GPL Graft Polymer (uk) Plc

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.         GENERAL INFORMATION

Graft Polymer (UK) Plc ("the Company" or "Graft") was incorporated in England and Wales as a limited company on 18 May 2017 as Graft Polymer (UK) Limited and was re-registered as a public limited company on 1 July 2021. The Company is domiciled in England and Wales with its registered office at Eccleston Yards, 25 Eccleston Place, London, SW1W 9NF. The Company's registered number is 10776788.

At the beginning of the period the principal activities of the Company and all of its subsidiaries (collectively referred to as "the Group") were the research and development of polymer modification technologies and polymer modification techniques. However towards the end of the period the board of directors undertook a review of its business and operations, pursuant to which it was decided that Graft Polymer Slovenia ("Graft Polymer D.O.O") (principally, an industrial polymer products manufacturer) was considered no longer commercially viable due to forecasted negative cashflow as a result of falling sales and rising costs, with no immediate prospect of becoming profitable in the short to medium term and as a result the decision was made to dispose of Graft Polymer D.O.O on 2 May 2024.

Post the divestment the Company will focus its attention and resources on its Graft Bio division, which represents strong prospectivity through its intellectual property (IP), licensing agreements, and sales contracts.

The condensed consolidated interim financial statements ("interim financial statements") were approved for issue by the Board of Directors on 13 September 2024.

2.         ACCOUNTING POLICIES

IAS 8 requires that management shall use its judgement in developing and applying accounting policies that result in information which is relevant to the economic decision-making needs of users, that are reliable, free from bias, prudent, complete and represent faithfully the financial position, financial performance and cash flows of the entity.

3.         BASIS OF PREPARATION

The interim financial statements of Graft Polymer (UK) Plc for the six-month period ended 30 June 2024 have been prepared in accordance with Accounting Standard IAS 34 Interim Financial Reporting.

The interim report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2023, which was prepared in accordance with UK adopted International Accounting Standards (IFRS) and the Companies Act 2006, and any public announcements made by Graft Polymer (UK) plc during the interim reporting period and since.

These interim financial statements do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 December 2023 prepared under IFRS have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under Section 498(2) of the Companies Act 2006.

The functional currency for each entity in the Group is determined as the currency of the primary economic environment in which it operates.  The functional currency of the Company's subsidiary (which was disposed of on 2 May 2024) was the Euro. The presentational currency of the Group is Pounds Sterling as this is the functional currency of the parent entity and also the currency in which equity fundraising has been facilitated. Amounts have been rounded to the nearest £'000.

The interim financial statements have not been audited.

The business is not considered to be seasonal in nature.

3.1       GOING CONCERN

These interim financial statements have been prepared on the going concern basis, which contemplates the continuity of normal business activities and the realisation of assets and settlement of liabilities in the normal course of business. 

As disclosed in the interim financial statements, the consolidated entity incurred a net loss before taxation for the period ended 30 June 2024 from continuing operations of approximately £469,000 (30 June 2023: approximately £1,126,000) and had net cash outflows of approximately £128,000 (30 June 2023: approximately £1,130,000) for the period ended 30 June 2024. As at period end, the consolidated entity had net current liabilities of approximately £413,000 (30 June 2023: net current assets of approximately £562,000) and had cash and cash equivalents equal to approximately £27,000 (30 June 2023: approximately £522,000). 

In the Group's last annual report the Group's auditors noted that there was a material uncertainty relating to going concern due to an uncertainty over a potential fundraise. Since period end, the Group has successfully raised £1.8m (before expenses) via a placing of new ordinary shares which has boosted the liquidity of the Group.

As a result, the Directors have assessed that the Group now has sufficient working capital to execute its operations over the next 12 months. Accordingly, the Directors believe that the Group will be able to continue as a going concern and that it is appropriate to adopt the going concern basis in the preparation of the interim financial statements. 

3.2       PRINCIPAL RISK AND UNCERTAINTIES

The principal risks and uncertainties of the Group have changed materially since the publication of the Group's last annual report. A new risk assessment was performed alongside the prospectus that was published on 3 July 2024 and the key risks are highlighted below:

-     The Group is currently loss making, recording a financial loss of approximately £469,000 (30 June 2023: approx. £1,126,000) for the period and the Group has no clear source of revenue.

-     The existing license of the Group's drug delivery systems may ultimately fail to deliver revenues through royalty and distribution payments in accordance with management's expectations or at all; and

-     A core asset of the Group is the intellectual property rights in its drug delivery system. A failure to protect those intellectual property rights and its portfolio of intellectual property rights, more generally, may have an adverse impact on the financial condition of the Group

These risks are deemed by the Directors to be within the normal risk appetite of the Group and are comfortable that the risks are properly mitigated where required.

3.3       CRITICAL ACCOUNTING ESTIMATES

The preparation of these interim financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and disclosure of contingent assets and liabilities at the end of the reporting period.

In preparing these interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were similar to those that applied to the financial statements for the period ended 31 December 2023 (unless specifically detailed below) with the nature and amounts of such estimates have not changed significantly during the interim period. New critical accounting estimates considered by management for the interim period were:

Disposal of Graft Polymer D.O.O

On 2 May 2024, the board of directors undertook a review of its business and operations, pursuant to which it was decided to dispose of Graft Polymer D.O.O on 2 May 2024. On contemplation of various factors relating to Graft Polymer D.O.O the board decided there was not significant value in the subsidiary and hence decided to dispose of it for nominal consideration.

4.         SEGEMENT REPORTING

The Chief Operating Decision Maker is the Board of Directors. The Board reviews the Group's internal reporting in order to assess performance of the Group. Management has determined the operating segments based on the reports reviewed by the Board.

The Board considers that during the six month period ended 30 June 2024, the Group operated in two segments being the corporate function in the United Kingdom and polymer development and production in Slovenia.

However, due to the disposal of the Slovenian operations on 2 May 2024, the contributions from the Slovenian operating segment are not reported in the loss from continuing operations in the statement of comprehensive income. For details of the contribution of the Slovenian operations during the period up until the point of disposal, refer to Note 14.

5.         REVENUE

For details of the revenue from the Slovenian operations during the period up until the point of disposal refer to Note 14.

6.         OPERATING LOSS

Operating loss from continued operations is stated after (charging):

7.         EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share is calculated by dividing the profit or loss for the period by the weighted average number of ordinary shares in issue during the period.

Share options and warrants could potentially dilute basic earnings per share in the future. These were not included in the calculation and no diluted earnings per share presented as the Group is loss making and additional equity instruments are anti-dilutive for the periods presented.

8.         PROPERTY, PLANT AND EQUIPMENT

9.         INTANGIBLE ASSETS

Intangible assets relate to the issue of 22,500,000 shares to founding director Victor Bolduev on the acquisition of his "Know-how" and patents that have been transferred to the Group.

At each period end, the Directors assess the intangible assets for any indicators of impairment and have concluded no presence of such indicators. Consequently no impairment charge has been processed during the period (31 Dec 2023: £nil).

10.       INVESTMENTS

Company subsidiary undertakings

The Group owned interests in the following subsidiary undertakings, which are included in the financial statements:

11.       LOAN NOTE

On 15 March 2024, the Company entered into a £100,000 working capital loan facility, which was subsequently increased by a further £100,000 in April 2024. The facility has been drawn down in full and attracts an interest rate of 10% per month. The loan is repayable on demand, together with accumulated interest.

12.       SHARE CAPITAL

Issued and fully paid ordinary shares with a nominal value of £0.001 (2023: £0.001)

Change in issued Share Capital and Share Premium:

13.       SHARE BASED PAYMENT RESERVE

Warrants

The weighted average time to expiry of the warrants as at 30 June 2024 is 515 days.

The following table lists the Black Scholes inputs to the model used for valuation of the warrants:

14.       BUSINESS COMBINATIONS

Discontinued operations

A discontinued operation is a component of the Group that has been disposed of or classified as held for sale and that represents a separate major line of business or geographical area of operation, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the Statement of Comprehensive Income.

The Board recently undertook a review of its business and operations, pursuant to which it was decided that the Slovenian operation, Graft Polymer D.O.O (principally, an industrial polymer products manufacturer), was considered no longer commercially viable due to forecasted negative cashflow as a result of falling sales and rising costs, with no immediate prospect of becoming profitable in the short to medium term. The Group disposed of Graft Polymer D.O.O on 2 May 2024.

A gain on deconsolidation as at date of disposal of £139k was recognised and taken to the Statement of Comprehensive Income.

15.       RELATED PARTY TRANSACTIONS

Payments to Directors

In the period Directors accrued fees as per below which were outstanding at period end:

The outstanding fees were settled through a mix of cash and share consideration post period end.

16.       EVENTS SUBSEQUENT TO PERIOD END

Placement of New shares and issue of warrants

On 10 July 2024, the Company raised £1.8 million (before expenses) through a placing of 2,171,166,667 new ordinary shares. A breakdown of the placement is detailed below:

¹ Shares issued as full repayment of working capital loan and accrued interest

² Shares issued in satisfaction of fees owed to Directors as at 31 March in connection to the July 24    transaction

³ Shares issued to various directors and advisors in lieu of fees owed

In addition to the above, on 10 July 2024, 294,500,000 warrants were also issued.

Resignation of Pavel Kobzev

On 15 July 2024, Mr. Pavel Kobzev resigned from the board of directors with immediate effect. This followed the Company's recent divestiture of its industrial plastics business unit, Graft Polymer D.O.O., announced on 3 May 2024.

Resignation of Victor Bolduev

On 1 August 2024, Mr. Victor Bolduev resigned from the board of directors and from his role as the Company's Chief Technology Officer with immediate effect. This followed the Company's recent divestiture of its industrial plastics business unit, Graft Polymer D.O.O., announced on 3 May 2024.

Resignation of Yifat Steuer

On 12 August 2024, Ms. Yifat Steuer resigned from the board of directors and from her role as the Company's Chief Financial Officer with immediate effect.

Issue of options to Professor David Nutt

In consideration for becoming the Company's Senior Scientific Adviser, Professor Nutt was granted 10,000,000 nominal cost options (with an exercise price of £0.001 and expiry life of 3 years) over the Company's ordinary shares under the Company's Long Term Incentive Plan. The options vest in 3 equal tranches with one tranche vesting immediately and the remaining two tranches on the 1 and 2 year anniversary of grant date respectively.

Impairment of Intangible Assets

Subsequent to period end the board of directors reviewed the current financial position of the Company and, following the resignation of Victor Bolduev on 1 August 2024 the directors will assess the recoverability of intangible assets linked to his intellectual property and "Know-how." As there were no indicators of the potential resignation of Mr Bolduev at period end the Directors are comfortable that the assets were not impaired at this stage.