Sir Richard Sykes receives a fixed fee of £36,000 per annum. Barry W Wilson and Lady Barbara Judge receive a fixed fee of £24,000 per year. The fixed fee covers preparation for and attendance at meetings of the full Board and committees thereof. The Chairman and the Executive Directors are responsible for setting the level of Non-executive remuneration. The Non- executive Directors are also reimbursed for all reasonable expenses incurred in attending meetings. The Non-executive Directors were granted options in the Company’s share option scheme on the Company’s admission to AIM.
Equity based incentive schemes The committee believes that equity based incentive schemes increase the focus of employees in improving the Group’s performance, whilst at the same time providing a strong incentive for retaining and attracting individuals of high calibre.
21 Directors’ Remuneration Report
The NetScientific Share Option Scheme (the “Scheme”) was established on 9 May 2013 and is administered by the Remuneration Committee. The Committee decides to whom of the employees to grant options, the number, the exercise dates and the performance conditions. Options are normally granted within 42 days of the preliminary announcement of the Company’s interim or final results. Options may also be granted at other times to new eligible employees or in other circumstances determined by the Remuneration Committee to be exceptional. The option price is the greater of the average of the closing or middle market price over the 5 dealing days before the date the option is granted or the amount specified by the Remuneration Committee to be the option price. No options can be exercised unless the participant has been in employment with the Company for three years since the date of grant other than the options granted to Directors at the time of the admission to AIM, the vesting timing for which is detailed in the paragraph below. The Scheme limit is 8.5% of the number of Ordinary Shares in issue prior to such a grant.
Directors’ interests in share options The interests of Directors in The NetScientific Share Option Scheme over Ordinary Shares during the year were as follows.
Options as at Option Price 31 December 2013
Sir Richard Sykes 359,020 160p
Farad Azima 359,020 160p
Dr Michael Boyce-Jacino 359,020 160p
David Gough 359,020 160p
Peter Thoms 359,020 160p
Nicholas Heckford 359,020 160p
Barry W Wilson 179,510 160p
Lady Barbara Judge 179,510 160p
The options were granted on 16 September 2013, the date of the Company’s Admission to AIM. The options price was 160p, the Placing Price. The vesting terms for the Directors were one third of the option became exercisable on the date of Admission, the next third on the first anniversary of the date of Admission and the final third on the second anniversary of the date of Admission. In the case of the Chairman and Non-executive Directors any Ordinary Shares issued as a result of the exercise of their options must be held for three years from the date of vesting of the relevant options.
Audited information The following section (Directors’ remuneration) contains the disclosures required by Schedule 5 to the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 and forms part of the financial statements for the year ended 31 December 2013 and has been audited by the Company‘s auditor, BDO LLP.
22 Directors’ Remuneration Report
Directors’ remuneration The aggregate remuneration received by Directors who served during the year ended 31 December 2013 is set out below. The remuneration for the Executive Directors is for the eight months from 1 May until 31 December and the Non-executive Directors for the six months from 1 July.
Year ended 31 December 2013 Note Salary/ Benefits Bonus Total £000’s Fee
Executive Directors Farad Azima 100 2 102 Dr Michael Boyce-Jacino (i) 100 1 19 120 David Gough 67 --67 Nicholas Heckford 67 --67 Peter Thoms 100 1-101
Non-executive Directors Lady Barbara Judge 12 --12 Sir Richard Sykes 18 --18 Barry Wilson 12 --12 –––––– –––––– –––––– –––––– Total 476 4 19 499 –––––– –––––– –––––– ––––––
There were no Directors’ remuneration arising during the accounting period ended 31 December 2012.
(i) Dr Michael Boyce-Jacino was the highest paid Director
In addition to the amounts shown above, the share-based payment charge for the period was:
Year ended 31 Year ended 31 December 2013 December 2012 £000’s £000’s Executive Directors Farad Azima 102 - Dr Michael Boyce-Jacino 102 - David Gough 102 - Nicholas Heckford 102 - Peter Thoms 102 -
Non-Executive Directors Lady Barbara Judge 52 - Sir Richard Sykes 103 - Barry Wilson 52 - –––––– –––––– Total 717 - –––––– –––––– BY ORDER OF THE BOARD:
Sir Richard Sykes Chairman of Remuneration Committee 18 March 2014
23 Report Of The Independent Auditors
We have audited the financial statements of NetScientific plc Opinion on financial statements for the year ended 31 December 2013 which comprises the In our opinion: Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the • the financial statements give a true and fair view of the Consolidated Statement of Changes in Equity, the state of the group's and the parent company's affairs as Consolidated Statement of Cash Flows, the Parent Company at 31 December 2013 and of the group's loss for the year Balance Sheet and the related notes. The financial reporting then ended; framework that has been applied in the preparation of the • the groups financial statements have been properly group’s financial statements is applicable law and prepared in accordance with IFRSs as adopted by the International Financial Reporting Standards (IFRSs) as European Union; adopted by the European Union. The financial reporting • the parent company’s financial statements have been framework that has also been applied in the preparation of properly prepared in accordance with United Kingdom the parent company financial statements is applicable law Generally Accepted Accounting Practice; and and United Kingdom Accounting Standards (United Kingdom • the financial statements have been prepared in Generally Accepted Accounting Practice) in accordance with accordance with the requirements of the Companies Act the provisions of the Companies Act 2006. 2006.
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Opinion on other matter prescribed by the Companies Act Companies Act 2006. Our audit work has been undertaken 2006 so that we might state to the company's members those In our opinion the information given in the Report of the matters we are required to state to them in an auditor’s report Directors and the Strategic Report for the financial year for and for no other purpose. To the fullest extent permitted by which the financial statements are prepared is consistent with law, we do not accept or assume responsibility to anyone the financial statements. other than the company and the company's members as a body, for our audit work, for this report, or for the opinions Matters on which we are required to report by exception we have formed. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
Respective responsibilities of Directors and Auditors • adequate accounting records have not been kept by the As explained more fully in the statement of Directors' parent company, or returns adequate for our audit have responsibilities, the Directors are responsible for the not been received from branches not visited by us; or preparation of the financial statements and for being satisfied • the parent company financial statements are not in that they give a true and fair view. Our responsibility is to agreement with the accounting records and returns; or audit and express an opinion on the financial statements in • certain disclosures of Directors' remuneration specified by accordance with applicable law and International Standards law are not made; or on Auditing (UK and Ireland). Those standards require us to • we have not received all the information and explanations comply with the Auditing Practices Board's (APB’s) Ethical we require for our audit. Standards for Auditors.
Paul Anthony (Senior Statutory Auditor) Scope of the audit of the financial statements for and on behalf of BDO LLP, statutory auditor A description of the scope of an audit of financial statements Southampton is provided on the FRC’s website at United Kingdom www.frc.org.uk/auditscopeukprivate. 18 March 2014
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127)
24 Consolidated Statement Of Comprehensive Income
Note 2013 2012 £ £
Other operating income 177,667 16,000
Research and development expenditure 762,624 622,134 Share based payment 717,234 - Reorganisation and AIM listing costs 1,123,508 - Other administrative expenses 1,900,242 801,025
Total administrative expenses (4,503,608) (1,423,159) –––––––––– –––––––––– Loss from operations 7 (4,325,941) (1,407,159)
Share of loss of joint ventures 12 (27,832) (13,623) –––––––––– –––––––––– (4,353,773) (1,420,782)
Finance income 5 37,566 -
Finance expense 6 (35,210) (111,344) –––––––––– –––––––––– Loss before taxation (4,351,417) (1,532,126)
Taxation 8 14,153 - –––––––––– –––––––––– Loss for the year (4,337,264) (1,532,126) –––––––––– –––––––––– Other comprehensive income Exchange difference on translation of foreign operations 87,377 87,429 –––––––––– –––––––––– Total comprehensive expense for the year (4,249,887) (1,444,697) –––––––––– –––––––––– Loss attributable to: Owners of the parent (4,112,565) (1,423,145)
Non-controlling interests (224,699) (108,981) –––––––––– –––––––––– (4,337,264) (1,532,126) –––––––––– ––––––––––
Total comprehensive expenses attributable to: Owners of the parent (4,025,188) (1,335,716)
Non-controlling interests (224,699) (108,981) –––––––––– ––––––––––
(4,249,887) (1,444,697) –––––––––– –––––––––– Loss per Ordinary Share attributable to the ordinary equity holders of the parent: 9 (0.21) (704.53) –––––––––– ––––––––––
All other comprehensive income will be reclassified to retained earnings on the ultimate sale of any relevant subsidiary company.
25 Consolidated Statement Of Financial Position
ASSETS Note 2013 2012 NON-CURRENT ASSETS £ £ Intangible assets 10 638,492 13,474 Property, plant and equipment 11 67,101 11,748 Investment in joint ventures 12 69,872 37,350 Available for sale investments 12 22 –––––––––– –––––––––– 775,467 62,574 –––––––––– ––––––––––
CURRENT ASSETS Trade and other receivables 13 325,651 221,626 Cash and cash equivalents 25,546,951 410,788 –––––––––– –––––––––– 25,872,602 632,414 –––––––––– –––––––––– TOTAL ASSETS 26,648,069 694,988 –––––––––– ––––––––––
LIABILITIES CURRENT LIABILITIES Trade and other payables 14 (1,113,490) (799,864) Loans and borrowings 15 (3,250) (4,138,800) –––––––––– –––––––––– (1,116,740) (4,938,664) –––––––––– –––––––––– NON CURRENT LIABILITIES Trade and other payables 14 (49,723) - Loans and borrowings 15 (475,109) - Provision for deferred tax 16 (106,965) - –––––––––– ––––––––– TOTAL LIABILITIES (1,748,537) (4,938,664) –––––––––– ––––––––––
TOTAL NET ASSETS/(LIABILITIES) 24,899,532 (4,243,676) –––––––––– ––––––––––
ISSUED CAPITAL AND RESERVES ATTRIBUTABLE TO THE PARENT Called up share capital 17 1,795,101 1 Share premium account 18 30,844,552 - Capital reserve account 18 236,745 - Foreign exchange reserve 18 150,131 62,754 Retained earnings 18 (7,459,726) (4,064,395) –––––––––– –––––––––– Equity attributable to the parent 25,566,803 (4,001,640)
Non-controlling interests 19 (667,271) (242,036) –––––––––– –––––––––– TOTAL EQUITY 24,899,532 (4,243,676) –––––––––– ––––––––––
The financial statements on pages 25 to 49 were approved and authorised for issue by the Board of Directors on 18 March 2014 and were signed on its behalf by:
Peter Thoms Chief Financial Officer
26 Consolidated Statement Of Changes In Equity
Retained Foreign Capital Share Share Total Non- Total Earnings Exchange Reserve Capital premium attributable controlling equity Reserve Reserve to equity interest holders of parent £ £ £ £ £ £ £ £
Balance at 1 January 2012 (2,641,250) (24,675) -1 -(2,665,924) (133,054) (2,798,978)
Comprehensive income Loss for the period (1,423,145) --- -(1,423,145) (108,982) (1,532,127) Other comprehensive income - 87,429 -- -87,429 - 87,429 –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– Total comprehensive income (1,423,145) 87,429 -- -(1,335,716) (108,982) (1,444,698) –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– Balance at 31 December 2012 (4,064,395) 62,754 -1 -(4,001,640) (242,036) (4,243,676) –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– Balance at 1 January 2013 (4,064,395) 62,754 -1 -(4,001,640) (242,036) (4,243,676)
Comprehensive income Loss for the period (4,112,565) --- -(4,112,565) (224,699) (4,337,264) Other comprehensive income - 87,377 -- -87,377 - 87,377
Acquisition of subsidiary ------(203,357) (203,357)
Increase in subsidiary shareholding ------(6,772) (6,772)
Dilution in subsidiary shareholdings ------9,593 9,593
Issue of share capital -- -1,795,100 32,279,998 34,075,098 - 34,075,098
Transaction costs in respect of share issues -- - -(1,435,446) (1,435,446) - (1,435,446)
Waiver of loan interest on share issue --236,745 --236,745 - 236,745
Share based payments 717,234 --- -717,234 - 717,234 –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– Total comprehensive income (3,395,331) 87,377 236,745 1,795,100 30,844,552 29,568,443 (425,235) 29,143,208 –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– Balance at 31 December 2013 (7,459,726) 150,131 236,745 1,795,101 30,844,552 25,566,803 (667,271) 24,899,532 –––––– –––––– –––––– –––––– –––––– –––––– –––––– ––––––
27 Consolidated Statement Of Cash Flows
2013 2012 £ £ Cash flows from operating activities Loss before tax (4,351,417) (1,532,126) Adjustments for: Depreciation 5,508 2,888 Amortisation 1,616 1,256 Share of loss of joint ventures 27,832 13,623 Impairment of unlisted investments -2 Share based payment expense 717,234 - Finance Income (37,566) - Finance costs 35,210 111,344 –––––––––––– ––––––––––––
(3,601,583) (1,403,013)
Change in trade and other receivables (245,100) (105,509) Change in trade and other payables 167,977 278,866 –––––––––––– ––––––––––––
Cash used in operations (3,678,706) (1,229,656) –––––––––––– ––––––––––––
Cash flows from investing activities Investment in joint venture (60,354) (18,269) Purchase of intangible assets (3,718) Purchase of property, plant and equipment (60,861) (3,162) Interest received 37,566 - Increase shareholding in subsidiary undertaking (6,772) - –––––––––––– –––––––––––– Net cash used in investing activities (90,421) (25,149) –––––––––––– –––––––––––– Cash flows from financing activities Proceeds from loan 428,457 861,475 Proceeds from share issue 29,912,750 - Share issue cost (1,435,446) - Cash acquired on acquisition of subsidiary 1,973 - –––––––––––– –––––––––––– Net cash from financing activities 28,907,734 861,475 –––––––––––– –––––––––––– Increase/(decrease) in cash and cash equivalents 25,138,607 (393,330) Cash and cash equivalents at beginning of year 410,788 830,211 Exchange losses on cash and cash equivalents (2,444) (26,093) –––––––––––– –––––––––––– Cash and cash equivalents at end of year 25,546,951 410,788 –––––––––––– ––––––––––––
28 Notes To The Combined Financial Information
1 ACCOUNTING POLICIES
Basis of preparation
NetScientific plc was incorporated on 12 April 2012. On 8 March 2013 NetScientific plc acquired the entire issued share capital of NetScientific UK Limited and NetScientific America, Inc. via a share for share exchange with Cyrus Holdings Limited. The acquisitions of the subsidiaries are deemed to be ‘combinations under common control’ as ultimate control before and after the acquisition was the same. As a result, these transactions are outside the scope of IFRS 3 “Business combinations” and have been included under the principles of merger accounting as set out under UK GAAP.
Accordingly, although the companies which comprise the Group did not form a legal group for the entire period, the current period and comparative results comprise the results of the subsidiary companies and NetScientific plc, as if the Group has been in existence throughout the entire period.
The Group financial information has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union that are effective for accounting periods beginning on or after 1 January 2013. 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, unless otherwise stated.
First time adoption The NetScientific Group is preparing its financial information in accordance with EU adopted IFRSs for the first time and has consequently applied IFRS 1. The NetScientific Group was not previously reported under UK GAAP as it was not in existence therefore no reconciliation to UK GAAP figures has been reported as no material first time adoption exemptions taken.
New standards, interpretations and amendments not yet effective IASB and IFRIC have issued the following relevant standards and interpretations with an effective date after the date of these financial statements:
Standard or Title Effective from interpretation
IFRS 2 Amendments for Annual Improvements to IFRSs 2010-2012 Cycle 1 July 2014 (definition of vesting condition) IFRS 3 Amendments for Annual Improvements to IFRSs 2010-2012 Cycle 1 July 2014 (contingent consideration) IFRS 3 Amendments for Annual Improvements to IFRSs 2011-2013 Cycle 1 July 2014 (scope exception for joint ventures) IFRS 9 Deferral of mandatory effective date of IFRS 9 and 1 January 2015 amendments to transition disclosures IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, Applies when IFRS IFRS 7 and IAS 39) issues, implementing additional disclosures 9 is applied (and consequential amendments) resulting from the introduction of the hedge accounting chapter in IFRS 9 IFRS 10 Consolidated Financial Statements 1 January 2014 IFRS 11 Joint Arrangements 1 January 2014 IFRS 12 Disclosure of Interests in Other Entities 1 January 2014 IFRS 13 Amendments for Annual Improvements to IFRSs 2010-2012 Basis conclusion Cycle (short-term receivables and payables) only
29 Notes To The Consolidated Financial Statements
1 ACCOUNTING POLICIES continued
Standard or Title Effective from interpretation
IFRS 13 Amendments for Annual Improvements to IFRSs 2011-2013 Cycle 1 July 2014 (scope of portfolio exception in paragraph 52) IFRS 14 IFRS 14 Regulatory Deferral Accounts issued 1 January 2016 IAS 1 Amendments for Annual Improvements 2009-2011 Cycle 1 July 2013 (comparative information) IAS 16 Amendments for Annual Improvements to IFRSs 2010-2012 Cycle 1 July 2014 (proportionate restatement of accumulated depreciation under the revaluation method) IAS 24 Amendments for Annual Improvements to IFRSs 2010-2012 Cycle 1 July 2014 (entities providing key management personnel services) IAS 27 Amendments for Investment Entities 1 January 2014 IAS 36 Amendments for Recoverable Amount Disclosures for Non-Financial Assets 1 January 2014 IAS 38 Amendments for Annual Improvements to IFRSs 2010-2012 Cycle 1 July 2014 (proportionate restatement of accumulated depreciation under the revaluation method) IAS 40 Amendments for Annual Improvements to IFRSs 2011-2013 Cycle (interrelationship between IFRS 3 and IAS 40) 1 July 2014
The Directors do not anticipate that the adoption of the remaining standards and interpretations will have a material impact on the Group’s financial statements in the period of initial application.
The effective dates stated here are those given in the original IASB/IFRIC standards and interpretations. As the Group prepares its financial statements in accordance with IFRS as adopted by the European Union, the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU Endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Group’s discretion to early adopt standards.
The Group financial information is presented in sterling.
Basis of consolidation The consolidated financial statements incorporate the financial statements of the company and its subsidiaries made up to the reporting date. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
The consolidated financial statements incorporate the results of business combinations using the purchase method. In the statement of financial position, the acquiree’s identifiable assets and liabilities are initially recognised at their fair values at acquisition date. The results of acquired entities are included in the consolidated statement of comprehensive income from the date at which control is obtained and are deconsolidated from the date control ceases.
30 Notes To The Combined Financial Information
1 ACCOUNTING POLICIES continued
Joint ventures Jointly controlled entities are included in the financial statements using the equity method, with the accounts reflecting the Group's investment in the joint venture less its share of its losses.
The Group has a contractual liability to provide $500,000 of funding to the joint venture to enable it to meet its obligations as they fall due and therefore the Group will recognise its share of the losses of the joint venture up to $500,000.
Grants Grants for research and development activities are recognised as income over the periods in which the relevant research and development costs are to be incurred and expensed to the income statement. Grants for future research and development costs are recorded as deferred income. Grant income is included in other operating income.
Grants where the Group purchase, construct or otherwise acquire capital expenditure are recognised as deferred revenue in the consolidated statements of financial position and credited to the profit and loss on a systematic and rational basis over the useful lives of the related assets.
Goodwill Purchased goodwill (representing the excess of fair value of the consideration given over the fair value of the separable net assets acquired) arising on consolidation in respect of acquisitions is capitalised. The carrying amount is subject to an impairment review by the Directors at the end of each accounting period in accordance with International Accounting Standard 36, Impairment of Assets.
Intangible assets Acquired patents and licenses are included at cost and amortised to administrative expenses on a straight-line basis over their useful economic life of 10 years.
The carrying values of intangible assets are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.
Acquired in process research and development (IPRD) is an indefinite-lived asset, subject to impairment testing until the completion or abandonment of the related project. No further costs will be capitalised in respect of this IPRD unless it meets the criteria for research and development capitalisation as set out below. As per IFRS 3, once the incremental research and development is completed, the carrying value of the acquired IPRD is reclassified as a finite-lived asset and amortised over its useful life.
Property, plant and equipment Property, plant and equipment are stated at cost less any accumulated depreciation and any accumulated impairments losses. Depreciation is provided at the following annual rates in order to write off the cost of each asset, less its estimated residual value, over its estimated useful life.
Property, plant and equipment - between 20% and 50% per annum on a straight line basis or 33.33% on a reducing balance basis.
The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.
Financial instruments Financial assets and financial liabilities are recognised in the Group's combined statement of financial position when the Group becomes a party to the contractual provisions of the instrument.
31 Notes To The Combined Financial Information
1 ACCOUNTING POLICIES continued
Financial assets Loans and receivables These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.
Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable; the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable.
The Group's loans and receivables comprise trade and other receivables, other financial assets and cash and cash equivalents in the consolidated statement of financial position. Cash and cash equivalents includes cash in hand and deposits held at call with banks.
Available-for-sale Non-derivative financial assets not included in the above categories are classified as available-for-sale and comprise principally the investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair value, other than those arising due to exchange rate fluctuations and interest calculated using the effective interest rate, recognised in other comprehensive income and accumulated in the available-for-sale reserve.
Where there is a significant or prolonged decline in the fair value of an available for sale financial asset (which constitutes objective evidence of impairment), the full amount of the impairment, including any amount previously recognised in other comprehensive income, is recognised in profit or loss.
Purchases and sales of available for sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the available-for-sale reserve.
On sale, the cumulative gain or loss recognised in other comprehensive income is reclassified from the available-for-sale reserve to profit or loss.
Financial liabilities The Group classifies its financial liabilities as financial liabilities held at amortised cost. Trade payables are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.
Taxation Income tax is recognised or provided at amounts expected to be recovered or to be paid using the tax rates and tax laws that have been enacted or substantively enacted at the reporting date. Research and development tax credits are included as an income tax credit under current assets.
Deferred tax balances are recognised in respect of all temporary differences that have originated but not reversed by the reporting date except for differences arising on:
• investments in subsidiaries where the Group is able to control the timing of the reversal of the difference and it is probable that the difference could not reverse in the foreseeable future; and
• the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit.
32 Notes To The Consolidated Financial Statements
1 ACCOUNTING POLICIES continued
The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Recognition of deferred tax assets is restricted to those instances where it is probable that a taxable profit will be available against which the temporary difference can be utilised. Deferred tax balances are not discounted.
Research and development All on-going research expenditure is currently expensed in the period in which it is incurred. Due to the uncertainties inherent in the development of the Group's products, the criteria for development costs to be recognised as an asset, as set out in IAS 38 "Intangible Assets", are not met until it is probable that future economic benefit will flow to the Group. The Group currently has no such qualifying expenditure.
Foreign currencies Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date.
On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in the foreign exchange reserve.
Non-controlling interests The total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interest in proportion to their relative ownership interests.
Share based payment For all grants of share options, the fair value as at the date of the grant is calculated using an appropriate option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that are likely to vest, except for options with market based conditions where the likelihood of vesting is factored into the fair value attributed to those options. The expense is recognised over the vesting period of the option. The credit for any charge is taken to equity.
2. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS
The Directors make judgements and estimates concerning the future. Estimates and judgements are continually evaluated and are based on historical experience and other factors, such as expectations of future events, and are believed to be reasonable under the circumstances. Actual results could differ from these estimates.
The estimates and assumptions that have the most significant effects on the carrying amounts of the assets and liabilities in the financial statements are discussed below.
Calculation and impairment of goodwill The amount of goodwill initially recognised is dependent on the allocation of the purchase price to the fair value of the purchase price to the fair value of the identifiable assets acquired and the liabilities assumed. The determination of the fair value of the assets and liabilities is based to a considerable extent on the use of professional advisors in conjunction with management’s judgement. Allocation of the purchase price affects the results of the Group as finite lived intangible assets are amortised whereas indefinite lived intangible assets including goodwill are not amortised and could result in differing amortisation charges based on the allocation to indefinite lived and finite lived intangible assets. Due to the early stage nature of the acquired entity, determining whether goodwill is impaired has been based on the progress of the core research programme since acquisition and based on the progress made management are of the opinion that no impairment is required.
33 Notes To The Consolidated Financial Statements
2. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS continued
Indefinite lived intangible assets Acquired in process research and development (IPRD) is an indefinite-lived asset. The value of such acquired assets is based to a considerable extent on the use of professional advisers in conjunction with management judgement and is the subject of impairment reviews until the completion or abandonment of the related project. Management takes into consideration the requirements of IFRS 3, once the incremental research and development is completed, the carrying value of the acquired IPRD will be required to be reclassified as a finite-lived asset and amortised over its useful life.
Share based payment The critical accounting estimates, assumptions and judgements underpinning the valuation of the option are disclosed in Note 26.
3. SEGMENTAL REPORTING
IFRS 8 “operating segments” defines operating segments as those activities of an entity about which separate financial information is available and which are evaluated by the Chief Operating Decision Maker to assess performance and determine the allocation of resources. The Chief Operating Decision Maker has been identified as the Board of Directors. The Directors are of the opinion that under IFRS 8 the Group has only one operating segment, being the development of intellectual property. The Board of Directors assess the performance of the operating segment using financial information which is measured and presented in a manner consistent with that in the financial statements.
4. EMPLOYEES AND DIRECTORS 2013 2012 ££
Wages and salaries 795,810 90,294 Social security costs 74,886 4,093 Share based payment expense 717,234 - 1,587,930 94,387
For the purposes of presentation in the Consolidated Statement of Comprehensive Income, remuneration costs of £117,926 (2012 £Nil) are included in research and development expenditure, costs of £19,000 (2012 £Nil) were included in reorganisation and aim listing costs and £1,451,004 (2012 £94,387) are included in other administrative expenses.
The average monthly number of employees during the year including Executive Directors was as follows:
2013 2012 ££
Administrative 11 Management 12 4 13 5
The Directors represent the key management personnel and details of their remuneration are given in the Directors’ Remuneration Report.
In respect of Directors’ remuneration, the disclosures required by Schedule 5 to Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 are included in the detailed disclosures in the audited section of the Remuneration Report on page 23, which are ascribed as forming part of these financial statements.
34 Notes To The Consolidated Financial Statements
5. FINANCE INCOME 2013 2012 ££
Bank interest receivable 37,566 -
6. FINANCE EXPENSE 2013 2012 ££
Interest payable on loans 35,210 111,344
7. LOSS FROM OPERATIONS
The loss before income tax is stated after charging: 2013 2012 ££
Depreciation – owned assets 5,508 2,888
Patents and licences amortisation 1,616 1,256
Fees payable to the company’s auditor for the audit of the 25,000 - company’s financial statements Audit of the company’s subsidiaries pursuant to legislation 15,000 -
Fees payable to the company’s auditors for other services: Corporate finance services 101,167 - Tax compliance services 24,023 - Tax advisory services 2,500 - Audit related services 15,000 - Other non-audit related services 3,050 -
In addition to the above fees charged by the auditors further corporate finance fees of £39,181 were charged to the share premium account for the year.
8. TAXATION 2013 2012 Analysis of tax credit ££
Adjustment in respect of prior period (14,153) -
Factors affecting the tax expense 2013 2012 The tax assessed for the year is higher than the standard rate of ££ corporation tax in the UK. The difference is explained below:
Loss before taxation (4,351,417) (1,532,126)
35 Notes To The Consolidated Financial Statements
8. TAXATION continued 2013 2012 £ £ Loss on ordinary activities multiplied by the standard rate of corporation tax in the UK of 23.25% (2012 – 24.5%) (1,011,704) (375,371)
Effects of: Expenses not deductible for tax purposes 482,369 3,211 Depreciation in excess/(deficit) of capital allowances 825 (483) Utilisation of brought forward trading losses (72) - Unutilised tax losses arising in the period 430,345 372,643 (Over)/under provision in respect of previous years (14,153) - Research and development adjustment 98,237 -
Current tax credit (14,153) -
Tax effects relating to effects of other comprehensive income
Gross Tax Net £ £ £
87,377 - 87,377 Exchange differences on translation of foreign operations 87,377 - 87,377
There are tax losses available to carry forward against future trading profits of approximately £3,214,203 (31 December 2012 - £1,755,175). A deferred tax asset in respect of these losses of approximately £674,983 (31 December 2012 - £403,690) has not been recognised in the accounts, as the full utilisation of these losses in the foreseeable future is uncertain.
9. LOSS PER ORDINARY SHARE
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares.
12 months 12 months ended 31 ended 31 December December 2013 2012 ££ Loss attributable to equity holders of the company Weighted average number of ordinary shares in issue (4,112,565) (1,423,145) 19,558,458 2,020
The loss attributable to ordinary shareholders and weighted average number of ordinary shares for the purpose of calculating the diluted earnings per ordinary share are identical to those used for basic earnings per share as whilst parent company has share options in existence they are not dilutive as their exercise would have the effect of reducing the loss per ordinary share.
36 Notes To The Consolidated Financial Statements
10. INTANGIBLE ASSETS Goodwill In Process Patents Total Research and and licences Development £ £ £ £ COST At 1 January 2012 --11,512 11,512 Additions --3,718 3,718 At 31 December 2012 --15,230 15,230 Additions 359,220 267,414 - 626,634 At 31 December 2013 359,220 267,414 15,230 641,864
AMORTISATION At 1 January 2012 --500 500 Amortisation --1,256 1,256 At 31 December 2012 --1,756 1,756 Amortisation --1,616 1,616 At 31 December 2013 --3,372 3,372
NET BOOK VALUE At 31 December 2013 359,220 267,414 11,858 638,492
At 31 December 2012 --13,474 13,474
At 1 January 2012 --11,012 11,012
During the period the Group acquired a controlling interest in QLIDA Diagnostics, Inc., through the conversion of loans into equity. Provisional fair values have been calculated, resulting in the recognition of goodwill and in process research and development (“IPRD”).
Further details in respect of the acquisition are included in Note 12
37 Notes To The Consolidated Financial Statements
11. PROPERTY, PLANT AND EQUIPMENT Plant and machinery £
COST At 1 January 2012 13,652 Additions 3,162 At 31 December 2012 16,814 Additions 60,861 At 31 December 2013 77,675
DEPRECIATION At 1 January 2012 2,178 Charge for the year 2,888 At 31 December 2012 5,066 Charge for the year 5,508 At 31 December 2013 10,574
NET BOOK VALUE At 31 December 2013 67,101
At 31 December 2012 11,748
At 1 January 2012 6,474
Interest Available for sale Total 12. INVESTMENTS in joint investments Venture £££
COST At 1 January 2012 199,251 4 199,255 Additions 18,269 - 18,269 Write down of investments - (2) (2) At 31 December 2012 217,520 2 217,522 Additions 60,354 - 60,354 At 31 December 2013 277,874 2 277,876
SHARE OF RETAINED PROFITS At 1 January 2012 (166,547) - (166,547) Retained loss for the year (13,623) - (13,623) At 31 December 2012 (180,170) - (180,170) Retained loss for the year (27,832) - (27,832) At 31 December 2013 (208,002) - (208,002)
TOTAL At 31 December 2013 69,872 2 69,874
At 31 December 2012 37,350 2 37,352
At 1 January 2012 32,704 4 37,708
38 Notes To The Consolidated Financial Statements
12. INVESTMENTS continued
Interest in joint venture The Group has a 50% interest in a jointly controlled entity, Butterfly BioSciences LLC, which has been included in the consolidated accounts using the equity method. The Group has agreed to invest up to $500,000 into the joint venture to help fund its research adventures and therefore is recognising its share of the losses up to $500,000.
Set out below is the summarised financial information for Butterfly Biosciences LLC which is accounted for using the equity method.
As at 31 December Summarised Statement of Financial Position 2013 2012 £ £ CURRENT Current liabilities (416,004) (360,340) Net liabilities (416,004) (360,340)
As at 31 December 2013 2012 Summarised statement of comprehensive income £ £
Administrative expenses (55,664) (27,246) Loss before tax (55,664) (27,246) Taxation -- Loss for the year (55,664) (27,246) Other comprehensive income -- Total comprehensive income (55,664) (27,246)
As at 31 December 2013 2012 Reconciliation of summarised financial information £ £
Opening net assets 1 January (360,340) (333,094) Loss for the period (55,664) (27,246) Other comprehensive income -- Closing net assets (416,004) (360,340) Interest in joint venture @ 50% (208,002) (180,170) Goodwill -- Carrying value of share of losses (208,002) (180,170)
39 Notes To The Consolidated Financial Statements
12. INVESTMENTS continued
Subsidiary undertaking The following were subsidiary undertakings and all have been included in the combined financial information from their date of incorporation or in the case of QLIDA Diagnostics, Inc. its date of acquisition.
Country of Proportion of Proportion of Incorporation ownership interest ownership interest or registration under common control under common control At 31 December 2013 At 31 December 2012
NetScientific UK Limited UK 100% 100% Glucosense Diagnostics Limited * UK 100% 100% Watermass Limited * UK 100% 100% Nearfield Communications Limited * UK 100% 100% RoboScientific Limited * UK 80% 100%
NetScientific America, Inc. USA 100% 100% Advanced Cardiotech, Inc. USA 87.5% 87.5% Advanced BioSensors, Inc.* USA 87.5% 87.5% CardioScientific, Inc. * USA 100% 100% Glycotest, Inc. USA 87.5% 87.5%
Vortex BioSciences, Inc. USA 95% 94% Wanda, Inc. USA 57% 57% QLIDA Diagnostics, Inc. USA 51% - MOFTek, Inc. USA 100% 100% MOF Technologies Limited * UK 51% 60%
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
Options
Some of the entities above have issued options which if exercised would dilute the Group's shareholding. The following options were in existence at year end:
• Options have been granted by Vortex BioSciences, Inc., which if exercised would dilute the company’s shareholding by 19%. • Options have been granted by Glycotest, Inc., which if exercised would dilute the company’s shareholding by 14%.
Acquisition of subsidiary
QLIDA Diagnostics, Inc. was incorporated in November 2010 and engaged in the development of portable handheld diagnostics tests for life threatening conditions. As such its research complimented the group’s activities. The group held unsecured convertible promissory notes through a subsidiary NetScientific America, Inc. On the 25 February 2013 the conversion rights were exercised resulting in the Group owning 47% of the equity of the company which, in tandem with enhanced voting rights agreed with existing shareholders, gave the group control of QLIDA Diagnostics, Inc.
40 Notes To The Consolidated Financial Statements
12. INVESTMENTS continued Book Adjustment Fair Value Value £ £ £ Intangible assets - 267,414 267,414 Cash and cash equivalents 1,973 - 1,973 Trade and other payables (277,869) - (277,869) Deferred tax liability - (106,965) (106,965) Provision for warrants (53,912) - (53,912) NetScientific America, Inc. Loan (25,666) - (25,666) Other loans (185,580) - (185,580)
Total net liabilities (541,054) 160,449 (380,605)
Share of net liabilities acquired by Group at fair value 177,248
Total consideration through conversion of loans into equity 181,972
Goodwill 359,220
Non-controlling interest arising on acquisition 203,357
Goodwill arising on acquisition Goodwill arose on the acquisition of QLIDA Diagnostics, Inc. because of the consideration paid effectively included amounts in relation to the benefit of expected synergies, revenue growth and future market development.
None of the goodwill arising on this acquisition is expected to be deductible for tax purposes.
Impact of acquisition on the results of the group Included in the loss for the year is £99,845 attributable from the additional business combination with QLIDA Diagnostics, Inc. No revenue is included in the year in relation to the business combination.
Had the business combination been effected at 1 January 2013, the loss from continuing operations would have been £4,352,596.
The Directors consider their pro-forma numbers to represent an approximate measure of the performance of the combined group on an annualised basis and to provide a reference point for comparison in the future periods.
41 Notes To The Consolidated Financial Statements
13. TRADE AND OTHER RECEIVABLES 2013 2012 £ £ Current: Other receivables 86,478 164,822 Prepayments and accrued income 220,268 56,804 306,746 221,626
Non current: Prepayments and accrued income 18,905 -
Aggregate amounts 325,651 221,626
14. TRADE AND OTHER PAYABLES 2013 2012 £ £ Current: Trade creditors 645,646 780,517 Social security and other taxes 1,003 10,250 Other creditors 466,841 9,097 1,113,490 799,864
Non current: Other creditors 49,723 -
Aggregate amounts 1,163,213 799,864
42 Notes To The Consolidated Financial Statements
15. LOANS AND BORROWINGS 2013 2012 £ £
Total falling due within one year 3,250 4,138,800
Total falling due after more than one year 475,109 -
Total 478,359 4,138,800
The maturity of the loans are as follows:
Amounts falling due within one year on demand 3,250 4,138,800
Amounts falling due between one and two years --
Amounts falling due between two and five years 201,095 -
Amounts falling due in more than five years 274,014 -
Financial liabilities and Borrowings represent:
Convertible loan notes of £200,000 plus accrued interest to 31 December 2013 of £1,096 issued to a UK subsidiary company. Interest is payable on any outstanding loan notes thirty six months after execution of the convertible loan note instrument at a rate of 10% per annum. but is only payable subject to certain conditions being met and the company agreeing to the redemption of the loan. All outstanding convertible loan notes not redeemed shall convert into fully paid senior shares at a conversion price based on the value of future fundraising or fair value at the date of conversion. The date of conversion is determined by events set out in the convertible loan note instrument, but in any event will be no later than thirty six months after conversion of the convertible loan note instrument.
Borrowings falling due after more than five years represent the sterling equivalent of loans totalling $400,000, plus accrued interest, which has been obtained by a US subsidiary in accordance with a Seed Capital Funding Agreement effective September 2013 (replacing previous agreements). Interest of 8% arises on the loans and the maturity date for these loans is 31 March 2019. The agreement includes the option for the loans to be converted into equity interests in the US subsidiary, providing certain criteria are met. Concurrently with the execution of the agreement the US subsidiary was required to issue a warrant in favour of the lender, although the company has the option to repurchase the warrants at any time prior to their exercise and the lender can require settlement of the warrants in cash after 5 years.
In the opinion of the Directors, materially these constitute debt instruments and therefore no element has been reallocated as equity.
16. PROVISION FOR DEFERRED TAX 2013 2012 £ £
Deferred Tax (106,965) -
43 Notes To The Consolidated Financial Statements
16. PROVISION FOR DEFERRED TAX continued Deferred Tax £ Balance as at 1 January 2012 - Provision on acquired intangibles 106,965
Balance as at 31 December 2013 106,965
The provision represents the deferred tax on the capitalisation of the In Process Research and Development (IPRD) arising on the acquisition of QLIDA Diagnostics, Inc. (see note 12)
17. CALLED UP SHARE CAPITAL Nominal 2013 2012 Allotted, issued and fully paid: Value £ £
Number: Class: 1 Ordinary £1 -1 35,902,020 Ordinary 5p 1,795,101 -
1,795,101 1
On 8 March 2013 the company issued 500,100 £1 Ordinary shares at par and 357,500 £1 Ordinary shares for £10 per share. The shares were issued in exchange for a combination of cash outlay and setting off against debts owed by the company as referred to more fully in note 23.
On 10 May 2013 the whole of the issued £1 Ordinary shares were sub-divided to 5p Ordinary shares.
On 16 September 2013 the company was listed on AIM issuing 18,750,000 5p Ordinary shares at a price of £1.60 per share.
On 16 September 2013 options were granted over 2,513,140 5p Ordinary shares. As at 31 December 2013 there has been no movement on share options and the un-issued, options are equivalent to 7% of the issued share capital. Details of the share options and terms can be found in note 26. The group has no legal or constructive obligation to repurchase or settle the options in cash.
18. CAPITAL AND RESERVES
Share Capital Share capital represents the nominal value of shares issued.
Share Premium Account Share premium represents amounts subscribed for share capital in excess of nominal value less the related costs of shares issued.
Capital Reserve Account Capital reserve represents the waiver of loan interest by Quantadyne Limited and Zahra Holding Limited companies on conversion of the loans provided to the group into ordinary shares.
Foreign exchange reserve The foreign exchange reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries of the group.
44 Notes To The Consolidated Financial Statements
18. CAPITAL AND RESERVES continued
Retained earnings Retained earnings are in deficit and represent cumulative net gains and losses recognised in the consolidated statement of comprehensive income adjusted for cumulative share-based payments
2013 2012 19. NON-CONTROLLING INTERESTS £ £
Balance at beginning of year (242,036) (133,054) Share of loss for the year (224,699) (108,982) Non-controlling interest arising on the acquisition of QLIDA Diagnostics, Inc. (203,357) - Increase in subsidiary shareholdings (6,772) - Dilution in subsidiary shareholdings 9,593 -
(667,271) (242,036)
20. FINANCIAL INSTRUMENTS
Currency risk During the year under review, the Group was exposed to US dollar exposure as a significant element of its research and development expenditure is denominated in this currency. The Group holds an element of its cash in US dollars to reduce its exposure to movements in exchange rates.
The currency and interest rate exposure of the group’s borrowings is shown below. Weighted average Total Floating Fixed Weighted time for borrowings borrowings average which rate is £ £ £ interest fixed years
As at 31 December 2012 Sterling 499,999 - 499,999 0.0% 1 Sterling 3,424,998 3,424,998 - 3.8% 3,924,997 3,424,998 499,999 3.3%
As at 31 December 2013 Sterling 3,250 - 3,250 0.0% 1 Sterling 201,095 - 201,095 10.0% US Dollar 274,014 - 274,014 8.0% 478,359 - 478,359 8.8%
Interest rate and currency of cash balances
Floating rate financial assets of £25,546,951 (2012 £410,788) comprises sterling and dollar cash deposits with the banks current accounts. There are no fixed rate financial assets. Interest receivable at 0.4% for the year ended 31 December 2013 was £37,566 (2012 £nil).
45 Notes To The Consolidated Financial Statements
20 FINANCIAL INSTRUMENTS continued
Currency exposure The group's currency exposure, ie those exposures arising from transactions, the net currency gains and losses from which will be recognised in the profit and loss account, is shown below.
Function of currency of group operations Net foreign currency monetary assets/(liabilities)
Sterling Dollar Total As at 31 December 2013 £ £ £ Sterling - (24,909) (24,909) Dollar --- - (24,909) (24,909)
The exposures comprise the monetary assets and liabilities of the group that are not denominated in the operating or 'functional' currency of the operating unit involved.
Undrawn bank facilities The Group does not have in place any undrawn committed bank borrowing facilities available to it.
Credit risk The Group follows a risk-averse policy of treasury management. Sterling and US dollar cash balances are held with reputable financial institutions to minimise credit risk. The Group's primary treasury objective is to minimise exposure to potential capital losses whilst at the same time securing prevailing market rates.
Interest rate risk The Group's cash held at bank is subject to the risk of fluctuating base rates.
Capital risk management Management regard the capital structure of the company to consist of all elements of invested capital and non-controlling interests.
Liquidity Risk The Group's policy is to maintain adequate cash resources to meet liabilities as they fall due. Cash balances are placed on deposit for varying periods with reputable banking institutions to ensure there is limited risk of capital loss. The Group does not maintain an overdraft facility.
21a. CONTINGENT LIABILITIES
There are no contingent liabilities in current and prior period.
21b. CONTINGENT ASSETS
The company has undertaken activities in the field of research and development and the Directors have every expectation of a successful claim for receipt of tax credits in relation to costs incurred. However an application has not yet been submitted to HM Revenue & Customs and therefore the amount of tax credits expected to be received in relation to activities to 31 December 2013 has not been quantified.
46 Notes To The Consolidated Financial Statements
22. CAPITAL COMMITMENTS 2013 2012 £ £
Contracted but not provided for in the financial statements 106,005 -
23. RELATED PARTY DISCLOSURES
F Azima is a Director and shareholder of a UK registered company, Quantadyne Limited. Included in debtors at 31 December 2013 is a loan to Quantadyne Limited of £Nil (31/12/2012 - £13,684). The combined statement of comprehensive income for the year includes expenditure amounting to £32,000 (31/12/2012 -£10,000), in respect of management fees charged by Quantadyne Limited. No amount remains outstanding at year end (31/12/2012 - £Nil).
Thoms International Limited is a company controlled by the P Thoms family. The combined statement of comprehensive income for the year includes expenditure amounting to £11,977 (31/12/2012 - £36,000), in respect of international consultancy services.
Additionally, under a letter of agreement dated 9 May 2013 between the Company and Thoms International Limited, the Company paid an additional fee of £100,000 on the successful AIM listing, in respect of international consulting services provided by Thoms International Limited as a consultant to NetScientific UK Limited from March 2011 to 2013. No amounts were outstanding at the year end.
N Heckford is a Director of NetScientific Plc. The combined statement of comprehensive income for the year includes expenditure for consultancy services amounting to £7,833 (31/12/2012 - £23,500). No amounts were outstanding at the year end (31/12/2012 - £Nil).
D Gough is a Director of NetScientific Plc. The combined statement of comprehensive income for the year includes expenditure for consultancy services amounting to £12,000 (31/12/2012 - £36,000). No amounts were outstanding at the year end (31/12/2012 - £Nil).
Dr M Boyce–Jacino is a Director of NetScientific Plc. The combined statement of comprehensive income for the year includes expenditure for consultancy services amounting to £5,083 (31/12/2012 - £15,793). No amounts were outstanding at the year end (31/12/2012 - £Nil).
H Azima is a close relative of F Azima a Director of NetScientific Plc. The combined statement of comprehensive income for the year includes expenditure for consultancy services in the USA amounting to £9,149 (31/12/2012 - £9,476). No amounts were outstanding at the year end (31/12/2012 - £Nil).
Loans and borrowings include:
Loan of £Nil (31/12/2012 - £499,999), from the former parent undertaking, Cyrus Holdings Limited. No interest was charged on this loan.
Loans from Mehdi Trust to the group of £Nil ( 31/12/2012 - £1,549,998). F Azima is a beneficiary of this trust. Interest on loans to NetScientfic America, Inc. were charged at 1% above US 3 month Libor rate with a minimum interest of 4%. Interest on loans to NetScientific Limited were charged at 2% above the Bank of England base rate. Interest charged in the year totalled £9,786 (31/12/2012 - £53,886). Cumulative interest creditors included is £Nil (31/12/2012 - £154,571).
Loans from Zahra Holdings Limited of £Nil (31/12/2012 - £1,875,000). F Azima is a beneficiary of this trust. Interest on loans to NetScientific America, Inc. were charged at 1% above US 3 month Libor rate with a minimum interest of 4%. Interest on loans to NetScientific UK Limited were charged at 2% above the Bank of England base rate with a minimum interest of 4%. Interest charged in the year totalled £12,771 (31/12/2012 - £59,231). Cumulative interest creditors included is £Nil (31/12/2012 - £59,231).
47 Notes To The Consolidated Financial Statements
23. RELATED PARTY DISCLOSURES continued
In March and May 2013, the Group completed a reorganisation of its corporate structure, which consisted of the following steps
NetScientific America, Inc, a wholly-owned subsidiary of Cyrus Holdings Limited, and the Company entered into an agreement under which NetScientific America, Inc. agreed to sell all of its interest in each of Wanda, Inc., Vortex BioSciences, Inc., Glycotest, Inc., QLIDA Diagnostics, Inc. and MOFTek, Inc. (collectively, the "US Subsidiaries") to the Company, including all of its equity holdings in each US Subsidiary and debt owed by each US Subsidiary to NetScientific America, Inc. in consideration for the Company agreeing to assume debt owed by NetScientific America, Inc. to each of the British Virgin Island companies, Quantadyne Limited and Zahra Holdings Limited, and the assignment of all documents, agreements and instruments associated with such interest and debt;
NetScientific UK Limited entered into deeds of assignment with the Company and each of Cyrus Holdings Limited, Quantadyne Limited and Zahra Holdings Limited under which NetScientific UK Limited assigned to the Company (and the Company assumed) the obligations of NetScientific UK Limited in respect of sums loaned by each of Cyrus Holdings Limited, Quantadyne Limited and Zahra Holdings Limited to NetScientific UK Limited;
Quantadyne Limited, Zahra Holdings Limited and the Company entered into a deed of waiver under which Quantadyne Limited and Zahra Holdings Limited agreed to unconditionally and irrevocably waive any and all of their respective rights to the interest accrued but unpaid in respect of debts owed by the Company to each of Quantadyne Limited and Zahra Holdings Limited (as a result of the debt assignments described above);
Cyrus Holdings Limited and the Company entered into an agreement under which Cyrus Holdings Limited subscribed for 100 Ordinary Shares, the consideration for which Cyrus Holdings Limited transferred its entire shareholding in NetScientific America;
Cyrus Holdings Limited and the Company entered into an agreement under which Cyrus Holdings Limited subscribed for (i) one Ordinary Share at par, the consideration for which Cyrus Holdings Limited transferred its entire shareholding of NetScientific UK Limited to the Company; (ii) 12,500 Ordinary Shares for cash at par; and (iii) 37,500 Ordinary Shares at par and 46,250 Ordinary Shares at £10 per share, the consideration for which Cyrus Holdings Limited agreed to set off against debt owed by the Company to Cyrus Holdings Limited (as a result of the debt assignments described above), resulting in the extinguishment of such debt;
Quantadyne Limited and the Company entered into an agreement under which Quantadyne Limited subscribed for 100,000 Ordinary Shares at par and 71,500 Ordinary Shares at £10 per share, the consideration for which Quantadyne Limited agreed to set off against debt owed by the Company to Quantadyne Limited (as a result of the debt assignments described above), resulting in the extinguishment of such debt;
Zahra Holdings Limited and the Company entered into an agreement under which Zahra Holdings Limited subscribed for 350,000 Ordinary Shares at par and 239,750 Ordinary Shares at £10 per share, the consideration for which Zahra Holdings Limited agreed to set off against debt owed by the Company to Zahra Holdings Limited (as a result of the debt assignments described above), resulting in the extinguishment of such debt.
24. EVENTS AFTER THE REPORTING PERIOD
Since the 31 December 2013, the company has acquired a majority stake in ProAxsis Ltd a newly formed company involved in the development of a range of novel medical diagnostic tests to enable routine monitoring of patients with Cystic Fibrosis and other chronic respiratory conditions such as Chronic Obstructive Pulmonary Disease. The company invested £100,000 for a 57% equity holding in ProAxsis Ltd.
48 Notes To The Consolidated Financial Statements
25. ULTIMATE CONTROLLING PARTY
The Directors believe there to be no ultimate controlling party.
26. SHARE-BASED PAYMENTS
Details of the share options outstanding during the year are as follows
Grant date Outstanding at Granted during Exercised Forfeited during Outstanding at Expiry Weighted 1st January the period during the period 31st December date average 2013 the period 2013 exercise price
16-09-13 - 2,513,140 --2,513,140 16-09-23 160.00p
The Group operates a share option scheme for certain Directors and employees of the Group. Options are exercisable at a price defined by the individual option agreement. The vesting period varies according to the individual employment contract. If the options remain unexercised during the specified period from the date of grant, the options expire. Options are generally forfeited if the employee leaves the Group before the options vest; however this is at the discretion of the board.
As at 31st December 2013 a total of 2,513,140 subscription rights had been issued to Directors and employees and remained outstanding. Members of the Executive Board hold share options as disclosed in the Directors and remuneration reports.
The weighted average fair value of the share options during the year is 59.64p. Options were priced using the Black Scholes model. Where relevant the expected life used in the model has been adjusted based on management's best estimate for the effect of non-transferability, exercise restrictions and behavioural considerations. Most of the options were granted on Admission to trading on AIM. The Directors were therefore unable to base their expected volatility rate on the historical performance of the Company’s share price. The expected volatility was based on the average volatility of similar companies at a comparable stage in their development.
The fair values are determined by using the Black-Scholes option pricing model and the assumptions used at the fair value measurement date are shown in the table below:
Weighted Average share price at grant £1.60 Weighted average exercise price £1.60 Expected dividend yield - Expected volatility 40% Expected life 5 years Weighted average risk free interest rate 1.66% Fair value at grant date 59.64p
49 Parent Company Financial Position
Note 2013 2012 FIXED ASSETS £ £
Tangible assets 5 1,658 - Investments 6 501 - 2,159 -
Debtors amounts falling due after more than one year 7 1,207,511 - 1,207,511 -
CURRENT ASSETS Debtors amounts falling due within one year 7 9,388,153 1 Cash at bank 18,291,771 - 27,679,924 1
CREDITORS Amounts falling due within one year 8 (159,095) - Net Current Assets 27,520,829 1
Total assets less current liabilities 28,730,499 1
CAPITAL AND RESERVES Called up share capital 9 1,795,101 1 Share premium account 9 30,844,552 - Capital redemption account 10 236,745 - Profit and loss account 10 (4,145,899) - Shareholders’ Funds 11 28,730,499 1
The financial statements on pages 50 to 56 were approved and authorised for issue by the Board of Directors on 18 March 2014 and signed on its behalf by:
Peter Thoms Chief Financial Officer
50 Notes To The Parent Company Financial Statements
1. BASIS OF PREPARATION
NetScientific plc’s financial statements have been prepared under the historical cost convention and in accordance with UK Generally Accepted Accounting Practice (‘UK GAAP’).
As permitted by FRS1 ‘Cash Flow Statements’, no cash flow statement for the Company has been included on the grounds that the Group includes the Company in its own published consolidated financial statements. The Company has taken advantage of the exemptions in FRS8 ‘Related Party Disclosures’ not to disclose related party transactions with wholly-owned subsidiaries.
2. ACCOUNTING POLICIES
The following accounting policies have been applied consistently in dealing with items which are considered material to the Company’s financial statements.
Revenue Turnover represents management fees charged to subsidiary undertakings, excluding Value Added Tax.
Investment in Subsidiary Undertakings Investments in subsidiary undertakings where the Company has control are stated at cost less any provisions for impairment. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.
Tangible Fixed Assets Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life:
Fixtures, fitting and equipment - 33.3% reducing balance
Share based payment For all grants of share options, the fair value as at the date of the grant is calculated using an appropriate option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that are likely to vest, except for options with market based conditions where the likelihood of vesting is factored into the fair value attributed to those options. The expense is recognised over the vesting period of the option. The credit for any charge is taken to equity
Taxation The charge for taxation is based on the loss for the period and takes into account taxation deferred.
Current tax is measured at amounts expected to be paid using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, except that the recognition of deferred tax assets is limited to the extent that the company anticipates making sufficient profits in the future to absorb the reversal of the underlying timing differences.
Deferred tax balances are not discounted.
3. LOSS ATTRIBUTABLE TO MEMBERS OF THE PARENT COMPANY
As permitted by Section 408 of the Companies Act 2006, the Company’s profit and loss account has not been included in these financial statements. The loss dealt with in the financial statements of the Parent Company for the year ended 31 December 2013 was £4,863,133 (2012 - £Nil).
51 Notes To The Parent Company Financial Statements
4. DIRECTORS REMUNERATION 2013 2012 £ £
Directors’ remuneration 498,387 - 498,387 -
Information regarding the highest paid Director is as follows:
Emoluments 120,000 - 120,000 -
5. TANGIBLE FIXED ASSETS £ COST At 1 January 2013 - Additions 1,774 At 31 December 2013 1,774
DEPRECIATION At 1 January 2013 - Charge for the year 116 At 31 December 2013 116
NET BOOK VALUE At 31 December 2013 1,658
At 31 December 2012 -
6. INVESTMENTS £ COST At 1 January 2013 - Additions 501 At 31 December 2013 501
NET BOOK VALUE At 31 December 2013 501
At 31 December2012 -
52 Notes To The Parent Company Financial Statements
6. INVESTMENTS continued
At 31 December 2013, the Company has an investment in the following subsidiary undertakings:
Country of Proportion of Nature of business incorporation ownership interest Name or registration under common control at 31 Held directly by NetScientific Plc December 2013
NetScientific UK Limited UK 100% IP Commerialisation
Advanced Cardiotech, Inc. USA 87.5% Healthcare diagnostics research and product development Glycotest, Inc. USA 87.5% Healthcare diagnostics research and product development NetScientific America, Inc. USA 100% Holding company
Vortex BioSciences, Inc. USA 95% Healthcare diagnostics research and product development Wanda, Inc. USA 57% Healthcare diagnostics research and product development QLIDA Diagnostics, Inc. USA 51% Healthcare diagnostics research and product development MOFTek, Inc. USA 100% Holding company
Held via subsidiary companies
Watermass Limited UK 100% CleanTech research and product development Nearfield Communications Limited UK 100% Security research and product development Roboscientific Limited UK 80% Healthcare diagnostics research and product development Advanced BioSensors, Inc. USA 87.5% Healthcare diagnostics research and product development Cardio-Scientific, Inc. USA 100% Healthcare diagnostics research and product development MOF Technologies Limited UK 51% CleanTech research and product development Glucosense Diagnostics Limited UK 100% Healthcare diagnostics research and product development
53 Notes To The Parent Company Financial Statements
6. INVESTMENTS continued
The following dormant companies are also held via subsidiaries
EcoScience Limited UK 100% Dormant Dexmead Systems Limited UK 100% Dormant NetScientific Technologies, Inc. USA 100% Dormant NetScientific Solutions Limited Hong Kong 51% Dormant
For all undertakings listed above, the country of operation is the same as its country of incorporation or registration.
Options Some of the entities above have issued options which if exercised would dilute the Company’s shareholding. The following options were in existence at the year end:
• Options have been granted by Vortex BioSciences, Inc., which if exercised would dilute the company’s shareholding by 19%. • Options have been granted by Glycotest, Inc., which if exercised would dilute the company’s shareholding by 14%.
7. DEBTORS
2013 2012 £ £ Amounts falling due within one year: Amounts owed by group undertaking 9,253,178 1 Other taxes and social security 103,514 - Prepayments and accrued income 31,461 - 9,388,153 1
Amounts falling due after more than one year: Other debtors 1,207,511 -
Aggregate amounts 10,595,664 1
54 Notes To The Parent Company Financial Statements
8. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 2013 2012 £ £ Trade creditors 35,069 - Amounts due to group undertaking 401 - Accruals and deferred income 123,625 -
159,095 -
9. CALLED UP SHARE CAPITAL
Allotted, issued and fully paid: 2013 2012 £ £ Number: Class: Nominal Value 1 Ordinary £1 -1 35,902,020 Ordinary 5p 1,795,101 -
1,795,101 1
Number Share Share Fully paid ordinary shares of Shares Capital Premium
Balance at 1 January 2013 11- Shares issued during the year 35,902,019 1,795,100 32,279,998 Share issue cost --(1,435,446)
Balance at 31 December 2013 35,902,020 1,795,101 30,844,552
On 8 March 2013 the company issued 500,100 £1 Ordinary shares at par and 357,500 £1 Ordinary shares for £10 per share.
On 10 May 2013 the whole of the issued £1 Ordinary shares were sub-divided to 5p Ordinary shares.
On 16 September 2013 the company was listed on AIM issuing 18,750,000 5p Ordinary shares at a price of £1.60 per share.
On 16 September 2013 options were granted over 2,513,140 5p Ordinary shares. As at 31 December 2013 there has been no movement on share options and the un-issued, options are equivalent to 7% of the issued share capital. Details of the share options and terms can be found in Note 26 the Group accounts.
The group has no legal or constructive obligation to repurchase or settle the options in cash.
55 Notes To The Parent Company Financial Statements
10. RESERVES Retained Share Capital Total Earnings Premium Redemption £ £ £ £
At 1 January 2013 -- - - Loss for the year (4,863,133) --(4,863,133) Shares issued during the year - 32,279,998 - 32,279,998 Share issue costs - (1,435,446) - (1,435,446) Waiver of loan interest --236,745 236,745 Share based payments 717,234 --717,234
At 31 December 2013 (4,145,899) 30,844,552 236,745 26,935,398
11. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS 2013 2012 £ £
Loss for the financial year (4,863,133) - Shares issued during the year 34,075,098 1 Share issue costs (1,435,446) - Capital contribution 236,745 - Share based payments 717,234 - Net addition to shareholders’ funds 28,730,498 1 Opening shareholders’ funds 1-
Closing shareholders’ funds 28,730,499 1
Amount due (to) Amount due 12. RELATED PARTY TRANSACTIONS / from as at as at 31 December 31 December 2012 2013 £ £
RoboScientific Limited 30,053 - Vortex BioSciences, Inc. 341,564 - Glycotest, Inc. 133,347 - Qlida Diagnostics, Inc. 1,384 - Wanda, Inc. 1,832,681 - NetScientific Solutions Ltd (401) -
The following management fees were charged by NetScientific Plc to fellow non wholly owned subsidiary undertakings.
2013 2012 £ £
Vortex BioSciences, Inc. 91,159 - Glycotest, Inc. 69,433 - Wanda, Inc. 128,995 -
Other related parties have been disclosed in note 23 to the consolidated financial statements.
56 Company Information
DIRECTORS: Sir R Sykes F Azima Dr M T Boyce-Jacino D A Gough P Y Thoms N C Heckford B W Wilson Lady B Judge
SECRETARY: E Schneider
REGISTERED OFFICE: Anglo House, Bell Lane Office Village Bell Lane Amersham Buckinghamshire HP6 6FA
REGISTERED NUMBER: 08026888 (England and Wales)
AUDITORS: BDO LLP Arcadia House Maritime Walk Ocean Village Southampton Hampshire SO14 3TL
LAWYERS: Simmons & Simmons LLP CityPoint One Ropemaker Street London EC2Y 9SS
Morgan Lewis & Bockius LLP 1701 Market Street Philadelphia Pennsylvania USA 19103-2921
PATENT AND TRADE MARK ATTORNEYS: Marks & Clerk LLP 62-68 Hills Road Cambridge CB2 1LA
57 NetScientific Plc St. John’s Innovation Centre, Cambridge CB4 0WS Tel: 020 3290 8877 • [email protected]