AGM.L Regulatory News (AGM)

14 October 2020

Applied Graphene Materials plc

("Applied Graphene Materials", "the Group" or "the Company")

Full year results for the year ended 31 July 2020

Applied Graphene Materials, the producer of specialty graphene materials and dispersions, announces its full year results for the year ended 31 July 2020.

 Operational and commercial highlights

· Excellent commercial progress made, with a number of major customer projects advancing throughout the year towards completion and product launch. The impact of coronavirus has caused some delays to customer projects however, our development pipeline continues to grow

· Customer product launch highlights with "Genable® Inside" include:

o Blocksil - introduced Top Coat MT anti-corrosion paint system

· Sales distribution network expansion - AGM has signed a number of significant new distribution agreements

o Maroon Chemicals Group - USA and Canada

o Arpadis - UK, Germany, France, Spain, Portugal and Scandinavia

o Will & Co - Benelux

o Dichem - Greece

· AGM continues to grow its IP portfolio with the progress of several graphene dispersion technology based patents

· Development and launch of the Genable ® 1400 series of dispersions, a cost-effective range of products offering outstanding barrier performance

· Development of production scaling for dispersions manufacture - continuous commitment to build production scale platform for the range of dispersions we manufacture

Financial overview

· Revenue £0.08 million (2019: £0.05 million)

· EBITDA* Loss of £3.08 million (2019: loss of £4.56 million)

· Cash at bank £3.68 million (2019: £6.13 million)

· Basic EPS Loss of 6.4 pence per share (2019: loss of 7.9 pence)

· Adjusted EPS Loss of 6.1 pence per share (2019: loss of 7.9 pence)

* EBITDA comprises loss before interest, tax, exceptional costs, depreciation and amortisation.

 Post year end

· AGM has signified its intent to commit to signing up to the UN Global Compact in the near future

· Infinity Wax launched its Graphene QDX detailing polish for the car care market

· Kent Europe GmbH launched its aerosol anti-corrosion primer

· Halo Automotive / EZ Car Care launched its graphene enhanced car wax for car care market

· Launch of Innovation Accelerator programme

· AGM shares commenced trading on the OTCQB Venture Market in the United States

 Adrian Potts, Chief Executive Officer, commented:

"We have seen a solid year of progress despite the global impact of coronavirus. Whilst we have been able to maintain continuity of our long term testing and materials development, we have seen a slowing of customer volumes in our second half of the year. We anticipate this to rebound as restrictions begin to be removed. Our technology platform for graphene nanoplatelet dispersions is ideal for the markets that we operate in and I am confident that we will see long term success in each sector. Our technology is well proven, graphene really works in these applications, and we have the keys to unlocking the performance of this remarkable class of materials.

I am particularly excited about the appointment of high-quality distribution partners for our business. This will enable the presentation of the possibilities of graphene materials to a more comprehensive audience. I see the combination of expanded geographical presence, technical excellence and commercial astuteness through our distributor platform as a recipe for successful engagement with the broad set of opportunities anticipated.

We are starting to see graphene come of age. It is my firm belief that the means of realising the remarkable performance benefits that graphene nanoplatelets have to offer is in the successful integration of these materials into a range of host products to make them even better. Understanding materials technology, dispersion chemistry and end-use application is critical to a successful outcome on a customer-by-customer basis. I believe, in this regard, we are very well placed to reap the benefits of the substantial effort we have put in thus far to develop our product offerings and prove that graphene works in real applications."

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

Applied Graphene Materials' results presentation, with audio commentary, is expected to be made available on its website at http://www.appliedgraphenematerials.com in due course.

For further information, please contact:

Applied Graphene Materials +44 (0) 1642 438 214

Adrian Potts, Chief Executive Officer

David Blain, Chief Financial Officer

N+1 Singer +44 (0) 207 496 3000

Peter Steel / Amanda Gray

Hudson Sandler +44 (0) 207 796 4133

Charlie Jack / Emily Dillon

Notes to Editors

For the last decade, Applied Graphene Materials has been at the forefront of harnessing the possibilities of graphene. Founded originally by Professor Karl Coleman, the Group has grown from an academic idea from Durham University to a world leader in the development and application of graphene nanoplatelet dispersions for customers in the coatings, composites and functional materials sectors.

The Group utilises its proprietary bottom-up manufacturing process to produce high purity graphene nanoplatelets. Their expertise in dispersion chemistry enables the Group to create optimised, stable and easy to handle dispersions that customers use in real-world industrial products. The Group's unique approach enables industries to fully realise the potential of graphene in a simple, safe and easy to formulate way.

The Group, based at the Wilton Centre on Teesside, was admitted to AIM in November 2013, raising £11 million. The Group successfully raised £8.5m in January 2016 and a further £9.8m in November 2017. Since August 2020, the Group's shares are also listed on OTCQX in the United States. As a result of the funding support and their industry leading technology platform, the Group has been able to develop a significant sales distribution network covering Europe, North America and a partner in Japan. The Group continues to work closely with industrial partners, and have seen the successful launch of numerous commercial products enhanced by their Graphene Dispersions.

Overview

Excellent progress has been made in the year with customer engagement and technology despite the challenges around coronavirus from early 2020. We have successfully achieved continuity of operations through flexible working and have seen strong customer development, with product evaluation and testing in their formulations being key activities. Following this extended cycle, it is pleasing to see customer product launches as a result of these activities.

The key milestone for commercialisation was the appointment of an extended group of distributors on a much broader geographical platform. The step has been based upon strength of product range, depth of demonstration data for our technology offerings and availability of a supporting network of information for practical customer assistance. We were pleased to welcome Dichem, Will & Co, Maroon Group and Arpadis to the AGM team during the year and we look forward to their growing contribution to our successful commercialisation. Direct commercial progress has been made with a number of customers and we are seeing the output of our work with them in their products that they are progressively bringing to market.

Technology development continues to be largely centred on the coatings industry and the significant potential that graphene dispersions offer to this space to achieve transformational product performance. As we look at adjacencies, new sectors are adopting the potential of our products. We have seen this latterly with increased engagement in the car care and detailing products sector. Liquid and wax based coatings are easily able to accommodate graphene dispersions and we have seen products begin to come to market as a result. We continue to support the all-round realisation of graphene technology by leading in such areas as REACH accreditation whilst maintaining efforts to protect and develop our IP with patent related activity.

A realignment of our resources was completed in December 2019, to enable a focus on graphene dispersions. As a result, we have a lean operation that is completely centred on the delivery of customer dispersion demand and the development of our technology base to meet our objectives for commercialisation.

An internal sustainability audit has been completed and we are developing the roadmap to prioritise activity in the business where we can make further meaningful progress. Over and above operational excellence, we believe that our products offer a unique proposition as regards sustainability through performance enhancement and, as a result, product life cycle benefits. As such, we are actively engaged with the UN principles for sustainability, the UN Sustainable Development Goals (SDG) and the Global Reporting Initiative (GRI) in a meaningful way to effect long term positive change within our business and our products and through our customer engagements. The Group has signified its intent to commit to signing up to the UN Global Compact in the near future.

As covered in the Financial review, our non-discretionary cash requirements indicate that the Group currently has sufficient cash resources for the next 12 months. Given the Board's growth plans for the Group, cash flow forecasts for the commercial expansion envisaged by the Board following the launch of new products and significant increase in distribution achieved recently indicate that the Group will need to raise additional funding for its working capital needs as cash would run out in October 2021 based on these forecasts.

COVID-19 impact

Throughout the coronavirus restrictions in UK, we have sought and achieved ways to maintain continuity in the operation of our long-range testing facilities whilst achieving our primary objective of a COVID-19 safe workspace for all employees. I would like to personally record my thanks to all our staff for adopting an entirely new and flexible way of operating, in both embracing working from home whilst maintaining operations in a safe and collaborative manner.

We chose not to furlough staff, and as a result have largely been able to maintain continuity in house to avoid disruption of test plans. The situation has been more challenging externally, however, with many customers furloughing staff and reducing operational activity. Overlaid with this has been restrictions on work practices impacting, for example, practical access to structures which were planned to be refurbished with graphene enhanced protective coatings. An impact on full year revenue therefore resulted, with the second half of our financial year slowing due to customer volumes reducing. The quality of underlying customer enthusiasm remains strong, however, and I remain confident that, as we emerge from lockdown restrictions, we will see a positive upswing in activity and resulting shipments of graphene dispersions to our customers.

Coronavirus specifically impacted our plans to personally follow up previously announced activities in Asia, due to travel restrictions. We are now starting to see signs of opportunity again in this territory and are re-engaged in dialogue regarding the best conduit to this important commercial region.

Commercial progress

General

AGM has seen positive commercial development over the year with direct customer engagements and latterly with the number of exciting announcements we have made covering distributor arrangements for our Genable® range of graphene dispersions. The engagement with technically excellent, commercially focused distributors in a number of geographic regions is central to our commercialisation strategy to bring our easy-to-use graphene dispersion product range into wider adoption. We have a strong product base backed by excellent demonstration data using typical starting point formulations. Coupling this with application know-how and practical formulating experience, our supporting information is a key enabler for our direct customers and those of our new distribution partners to achieve their performance objectives through the use of our graphene nanoplatelet materials.

Our primary commercial exploitation focus for our technology continues to be in the area of protective coatings, whereby transformational gains in barrier and anti-corrosion performance can be repeatably demonstrated with our graphene technology. Our distributors have specialty knowledge in this sector and are well equipped to engage their customer base with our innovative range of dispersed graphene materials. Combining our product range with the level of support we are able to provide, ultimately through our Innovation Accelerator Programme, we believe we have a winning formula. With the continuing push in the coatings sector towards environmentally sound solutions, we firmly believe graphene has a strong part to play, from water-based coatings technology through to life cycle considerations for coatings for harsh applications.

The impact of coronavirus is important to note in our current results. Our H2 2019/20 commercial performance was adversely affected by accessibility of our customers to assets needing refurbishment. As such, demand for their coating products and services stalled, which in turn had an impact on AGM's commercial output. Despite this, we were able to maintain a commitment to in-house operations, maintaining continuity of our long-range testing programmes to enable readiness for the re-emergence of the industry. Accessibility to projects is starting to pick up again and we anticipate an encouraging increase in commercial activity as the effects of coronavirus are diminished with time.

Activity in other target areas has continued apace with composite materials customer-led activity to realise performance gains in their materials systems. It has been encouraging to see the potential product output of the grant-funded NEAT project approaching maturity, for our materials to be tested on a broader platform of composites application opportunities, and for our longer term customers to see repeat success with our graphene materials in their high-performance applications. The efforts with our thermal adhesive products for aerospace applications are finally approaching a successful conclusion with the anticipated qualification for flight applications with two customers.

Our direct customer pipeline continues to mature with a number of projects developing towards customer product launches. This is one of our key success indicators whereby the complete process of product development, customer-specific formulation, testing, iteration and finalisation of product attributes leads to a customer having the confidence to launch a new product and generate revenues from it.

Pipeline overview

The number of programmes in the pipeline as at 31 July 2020 showed a net increase of engagements from 92 to 109 since 31 January 2020 as follows:

At 31 July 2020:

The movements since 31 January 2020 are as follows:

Our direct pipeline enables us to focus on early opportunities and to identify where those will run deep to enable us to truly partner with our customers and realise success. For us, at this stage in our development, "success" is defined as equipping the customer to be able to use our products in a repeatable way and achieve their technical and commercial objectives, thereby equipping them to launch a new product in their respective market and to generate revenues accordingly. The demonstration of early technology adoption is crucial to creating broader opportunities and confidence to realise graphene's commercial potential. Whilst this cycle can be lengthy at times, the approach is proving to be rewarding with progressive product launches by customers and the resulting revenues this will generate in the longer term.

The majority of engagements are in the protective coatings sector where most of our investment in technology is expended. A large percentage of the coatings engagements are in the general industrial sector of protective coatings systems. We also have active customers looking at our products in a number of adjacent coatings sub-sectors including automotive, aerospace and defence, oil and gas, flooring and marine. It is pleasing to also see a promising number of deeper engagement opportunities in the composites materials sector as our expertise in this area grows and we are able to demonstrate consistent performance gains in real repeat customer systems.

In order to de-risk our revenue opportunity matrix at this stage, we are focused on nearer term, innovative coatings industry participants which are able to turn around engagements quickly. Our aim through the demonstration of our unique technology with these early-stage customers is to prove that graphene nanoplatelets work well in a broad platform of protective coatings products, thus inspiring larger opportunities downstream.

Stage 5 engagements are the closest to completion for greatest maturity of product testing and opportunity of success include Airbus, an undisclosed aerospace company and an undisclosed car care coatings company. Stage 4 engagements include a number of advanced composites materials and coatings activities.

We remain confident in the strong momentum we are achieving towards the completion of a broad set of product integration efforts to meet customer aspirations and revenue prospects.

Coatings sector

We have made strong progress in a number of activities which support product commercialisation. Our focus continues to be the enabling of transformational barrier and anti-corrosion performance in protective coatings through the use of our dispersed graphene nanoplatelets. Three pillars support this effort:

· graphene nanoplatelets of consistent quality which produce consistent results;

· dispersion chemistries and process capability to suit a range of applications and customer opportunities; and

· long range test data and application technology to underpin such opportunities.

AGM has the leading range of dispersed graphenes marketed under the brand name "Genable®", which provides the formulator with ease of use and integration and which therefore gives the confidence to test our materials in their protective coatings formulations. In addition, the guidance that AGM is able to provide to clients keen to understand the nuances of graphene used in their coatings is exceptional. This assures the best possibilities for successful outcomes.

Whether supplied in Genable® general purpose standard or customised dispersions to suit a particular end use chemistry, AGM works with its customers to ensure that an optimum dispersion of graphene nanoplatelets (GNPs) is achieved in each customer's coatings formulation. This is the key that enables the best performance gains to be achieved. As we offer a platform of additives for a wide range of coatings opportunities and pursue performance gains in ever harsher environment applications, we continue to pioneer the adoption of graphene nanoplatelets in the coatings space.

We continue to develop our commercialisation through technical excellence and we have recognised the need to stand alongside our customers ever more closely to support the introduction of our innovative technology. We have introduced our "Innovation Accelerator" package through our distributors and directly to customers. Using this menu-driven paid-for service, customers have the opportunity to utilise our technical skills in the evaluation and adoption of graphene into their formulated products and to have them tested in our facilities. Customers can thus fast-track their own development efforts whilst having a reliable nanomaterials partner alongside to help guide the process of adoption. We look forward to customers making use of this service offering to great effect as momentum continues to grow.

Since the launch of the Top Coat MT paint by Blocksil, substantial progress has been made in securing further opportunities to deploy this exceptional material which combines barrier performance with UV resistance and mechanical performance benefits. With extended testing hours now completed, the anti-corrosion performance of this product is outstanding. The addition of AGM's Genable® graphene nanoplatelet dispersions has further improved Blocksil product performance - taking it from some 5,000 hours in neutral salt spray for the "conventional" non-graphene product to their graphene enhanced coating boasting industry leading performance levels in excess of 10,000 hours. The graphene coating has also been successfully tested to relevant EN and BS standards for fire performance on building materials. Blocksil previously announced the approval of work packages with Avanti plc and the RTE network for refurbishment coating of large communication antennae and satellite communication structures. Despite the coronavirus limiting work crew access to these projects, Blocksil is developing safe working practices to enable increased site access and is confident that the situation continues to improve progressively, resulting in forecastable commercial pull requirements for both these prospects. Further product opportunities also continue to progress thanks to the integrated product development partnership that AGM has with Blocksil. This is leading to more than just the supply of dispersions for its Top Coat product: the development of several new products is reaching the final stages and it is expected that Blocksil will be able to offer an extended graphene enhanced range of products in the near future.

Alltimes Coatings has been active in the presentation of its Continuous Professional Development (CPD) package which enables a clear understanding by architects and specifiers about the performance benefits that graphene can achieve in coatings products. Using its Advantage Graphene product as the primary demonstrator, Alltimes has made strong progress and is now achieving product specification wins. We anticipate further progress with a view to forecastable revenues towards the end of the calendar year for projects in early 2021 using its approved products containing our graphene dispersions. Alltimes views the CPD process as a key milestone to adoption of the Advantage Graphene product for the infrastructure and construction sector. We look forward to projects commencing, creating ongoing and forecastable demand for our dispersed materials technologies. An early, practical technology demonstration of the Advantage Graphene product was successfully completed at the Wilton Centre (where AGM is located), with one of the buildings refurbished with this coating. It is expected that these initial good results will lead to further business opportunities for our materials through Alltimes at the complex of buildings on the Wilton site.

We have a long-standing development engagement with Teal & Mackrill whereby they have assessed our graphene additives in a number of different product formats for a broad range of coatings systems and chemistries. We have drawn the first of these test programmes to a positive conclusion with the anticipated imminent launch of a new specification of epoxy primer product for protective coating applications. This exciting product marks a further milestone in a growing number of customers placing their confidence in the remarkable utility that graphene offers to enable transformational results.

Post period end, it has been pleasing to see further launches of Genable® graphene based aerosol primers with Kent Europe GmbH in Duisberg, Germany. The performance of these aerosol-based primers using graphene dispersions is outstanding compared to the standard primer and we anticipate a strong uptake in product sales in the aerosol primers market.

We have seen significant recent customer product launches in the car care and detailing coatings sector. Genable® graphene nanoplatelet dispersions are a product form with a great fit for this type of market - whether the end product is a solid wax or a liquid sprayable material. Our dispersions have generated significant interest from the sector for graphene to become a new technology leader for automotive paint protection. Utilising the benefits of 2D materials, significant performance advantages are claimed in the industry with these types of detailing products creating a seal, promoting water beading and controlling streaking effects on detailed vehicles. Durability of coating is also an important attribute. We see strong interest in evaluation of our products in this space and are pleased to see positive momentum with a number of direct pipeline customers in Europe and the USA. One early adopter of this technology has been Infinity Wax, which has launched its "QDX graphene" detailing product post period end. An easy-to-use liquid solution for automotive paintwork, the addition of graphene is seen to enhance application, shine, finish, water run-off and durability. A second early graphene based detailing product launch has also been achieved with Halo Automotive Ltd via EZ Car Care in the UK. Other customer developments are continuing apace and we anticipate seeing further product launches in this sector - proof that well-dispersed graphene has an excellent fit and function in innovative coatings applications.

Multiple other coatings engagements are at various stages of testing and development in wide-ranging areas from steel coatings for harsh corrosion environments for a range of applications, aluminium corrosion for aerospace, concrete coatings for floor applications to barrier coatings for PPE. We see a broad spectrum of opportunity and continue the enabling of customers to bring new and innovative products to market, which in turn creates revenue streams for AGM's Genable® graphene dispersion systems.

With good customer traction in the coatings sector and a mature, standard easy-to-use product range, we have underpinned our commercialisation strategy with the announcement of a number of high-quality distributor engagements for our Genable® range of products. We believe we are the first graphene company to have an extensive network of distributors, with some 60 customer-facing representatives including our direct sales team. This represents a major milestone in our commercial evolution on a broad geographic basis. Having strong commercial and technical distributor arrangements is key to our success and I look forward to the commercial results of these partners. Our business model reflects this well, namely:

o develop graphene material process technology;

o develop easy-to-use, stable dispersion technology as a standard product range and key enabler for adoption;

o prove the performance of our materials technology and define the methodology for use;

o develop a technically capable, commercially focused distribution platform to take product to market in an accelerated manner; and

o develop revenue streams.

Composites sector

Enhancing the all-round performance of what are already "high-performance advanced materials", employing, for example, carbon fibre in composite structures, is always something of a challenge. Within the realm of "composites", we see there are areas where graphene can have a positive influence. Our focal point therefore continues to be enhancing the performance of the resin matrix element and this aligns well with our approach to liquid resin technologies as a key access point for a proposed graphene addition. Our efforts have been centred (as with the coatings sector) on the supply of dispersed graphenes that provide the means to incorporate the material effectively into a customer's matrix resin mix and from there into the corresponding composite formulation. Whether in traditional prepreg formats or sheet moulding compound (SMC) or fibre tow-placement processes, the correct application of graphene into the resin matrix is critical to success. This is where AGM's expertise shines, and our graphene materials have demonstrated repeated performance improvements in the area of fracture toughness in composite matrix resins. In a number of our customer-led projects, we have also seen further metrics enhanced, with graphene additions providing a broader performance gain in these materials.

Infinite Composites Technologies (ICT) continues to achieve ground-breaking performance for its linerless Type V pressure vessel technology aligned with NASA programmes. The long-term objective is for incorporation of ICT products and technology into space vehicle platforms. ICT continues to make excellent progress in the demonstration of its carbon composite pressure vessel products using AGM's graphene dispersions. These are applied in two distinct areas - the composite matrix to enhance mechanical performance and fatigue life of the vessels and also in a coatings format. AGM's graphene technology has thus been put to excellent multi-functional use in this application. There is not much more demanding a test than the cyclic pressure and temperature evaluation of cryogenic pressure vessels to replicate life cycles of such structures in space applications. The materials and structures incorporating the graphene materials have been tested to withstand extreme -300F temperatures and 600psi pressure cycles. Analysis of the composite indicated that the addition of GNPs eliminates nearly all microfractures in resin samples after exposure to the cryogenic environment - an outstanding result combining the best of the materials technology employed to achieve lightweight, high-performance, long life products.

Following the completion of the innovative grant-funded NEAT project, an AGM customer in the UK prepreg manufacturing sector is actively engaged in the development of enhanced fire performance materials for the mass-transit interiors sector - materials that could be used in everyday applications in trains and aircraft for seats and cabin liners. Our engagement has enabled a nanotechnology product development to be completed with improvements in mechanical and fire performance. Combining the benefits of novel resin technology with nanomaterials has produced a product with outstanding fire performance, part finish and peel strength.

Continuing effort in the composites market has also yielded promising materials performance advantage in the automotive sector. Utilising graphene dispersions from AGM, a major supplier to the sector has been able to demonstrate improvements in a number of different mechanical performance attributes including tensile strength and modulus, flexural strength and modulus plus all-important impact performance. This represents positive directional improvement in key mechanical properties of composites systems without detriment in other characteristics. All said, a positive outcome and the engagement continues in order to optimise the performance of this materials system.

Demonstration effort on the previously announced successful manufacture of the grant-funded CTES project targeting the composite tooling sector has progressed more slowly due to COVID-19 accessibility issues. Project partner SHD Composites continues to promote the material technology borne out of the CTES project, against which we have recently been able to supply further materials. Two customers are currently evaluating the material and its utility for high-performance composite tooling applications.

With AGM's dispersed graphenes offered in a range of media to suit the end-use chemistry, there is clear progress being made in end-user integration of graphene into a broader range of composite materials applications. This is a key enabler in creating consistent graphene enhanced materials and yet again underlines the use of AGM's world leading dispersion and application technology to meet such innovation challenges.

Functional materials

Efforts with Airbus to achieve full qualification status for our TP300 thermal paste adhesive are at the stage of the final test data dossier preparation. This will be followed by reporting review and eventual sign-off of the approval for the product. Completion is anticipated in calendar Q4 2020. Sign-off will allow TP300 to be supplied to production applications. The challenges to get this product approval completed have been significant based upon the demanding spaceflight application, which should not be understated. However, once approved, we remain confident that the consistency and performance of TP300 will provide further opportunities for engagement with future Airbus build programmes.

Further similar engagement has been strong for AGM TP300 product with an undisclosed aerospace company. With a similar qualification and approval programme underway, we are confident that the pull from this customer to resolve technical matters quickly will establish a product with excellent utility for the aerospace company's's needs. The programme of work is at an advanced iterative stage and we look forward to a positive outcome with the undisclosed aerospace company,, enabling integration of TP300 into its structure's build plans.

Technology, regulatory and manufacturing status

Our technology platform development continues apace, predominantly in the coatings application sector. Work includes the further development of the exciting range of graphene dispersions for practical application in a broader number of liquid systems. Based upon the solid expertise of dispersion formulation capability and application know-how, we see further opportunities in a number of adjacencies to the protective coatings space. The chemical resistant coatings sector has some unique challenges, but graphene nanoplatelets have the potential to play a significant part in future coatings innovations. Addressable areas include concrete coatings, barrier coatings for oil and gas industries through to applications in water treatment plants. Such coatings all lend themselves to inclusion of our dispersed product offering. We continue to test our products for applications such as these to build reliable representative data and anticipate further announcements covering both the promising utility of graphene in this space and commercial opportunities as a result of these efforts. As usual, AGM's commitment is to complete the hard miles to demonstrate the technological viability of our products in our target markets as a key enabler to customer engagement. The generation of proven typical product data to support specific opportunities is a continuing commitment that we make to secure future business opportunities. Our Innovation Accelerator Programme allows customers the opportunity to utilise our skills and expertise in a practical manner with a schedule of test capabilities to support individual objectives.

We also continue to see promising opportunities in the conductive interface materials space, especially in conjunction with our coatings expertise. The broader technology opportunity such as coatings for batteries lends itself well to our type of materials offering, and as such we continue to pursue engagements in this space.

Our Structural Ink product offers unique graphene placement opportunities through a combination of ink formulations and printing know-how. Adaption of this technology to broader printing possibilities is an area of interest for further product iteration in the coatings industry.

Graphene nanoplatelet powder manufacturing technology is a key enabler in our business. Our A-GNP35 product continues to offer remarkable, efficient performance gains in barrier and protective coatings applications in finished formulations. As such, the transformational results we are routinely able to demonstrate in coatings technology can be achieved with low disruption to the formulator's efforts. We continue to see the key to adoption of this innovative technology as ease-of-use dispersions of our graphene product offerings.

Dispersion manufacturing is often a multi-step process involving a number of different pieces of equipment. The know-how related to formulating both standard and custom dispersions is the key attribute of the business for the supply of consistent products that work repeatedly in their end-use applications. This is our focus and we envisage further scaling of the capability to meet rising demand over time.

Regulatory approval efforts continue and we are well placed as a key contributor to the graphene consortium for EU REACH. We continue to navigate the complex processes to achieve final regulatory approval for our graphene nanoplatelets, and equally seek to work with the UK authorities as Brexit requirements become clearer. Achieving REACH registration of our products will be a further milestone and validation of the efforts we have made to ensure the safe adoption of graphene nanoplatelet materials in industrial applications. We have carried out further independent studies to demonstrate safe use of graphene in our core market area of sprayable coatings, with this work culminating in an expert workshop under the guidance of the UK HSE.

Efforts in securing IP protection continue and we are pleased to see patent grants coming thorough in various territories for our broad ranging technology. We continue to invest in IP protection and the associated effort to achieve granted patent status.

Realignment of resources

We announced that we had embarked on a realignment of our resources in October 2019 and this was successfully completed by December 2019. The resulting operation is leaner and, most importantly, has strength and depth in the key areas of activity - notably continuing technology development and support of customers' materials volumes and technical needs, plus manufacturing capability for graphenes and dispersions. In short, we have the correct staff in the correct positions to maximise the emerging opportunities for our materials as we continue the exploitation cycle. I am confident in our ability to deliver on the growth we are targeting.

Sustainability

AGM's products lend themselves to enhancing the materials they are added to. This is through the remarkable properties that graphene nanoplatelets are able to deliver using our dispersed materials product offerings. The performance gain is not just immediate - there can be a positive impact on life cycle costs for products in the high-performance protective coatings, advanced composites and specialty adhesives sectors. Extended product life cycles manifest themselves principally in graphene enhanced materials that last longer - evidenced, for example, with Alltimes' Advantage Graphene extended product warranty from 20 to 30 years. The potential benefit for asset owners arising from a reduced maintenance cost burden and increased asset utilisation is significant as a result. We therefore see that graphene has an important and exciting role to play in the opportunities we are pursuing for environmental and sustainability benefits.

In addressing the fundamental shift in the coatings industry to reduce volatile organic compounds (VOCs) and increase the emphasis on water-based coatings chemistries, AGM has developed water-based dispersions specifically to meet this challenge and to make sure our graphenes can be dispersed and incorporated into water-based coatings chemistries. This will ensure that our graphene is aligned to the latest innovation push in the coatings sector as part of meeting significant environmental challenges.

Outside of our product utility, we take our obligations seriously in the way we manage our business and our relationships with all our stakeholders. As a commitment to continuous improvement, we have completed an initial internal assessment of the key principles of the UN Global Compact. These include a review of:

- human rights principles;

- labour principles;

- environmental principles;

- anti-corruption principles; and

- management principles.

Our review has looked at our current policies and relationships with end-to-end stakeholders, and we have sought to identify variances to the expectations of the Global Reporting Initiative (GRI) standard. Additionally, we have sought to integrate the review with the design and intent of the 17 UN Sustainability Development Goals. We anticipate a plan and priorities for action arising from our initial review which would include:

- An employee handbook update with particular emphasis on managing the ongoing social impact of COVID-19 and employee wellbeing;

- a progressive review of specific policies;

- facilitation of a review of the end-to-end supply chain including our suppliers and distribution partners in due course addressing sustainability issues; and

- outline development plan of progressive sustainability goals for the business.

As a further indication of commitment, we intend to sign up to the UN Global Compact.

Outlook

The Board continues to recognise the significant progress that has been made to further develop AGM's technology platform with a focus on our dispersed graphene nanoplatelets as the principal product offering. These products in turn have enabled continuing development of strong customer relationships, evaluation and testing of our materials and launch of their products to their respective markets.

The business remains in good shape to build on its revenue plan based on reliable products that work in our chosen fields of engagement and an outstanding distribution conduit to market.

The Group has cash at bank at 31 July 2020 of £3.685 million and the Finance review includes further information regarding future cash resources.

With a solid product package to offer to a broad range of customers and an increasing number of customer products coming to market as a result of our technical and commercial engagement, we are encouraged to see proven performance in real applications. We fully intend to accelerate the number of positive outcomes through our newly announced and existing distributor base as a means to securing long range revenue growth.

We continue to engage in the correct areas that need addressing (e.g. REACH accreditation) in order to ensure successful outcomes are achieved. We believe that the key to successful integration of innovative graphene nanoplatelet technology is about the usability of these materials in practical applications and on a repeatable basis. In this regard, we see that the business is in good shape to be able to develop further capacity and capability to service the commercial roadmap we have identified and other adjacencies we are working towards.

Adrian Potts

Chief Executive Officer

 14 October 2020

Financial review

Revenue

Revenue for the year was £83,000 (2019: £50,000) arising from the supply of production orders and evaluation quantities of graphene to commercial partners.

Other income

Other income, which comprises grant income and RDEC revenue, was £nil (2019: £74,000). Grants received generally relate to funding for the development of new graphene applications or the creation of new jobs.

Cost of sales

Cost of sales of £215,000 (2019: £472,000) reflects the costs of producing graphene dispersions. We recognise the cost of production in the income statement as it is incurred. Cost of sales includes staff costs of £156,000 (2019: £230,000). Once the Group receives more production orders, graphene inventories will be recognised as stock at manufacturing cost.

Operating expenses

Operating expenses of £3,566,000 fell compared the prior year costs of £4,554,000 by £987,000. This reflects a realignment of our cost base completed in December 2019 resulting in a reduction in personnel costs of £592,000. Additional savings were achieved by reductions in R&D spend of £298,000 and a reduction in the share based payment charge of £308,000. These savings were offset by the costs incurred in implementing the realignment of the cost base. Depreciation costs increased as a result of the implementation of IFRS 16 Leases and rental charges fell accordingly.

Loss on ordinary activities before interest, tax, exceptional costs, depreciation and amortisation (EBITDA)

Adjusted EBITDA for the Group decreased from a loss of £4,559,000 in 2019 to a loss of £3,084,000 for the year ended 31 July 2020. The loss incurred reflects the ongoing costs of developing new products, working with commercial partners and the significant efforts undertaken to support those customers.

Exceptional costs

Exceptional costs recognised in the year were £168,000 (2019: £nil) which were incurred as a result of redundancy costs arising from the implementation of the realignment of the cost base.

Net finance income

Net finance income for the year was £33,000 (2019: £67,000) reflecting reducing cash balances.

Loss on ordinary activities before tax

The loss on ordinary activities before tax was £3,665,000 (2019: loss of £4,835,000).

Tax

The Group has not recognised any tax assets in respect of trading losses arising in the current financial year or accumulated losses in previous financial years. There remains sufficient uncertainty that taxable profits will be available against which deductible temporary differences can be utilised.

The tax credit recognised in the current financial year of £476,000 is in relation to R&D tax credits due for 2020 which is £224,000 lower than the previous year as a result of the reduction of costs incurred following the realignment of the cost base. The credit recognised in the prior financial year of £908,000 was in relation to a calculation of R&D tax credits due for 2019 of £700,000 and the balance between the claim for R&D tax credits for 2018 which was £623,000 and the estimate which was recognised in 2018 of £415,000.

Earnings per share

Basic earnings per share was a loss of 6.1 pence per share (2019: loss of 7.9 pence per share). Adjusted basic earnings per share (before exceptional costs) was a loss of 6.4 pence per share (2019: loss of 7.9 pence per share).

Dividend

No dividend has been proposed for the year ended 31 July 2020 (2019: £nil).

Cash flow

Net cash used in operations was £3,465,000 (2019: £4,184,000). During the year, net working capital utilised reduced by £78,000 (2019: decrease of £72,000). R&D tax credits received during the year amounted to £1,316,000 (2019: £nil). Following the realignment of the cost base, four board members volunteered to defer payments of their salaries/fees (totalling £80,000 (2019: £nil)) until the Group has further extended its cash runway. These deferred costs are accrued in the financial statements for the year.

Balance sheet

Net assets have reduced to £5,285,000 (2019: £8,488,000), principally reflecting the trading loss for the year.

The Group has cash at bank at 31 July 2020 of £3,685,000 (2019: £6,135,000). Cash at bank is on deposit with a small number of financial institutions for time periods ranging between instant access and up to 95 days in maturity.

Parent Company balance sheet (unconsolidated)

The key matter impacting both the financial performance and position of the Company during the year ended 31 July 2020 relates to the impact of the IFRS 9 and IAS 36 impairment reviews undertaken during the year. The Directors concluded that expected credit losses and impairment provisions totalling £4,783,000 were necessary (2019: £15,200,000).

No other significant transactions or movements in balances have occurred during the year ended 31 July 2020, consistent with the Parent Company's principal activity as a holding company.

Post balance sheet event

On 13 October 2020, the Company approved the conversion of loans receivable from Applied Graphene Materials UK Limited with a value before impairment provisions of £29,014,529 into equity. The Company then subsequently approved the proposal to reduce Applied Graphene Materials UK Limited's share premium account. The consolidated net assets of the Group and the net assets of the Company are unchanged as a result of the conversion of the loans receivable from Applied Graphene Materials UK Limited and are unchanged as a result of the proposal to reduce Applied Graphene Material UK Limited's share premium account. The transactions were and are being carried out to strengthen the balance sheet of the subsidiary company.

Accounting policies

The Group's consolidated financial information has been prepared in accordance with International Financial Reporting Standards as adopted in the EU. The accounting policies used in the consolidated financial information are consistent with those set out in the audited financial statements

Going concern

As a group developing new applications for recently discovered materials, the Directors are mindful that there is an ongoing need to monitor overheads and costs associated with delivering the commercialisation programme and raise additional working capital on an ad hoc basis to support the Group's activities. The Group has no bank facilities and has been meeting its working capital requirements from cash resources. At the year end, the Group had cash and cash equivalents amounting to £3.7 million (2019: £6.1 million).

The Directors have prepared cash flow forecasts for the Group for the period to July 2022 based on their assessment of both the discretionary and the non-discretionary cash requirements of the Group during this period.

The cash flow forecasts based on non-discretionary cash requirements include normal operating costs for operations together with all committed development expenditure. They indicate that the Group currently has sufficient cash resources to meet liabilities as they fall due for at least the next twelve months.

However, the above scenario does not meet the commercial expansion envisaged by the Board following the launch of new products and significant increase in distribution achieved recently. In order to deliver the commercial expansion of the Group and its strategy, the forecasts indicate that the Group will need to raise additional funding for its working capital needs as cash, while being available up to the end of the financial year ended 31 July 2021, would run out in October 2021 based on these forecasts.

The Board remains confident that the Group will be able to secure the required funding through equity issue or other financial instruments. However, the timing and availability of funding sources is currently outside of the control of the Board and none of this funding is committed at the date of these financial statements. This condition represents a material uncertainty regarding the use of the going concern basis.

Whilst noting the material uncertainty above, the Directors continue to adopt the going concern basis in preparing the consolidated financial statements. The financial statements do not include any adjustment that would result from the going concern basis of preparation being inappropriate.

Principal risks and uncertainties

The principal risks and uncertainties facing the Group are set out within the Strategic report of the Annual Report.

Cautionary statementThe Business and Financial reviews have been prepared for the shareholders of the Company, as a body, and no other persons. Its purpose is to assist shareholders of the Company to assess the strategies adopted by the Group and the potential for those strategies to succeed, and for no other purpose. The Strategic report, containing the Business and Financial reviews, contains forward-looking statements that are subject to risk factors associated with, amongst other things, the economic and business circumstances occurring from time to time in the sectors and markets in which the Group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forward-looking statements in the Strategic report will be realised. The forward-looking statements reflect the knowledge and information available at the date of preparation.

By order of the Board

David Blain

Chief Financial Officer

14 October 2020

Consolidated income statement and statement of comprehensive income

for the year ended 31 July 2020

EBITDA comprises loss before finance income, tax, exceptional costs and depreciation.

Consolidated and company statement of financial position

as at 31 July 2020

Consolidated statement of changes in shareholders' equity

for the year ended 31 July 2020

Company statement of changes in shareholders' equity

for the year ended 31 July 2020

Consolidated and company cash flow statement

for the year ended 31 July 2020

Group and Company accounting policies

For the year ended 31 July 2020

The figures for the years ended 31 July 2020 and 2019 do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The figures for the year ended 31 July 2020 have been extracted from the statutory accounts for that year, on which the auditor has issued an unqualified audit report containing a material uncertainty in relation to going concern paragraph, which have yet to be delivered to the Registrar of Companies. The figures for the year ended 31 July 2019 have been extracted from the statutory accounts for that year which have been delivered to the Registrar of Companies and on which the auditor has issued an unqualified audit report. No statement has been made by the auditor under Section 498(2) or (3) of the Companies Act 2006 in respect of either of these sets of accounts. This announcement was approved by the board of directors on 13 October 2020 and authorised for issue on 14 October 2020.

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards adopted by the International Accounting Standards Board ('IASB') and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (together 'IFRS') as endorsed by the European Union. The information in this preliminary statement has been extracted from the audited financial statements for the year ended 31 July 2020 and as such, does not contain all the information required to be disclosed in the financial statements prepared in accordance with the International Financial Reporting Standards ('IFRS').

General information

The principal activity of Applied Graphene Materials plc (the Company) is that of a holding company for a group of companies which is involved in the manufacture, dispersion and development of applications for graphene. The Company and the Group operates principally in the United Kingdom.

The Company is limited by shares, incorporated and domiciled in the United Kingdom and its registered number is 08708426. The address of the registered office is The Wilton Centre, Redcar, Cleveland TS10 4RF. The Company was incorporated on 27 September 2013.

The Company has elected to take the exemption permitted by Section 408 of the Companies Act 2006 not to present the Parent Company's income statement.

For the preparation of these consolidated financial statements, the following new or amended standards are mandatory for the first time for the financial year beginning 1 August 2019.

During the year, the Group adopted IFRS 16 Leases (IFRS 16) for the first time. IFRS 16 replaces IAS 17 Leases (IAS 17). The Group previously classified leases between "finance leases" that transferred substantially all the risks and rewards incidental to ownership of the asset to the Group and "operating leases".

The main change on application of IFRS 16 is the accounting for "operating leases", where rentals payable (as adjusted for lease incentives) were previously expensed under IAS 17 on a straight line basis over the lease term. Under IFRS 16 a right-of-use asset and a lease liability are recognised for all leases except "low-value" and "short term" leases where lease payments are recognised on a straight line basis over the lease term.

The Group has applied IFRS 16 retrospectively to all leases, but has elected to recognise the cumulative effect against opening reserves at 1 August 2019. Therefore, the comparative figures are as previously reported under IAS 17. The Group has applied this approach subject to the transition provisions set out below:

• For all contracts that existed prior to 1 August 2019, the Group has not applied IFRS 16 to reassess whether each

contract is, or contains, a lease.

• Relying on previous assessments of whether leases are onerous as an alternative to performing and impairment review. There were no onerous leases as at 1 August 2019.

• A single discount rate has been applied to portfolios of leases with similar characteristics.

• Initial direct costs have been excluded from the measurement of the right-of-use assets.

• Hindsight has been applied in determining the lease term for contracts that contain lease extension or termination

options.

As at 1 August 2019, the Group recognised right-of-use assets and a lease liability of £174,000 in the statement of

financial position.

The amounts recognised for leases at 1 August 2019 have been measured as follows:

• The lease liability is measured at the present value of the remaining lease payments at 1 August 2019, discounted

at the lessee's incremental borrowing rate of 8% at that date.

• The right-of-use asset is measured at the amount of the lease liability recognised in accordance with the measurement set out above.

The following other new standards and amended standards, none of which have had a material impact on these financial statements, are mandatory and relevant to the Group for the first time for the financial period commencing 1 August 2019:

• IFRIC 23 Uncertainty over Income Tax Treatments

• Amendments to IAS 19: Plan Amendment, Curtailment or Settlement

• Annual Improvements to IFRS Standards 2015-2017 Cycle

At the date of authorisation of these financial statements the following standards and interpretations, which have not been applied in these financial statements and which are considered potentially relevant, were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

• Amendments to References to the Conceptual Framework in IFRS Standards

• Amendments to IAS 1 and IAS 8: Definition of Material

• Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current

• Amendments to IFRS 3 Business Combinations

The Directors anticipate that the adoption of the amendments to standards in future periods will have no material impact on the recognition and measurement of assets and liabilities and the associated performance of the Group or the Company when the relevant standards and interpretations come into effect.

Basis of accounting

The consolidated financial statements of the Group have been presented under the historical cost accounting convention, with the exception of share based payments at fair value, and in accordance with IFRS as adopted by the European Union, IFRS IC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The significant accounting policies set out below have, unless otherwise stated, been applied consistently to all years presented in these financial statements.

The financial statements are prepared in Pounds Sterling, which is also the functional currency. Monetary amounts in the financial statements have been rounded to the nearest £'000.

Going concern

As a group developing new applications for recently discovered materials, the Directors are mindful that there is an ongoing need to monitor overheads and costs associated with delivering the commercialisation programme and raise additional working capital on an ad hoc basis to support the Group's activities. The Group has no bank facilities and has been meeting its working capital requirements from cash resources. At the year end, the Group had cash and cash equivalents amounting to £3.7 million (2019: £6.1 million).

The Directors have prepared cash flow forecasts for the Group for the period to July 2022 based on their assessment of both the discretionary and the non-discretionary cash requirements of the Group during this period.

The cash flow forecasts based on non-discretionary cash requirements include normal operating costs for operations together with all committed development expenditure. They indicate that the Group currently has sufficient cash resources to meet liabilities as they fall due for at least the next twelve months.

However, the above scenario does not meet the commercial expansion envisaged by the Board following the launch of new products and significant increase in distribution achieved recently. In order to deliver the commercial expansion of the Group and its strategy, the forecasts indicate that the Group will need to raise additional funding for its working capital needs as cash, while being available up to the end of the financial year ended 31 July 2021, would run out in October 2021 based on these forecasts.

The Board remains confident that the Group will be able to secure the required funding through equity issue or other financial instruments. However, the timing and availability of funding sources is currently outside of the control of the Board and none of this funding is committed at the date of these financial statements. This condition represents a material uncertainty regarding the use of the going concern basis.

Whilst noting the material uncertainty above, the Directors continue to adopt the going concern basis in preparing the consolidated financial statements. The financial statements do not include any adjustment that would result from the going concern basis of preparation being inappropriate.

Basis of consolidation

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses from intra-group transactions, are eliminated.

Foreign currencies

Transactions and balances

Transactions in foreign currencies are recorded at the exchange rates prevailing on the dates of the transactions. Assets and liabilities denominated in foreign currencies are translated into Pounds Sterling at the relevant exchange rates prevailing at the balance sheet date. Exchange gains and losses are taken to the income statement.

Revenue

Revenue is recognised at the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of business and is shown net of value-added tax. The Group primarily earns revenues from the sale of graphene based products and dispersions. Revenues are recognised following dispatch.

Government grants

Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as other income on a systematic basis over the time periods that the costs, which it is intended to compensate, are expensed (including any periods of grant monitoring). Where the grant relates to an asset, it is recognised as deferred income and released in equal amounts over the expected useful life of the related asset (after also taking account of any periods of grant monitoring). Owing to the stage of the Group's development as a business primarily engaged in research, management attributes this income to the Group's principal activities and has presented grant income above the gross profit line in the income statement.

Investments

Investments are stated at cost, less any provisions for impairment, which the Directors consider to be a reasonable approximation to fair value.

Intangible assets

Intangible assets are stated at cost less accumulated amortisation and any impairment losses. Intangible assets, which comprise licences and intellectual property, are amortised to the income statement using the straight line method over the shorter of their estimated useful life and period of contractual rights. The estimated useful life and period of contractual rights is expected to be 20 years.

Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and any impairment losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is charged so as to write off the costs of assets over their estimated useful lives, on the following basis:

Plant and machinery five to ten years straight line

Fixtures and fittings five years straight line

Computer equipment three years straight line

Right-of-use assets over the life of the lease

Construction in progress not depreciated

The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying value of the asset and is recognised in the income statement.

Leases

On commencement of a contract which gives the Group the right to use assets for a period of time in exchange for

consideration, the Group recognises a right-of-use asset and a lease liability unless the lease qualifies as a "short term" lease (term is twelve months or less with no option to purchase the lease asset) or a "low-value" lease (where the underlying asset is £4,000 or less when new).

The lease liability is initially measured at the present value of the lease payments during the lease term discounted using the interest rate implicit in the lease, or the incremental borrowing rate if the interest rate implicit in the lease cannot be readily determined. The lease term is the non-cancellable period of the lease plus extension periods that the Group is reasonably certain to exercise and termination periods that the Group is reasonably certain not to exercise. Lease payments include fixed payments, less any lease incentives receivable, variable lease payments dependant on an index or a rate and any residual value guarantees.

The lease liability is subsequently increased for a constant periodic rate of interest on the remaining balance of the lease liability and reduced for lease payments. Interest on the lease liability is recognised in profit or loss. Variable lease payments not included in the measurement of the lease liability as they are not dependent on an index or rate and are recognised in profit or loss in the period in which the event or condition that triggers those payments occurs.

Rentals payable under short term or low value operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed.

Impairment of non-current assets

At each reporting date, the Group and Company review the carrying values of their non-current assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable value of the asset is estimated in order to determine the extent of any impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable value is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable value of an asset (or cash-generating unit) is estimated to be less than its carrying value, the carrying value of the asset (or cash-generating unit) is reduced to its recoverable value. Any impairment loss identified is immediately recognised in the income statement.

Inventories

Inventories are recognised at the lower of cost and net realisable value. Cost is determined using the first in, first out method. Appropriate provisions for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the assets are impaired.

Financial instruments

The Group classifies its financial assets in the following measurement categories:

• those to be measured subsequently at fair value (either through OCI or through profit or loss); and

• those to be measured at amortised cost.

The classification depends on the entity's business model for managing the financial assets and the contractual terms of the cash flows. All financial instruments are currently measured at amortised cost.

For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI).

The Group reclassifies debt investments when and only when its business model for managing those assets changes.

Recognition of financial assets and financial liabilities

Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Derecognition of financial assets and financial liabilities

The Group derecognises a financial asset only when the contractual rights to cash flows from the asset expire or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for the amount it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

The Group derecognises financial liabilities when the Group's obligations are discharged, cancelled or expired.

Measurement

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.

Subsequent measurement of debt instruments depends on the Group's business model for managing the asset and the cash flow characteristics of the asset. Assets that are held for collection of contractual cash flows, where those cash flows represent solely payments of principal and interest, are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as a separate line item in the statement of profit or loss.

Impairment

The Group assesses, on a forward-looking basis, the expected credit losses associated with its debt instruments. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

Trade receivables

Trade receivables are initially recognised at the amount of consideration that unconditional, unless they contain significant financing components, when they are recognised at fair value and are subsequently measured at amortised cost less provision for impairment.

Intra-group receivables

Intra-group receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment. Appropriate provisions for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the assets are impaired.

Cash

Cash comprises cash on hand, demand deposits and other short term, highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Cash has a maturity period of 95 days or less which is used to meet working capital requirements. The Directors therefore judge it appropriate to treat these as cash.

Trade and other payables

Trade and other payables are initially measured at their fair value and are subsequently measured at their amortised cost using the effective interest rate method. This method allocates interest expense over the relevant period by applying the "effective interest rate" to the carrying amount of the liability.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Share based payments

The Group issues share options to certain employees which are measured at fair value and are recognised as an expense in the income statement with a corresponding increase in retained earnings. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted. The options are equity settled.

The fair value of these payments is measured at the date of each grant using an appropriate option pricing model, and is recognised over the period during which employees become unconditionally entitled to the awards. At each balance sheet date, the Group revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to retained earnings.

Employee benefits

The Group operates a defined contribution pension scheme. Contributions to the defined contribution pension scheme are charged to the income statement in the financial year to which the contributions relate. The contributions paid by the Group and the employees are invested within the individual pension funds in the month following the month of deduction.

Exceptional costs

Items that are both material and non-recurring and whose significance is sufficient to warrant separate disclosure and identification within the consolidated financial statements are referred to as exceptional costs. Such items are disclosed separately within the financial statements.

Research and development

In accordance with IAS 38, it is the Group's policy to recognise an intangible asset for development of its product once the criteria have been met. Otherwise all costs in the research phase will be recognised in the Group statement of comprehensive income for the period in which they are incurred. Costs that are directly attributable to the development phase of a product are recognised as intangible assets, provided they meet the following recognition requirements:

• completion of the intangible asset is technically feasible so that it will be available for use or sale;

• the Group intends to complete the intangible asset and use or sell it;

• the Group has the ability to use or sell the intangible asset;

• the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits;

• there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

• the expenditure attributable to the intangible asset during its development can be measured reliably.

Development costs not meeting these criteria for capitalisation are expensed as incurred. No development costs have been capitalised to date.

Current and deferred tax

The tax expense or credit represents the sum of the tax currently payable or receivable together with the movement in deferred tax.

The tax currently receivable is based on the taxable loss for the year and includes the benefit of research and development tax credits. Taxable loss differs from the loss before tax as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items of income or expense that are never taxable or deductible. The Group's receivable for current tax is calculated using tax rates that have been enacted or substantively enacted as at the balance sheet date.

Research and development tax credits for the year are calculated after having taken into account the level of research and development work carried out during the year.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying value of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated with reference to rates that are substantively enacted at the balance sheet date and expected to apply in the year when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the related deferred tax is also dealt with as an addition or reduction in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Critical accounting estimates and judgments

The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's and Company's accounting policies.

Estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group and Company make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

The significant judgments and estimates set out below have, unless otherwise stated, been applied consistently to all years presented in these financial statements.

Judgments involving estimation - Group

Equity settled share based payments

The estimation and judgment related to share-based payment expenses includes the selection of an appropriate valuation option pricing model, consideration as to the inputs necessary for the valuation model chosen, and the estimation of the number of awards that will ultimately vest. Inputs subject to estimation relate to the future volatility of the share price which has been estimated based on the historical observed volatility from trading in the Company's shares, over a historical period of time between the date of the grant and the date of exercise.

Management has used a Monte-Carlo model to calculate the fair value of the awards which include market-based performance conditions. The Black Scholes method has been used for the options awarded to staff during the year as they do not include market-based performance conditions. The share-based payment credit for the period was £14,000 (2019: charge £294,000) and further disclosure of inputs relevant to the calculations is set out in note 19 to the financial statements.

Research and development tax credits

Research and development tax credits for the year ended 31 July 2020 totalling £476,000 (2019: £700,000) have been calculated using estimates and judgments consistent with the prior year detailed computation submitted to and approved by HMRC. Estimation is applied in assessing the amount of time allocated to R&D programmes and is used in concluding upon the extent to which the Group's activity will qualify for the enhanced relief. Further disclosures relating to research and development tax credits are included in note 7 to the financial statements.

Impairment of non-current assets

At each reporting date the Directors review the carrying values of the Group's non-current assets to determine whether there is any indication that those assets have suffered an impairment loss. Having completed this review the Directors have concluded that there is no impairment charge during the year.

In drawing their conclusions on this matter, the Directors have considered the market capitalisation of the Group at 31 July 2020. They note that Group net assets of £5.3 million are substantially below market capitalisation of £9.9 million. On the assumption that market capitalisation is a reliable proxy for fair value, this would suggest that there is no impairment within the Group balance sheet. The carrying value of non-current assets totalled £1.9 million (2019: £1.8 million) and is disclosed in notes 9 and 10 to the financial statements.

Deferred tax asset

Deferred tax assets and liabilities require management judgment in determining the amounts to be recognised. In particular, judgment is used when assessing the extent to which deferred tax assets should be recognised with consideration given to the timing and level of future taxable income.

In previous years the Group has not recognised a deferred tax asset in relation to the Group's cumulative tax losses. Having given due consideration to whether it is pertinent to recognise a deferred tax asset the Board has determined that there has been no substantive change in circumstances and as such has concluded that it is not appropriate to recognise a deferred tax asset at this time. The unprovided asset of £3,001,000 (2019: £1,891,000), as included in note 7 to the financial statements, will only be recognised once it is probable that future taxable profits will be available against which the asset can be utilised.

Capitalisation of development costs

The Group's accounting policy in respect of development costs is set out above. The Directors have exercised their judgment in assessing whether development costs incurred during the year meet the conditions set out in IAS 38. Having carefully considered the expenditure in the year and the current state of development of the business, the Directors have concluded that no such costs should be capitalised as there is currently insufficient evidence that any asset will probably generate future economic benefits. This judgment will be reviewed on an ongoing basis.

Research and development costs totalling £1,465,000 (2019: £2,285,000) have been expensed during the year, as disclosed in note 2 to the financial statements.

Judgments involving estimation - Company only

Recoverability of intercompany receivables

Amounts owed by subsidiary undertakings represent loans made to the Company's main subsidiary undertaking at a rate of 8% per annum until 31 July 2019 and from 1 August 2019 the loan was made interest free. The gross loan advanced by the Company is £28.5 million (2019: £25.6 million). Whilst the loan is legally repayable on demand, the Company has confirmed to the subsidiary undertaking that it does not intend to demand repayment within at least one year.

In accordance with IFRS 9 Financial Instruments, as the subsidiary undertaking cannot repay the loan at the reporting date, the Company has made an assessment of expected credit losses. Having considered multiple scenarios on the manner, timing, quantum and probability of recovery on the receivables, a lifetime expected credit loss (ECL) of £11.2million (2019: £11.2 million) has been provided.

The calculation of the allowance for lifetime expected credit losses requires a significant degree of estimation and judgment, in particular determining the probability weighted likely outcome for each scenario considered. The Directors' assessment of ECL included repayment through future cash flows over time (which are inherently difficult to forecast for the Company at its current stage of development) and also the amount that could be realised through an immediate sale of the subsidiary undertaking. The Directors' assessment of repayment through future cash flows included a scenario where the loan was not recovered in full.

Given the quantum of the provision recorded at 31 July 2020, the outcome is materially sensitive to the key assumptions inherent in the calculation. However, in light of the IAS 36 impairment provision recorded at 31 July 2020 and described below, any change in the recorded ECL provision would be equally offset by an adjustment to the IAS 36 provision and there would be no change in Company net assets.

The carrying value of amounts owed by subsidiary undertakings at 31 July 2020 was £7.0 million (2019: £9.2 million) and is disclosed in note 13 to the financial statements.

On application of IFRS 9 an adjustment totalling £2,000,000 was made to the opening balance sheet position at 1 August 2018.

Impairment of Parent Company net assets

Following the recording of the expected credit loss described above, the Company's net assets totalled £14.7 million (2019: £21.1 million). This was above the market capitalisation of the Group at 31 July 2020 of £9.9 million (2019: £15.1 million). In accordance with IAS 36, the Directors have considered whether this situation was an indicator of impairment and concluded that an impairment review should be performed at 31 July 2020.

In light of the development of the Group in the period, and the delays encountered in respect of making substantive commercial progress with regard to revenue generation, the Directors concluded that the value in use calculated in accordance with IAS 36 was lower than fair value. This conclusion was in part due to much of the anticipated revenue growth for the Group being in the longer term and the restrictive nature of growth assumptions permitted by IAS 36 after five years. Accordingly, the Directors have recorded a further IAS 36 impairment provision against the Company balance sheet (as part of amounts owed by subsidiary undertakings) reducing the net assets to the market capitalisation at that date of £9.9 million (2019: £15.1 million). The key estimate made by the Directors in this regard relates to the use of market capitalisation as a measure of fair value.

Notes to the consolidated financial statements

1 Segmental information

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM) in deciding how to allocate resources and in assessing performance. The Group's Chief Executive Officer has been identified as the CODM. The Group has one operating segment: the manufacture, dispersion and development of applications for graphene. Revenue and profits arising from that operating segment are the same as presented on the face of the consolidated income statement and statement of comprehensive income. As the business evolves this is an area that will be assessed on a regular basis and additional segmental reporting will be provided at the appropriate time.

During the year ended 31 July 2020, there were two significant customers which generated revenue of £22,000 and £9,000 (2019: £9,000 and £5,000).

The Group's revenue by geographic location based on the customer's location is as follows:

2 Operating loss

* Included within research and development expense are staff costs totalling £1,219,000 (2019: £1,678,000) which are also included as part of wages and salaries included above and in note 3.

The operating loss is stated after charging exceptional costs of £168,000 (2019: £nil) relating to redundancy costs arising from the realignment of the Group's activities and a reduction in costs.

Services provided by the Group's auditors

During the year the Group obtained the following services from its auditors at costs as detailed below:

3 Directors and employees

The aggregate payroll costs of employees, including Directors, were:

All Directors of the Group are employed by the Company, and the Company includes no other employees.

At 31 July 2020 outstanding pension contributions totalling £4,000 (2019: £13,000) are included in other creditors.

The average number of persons employed by the Group during the year was:

4 Other income

5 Obligations under leases

Minimum future aggregate lease payments under non-cancellable operating leases are as follows:

From 1 August 2019, the Group has recognised right of use assets for leases, except short term and low value leases. See note 10 for further information.

6 Net finance income

7 Tax on loss

The tax assessed for the year is the same (2019: the same) as the UK corporation tax rate of 19% (2019: 19%). The tax on the Group's loss before tax differs from the theoretical amount that would arise using the weighted average tax rate as follows:

Other timing differences relate to permanent and temporary timing differences which are not allowable for taxation purposes.

Deferred tax assets totalling approximately £3,001,000 (2019: £1,891,000) have not been recognised.

Legislation to reduce the UK corporation tax rate from 19% to 17% with effect from 1 April 2020 was substantively enacted at 30 April 2019. Further legislation to cancel this reduction was substantively enacted at 30 April 2020. A rate of 19% (2019: 17%) has been applied in the measurement of the Group's deferred tax assets in the year.

8 Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to Ordinary shareholders by the weighted average number of shares in issue during each year. The weighted average number of shares in issue during the year used in the calculation of basic earnings per share was as follows:

Diluted earnings per share is the basic earnings per share adjusted for the effect of the conversion into fully paid shares of the weighted average number of share options outstanding during the year. The Group was loss making for the years ended 31 July 2019 and 31 July 2020; therefore, the dilutive effect of share options has not been disclosed since this would decrease the loss per share for each of the years reported.

Adjusted earnings per share has been calculated so as to exclude the effect of exceptional costs including related tax charges and credits. Adjusted earnings used in the calculation of basic and diluted earnings per share reconciles to basic earnings as follows:

9 Intangible assets

The intellectual property is in relation to patent costs. These patents have not yet been granted; therefore, no amortisation has been charged in relation to these for the year. The costs relating to patents that have been granted were incurred before 2012 and were not capitalised as they were either incurred before the formation of the spin out from Durham University or were expensed in the Income statement.

The Company had no intangible assets in the year ended 31 July 2019 and the year ended 31 July 2020.

10 Property, plant and equipment

The carrying amount and depreciation of right-of-use assets all relate to property leases.

Differences between the operating lease commitments disclosed at 31 July 2019 under IAS 17 discounted at the incremental borrowing rate at 1 August 2019 and lease liabilities recognised at 1 August 2019 are explained below:

The Company had no property, plant and equipment in the year ended 31 July 2019 and the year ended 31 July 2020.

11 Investments

At 31 July 2020 the Company held more than 20% of the allotted share capital of the following subsidiary undertakings:

12 Inventories

The Directors believe that the carrying value of inventories is exceeded by their net realisable value. The amount of inventories recognised as an expense during the year was £6,500 (2019: £61,000).

The Company had no inventories in the year ended 31 July 2019 and the year ended 31 July 2020.

13 Trade and other receivables

Contractual payment terms with the Group's customers are typically 30 days. There are no provisions for impairment losses in respect of trade and other receivables.

The Directors believe that the carrying value of trade and other receivables represents their fair value. In determining the recoverability of trade receivables the Group considers any change in the credit quality of the receivable from the date credit was granted up to the reporting date. For details on the Group's credit risk management policies, refer to note 15. The carrying amounts of the Group's receivables are all denominated in Pounds Sterling.

All classes within trade and other receivables do not contain assets which are considered to be impaired. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security.

The amounts owed by subsidiary undertakings include a loan to Applied Graphene Materials UK Limited for £28,332,000 (2019: £25,587,000) which accrued interest at a rate of 8% per annum until 31 July 2019, after which the loan became interest free. The loan is repayable, in full, on demand by the Parent Company. The Parent Company has confirmed that it does not intend to seek repayment of the loan balance for at least twelve months from the date of these financial statements, other than in a change of control event. The intercompany loan has been impaired by £11,175,000 (2019: £11,197,000) under IFRS 9 and £10,863,000 (2019: £6,057,000) under IAS 36.

£683,000 (2019: £877,000) of the balance relates to trade debt to Applied Graphene Materials UK Limited, which does not accrue interest and is repayable, in full, on demand by the Parent Company.

14 Trade and other payables

Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. They are non-interest bearing and are normally settled on 30 to 45 day terms (2019: 30 to 45 days).

The Directors consider that the carrying value of trade and other payables approximates to their fair value. All trade and other payables are denominated in Pounds Sterling.

The Group has financial risk management policies in place to ensure that all payables are paid within the credit time frame and no interest has been charged by any suppliers as a result of late payment of invoices during the year.

Non-current lease liabilities relate to land and buildings leases which expire in one to five years.

15 Financial instruments

The Group and Company are exposed to the risks that arise from their use of financial instruments. This note describes the objectives, policies and processes of the Group for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.

Capital risk management

The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders. The Group is funded principally by equity. The capital structure of the Group consists of equity, comprising issued share capital. The Group has no externally imposed capital requirements.

In order to maintain or adjust the capital structure, the Group may return capital to shareholders or issue new shares.

Principal financial instruments

The principal financial instruments used by the Group are as follows:

• trade and other receivables;

• trade and other payables;

• cash; and

• cash deposits.

Financial assets

At the reporting date, the Group and Company held the following financial assets which represent the maximum risk exposure:

Financial liabilities

At the reporting date, the Group and Company held the following financial liabilities, all of which were classified as other financial liabilities:

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises principally from the Group's cash balances and trade and other receivables. The concentration of the Group's credit risk is considered by counterparty, geography and currency.

The Group gives careful consideration to which organisation it uses for its banking services in order to minimise credit risk. The Group has significant concentrations of cash, which it has placed on deposit with four institutions, each of which has a minimum credit rating of A (long term, as assessed by Standard & Poor's). At the year end, the cash and cash deposits at each reporting date were denominated in the following currencies:

The nature of the Group's business and the current stage of its development are such that individual customers can comprise a significant proportion of its trade and other receivables at any point in time. The Group mitigates the associated risk by close monitoring of the debtor ledger.

At 31 July 2020, the Group's trade receivables balance was £16,000 (2019: £3,000). The carrying amount of financial assets recognised at the year end represents the Group's maximum exposure to credit risk without taking account of the value of any collateral obtained. In the Directors' opinion, there has been no material impairment of any Group financial assets at any point during the year.

No collateral is held by the Group as security in relation to its financial assets.

Liquidity risk management

Liquidity risk is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. Ultimate responsibility for liquidity risk management rests with the Directors. The Directors manage liquidity risk by regularly reviewing the Group's cash requirements by reference to short term cash flow forecasts and medium term working capital projections.

At 31 July 2020, the Group had £3,685,000 (2019: £6,135,000) of cash and cash deposit reserves.

Market risk

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. During the year, both these risks were considered to have been minimal.

Foreign currency risk management

The Group's exposure to foreign currency risk is limited since the vast majority of its invoicing and the majority of its payments are in Pounds Sterling. There are minimal balances held in foreign currencies at each reporting date and the Group has made no significant payments in foreign currencies other than US Dollar and Euro. Accordingly, no sensitivity analysis has been presented as this is immaterial. As a result of the low level of perceived risk, the Group does not use, or plan to use, any instruments to mitigate foreign exchange risk

Interest rate risk management

The Group's exposure to interest rate risk is limited since the Group has no debt, and there is little movement on deposit interest rates. Accordingly, no sensitivity analysis has been presented since this is immaterial. As a result of the low level of perceived risk, the group does not use, or plan to use, any instruments to mitigate interest rate risk

Maturity of financial assets and liabilities

£929,000 (2019: £993,000) of the Group's non-derivative financial liabilities are payable within one year. £4,000 (2019: £nil) of the Group's non-derivative financial liabilities are payable after more than one year. All of the Group's non-derivative financial assets at each reporting date are receivable within one year.

16 Called up share capital

17 Share premium account

The share premium account comprises the excess value recognised from the issue of Ordinary shares for consideration above par value.

18 Merger reserve

The merger reserve is a non-distributable reserve that arose through the application of merger relief to the shares issued in 2013 in connection with the acquisition of Applied Graphene Materials UK Limited.

19 Share based payments

The Group operates a number of employee share option schemes, which run over a number of different time periods to reflect when awards have been made to Directors and employees. These schemes include:

• SAYE;

• non-approved executive options; and

• EMI.

The Group's SAYE scheme is open to UK employees of the Group and is not subject to any performance conditions. SAYE takes the form of a monthly savings contract over a three year term, at the end of which participants have the opportunity to acquire shares in the Company at the option price determined at the date of grant.

During the year, the Group has recorded an IFRS 2 credit of £14,000 (2019: charge £294,000). The current year credit arose primarily due to options lapsing on cessation of employment of staff. The majority of the current year charge is derived from three awards made. The fair value of options and significant assumptions used in the calculation of the Group's IFRS 2 charge were as follows:

The expected volatility is based on the historical observed volatility from trading in the Company's shares, over a historical period of time between the date of the grant and the date of exercise. The expected life is the average expected period to exercise. The risk free rate of return is the implied yield on zero coupon UK government bonds as at each grant date, with a maturity equal to the expected life of the option. Certain awards will only vest in full if specific performance criteria set out in the Remuneration report are met. For non-market based performance criteria, the Directors have made their best estimate of the number of options that will ultimately vest.

A reconciliation of option movements over the year to 31 July 2020 is shown below:

The weighted average exercise price of options granted in the year was £nil (2019: £0.12). No options were exercised (2019: none) or cancelled (2019: 991,011) during the year.

Options are exercisable at prices ranging between £nil and £1.55. The contractual life of options is generally ten years, which includes a vesting period with performance conditions (other than for the Group's SAYE scheme, where no performance conditions exist). The performance criteria for the grant on 7 May 2020 to all employees (except senior management) is continuing to be in employment with the Group at 7 May 2023 or the release of the interim results for the period to 31 January 2023 if later. Major shareholders were consulted on the granting of these options which were designed to aid staff retention following the realignment of resources carried out in 2019.

20 Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Transactions with shareholders

The following purchases with shareholders of the Group were recorded, excluding VAT, during the year:

The following balances were owed by the Group at the end of the year in respect of the transactions set out above:

Remuneration of key management personnel

The remuneration of the Directors and the key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures:

Remuneration of key management includes remuneration paid by subsidiary undertakings in the current and prior financial years.

21 Cash flow statement

Net cash generated from operations

22 Availability of Annual Report

Copies of the Annual Report and Financial Statements and Notice of Annual General Meeting will be posted to the Group's shareholders on Thursday 5 November 2020 and will be made available, along with this announcement, to view from that date on the Group's website at https://appliedgraphenematerials.com. Copies may be obtained from the Company Secretary at the registered office of the Company.

The 2020 Annual General Meeting is to be held at 11.00am on Tuesday 15th December 2020 at Squire Patton Boggs (UK) LLP

6 Wellington Place, Leeds, LS1 4AP.

In light of measures adopted by the UK Government to protect public health in response to the Covid-19 pandemic, and in line with guidance issued by The Chartered Governance Institute (ICSA), the board of directors of the Company are of the view that attendance at the AGM by a shareholder, other than for the specific purpose of ensuring that the AGM is quorate, is not essential for work purposes.

The AGM will therefore be convened with the minimum necessary quorum (which will be fulfilled by directors of the Company). Shareholders must not attend the AGM in person and anyone that seeks to attend the AGM will be refused entry. The business of the AGM will be restricted to the purposes set out in the formal Notice of AGM. There will be no additional presentations or opportunities for the board of directors to answer questions.

These steps are being taken to promote the health and wellbeing of the Company's shareholders and employees, but it remains important to the board of directors that your votes are counted at the AGM. All shareholders are therefore strongly encouraged to submit their votes on the formal business to be transacted using the proxy form enclosed with the Notice of AGM.

The chairman of the AGM will propose that each resolution, as set out in the Notice of AGM, is voted on via a poll. This means that each shareholder present in person (which shall only be such number of directors as is sufficient to ensure that the AGM is quorate) or by proxy will have one vote for each share held.

The Company will continue to monitor developments relating to Covid-19. If a situation should arise which necessitates that the arrangements for the AGM be altered, shareholders will be notified promptly via an RNS announcement and the Company's website.

In normal circumstances, the Company's AGM plays an important role in providing an opportunity for the Company's directors to engage with shareholders. The board of directors would therefore like to thank all shareholders in advance for their cooperation with and understanding of the alternative arrangements that the Company has been required to implement this year.

23 Post balance sheet events

On 13 October 2020, the Company approved the conversion of loans receivable from Applied Graphene Materials UK Limited with a value before impairment provisions of £29,014,529 into equity. The Company then subsequently approved the proposal to reduce Applied Graphene Materials UK Limited's share premium account. The consolidated net assets of the Group and the net assets of the Company are unchanged as a result of the conversion of the loans receivable from Applied Graphene Materials UK Limited and are unchanged as a result of the proposal to reduce Applied Graphene Material UK Limited's share premium account. The transactions were and are being carried out to strengthen the balance sheet of the subsidiary company.

Corporate information

Directors

Dr Bryan Dobson

Non-Executive Chairman

Dr Adrian Potts

Chief Executive Officer

David Blain

Chief Financial Officer and Company Secretary

Professor Karl Coleman

Chief Scientific Officer

Mike Townend

Non-Executive Director

Sean Christie

Non-Executive Director

Company number

08708426

Registered office

The Wilton Centre

Wilton

Redcar

Cleveland TS10 4RF

Tel: 01642 438214

www.appliedgraphenematerials.com

Independent auditors

RSM UK Audit LLP

5th Floor

Central Square

29 Wellington Street

Leeds LS1 4DL

Solicitors

Squire Patton Boggs

6 Wellington Place

Leeds LS1 4AP

Bankers

HSBC Bank plc

1 Saddler Street

Durham DH1 3NR

Nominated advisor and broker

N+1 Singer

One Bartholomew Lane

London EC2N 2AX

Registrar

Link Asset Services

The Registry

34 Beckenham Road

Beckenham

Kent BR3 4TU