Netscientific Regulatory News (NSCI)

NetScientific plc

("NetScientific" or the "Group")

NetScientific Full Year Results for the year ended 31 December 2018

London, UK - 22 May 2019 - NetScientific plc (AIM: NSCI), the transatlantic healthcare IP commercialisation Group, announces its full year audited results for the year ended 31 December 2018[1].

Financial highlights (including post-period end highlights)

· Loss for the year from continuing operations of £4.0 million (2017: loss £4.2 million) reflects ongoing investment in portfolio companies;

· Loss from discontinued operations for the year, due to the sale of Vortex and Wanda in March 2019, of £5.4m (2017: £5.2m);

· Cash used in operations reduced to £8.4 million (2017: £10.7 million) due to continued development and operating expenses in the subsidiaries mitigated by lower head office costs;

· The Group raised net funds of £4.6 million in April 2018 from a placing of 9,523,809 shares;

· Cash from continuing operations of £2.9 million (2017: £6.9 million);

· Group cash at 30 April 2019 stands at £3.0m of which £1.7m held in the Company, giving cash to operate until the end of 2020.

Operational highlights (including post-period end highlights)

Portfolio progress:

ProAxsis Ltd ("ProAxsis")

o NEATstik®

§ Registered CE Mark and launch of NEATstik® for measuring active neutrophil elastase

§ New data presented at the annual American Thoracic Society (ATS) conference

o ProteaseTag® Active Plasmin Immunoassay

§ Registered CE Mark and launched for application across a broad range of diseases including lung disorders such as idiopathic pulmonary fibrosis (IPF) and acute respiratory distress syndrome (ARDS)

§ Invest Northern Ireland grant to identify and quantify active protease biomarkers in £0.2 million project

o Both products selected for inclusion in the major BRIDGE clinical study funded by the European Respiratory Society (ERS)

Glycotest, Inc. ("Glycotest")

o Positive clinical results from clinical evaluation of HCC Panel in patients with Hepatocellular Carcinoma (HCC), the most common form of liver cancer

o Completed a $10.0 million series A funding round with Shanghai Fosun Pharmaceutical Co. Ltd, a leading healthcare group based in China and the first tranche of $3.0 million was received on 14 February 2019

PDS Biotechnology Corporation ("PDS")

o Completed merger with Edge Therapeutics in March 2019 creating a NASDAQ listed immune-oncology biotechnology company developing novel products treating early-and late-stage cancer

Vortex Biosciences, Inc. ("Vortex")

o Sold NetScientific interest to Deeptech Disruptive Growth Investments Ltd "Deeptech" in March 2019, a special purpose vehicle "SPV" of EMV Capital Ltd for total consideration of £112,999

Wanda, Inc. ("Wanda")

o Sold NetScientific interest to Deeptech in March 2019 for total consideration of £37,001

Commenting on the Group's 2018 full year results, Ian Postlethwaite, CEO/CFO of NetScientific, said:

"Our strategy remains to maximise shareholder value from our portfolio companies. With the disposal of our Vortex and Wanda interests, we can focus using the remaining cash resources on extending the anticipated lifespan of the Company. Glycotest and PDS require no further funding at this stage and, whilst ProAxsis does need a small additional injection of £0.1 million to meet operational requirements as it nears cashflow breakeven, this will be repayable within 2019. All three companies have continued to make good progress during the year and we remain confident in their prospects. In addition, we have taken measures to reduce our central function costs to extend the Company's cash runway and it is therefore expected that the Company has sufficient cash to operate until the end of 2020."

For more information, please contact:

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014.

About NetScientific

NetScientific PLC is a transatlantic healthcare IP commercialisation Group focused on technologies and companies that have the potential to treat chronic disease and significantly improve the health and well-being of people.

For more information, please visit the website at www.NetScientific.net.

This announcement contains certain forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. By their nature, these statements involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward looking statements. Any forward-looking statements made by or on behalf of the Group are made in good faith based on the information available at the time the statement is made. No representation or warranty is given in relation to these forward-looking statements, including as to their completeness or accuracy or the basis on which they were prepared, and undue reliance should not be placed on them. The Group does not undertake to revise or update any forward-looking statement contained in this announcement to reflect any changes in its expectations with regard thereto or any new information or changes in events, conditions or circumstances, save as required by law and regulations. Nothing in this announcement should be construed as a profit forecast.

CHAIRMAN'S AND CHIEF EXECUTIVE OFFICER'S STATEMENT

As announced in November 2018, the Group conducted a strategic review to maximise value for Shareholders which included the potential sale of the Group or of a portfolio company. In early 2019 the Company had not received any offers for any of its portfolio companies nor was it in receipt of any approaches regarding a sale of the Company. The Board continued to assess all of its strategic options, including a potential delisting from admission to AIM in order to reduce the Company's costs to prolong the cash runway allowing for the maximum opportunity to realise cash from shareholdings in its investee companies. However, the general meeting to approve the delisting was indefinitely adjourned by shareholders.

Following this decision by shareholders, in line with the Circular sent to Shareholders on 15 February 2019, the Company's strategy remains to seek to maximise shareholder value from its portfolio companies based upon its remaining cash resources by:

a) reducing the Company's central functions and costs significantly such that as much of the remaining cash as possible can be allocated to the portfolio companies;

b) assessing the funding requirements of each portfolio company against its prospects of generating a shareholder return within the anticipated lifespan of the Company; and

c) subsequently allocating the remaining cash to manage those portfolio companies which the Board believes provide the most realistic prospects of delivering shareholder returns within the anticipated lifespan of the Company.

Glycotest and PDS do not require further funding from the Company at this juncture given their available funds. ProAxsis requires a further short-term loan of £0.1 million which is repayable within 2019 for operational funding requirements as it nears cashflow breakeven.

In March 2019, the Company completed a £0.15 million cash sale to Deeptech of its interests in Vortex and Wanda, together with any outstanding loans and convertible loan notes owed to the Company by Wanda or Vortex. Immediately prior to completion, NetScientific was interested in approximately 95.0% and 70.8% of the issued shares of common stock of Vortex and Wanda, respectively, and 100% of the Preferred Shares of Wanda. The losses before tax of Vortex and Wanda included within the consolidated accounts of NetScientific amounted, to £4.0 million and £1.4 million, respectively and the net assets of Vortex and Wanda at the same date were £0.3 million and £0.1 million, respectively net of intercompany balances.

As part of the cash saving strategy the lease of the Company's headquarters at 6 Bevis Marks London EC3A 7BA was terminated on 29 March 2019. In addition, the Company will issue the Annual Report as a black and white pdf document to save costs. Following significant changes at the shareholder level Francois Martelet resigned as a Director on 30 April 2019.

Portfolio Review

ProAxsis Ltd ("ProAxsis")

ProAxsis is a medical diagnostics company, based in Northern Ireland, developing a range of products for the capture, detection and measurement of active protease biomarkers of diseases.

ProAxsis made good operational progress during 2018 obtaining a CE Mark for its ProteaseTag® Active Plasmin Immunoassay and it was awarded a European CE Mark for a third respiratory immunoassay.

NEATstik®, the first test ever developed to enable measurement of active neutrophil elastase at point-of-care, was launched in 2018 and registered its first R&D sale to a research laboratory conducting a respiratory clinical trial for a pharmaceutical company early in the year. In May, NEATstik's clinical potential was validated by new data presented at the annual American Thoracic Society (ATS) conference, where it was shown that the technology can successfully identify patients with elevated concentrations of active neutrophil elastase, which may be a causative link to the development of bacterial infections which exacerbate lung disease.

As announced on 20 September 2018, ProAxsis had two products selected for inclusion in the BRIDGE study, a major upcoming clinical trial funded by the European Respiratory Society (ERS). The study will employ NEATstik® and the ProteaseTag® Active NE Immunoassay over three years in 1,000 patients suffering from bronchiectasis across Europe, with the purpose of stratifying the clinical population. Assessments will include microbiome, proteomics, detailed phenotyping, and imaging, in order to explore new biomarkers and determine their impact on clinical outcomes.

Furthermore, ProAxsis secured non-dilutive grant funding from Invest Northern Ireland to support further research and development of its ProteaseTag® technology to identify and quantify active protease biomarkers as part of a £0.2 million project. The project will have a particular research focus on the detection and quantification of deubiquitinases (DUBs), which play a pivotal role in protein degradation pathways through the ubiquitin-proteasome system, which are thought to be involved in the pathogenesis of neurodegenerative disorders as well as several types of oncological malignancies.

NetScientific's shareholding in ProAxsis is 56.5% (fully diluted being 54.0%) and as at 31 December 2018, the Group had invested £2.1 million (2017: £1.9 million). Grant funding received to develop both the underlying technology and new applications has exceeded £1.2 million (2017: £1.1 million).

Glycotest, Inc. ("Glycotest")

Glycotest is a US-based liver diagnostics start-up company seeking to commercialise new and unique blood tests for life threatening liver cancers and fibrosis-cirrhosis.

During the year, Glycotest successfully completed a clinical evaluation of its diagnostic panel to detect hepatocellular carcinoma (HCC), the most prevalent form of liver malignancy, in 149 patients in China. In a blind evaluation of 75 HCC positive patients and 74 control samples, Glycotest's HCC Panel achieved an AUROC score of 0.97 and exhibited 93% sensitivity at 92% specificity, which indicates a very high predictability on a statistical basis as to whether HCC is present in patients or not.

In the cohort of patients whose tumours had not been detected by an alpha-fetoprotein (AFP) blood test, the most common blood test used for initial liver cancer diagnosis, the HCC Panel was able to identify 86% of patients with liver cancer. In an early-stage cohort of patients with HCC, the HCC Panel was able to identify 78% of patients with liver cancer undetected by AFP. HCC testing is a large and growing worldwide market, estimated at over $2 billion annually.

In October 2018, Glycotest completed a $10.0 million series A funding round with Shanghai Fosun Pharmaceutical Co. Ltd, a leading healthcare group based in China. The transaction has been approved by the outbound direct investment (ODI) committee and the first tranche of $3.0 million was received on 14 February 2019. The proceeds will be used to advance Glycotest Inc.'s diagnostic HCC Panel towards commercialisation in the US and to advance pipeline assets in liver fibrosis and cholangiocinoma (bile duct cancer). Funding of the remaining $7.0 million is due on completion of certain milestones.

Glycotest holds exclusive world-wide rights to over 50 patent-protected serum protein biomarkers and during the year successfully expanded its IP portfolio. The Company now has 13 issued or allowed patents protecting multiple aspects of Glycotest's proprietary liver disease diagnostic platform.

NetScientific's shareholding in Glycotest is 87.5% (fully diluted being 51.5%) and as at 31 December 2018, the Group had invested £3.9 million (2017: £2.9 million). Grant funding received to develop the underlying technology, prior to Glycotest's formation, was £5.9 million.

PDS Biotechnology Corporation ("PDS")

PDS is a clinical stage immunotherapy company developing a next-generation of simpler, safer and more effective immunotherapies for cancer and infectious diseases. It continued to see strong progress with its T-cell activating technology platform, Versamune®, which combines three critical attributes for an effective immunotherapy: T-cell induction, reduced tumour suppression and priming of a potent anti-tumour response without the conventional associated toxicities.

PDS plans to advance its assets through the pipeline and is maintaining ownership and control of all its partnered trials. PDS's oncology pipeline includes compounds for prostate, ovarian, breast and colorectal cancers, in addition to its lead PDS0101 programme for several HPV-related cancers. PDS made some important advances through the year in progressing its lead Versamune® T-cell Activating platform.

In November 2018 PDS Biotechnology entered into merger agreement with Edge Therapeutics, which completed on 14 March 2019, to form a Nasdaq-Listed Clinical-Stage Cancer Immunotherapy company. The merger creates a publicly-traded immune-oncology biotechnology company developing novel products treating early-and late-stage cancer. This follows phase I & 2 clinical data on lead product candidate PDS0101 which suggested immunotherapeutic anti-cancer activity and favourable safety profile in early stage cervical cancer. The new Company plans to initiate multiple phase 2b & 3 clinical trials of PDS0101 in HPV-associated cancers.

The share price of the new company (now re-named PDS Biotechnology Corporation) has been used to re-value the Group's equity holding therein. At year end PDS was valued at £2.4 million. The Company's ownership of the enlarged PDS Biotechnology Corporation, trading on Nasdaq under the ticker PDSB, on a fully-diluted basis is 8.15% and the latest listing price on 1 May 2019 of $5.93 values NetScientific's holding in PDS at £2.5 million. It is the Company's intention to hold the shares and to make a decision on its position in due course.

On 1 January 2018 the fair value of PDS increased by £3.5m as a result of the restatement due to the implementation of IFRS 9 and at year end decreased by £3.8m due to changes in the valuation methodology and macro-economic factors impacting the larger Pharmaceutical sector being the worst performing sector of the market. During the year the valuation methodology changed for the following reasons. The opening value was based on the last price that large investors bought shares in the Company. At the year end the PDS investment was valued on new information available as a result of the merger with Edge Therapeutics. The newly merged Company is now listed on Nasdaq and the valuation will be based on prevailing market prices.

The Group has invested £2.7 million in PDS to date. On the balance sheet the investment in PDS is shown as equity investments classified as fair value through other comprehensive income (FVTOCI) as per note 16.

Vortex Biosciences, Inc. ("Vortex")

After the balance sheet date, Vortex Biosciences, Inc. was sold to Deeptech for a total consideration of £112,999, being £1 for the shares and £112,998 for the transfer of the debt.

Vortex Biosciences is a liquid biopsy company with a mission to revolutionize cancer diagnosis, monitoring and treatment by replacing tissue biopsies with simple blood tests. Vortex's VTX-1 instrument harvests intact circulating tumour cells (CTCs) from whole blood samples for use in downstream research and clinical applications such as patient stratification, monitoring of disease progression and drug treatment effectiveness.

In November 2018, Vortex announced a Global partnership with Stratec Consumables GmbH to scale-up manufacturing production of a customised chip, a crucial component of the liquid biopsy platform (VTX-1). This will assist with scale-up to commercialisation with a view to increasing the product's prominence in the clinical space as a diagnostic and monitoring tool.

During the year its operations were reviewed and streamlined, reducing costs significantly.

NetScientific shareholding in Vortex was 95.0%, fully diluted being 66.1% and as of 31 December 2018, the Group had invested £21.4 million (2017: £16.4 million).

Wanda, Inc. ("Wanda")

After the balance sheet date, Wanda, Inc. was sold to Deeptech for total consideration of £37,001, being £1 for the shares and £37,000 for the preferred stock and debt.

Wanda is a San Francisco-based digital health company commercialising advanced clinical decision support software. Wanda aims to significantly reduce hospitalisation risk and re-hospitalisation risk post-discharge and improve the quality of life for people with chronic conditions, initially focused on congestive heart failure (CHF). During the year its operations were reviewed and streamlined, reducing costs significantly.

NetScientific's shareholding in Wanda was 70.8%, fully diluted being 61.8% and as at 31 December 2018, the Group had invested £11.6 million (2017: £9.5 million).

Early stage Investments Portfolio

Limited investment has been made to date in the Early Stage Portfolio, mostly in the form of convertible loans. Of the five early stage investments made only one loan is unprovided for. There are no plans to invest additional funds in the Early Stage Portfolio. On the balance sheet the investment in early stage investment portfolios is shown within trade and other receivables as convertible loans at a fair value of £0.3m which now relates to a single convertible loan following the fair value loss of £0.2m recognised in the year for the other loans in the portfolio per note 19.

Finance

For the year, the Group made a loss of £9.4 million (2017: £9.4 million), split between continuing and discontinued operations as follows:

- Continuing operations £4.0 million (2017: £4.2 million)

- Discontinued operations £5.4 million (2017: £5.2 million)

The loss reflects the business model, where the core portfolio companies are mainly subsidiaries. The core portfolio companies are commercialising their products, with the other two still developing their technologies; therefore, the portfolio companies are all currently loss making.

Currently, Glycotest and PDS are not expected to require further funding from the Company. ProAxsis requires further funding by way of a short-term loan of £0.1 million which is repayable within 2019 to meet operational requirements as ProAxsis nears cashflow breakeven.

Cash

The Group placed a further 9,523,809 shares in April 2018 raising net funds of £4.6 million (2017: 17,962,362 shares issued raising net funds of £7.5 million). Cash on the balance sheet as at 31 December 2018 was £2.9 million (2017: £6.9 million). Cash used in operations, was £8.4 million (2017: £10.7 million). Group cash at 30 April 2019 stood at £3.0m of which £1.7m was held in the Company, giving cash

to operate until the end of 2020.

Going concern

The Directors have prepared and reviewed budget cashflows which were approved by the Board of Directors in the Board meeting of 11 December 2018 and further reviewed at the Board meetings on 10 January 2019 and 15 March 2019. These budgeted cash flows included a number of implemented cash saving initiatives, including:

a) Significantly reducing the Company's central cost base by reductions in headcount, closing the office at 6 Bevis Marks London at the end of March 2019, producing the Annual Report as a simple black and white pdf document and reviewing all expenditure commitments;

b) Sold Vortex and Wanda for net proceeds of £0.15 million on 22 March 2019 and consequently reducing the operational funding requirement of the Group; and

c) allocating the remaining cash to manage those portfolio companies which the board believes provide the most realistic prospects of delivering shareholder returns within the anticipated lifespan of the Company. Glycotest and PDS do not require any further funding form the Company. ProAxsis requires a short-term loan of £0.1 million repayable in 2019, to meet specific operational funding requirements as it nears cashflow break even by the end of 2019.

After due consideration of these forecasts and current cash resources, the Directors consider that the Company and Group do have adequate financial resources to continue in operational existence for the foreseeable future (being at least 12 months from the date of this report), and for this reason the financial statements have been prepared on a going concern basis.

Board changes

François R. Martelet, M.D has resigned as a Director on 30 April 2019; the Board would like to thank him for his contributions to the Group. Ian Postlethwaite was appointed Chief Executive Officer effective from 1 May 2019.

Summary and Outlook

The Company's strategy remains to maximise shareholder value from the portfolio companies using the remaining cash resources of the Company by:

a) Reducing the Company's central functions and costs significantly such that the Company can continue to operate for as long as is reasonably possible whilst it seeks to generate shareholder value from the portfolio companies. It is anticipated that the Company has sufficient cash to operate until the end of 2020.

b) Assessing the funding requirements of each portfolio company against its prospects of generating a Shareholder return within the anticipated lifespan of the Company. At this stage, Glycotest and PDS are not expected to require further funding from the Company. ProAxsis requires further funding by way of a short-term loan of £0.1 million which is repayable within 2019 to meet operational requirements as it nears cashflow breakeven.

Consolidated Income Statement

For the year ended 31 December 2018

* 2017 comparatives have been restated due to discontinued operations classified as held for sale

Consolidated Income Statement and Other Comprehensive Income

For the year ended 31 December 2018

All other comprehensive income will be reclassified to retained earnings on the ultimate sale of any relevant subsidiary or investment company.

Consolidated Statement of Financial Position

As at 31 December 2018

*Fair value through other comprehensive income

Consolidated Statement of Changes in Equity

As at 31 December 2018

Consolidated Statement of Cash Flows

As at 31 December 2018

Notes to the Financial Information for the Year Ended 31 December 2018

1. GENERAL INFORMATION

The Company is a public limited company incorporated on 12 April 2012 and domiciled in England with registered number 08026888 and its shares are listed on the Alternative Investment Market (AIM) of the London Stock Exchange. The address of the registered office is Anglo House, Bell Lane Office Village, Bell Lane, Amersham, Buckinghamshire HP6 6FA.

2. BASIS OF PREPARATION

The preliminary results of the year ended 31 December 2018 have been extracted from audited accounts which have not yet been delivered to Companies House.

The financial information set out in this announcement does not constitute statutory accounts for the year ended 31 December 2018.

The report of the auditors on the statutory accounts for the year ended 31 December 2018 was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The financial statements for the year ended 31 December 2018 included in this announcement were authorised for issue in accordance with a resolution of the Board of Directors on 22 May 2019.

3. SIGNIFICANT ACCOUNTING POLICIES

The Group financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union as they apply to the financial statements of the Group for the year ended 31 December 2018. The principal accounting policies adopted in the preparation of the financial information are set out below. The policies have been consistently applied to all the years presented.

While the financial information included in this preliminary announcement has been prepared in accordance with IFRS, this announcement does not in itself contain sufficient information to comply with IFRS. The Group expects to publish full financial statements that comply with IFRS by 28 May 2019.

4. LOSS PER SHARE

The basic and diluted loss per share is calculated by dividing the loss for the financial year by the weighted average number of ordinary shares in issue during the year. Potential ordinary shares from outstanding options at 31 December 2018 of 2,287,550 (2017: 1,812,257) are not treated as dilutive as the entity is loss making.

5. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS

The Group had the following subsidiaries at 31 December 2018:

Notes to the Financial Information for the Year Ended 31 December 2018

5. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS (continued)

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

* Held via an intermediate holding company.

** Sold to Deeptech in March 2019, a SPV of EMV Capita Ltd for total consideration of £150k.

All of the ownerships shown above relate to ordinary shareholdings.

(i) Options have been issued by ProAxsis Ltd, Vortex BioSciences, Inc., Wanda, Inc. and Glycotest, Inc. which if exercised would dilute the Company's shareholding by 3%, 29%, 16% and 21% respectively.

(ii) A Deed of Termination was entered into as of 14 November 2017, with the company dissolved on 13 August 2018.

(iii) A Deed of Termination was entered into as of 7 August 2018, with the company dissolved two months later in 2018.

(iv) Following issue of further shares during the year the Group's interest was reduced to 70.8% on 1 May 2017.

6. INVESTMENTS IN ASSOCIATE

On 20 April 2017, the Groups subsidiary company Wanda, Inc. disposed of its entire holding of 35.9% in OncoVerse LLC, a San Francisco based digital health company.

7. EQUITY INVESTMENTS CLASSIFIED AS FVTOCI 

Notes to the Financial Information for the Year Ended 31 December 2018

7. EQUITY INVESTMENTS CLASSIFIED AS FVTOCI (continued)

Valuation of unquoted equity investments

Historically, the equity investments were reported at cost as they were not quoted in an active market and that there was a significant range of possible fair value estimates and the possibilities of the various estimates could not be reliably measured. Upon transition to IFRS 9, the fair value gain of £3,744k has been attributed to the effective date of transition and presented in the statement of changes in equity. Of the £3,744k increase in fair value, £3,518k is represented by PDS. Between February and August 2018, PDS raised $1,150k over a number of separate share issues and at the same valuation per share. The fundraise was restricted to a small group of sophisticated investors.

The fair value at year end was derived from the listed entity Edge Therapeutics, Inc. and using its share price as a proxy to value PDS. On the 18 March 2019 PDS announced the closing of its merger with Edge Therapeutics, Inc. following the approval of Edge stockholders on 14 March 2019.

In November 2018 PDS Biotechnology entered into merger agreement with Edge Therapeutics, which completed on 14 March 2019, to form a Nasdaq-Listed Clinical-Stage Cancer Immunotherapy company. The merger creates a publicly-traded immune-oncology biotechnology company developing novel products treating early-and late-stage cancer. This follows phase I & 2 clinical data on lead product candidate PDS0101 which suggested immunotherapeutic anti-cancer activity and favourable safety profile in early stage cervical cancer. The new Company plans to initiate multiple phase 2b & 3 clinical trials of PDS0101 in HPV-associated cancers.

The share price of Edge Therapeutics as at balance sheet date has been used to re-value the Group's equity holding in PDS Biotechnology. The Company's ownership of the enlarged PDS Biotechnology Corporation, trading on Nasdaq under the ticker PDSB, on a fully-diluted basis is 8.15%, which at the latest listing price on 1 May 2019 of $5.93 values NetScientific's holding in PDS at £2,460k. At year end PDS the Group's interest on a fully diluted basis was 9.12% (2017: 17.1%) and was valued at £2,380k. It is the Company's intention to hold the shares and to make a decision on its position in due course. The Group's interest in PDS Biotechnology is non-controlling.

If the fair value of the investment and derivative financial assets were to decrease by 50%, the net assets figure would decrease by £1.2m with a corresponding increase if the inputs were to increase by 50%.