NetScientific plc ANNUAL REPORT AND ACCOUNTS...Post year end, the first instruments for the research...

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NetScientific plcANNUAL REPORT AND ACCOUNTS YEAR ENDED 31 DECEMBER 2014



CONTENTS

NETSCIENTIFIC PLC ANNUAL REPORT

PageOverview

– Chairman’s Statement 1

Strategic Report

– Strategic Report 4

– Financial Review 6

Corporate Governance

– Board of Directors 7

– Report of the Directors 9

– Corporate Governance Report 12

– Directors’ Remuneration Report 14

Financial Statements

– Independent Auditors’ Report 17

– Consolidated Income Statement 18

– Consolidated Income Statement and Other Comprehensive Income 19

– Consolidated Statement of Financial Position 20

– Consolidated Statement of Changes in Equity 21

– Consolidated Statement of Cash Flows 22

– Notes to the Consolidated Financial Statements 23

– Parent Company Financial Position 44

– Notes to the Parent Company Financial Statements 45

COMPANY INFORMATION

DIRECTORS:Sir R SykesDr. M T Boyce-JacinoD A GoughP Y ThomsN C HeckfordB W WilsonJ Paisner

SECRETARY:E Schneider

REGISTERED OFFICE:Anglo HouseBell Lane Offi ce VillageBell LaneAmershamBuckinghamshireHP6 6FA

REGISTERED NUMBER: 08026888 (England and Wales)

AUDITORS:BDO LLPArcadia HouseMaritime WalkOcean VillageSouthamptonHampshireSO14 3TL

SOLICITORS:Simmons & Simmons LLPCityPointOne Ropemaker StreetLondonEC2Y 9SS

1Financial statements 17–50Corporate governance 7–16Strategic report 4–6Overview 1–3



CHAIRMAN’S STATEMENT

OverviewThe year ended 31 December 2014 has been a productive one for NetScientific plc (‘NetScientific’ or ‘the Group’). In accordance with the Group’s business strategy, NetScientific has been supporting its lead portfolio companies’ growth plans, seeking new companies and technologies for investment, and establishing and building relationships with strategic partners and collaborators.The Group made a loss after tax of £7.1m (2013: loss £4.3m) which is a reflection of the business model where a number of our portfolio companies are trading subsidiaries developing their technologies. The net cash position at the year end of £16.1m is available for the Group’s working capital requirements, additional investment in the current portfolio and future investment opportunities.Within the portfolio, the focus has been primarily on the two most mature companies, Wanda Health (Wanda) and Vortex BioSciences (Vortex), which have been making good progress towards their anticipated first commercial launches in 2015. There are another three core companies within the portfolio – Glucosense, Glycotest and ProAxsis, which are exciting opportunities, ready for accelerated development through further investment in the coming year. More detail is included in the Portfolio Review.Post year end, there has been a change in the management team resulting in a review of the investment strategy and overall portfolio. The results of this review will be presented at a detailed Capital Markets Day in mid-2015 where investors will also be able to meet with and receive an update on the portfolio companies.Looking forward to the coming year, the Group is expecting progress across the portfolio with some significant value inflection points. A specific focus is on the core companies with commercial launches of Wanda’s CHF Clinical Decision Support Solution and Vortex’s VX-1 Instrument expected.

Financial ResultsThe Group made a loss after tax for the year ended 31 December 2014 of £7.1m (31 December 2013: £4.3m).The cash outflow from the operating activities for existing companies and projects before changes in working capital was £5.8m and further £2.4m was invested in capital investment and funding positions in new pipeline companies and projects.Net funds held by the Group at 31 December 2014 amounted to £16.1m and comprised cash and cash equivalents and short-term deposits of £16.8m less long-term loans of £0.7m.

Business StrategyNetScientific’s mission is to build a transatlantic biomedical and healthcare group funding and developing technologies that offer transformative benefits to people’s lives and society.NetScientific is primarily focused on opportunities targeting the increased numbers of patients living with chronic diseases and the associated costs, the key challenge for the global healthcare sector. Consequently, the areas of focus represent highly attractive growth markets where breakthrough technology solutions are in high demand. The three key areas of focus are digital health (data analytics, wearable technologies and devices), diagnostics and therapeutics.New pipeline investments are sourced from leading researchers from the US and European universities, or through strategic partnerships, backing entrepreneur-led start-ups with ground breaking technologies. In addition the pipeline can be enhanced by new projects originating from the team’s considerable sector expertise and network.NetScientific has typically taken a controlling interest in its portfolio companies, which it aims to maintain for as long as practical commensurate with the needs of the company and management of the portfolio. The Group is an active investor providing extensive management support. This involves the senior management team initially taking leadership roles in companies and building dedicated management teams as the companies develop and grow.The aim of the Group is to maintain, at any one time, a portfolio of three to five actively managed companies and a secondary portfolio of 10 smaller investments, the most successful of which will become more actively managed companies. As at 31 December 2014, the Group had a portfolio of 15 investments. NetScientific will continue to invest in its portfolio to maximise shareholder return in the form of capital growth. However, there are no fixed targets for the length of time during which an investment may be held, as this will be dependent both on progress and availability of funding. This means that no realisation of assets will be attempted until optimum value has been developed through achievement of key technical and commercial milestones usually reflected in regulatory approvals or commercial traction. The Board will, however, actively manage the portfolio with a view to maximising shareholder value and generating funds for re-investment in the pipeline.

Portfolio ReviewThe next section highlights the core five actively managed companies and which the Board considers are making good progress and show significant promise in the short to medium term.

Wanda HealthWanda Health is developing cloud-based analytics, as part of a total patient management solution, in partnership with other healthcare providers. The core analytics engine is based on 12 years of research at the Wireless Health Institute at UCLA.Wanda Health completed development of a predictive analytics engine for use in remotely monitoring patients with Congestive Heart Failure (‘CHF’), the leading cause of hospital re-admissions in USA.

2 NETSCIENTIFIC PLC ANNUAL REPORT



CHAIRMAN’S STATEMENTCONTINUED

During the first half 2014, the company was pursuing regulatory approval in both the US and Europe, and preparing for commercial launch. However, in second half 2014 it became clear that the US regulatory environment had changed and clinical decision support systems no longer required FDA approval before marketing. Therefore, commercial roll out is commencing in hospitals and managed care providers in USA, and the Group expects to announce new contracts in the coming year.In Europe, Wanda Health has been focused on achieving a CE mark, which is expected early in the second half 2015. In addition, working with a partner in the UK, there are plans to complete a pilot with a clinical commissioning group with a view to a commercial roll out later in 2015. Work on other applications, notably in patients with co-morbidities in addition to CHF, has been progressing well and is expected to be ready for beta testing in the second half of 2015 and launch in late 2015.

VortexVortex BioSciences is a cancer diagnostic instrument company providing liquid biopsy solutions for isolating, detecting and harvesting circulating tumour cells (‘CTCs’) from cancer patients’ blood samples.The company is developing the Vortex VX-1 benchtop instrument, which runs a simplified, high-speed blood test for a wide range of metastatic cancers. The instrument harvests live CTCs from patient blood samples for use in downstream clinical applications such as monitoring disease progression and drug treatment effectiveness. Revenue will be generated by selling laboratory instruments along with single use cartridges for each blood sample.During 2014, clinical evaluations have been initiated by leading cancer physicians and scientists, working in the fields of lung, breast, prostate, pancreatic and colon cancers at the UCLA Medical Center, Stanford Hospital, the Rowland Institute at Harvard University and at further leading university cancer centers.Post year end, the first instruments for the research market are being finalised and will be shipped to collaborators. These instruments do not require FDA approval and shipments are expected in the second half of 2015.

GlycotestGlycotest is developing diagnostic tests designed to support the accurate diagnosis of liver disease, liver cancers and fibrosis-cirrhosis, and ultimately help improve disease management in patients.The technology was spun-out of the Drexel University College of Medicine and the Baruch S. Blumberg Institute. The first diagnostic panel under development, measures serum levels of multiple liver proteins using the company’s proprietary technology to detect early stage Hepatocellular Carcinoma (‘HCC’), improving surveillance of the disease in high-risk populations.In October 2014, Glycotest entered research collaboration with Nottingham-based Oncimmune Ltd, to explore the combined application of Oncimmune’s proprietary autoantibody technology and Glycotests’ glycoprotein biomarkers, for the early detection of liver cancer.The company is currently working on panel development and validation in anticipation of commercial launch in late 2016.

GlucosenseGlucosense is developing a non-invasive blood glucose sensor, which has a number of potential professional and consumer applications. These include as a partial replacement for the finger-prick testing, continuous non-invasive glucose monitoring and as a wearable hypoglycaemia-alert device.The company has commenced development of a next generation prototype which will allow further clinical testing in late 2015, early 2016. The technology is also attracting strong interest from a number of global technology companies. Glucosense is in early stage discussions with potential partners for co-development or out-licensing of the technology in certain applications. The focus in 2015 will be on continuing to advance product development.

ProAxsisIn February 2014, NetScientific invested in ProAxsis, a spin-out from Queen’s University Belfast which has novel technology in detection of activated proteases (ProteaseTagsTM) which are central to a range of diseases. The company is developing a range of novel, point of care, easy to use tests, which will enable routine monitoring and improved management of patients with chronic conditions, such as cystic fibrosis and chronic obstructive pulmonary disease. The lead product, NEATstickTM, detects active neutrophil elastase, which is an early indicator of lung infection in patients with cystic fibrosis. In parallel with this, ProAxsis is also developing a range of activity-base immunoassays, which will assist the research community in the specific measurement of activated protease disease-biomarkers. Later in 2015, the launch of the first ProteaseTagsTM immunoassay tests is anticipated as well as the completion of pre-clinical development of NEATstickTM.

New InvestmentsA key evolution of the Group’s approach to building the pipeline occurred in March 2014 with the strategic partnership with San Francisco-based, Breakout Labs. This is Peter Thiel’s revolving philanthropic fund that supports early-stage companies working on technological breakthroughs.Under the terms of the agreement, NetScientific will follow on Breakout Labs’ initial investment in those biomedical and healthcare technologies companies that fit NetScientific’s investment strategy of funding technologies that offer transformative benefits to people lives and society.




During 2014 an equity investment was made in CytoVale and loan funding (convertible loan notes) was provided to Longevity Biotech, G-Tech Medical and Epibone. In addition to NetScientific’s commercial and scientific due diligence all these companies have been positively assessed by Breakout Labs’ appraisal system that selects only a few of the entrepreneur led companies applying.

PDS BiotechnologyIn December 2014, NetScientific invested in PDS Biotechnology Corporation (‘PDS’). This reflects an emerging strategy to identify selective opportunities in next generation therapeutics. PDS is a clinical stage immunotherapy company developing a next-generation of simpler, safer and more effective immunotherapies for cancer and infectious disease. Versamune®, its novel synthetic nanoparticle platform technology, activates multiple immunological mechanisms which direct the targeting of cancer and infectious disease by the immune system. The company’s lead product, PDS0101, is in phase I clinical trials in the US for HPV-related cancers. PDS has licensed the Versamune® technology to Merck KGaA for use in two early stage cancer immunotherapy programmes. The company has also ongoing pre-clinical programmes for other cancers as well as pandemic influenza.

Post year: management changesAt the beginning of 2015, Farad Azima, the CEO, left the Group and Sir Richard Sykes took on the role of Executive Chairman until a new CEO is appointed. As outlined below, Farad Azima is becoming Executive Chairman of Frontier BioSciences Limited (‘Frontierbio’), a company jointly owned by the Group. The search for a new CEO is underway. Until a new candidate is found, responsibilities have been organised geographically. Dr. Michael Boyce-Jacino now manages all USA investments and David Gough now manages European investments. Both directors have extensive life sciences experience; Dr. Michael Boyce-Jacino was a founder of Orchid Biosciences, Inc. and Vice President at Beckman Coulter, Inc. and David Gough was formerly Head of Healthcare and Biotechnology at PA Consulting Group, a founder of Vectura Group plc and a healthcare venture capitalist.On 26 February 2015, NetScientific announced that Jonathan Paisner would join the board as a Non-Executive Director. He is being appointed by the Azima family trusts pursuant to their rights under the NetScientific Articles of Association to nominate a director.Lady Barbara Judge stepped down on 23 March 2015. She was recently elected as Chairman of the Institute of Directors and is reducing her other commitments. A search is underway for a replacement Non-Executive Director.

Post year: creation of Frontier BioSciences LimitedAs part of the Group’s ongoing review of its portfolio, the Board has agreed to reduce its commitment but retain an interest in certain projects that fall outside its core area of focus. The projects relate to three sponsored research agreements with Leuven University, Belgium (the ‘SRAs’) and its 38% shareholding in DName-iT NV, a Belgian company, part owned by Leuven University, which were announced to the market on 7 January 2015.The Group has agreed to transfer these projects (including its DName-iT NV shareholding) to a new company, Frontierbio. On completion of this transfer Frontierbio will be controlled by Zahra Holdings Limited (‘Zahra’), a company wholly-owned by a family trust of the former CEO, Farad Azima, which together with two other companies controlled by Azima family trusts, holds 47.8% of the shares in NetScientific (in addition Farad Azima has a personal holding of 0.4%). Zahra will own 50.01% of the equity in Frontierbio, with the remaining equity held by the Group.Finally, we would like to thank all our staff for their hard work and commitment to NetScientific. We have made considerable progress in 2014 and look forward to another exciting year.

Sir Richard SykesExecutive Chairman23 March 2015




STRATEGIC REPORT

Business ModelThe Group aims to identify promising research projects and technologies that have the potential to be translated from research laboratory to clinical and commercial application.The Group provides researchers and technologists with funding and funding support, technical guidance and commercial expertise in return for rights over their project IP. The Group aims to develop each project and IP through the proof of concept stage and onward to full commercialisation. As part of the process, the most attractive opportunities are formed into portfolio companies, in which the Group typically takes a majority equity interest in return for further funding and guidance.The Group aims to grow the equity value of its interests in its portfolio companies through various key value inflection points such as clinical trials, regulatory approvals, collaborative funding arrangements, first revenues and follow-on growth. In turn, these value inflection points create exit or out-licensing opportunities for the Group through trade sales, licensing arrangements with larger market participants or IPOs.The Group has active collaborations with a number of US, UK and European institutions and has established dialogues with several other institutions that may lead to future pipeline projects.

Key Performance Indicators (‘KPIs’)The Board considers that the most important KPIs are non-financial and relate to the progress of the development programmes in the subsidiaries which are identified in the business model and discussed in the Chairman’s Statement.The most important financial KPIs are the cash position and the operating loss of the Group. At 31 December 2014 cash and deposit balances amounted to £16.9 million (2013: £25.5 million), favourable to budget. Cash used in operations and investing activities during the year of £9.01m was marginally less than budget.

Risks and UncertaintiesThe Directors review the principal risks faced by the Company as part of the internal controls process.

Risk Possible Consequence How the Board guards against risk

Investments made at an early stage

To date the Group has invested in early-stage research and technologies that are generally regarded as higher risk than other forms of investment. In particular early stage companies may not be able to secure later rounds of funding, or achieve the required rate of growth to make significant returns for investors.

The Group is committed to managing the risk inherent within its investment model, as well as minimising it, to the extent possible. First and foremost, the Group principally invests in the “applied” phase of research projects, meaning that such projects have generally received significant prior investment from universities, foundations and governments and have reached a stage where there are well-defined goals and processes to achieving IP and patent generation, proof of concept, market testing and regulatory approvals, all of which significantly de-risk a project when achieved. The Group is also able to spread risk by adopting a portfolio investment approach in its chosen field of transformative biomedical and healthcare technology. In addition the Group plans to continue an investment strategy where potential new investments have been de-risked by prior investment or due diligence.

Clinical development risk

Potential clinical trials for the Group’s subsidiaries’ products may not begin on time, may not be completed on schedule, or at all, or may not be sufficient for registration of the products or result in products that can receive necessary clearances or approvals. Numerous unforeseen events during, or as a result of, clinical testing could delay or prevent commercialisation of such products.

The Group seeks to reduce this risk by drawing on the experience of its Executive Directors and senior management team to have input on the clinical trial design and closely monitor the progress of recruitment.

Regulatory risk Potential regulatory approvals and clearances of the Group’s subsidiaries’ products may not be achieved on schedule, or at all. Failure to achieve regulatory approval or clearances could delay or prevent commercialisation of such products.

The Group seeks to reduce this risk by drawing on the experience of its Executive Directors, seeking advice from regulatory advisors, and holding consultations with appropriate regulatory bodies.




Risk Possible Consequence How the Board guards against risk

Intellectual property risk

The commercial success of the Group depends on its ability to obtain patent protection for its own discoveries and for technology it has licensed from universities and research institutes. The intellectual property (“IP”) licensed to the Group is protected by patent, trademark, copyright, as well as confidentiality procedures. These laws, procedures and restrictions provide only limited protection and any such intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. In particular, patents might not contain claims that are sufficiently broad to prevent others from utilising the covered IP. Third parties may independently develop similar or superior IP that does not infringe any protection afforded to the IP licensed to the Group. There can be no assurance that unauthorised use, disclosure or reverse engineering of the IP licensed to the Group will not take place.

The Group seeks to reduce this risk by employing an experienced legal, patent and licensing team along with external patent attorneys to review the patent protection available before licensing in technology and by managing a policy of extensively patenting all new discoveries generated in the subsidiaries. In addition the Group is prepared to defend itself vigorously against infringement of intellectual property, should it be required. Also, the Group undertakes a review of the IP in all potential new investments during the due diligence process.

Competition risk There is intense competition among biomedical and healthcare technology companies. The Group is aware of competitors in both the United States and abroad who have developed or are developing products that address the same applications that the Group’s subsidiaries are targeting. These companies’ products or services could be more effective and/or cost-effective than the products offered by the Group’s subsidiaries.Also, although the market for software products that provide advanced clinical decision support is still developing, the Group faces increasing competition from other companies in the healthcare information technology market. There is no assurance that other intellectual property may not be developed in other institutions which could render the Group’s products non-competitive or obsolete.

The Group seeks to minimise these risks by having the Group’s Directors and senior management team focus a significant amount of their time on accelerating the development of those subsidiaries, which the Directors believe are capable of achieving the greatest value for the Group with their current products. In addition risk is spread through strategic portfolio diversification within the targeted chronic disease areas.

Dependence on key executives and personnel

A significant part of the Group’s value and the key to its future technology creation also lies with the scientists and engineers who partner with the Group. Retention of key executives and personnel, and the maintenance of such a qualified workforce, is a high priority for the Group. However, it is not possible to guarantee retention of the services of key personnel and a failure to attract or retain key executives could have an adverse effect on the Group’s business.

The Group seeks to reduce this risk by a balanced compensation package consisting of salary, benefits, performance related bonuses and equity incentive schemes. The equity incentive schemes are implemented at a Group level for NetScientific staff and in specific schemes for subsidiary employees.

Business ReviewThe business review has been covered in the Chairman’s Statement on pages 1 to 3 and in the Financial Review on page 6.The Strategic Report was approved by the Board of Directors and signed on its behalf by:

Sir Richard SykesExecutive Chairman23 March 2015




FINANCIAL REVIEW

The Financial Review should be read in conjunction with the consolidated financial statements of the Company and its subsidiaries (together the ‘Group’) and the notes thereto on pages 18 to 43. The consolidated financial statements are presented under International Financial Reporting Standards as adopted by the European Union. The financial statements of the Company continue to be prepared in accordance with UK Generally Accepted Accounting Practice and are set out on pages 44 to 50.

Research and DevelopmentResearch and development expenditure incurred was £3,675k (2013: £763k). Of the research and development costs incurred in the year 79% of the costs were spent on the five key subsidiaries and the balance, which includes projects in receipt of grant income, was expended on pipeline projects.

Consolidated Income Statement and Other Comprehensive IncomeThe loss from operations for the year ended 31 December 2014 was £7,226k (2013: £4,326k).Administrative costs for the year amounted to £7,569k (2013: £4,504k) and the costs were represented by the following:Research and development expenditure £3,675k (2013: £763k)Other administrative expenses £2,535k (2013: £1,900k)Legal costs, tax advice and advisory costs for the reorganisation, preparation for listing and listing costs not chargeable to share premium account £nil (2013: £1,124k)Share-based payment expense £717k (2013: £717k)Following the review of the Group’s strategy and portfolio to focus on core projects and the uncertainty and timing of the commercialisation of the underlying technology an impairment charge based on value of goodwill and in process research and development which arose on the acquisition of Qlida Diagnostics, Inc. was made during the year of £642k (2013: £nil).The loss after tax for the year was £7,127k (2013: £4,337k) and the loss per share was 17.9p (2013: 21p).The exchange difference on translation of foreign operations relates to subsidiaries in the USA. The exchange rate at 31 December 2013 was £1:$1.649 and at 31 December 2014 £1:$1.5608.

Statement of Financial Position and Cash FlowsAt 31 December 2014, net assets amounted to £18,696k (2013 net assets: £24,900k), including net funds of £16,136k (2013: net funds £25,069k).The principal elements of the £8,820k decrease in cash and cash equivalents over the year ended 31 December 2014 (2013: increase £25,139k) were: • Cash used in operations £6,631k (2013: £3,679k) • Cash used in investing activities £2,399k (2013: £88k) • Funding from loans £190k (2013: £428k) • Issue of shares on AIM listing (net of cash expenses) £nil (2013: £28,477k)

Capital Structure and FundingThe Group is primarily funded by equity capital, reflecting the early stage nature of its development programmes. The Group considers its capital to be its total equity, which at 31 December 2014 amounted to £19.8 million (2013: £25.6 million). The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns to equity holders of the Company and benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group manages this objective through tight control of its cash resources. Net funds held by the Group at 31 December 2014 amounted to £16.1 million (2013: £25.1 million) and comprised cash and cash equivalents and short-term deposits as shown below:

31 December 2014

31 December 2013

£000’s £000’s

Short-term deposits 13,820 17,027

Cash and cash equivalents 3,047 8,520

Loans and borrowings (731) (478)

Net funds 16,136 25,069

Peter ThomsChief Financial Officer23 March 2015




BOARD OF DIRECTORS

Sir Richard Sykes, Executive Director and ChairmanSir Richard Sykes is currently Chairman of Imperial College Healthcare NHS Trust, Chairman of the Royal Institution of Great Britain and Chairman of the UK Stem Cell Foundation, Chairman of Omnicyte and PDS Biotechnology Corporation. He was appointed Chancellor of Brunel University in 2013.Prior to that, he was Senior Non-executive Director of ENRC from 2007 to June 2011, Chairman of NHS London from December 2008 to July 2010 and Rector of Imperial College London from 2000 to 2008. He was a non-executive director of Rio Tinto plc from 1997 to 2007, and senior independent director from 2004 to 2007. He has over 30 years’ experience within the biotechnology and pharmaceutical industries field, serving as Chief Executive and Chairman of GlaxoWellcome from 1995 to 2000 and then as Chairman of GlaxoSmithKline until 2002.Internationally, he is Chairman of the International Advisory Board, A*Star Biomedical Research Council, Singapore and a Board member of EDBI. He was awarded Honorary Citizenship of Singapore in 2004 for his contribution to the development of the country’s biomedical sciences industry.Sir Richard holds a number of degrees and awards from Institutions both in the UK and overseas. He is a Fellow of the Royal Society and Academy of Medical Sciences, and an Honorary Fellow of the Royal Academy of Engineering, Royal Society of Chemistry, Royal Pharmaceutical Society, Royal College of Pathologists and the Royal College of Physicians. He is also President of the R and D Society, a position he has held since 2002.He is a Fellow of Imperial College London and the Imperial College School of Medicine, King’s College London and an Honorary Fellow of the Universities of Wales and Central Lancashire.Sir Richard received a Knighthood in the 1994 New Year’s Honours list for services to the pharmaceutical industry.

Dr. Michael Boyce-Jacino, Executive Director Based in the United States, Dr. Boyce-Jacino directs all US operations. He is CEO of Vortex Biosciences and serves on the boards of PDS Biotechnology Corporation, WANDA and Glycotest as well as managing co-investments with Breakout Labs. Dr. Boyce-Jacino received his Ph.D. in molecular genetics from the University of Minnesota and joined his first company, Molecular Tool, after an NIH postdoctoral fellowship. After becoming president of Molecular Tool and orchestrating its sale to Orchid Biosciences, he became Chief Scientific Officer and President of Orchid, which went public with a $170M financing in 2001 and was later acquired by LabCorp, the $9B revenue clinical laboratory. Dr. Boyce-Jacino subsequently joined Beckman Coulter as Vice President, Genomics, driving global product line development and branding in genetic diagnostics. In 2005 he became founding CEO of BioNanomatrix (now BioNano Genomics), taking the company through successful raising of more than $40M in series A financing and non-dilutive capital. In 2011 he joined NetScientific as director of US operations.He holds a PhD in Microbiology and Human Molecular Genetics from the University of Minnesota and a B.S. from the University of Wisconsin, Madison.

David Gough, Executive DirectorDavid manages European investments. David has spent forty years working in operational, consulting and investment roles in the pharmaceutical, healthcare and biomedical sectors. Following a research career he held a number of sales, marketing and business development roles with Johnson & Johnson. David then joined the Technology division of PA Consulting Group where he became Head of Healthcare and Biotechnology. Leaving PA Consulting Group to join PowderJect Pharmaceuticals plc ahead of its IPO, David subsequently founded Vectura Limited (now Vectura Group plc). Since leaving Vectura, David has been both an investor and an early-stage entrepreneur. He has worked for or advised several venture capital companies, including Avlar BioVentures, Merlin Ventures (with whom he co-founded Vectura Group plc) and Quester Capital Management. David has a BSc in Physiology and Biochemistry, an MBA with finance options, the Diploma in Marketing and the Investment Management Certificate. He is also a Chartered Director and a Fellow of the Institute of Directors.

Peter Thoms, Executive Director and Chief Financial OfficerPeter was formerly CEO of NXT plc (formerly Verity Group plc), having served on its board since 1992. A Chartered Accountant, he worked for the Gillette Company for fifteen years, first as Vice-President & Director of Finance of Gillette Canada Inc., and then as Controller of Gillette Northern Europe.Peter moved from the Gillette Company to the position of Group Finance Director of Amstrad plc. Peter joined NXT plc (formerly Verity Group plc) in 1992 as Finance Director and Company Secretary, and was made COO in 2005, before being appointed CEO in July 2007.

Nicholas Heckford, Executive Director, Commercial and LegalNicholas is an accountant with extensive experience in commercial management.After graduating from Bristol University in 1970 with a degree in Economics, Politics and French, and working as an accountant with KPMG in London, Nicholas worked as a financial controller and financial director in the electrical and electronics industries. He then moved into broader commercial roles in a variety of businesses, including various start-ups. Before joining the Company, Nicholas was Director of Licensing Operations for an international technology licensing company, where he negotiated and managed licences for brands such as Samsung, Siemens, Philips, NEC and Bosch.




BOARD OF DIRECTORSCONTINUED

Barry W Wilson, Non-Executive DirectorBarry is an international executive with over 45 years of experience working in the healthcare industry. Previously, Barry served as President International of Medtronic, Inc., President International of the Lederle Division of American Cyanmid Company, prior to its merger with Wyeth, Inc. (now Pfizer, Inc.), and President Europe of Bristol-Myers Squibb Company. Additionally he had nine international assignments with Pfizer, Inc. Barry serves on the Board of Directors of Welch Allyn Inc., Anecova S.A. and MindMaze S.A. He is currently a member of the Thematic Advisory Board of Lombard Odier Private Bank. Barry also advises several venture capital organisations and start-ups. Barry previously was a Director of Malinckrodt, Inc., Bausch & Lomb, Inc. (both NYSE companies), Rezidor Hotel Group AB (Swedish Stock Exchange) and Healthcare Advisor to DLJ Credit-Suisse Alternative Investments.Barry holds a BA (Hons), MA from Cambridge University, England and an MBA from The Wharton School, University of Pennsylvania.

Jonathan Paisner, Non-Executive Director Jonathan is the principal of LMN Capital, which he established in 2011, as a capital introducer and corporate finance adviser for smaller companies, working closely with high net worth individuals and family offices. LMN was appointed as a co-manager to St Peter Port Capital Limited, a pre-IPO fund traded on AIM, in 2014.Prior to setting up LMN Capital, Jonathan was a main board director of boutique investment bank Shore Capital. He had previously qualified, and was a corporate solicitor, at legacy BLP firm Berwin Leighton.During his time on the board at Shore, Jonathan acted as Group Legal Counsel, director of the Group’s principal finance and asset management divisions and co-head of the Group’s German office. He was a key member of the management team, responsible for executing a wide range of transactions in all areas of the Group’s activities. He also sat on numerous boards across a number of jurisdictions covering many sectors including hotels, real estate, hedge funds and other asset management companies. Jonathan is also a consultant solicitor at law firm Mathias Gentle Page Hassan LLP.




REPORT OF THE DIRECTORSFOR THE YEAR ENDED 31 DECEMBER 2014

The Directors present their report with the audited financial statements of NetScientific plc (“NetScientific”) and its subsidiaries (“the Group”) for the year ended 31 December 2014.

RESEARCH AND DEVELOPMENTThe Group incurred research and development expenditure of £3,674,939 in the year (2013: £762,624). Commentary on the major activities is given in the Chairman’s Statement.

DIVIDENDThe Directors do not propose the payment of a dividend.

FUTURE DEVELOPMENTSA review of anticipated future developments is included in the Chairman’s Statement.

POST BALANCE SHEET EVENTSManagement changesAt the beginning of 2015, Farad Azima, the CEO, left the Group and Sir Richard Sykes took on the role of Executive Chairman until a new CEO is appointed. As outlined below, Farad Azima is the Executive Chairman of Frontier BioSciences Limited (‘Frontierbio’), a company jointly owned by the Group. The search for a new CEO is underway. Until a new candidate is found, responsibilities have been organised geographically. Dr. Michael Boyce-Jacino now manages all USA investments and David Gough now manages European investments. Both directors have extensive life sciences experience; Dr. Michael Boyce-Jacino was a founder of Orchid Biosciences, Inc. and Vice President at Beckman Coulter, Inc. and David Gough was formerly Head of Healthcare and Biotechnology at PA Consulting Group, a founder of Vectura Group plc and a healthcare venture capitalist.On 26 February 2015, NetScientific announced that Jonathan Paisner would join the board as a Non-Executive Director. He is being appointed by the Azima family trusts pursuant to their rights under the NetScientific Articles of Association to nominate a director.Lady Barbara Judge stepped down on 23 March 2015. She was recently elected as Chairman of the Institute of Directors and is reducing her other commitments. A search is underway for a replacement Non-Executive Director.

Creation of Frontier BioSciences LimitedAs part of the Group’s ongoing review of its portfolio, the Board has agreed to reduce its commitment but retain an interest in certain projects that fall outside its core area of focus. The projects relate to three sponsored research agreements with Leuven University, Belgium (the ‘SRAs’) and its 38% shareholding in DName-iT NV, a Belgian company, part owned by Leuven University, which were announced to the market on 7 January 2015.The Group has agreed to transfer these projects (including its DName-iT NV shareholding) to a new company, Frontierbio. On completion of this transfer Frontierbio will be controlled by Zahra Holdings Limited (‘Zahra’), a company wholly-owned by a family trust of the former CEO, Farad Azima, which together with two other companies controlled by Azima family trusts, holds 47.8% of the shares in NetScientific (in addition Farad Azima has a personal holding of 0.4%). Zahra will own 50.01% of the equity in Frontierbio, with the remaining equity held by the Group.As part of a shareholders’ agreement dated 23 March 2015 between Zahra and NetScientific UK Limited (‘NUK’), a wholly-owned NetScientific subsidiary, the parties have committed funding to Frontierbio on completion to the value of £1.8m. Zahra, through its ownership of Frontierbio, will assume 50.01% of this funding commitment (£0.9m). NUK’s funding commitment (£0.9m) will be satisfied by the c.£0.53m it has already spent to date on the SRAs and DName-iT shareholding (some of which will be capitalised as equity in Frontierbio and the rest converted into debt) and a commitment to transfer a further c.£0.37m on completion. The combined new funding of c.£1.27m provided on completion will be used to (a) acquire a controlling shareholding in DName-iT NV and (b) satisfy payment obligations under the SRAs. Funding beyond this £1.27m is discretionary for both parties. Under the shareholders’ agreement day-to-day operational control of Frontierbio will be with its board of directors (of which a majority will be appointed by Zahra and the Executive Chairman of Frontierbio is Farad Azima), subject to reserved shareholder rights in favour of NUK. Instead of receiving a salary as Executive Chairman of Frontierbio for the following two years, Farad Azima can receive up to 5% share options in Frontierbio (but not exercisable until after that two year period).On its IPO, NetScientific entered into a relationship agreement with the three Azima family trusts, which through controlled companies (including Zahra) hold shares in NetScientific, to regulate the ability of NetScientific and its subsidiaries to act independently of those trusts and controlled companies. NetScientific has agreed an amendment with the parties to the relationship agreement to allow Zahra to enter into and perform its obligations under the shareholders’ agreement with NUK.As Zahra, Farad Azima and his family trusts are related parties under the AIM Rules for Companies, the Directors (Jonathan Paisner abstaining by virtue of being appointed a director on the nomination of the Azima family trusts) consider, having consulted with Liberum in its capacity as the Company’s nominated adviser, that the shareholders’ agreement terms and the relationship agreement amendment are fair and reasonable insofar as NetScientific shareholders are concerned.




REPORT OF THE DIRECTORSCONTINUED

DIRECTORSThe Directors shown below have held office during the period from 1 January 2014 to the date of this report:Sir Richard Sykes Farad Azima – Removed 16 January 2015Dr. Michael Boyce-JacinoDavid Gough Nicholas HeckfordPeter ThomsBarry W Wilson Lady Barbara Judge – Resigned 23 March 2015Jonathan Paisner – Appointed 26 February 2015

Directors’ shareholdings and other interestsNo. of shares

as at 31 December

2014

No of shares as at

31 December 2013

Sir Richard Sykes 62,500 62,500Farad Azima 156,250 156,250Dr. Michael Boyce-Jacino 1,563 1,563David Gough 6,250 6,250Nicholas Heckford 3,125 3,125Peter Thoms 1,563 1,563Barry W Wilson 15,525 15,525Lady Barbara Judge 3,125 3,125

Additionally Farad Azima and members of his family are beneficiaries of trusts who hold 100% of the issued share capital in the following shareholders in NetScientific plc

Zahra Holdings Limited 11,795,000 11,795,000White Mustard Investments Limited 3,430,000 3,430,000Cyrus Holdings Limited 1,927,020 1,927,020

Between 31 December 2014 and the date of this report there has been no change in the interests of Directors in shares or share options as disclosed in this report.The shareholdings of Sir Richard Sykes, Farad Azima, David Gough, Nicholas Heckford and Lady Barbara Judge are held by nominees.

DIRECTORS’ REMUNERATION AND SHARE OPTIONSDetails of the Directors’ remuneration and share options are given in the Directors’ Remuneration Report on pages 14 to 16.

DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCEQualifying indemnity insurance cover has been arranged in respect of the personal liabilities which may be incurred by Directors and officers of the Group during the course of their service with the Group. This insurance has been in place during the year and up to the date of this report.

FINANCIAL INSTRUMENTSThe Group’s use of financial instruments is discussed in note 21 to the financial statements.

POLITICAL DONATIONSDuring the year ended 31 December 2014 the Group made no political donations (2013: £nil).

DISABLED EMPLOYEES The Group gives every consideration to applications for employment from disabled persons where the requirements of the job may be adequately covered by a disabled person. Should any employee become disabled every practical effort is made to provide continued employment.




SUBSTANTIAL HOLDINGSAs at 20 March 2015 the Directors were aware of the following interests of 3 per cent or more in the issued ordinary share capital of the Company (other than Directors interests already disclosed) and have not been notified, pursuant to the provisions of the Companies Act 2006, of any further such interests. Name No. of shares Per cent. of voting rights

Zahra Holdings Limited 11,795,000 32.9%Invesco Asset Management Limited 8,641,500 24.1%Woodford Investment Management 6,995,125 19.5%White Mustard Investments Limited 3,430,000 9.6%Cyrus Holdings Limited 1,927,020 5.4%

STATEMENT OF DIRECTORS’ RESPONSIBILITIESThe Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and the company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and Applicable Law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and the group and of the profit or loss of the group for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departure

disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in

business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s and the group’s transactions and disclose with reasonable accuracy at any time the financial position of the company and the group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.All the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Company’s auditors for the purpose of their audit and to establish that the auditors are aware of that information. The Directors are not aware of any relevant audit information of which the auditors are unaware.

Website publicationThe Directors are responsible for ensuring the annual report and financial statements are made available on a website. Financial statements are published on the Group’s website in accordance with AIM rules for companies and legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein.

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

AUDITORSThe auditors, BDO LLP, will be proposed for reappointment at the forthcoming Annual General Meeting.

BY ORDER OF THE BOARD:

Ernest SchneiderCompany Secretary23 March 2015




CORPORATE GOVERNANCE REPORTFOR THE YEAR ENDED 31 DECEMBER 2014

The Board is accountable to the Company’s shareholders for good corporate governance and it is the objective of the Board to attain a high standard of corporate governance. The Company is not required to comply with the UK Corporate Governance Code and it is not giving any statement of compliance. However, the Company has regard to the Code when determining its corporate governance processes which are set out below.

Board of DirectorsDuring the year, the posts of Chairman and CEO were held by different Directors. Since the departure of Farad Azima on 16 January 2015, these roles have been held by Sir Richard Sykes until a new CEO is appointed. The Board of Directors (the “Board”) is balanced by an appropriate non-executive element with three out of the eight Directors during the year being Non-Executive Directors.The Board meets regularly throughout the year (normally quarterly on a formal basis) and arrangements are made to enable information in a form and of a quality to be supplied to Directors on a timely basis to enable them to discharge their duties. Additionally, special meetings take place or other arrangements are made when Board decisions are required in advance of regular meetings. Certain matters are reserved for consideration by the Board (with other matters delegated to Board committees). The Board is responsible for leading and controlling the Company and in particular, setting the Company’s strategy, its investment policy and approving its budget and major items of expenditure, acquisitions and disposals.The Board of Directors has a procedure through which the Directors are able to take independent advice in the furtherance of their responsibilities. The Directors have access to the advice and services of the Company Secretary.During the year ended 31 December 2014, the board met 5 times, with each member attending as follows.

DirectorNumber of meetings held

whilst a Board MemberNumber of meetings

attended

Sir Richard Sykes 5 5Farad Azima 5 5Dr. Michael Boyce-Jacino 5 5David Gough 5 5Peter Thoms 5 5Nicholas Heckford 5 5Barry W Wilson 5 5Lady Barbara Judge 5 4

As appropriate, the Board has delegated certain responsibilities to Board committees.

Audit CommitteeThe Audit Committee is chaired by Barry W Wilson, and its other members were Sir Richard Sykes and Lady Barbara Judge – until her departure on 23 March 2015. The Audit Committee has responsibility for considering all matters relating to financial controls, reporting and external audits, the scope and results of the audits, the independence and objectivity of the auditors and keeping under review the effectiveness of the Group’s internal controls and risk management.The committee monitors the scope, results and cost-effectiveness of the audit. It has unrestricted access to the Group’s auditors. In certain circumstances it is permitted by the Board for the auditors to supply non-audit services (in the provision of tax advice, or non-specific projects where they can add value). The committee has approved and monitored the application of this policy in order to safeguard auditor objectivity and independence. During the year ended 31 December 2014 the Audit Committee met 3 times with each member attending as follows.

DirectorNumber of

meetings heldNumber of

meetings attended

Barry W Wilson 3 3Sir Richard Sykes 3 2Lady Barbara Judge 3 2




Remuneration CommitteeThe Remuneration Committee is chaired by Sir Richard Sykes and its other members were Barry W Wilson and Farad Azima until 16 January 2015. From this date until her departure on 23 March 2015 the Committee was chaired by Lady Barbara Judge and its other members were Sir Richard Sykes and Barry W Wilson. The Directors consider that the composition of this committee is appropriate given the Company’s size and circumstances and a Chairperson and new member(s) will be appointed to the committee at the earliest opportunity.The committee meets at least twice a year. The Remuneration Committee has responsibility for making recommendations to the Board on the Company’s policy for remuneration of senior executives, for reviewing the performance of executive Directors and senior management and for determining, within agreed terms of reference, specific remuneration packages for each of the executive Directors and members of senior management, including pension rights, any compensation payments and the implementation of executive incentive schemes. The committee administers the Company’s share option scheme and approves grants under the scheme. The committee is responsible for all senior appointments that are made within the Group. Non-executive Directors’ fees will be determined by the full Board. Farad Azima, in his capacity as a member of the remuneration committee, does not have a vote in determining or approving his executive pay. During the year ended 31 December 2014, the committee met 3 times and Sir Richard Sykes, Barry W Wilson and Farad Azima attended all meetings.

Nomination CommitteeThe Nomination Committee was chaired by Lady Barbara Judge – until her departure on 23 March 2015, and its other members were Barry W Wilson and Farad Azima – until his departure on 16 January 2015. The committee has responsibility for considering the size, structure and composition of the Board, and the retirement and appointment of Directors, and will make appropriate recommendations to the Board about these matters. During the year ended 31 December 2014, the committee did not meet. A Chairperson and new members will be appointed to the committee at the earliest opportunity.

Investor relationsThe Directors seek to build a mutual understanding of objectives between the company and its shareholders by meeting with major institutional investors after the Company’s preliminary announcement of its year end results and its interim results. The company also maintains investor relations pages on its website (www.netscientific.net) to increase the amount of information available to investors.There is an opportunity at the Annual General Meeting for individual shareholders to question the Chairman, and the Chairs of the Audit, Remuneration and Nomination Committees.

Internal controlThe Directors are responsible for establishing and maintaining the Group’s system of internal control and reviewing its effectiveness. The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable but not absolute assurance against material misstatement or loss. The main features of the internal control system are as follows: • a control environment exists through close management of the business by the executive Directors. The Group has a defined organisation

structure with delineated approval limits. Controls are implemented and monitored by personnel with the necessary qualifications and experience

• a list of matters reserved for Board approval • regular management reporting and analysis of variances • standard financial controls operate to ensure that the assets of the Group are safeguarded and that proper accounting records are

maintained.


Ernest SchneiderCompany Secretary23 March 2015




DIRECTORS’ REMUNERATION REPORTFOR THE YEAR ENDED 31 DECEMBER 2014

This report is non-mandatory for AIM-quoted companies and has been produced on a voluntary basis. It includes and complies with the disclosure obligations of the AIM Rules and with the principal disclosure requirements of Schedule 5 of the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008.

Remuneration CommitteeThe Company’s remuneration policy is the responsibility of the Remuneration Committee (the “Committee”) which was established in March 2013. The terms of reference of the Committee are summarised in the Corporate Governance Report on pages 12 and 13. The members of the Committee were Sir Richard Sykes, Barry W Wilson and Farad Azima – until his departure on 16 January 2015.The Committee, which is required to meet at least twice in the year, met 3 times during the year ended 31 December 2014. The former Chief Executive, Farad Azima, was not present when his own remuneration was discussed.

Remuneration policyThe objective of the remuneration policy is to provide packages for executives that are designed to attract, retain and motivate people of high quality and experience.The remuneration for the Chief Executive and Executive Directors consists of an annual salary, an annual performance-related bonus and private health cover. In addition the Executive Directors have received grants from the Company’s share option scheme.The Committee believes that the base salary and benefits for the Executive Directors should represent a fair return for employment but that the maximum total potential remuneration may only be achieved in circumstances where the Executive has met challenging personal objectives that contribute to the Group’s overall performance.The basic salaries of the Chief Executive and the Executive Directors are reviewed annually and take effect from 1 October each year. The basic salary is determined by reference to relevant market data and the individual’s experience, responsibilities and performance.

Chairman and non-executive Directors’ remunerationThe Chairman Sir Richard Sykes receives a fixed fee of £36,000 per annum. Barry W Wilson and Lady Barbara Judge receive a fixed fee of £24,000 per year. The fixed fee covers preparation for and attendance at meetings of the full Board and committees thereof. The Chairman and the executive Directors are responsible for setting the level of non-executive remuneration. The non-executive Directors are also reimbursed for all reasonable expenses incurred in attending meetings. The non-executive Directors were granted options in the Company’s share option scheme on the Company’s admission to AIM.

Equity based incentive schemesThe committee believes that equity based incentive schemes increase the focus of employees in improving the Group’s performance, whilst at the same time providing a strong incentive for retaining and attracting individuals of high calibre.The NetScientific Share Option Scheme (the “Scheme”) was established on 9 May 2013 and is administered by the Remuneration Committee. The Committee decides to whom of the employees to grant options, the number, the exercise dates and the performance conditions. Options are normally granted within 42 days of the preliminary announcement of the Company’s interim or final results. Options may also be granted at other times to new eligible employees or in other circumstances determined by the Remuneration Committee to be exceptional. The option price is the greater of the average of the closing or middle market price over the 5 dealing days before the date the option is granted or the amount specified by the Remuneration Committee to be the option price. No options can be exercised unless the participant has been in employment with the Company for three years since the date of grant other than the options granted to Directors at the time of the admission to AIM, the vesting timing for which is detailed in the paragraph below. The Scheme limit is 8.5% of the number of Ordinary Shares in issue prior to such a grant.

Directors’ interests in share optionsThe interests of Directors in The NetScientific Share Option Scheme over Ordinary Shares during the year were as follows.

Option PriceOptions as at

31 December 2014Options as at

31 December 2013

Sir Richard Sykes 160p 359,020 359,020Farad Azima 160p 359,020 359,020Dr. Michael Boyce-Jacino 160p 359,020 359,020David Gough 160p 359,020 359,020Peter Thoms 160p 359,020 359,020Nicholas Heckford 160p 359,020 359,020Barry W Wilson 160p 179,510 179,510Lady Barbara Judge 160p 179,510 179,510




The options were granted on 16 September 2013, the date of the Company’s Admission to AIM. The options price was 160p, the Placing Price. The vesting terms for the Directors were that one third of the option became exercisable on the date of Admission, the next third on the first anniversary of the date of Admission and the final third on the second anniversary of the date of Admission. In the case of the Chairman and non-executive Directors any Ordinary Shares issued as a result of the exercise of their options must be held for three years from the date of vesting of the relevant options.

Audited informationThe following section (Directors’ remuneration) contains the disclosures required by Schedule 5 to the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 and forms part of the financial statements for the year ended 31 December 2014 and has been audited by the Company’s auditor, BDO LLP.

Directors’ remunerationThe aggregate remuneration received by Directors who served during the year ended 31 December 2014 is set out below. The remuneration disclosed for the year ended 31 December 2013 for the Executive Directors is for the eight months from 1 May until 31 December and the Non-Executive Directors for the six months from 1 July.

Year ended 31 December 2014 Note Salary/Fee Benefits Bonus Total£000’s £000’s £000’s £000’s

Executive DirectorsFarad Azima 150 2 – 152Dr. Michael Boyce-Jacino (i) 150 5 – 155David Gough 100 3 – 103Nicholas Heckford 100 3 10 113Peter Thoms (ii) 135 12 – 147

Non-Executive DirectorsSir Richard Sykes 36 – – 36Barry W Wilson 24 – – 24Lady Barbara Judge 24 – – 24

Total 719 25 10 754

(i) Dr. Michael Boyce-Jacino was the highest paid Director during the years ending 31 December 2014 and 2013.(ii) Includes fee of £6,697 charged by related party.

The directors represent the key management personnel and their remuneration for the year, including social security costs, was £830k (2013: £546k).

Year ended 31 December 2013 Note Salary/Fee Benefits Bonus Total£000’s £000’s £000’s £000’s

Executive DirectorsFarad Azima (i) 100 2 – 102Dr. Michael Boyce-Jacino (i) 100 1 19 120David Gough (i) 67 – – 67Nicholas Heckford (i) 67 – – 67Peter Thoms (i) 100 1 – 101

Non-Executive DirectorsSir Richard Sykes 18 – – 18Barry W Wilson 12 – – 12Lady Barbara Judge 12 – – 12

Total 476 4 19 499

(i) In addition to their fees for services as Directors, these Directors received additional fees as disclosed in note 24.




DIRECTORS’ REMUNERATION REPORTCONTINUED

In addition to the amounts shown above, the share-based payment charge for the year was:Year ended

31 December 2014Year ended

31 December 2013

£000’s £000’s

Executive DirectorsFarad Azima 86 102Dr. Michael Boyce-Jacino 86 102David Gough 86 102Nicholas Heckford 86 102Peter Thoms 86 102

Non-Executive DirectorsSir Richard Sykes 86 103Barry W Wilson 44 52Lady Barbara Judge 44 52

Total 604 717


Sir Richard SykesChairman of Remuneration Committee23 March 2015




INDEPENDENT AUDITORS’ REPORTto the members of NetScientific plc

We have audited the financial statements of NetScientific plc for the year ended 31 December 2014 which comprise the Consolidated Income Statement, Consolidated Income Statement and Other Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Parent Company Balance Sheet and the related notes. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has also been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and Auditors As explained more fully in the statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council’s (FRC’s) Ethical Standards for Auditors.

Scope of the audit of the financial statementsA description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/auditscopeukprivate.

Opinion on financial statementsIn our opinion: • the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 31 December 2014

and of the group’s loss for the year then ended; • the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the parent company’s financial statements have been properly prepared in accordance with United Kingdom Generally Accepted

Accounting Practice; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Report of the Directors and the Strategic Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exceptionWe have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from

branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit.

Paul Anthony (Senior Statutory Auditor)for and on behalf of BDO LLP, statutory auditorSouthamptonUnited Kingdom

23 March 2015

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).




CONSOLIDATED INCOME STATEMENTfor the year ended 31 December 2014

Notes2014

£2013

£

Other operating income 343,126 177,667

Research and development expenditure 3,674,939 762,624Other administrative expenses 2,535,028 1,900,242Share-based payments 27 717,001 717,234Impairment of intangible assets 11 641,767 –Reorganisation and AIM listing costs – 1,123,508

Total administrative expenses (7,568,735) (4,503,608)

Loss from operations 8 (7,225,609) (4,325,941)Finance income 6 77,465 37,566Finance expense 7 (45,671) (35,210)Share of loss of associates and joint venture 13(d) (119,991) (27,832)

Loss before taxation (7,313,806) (4,351,417)

Income tax credit 9 187,008 14,153

Loss for the year (7,126,798) (4,337,264)

Loss attributable to:Owners of the parent (6,425,011) (4,112,565)Non-controlling interests (701,787) (224,699)

(7,126,798) (4,337,264)

Basic and diluted loss per ordinary share 10 (17.9)p (21.0)p

The notes form part of these financial statements




CONSOLIDATED INCOME STATEMENT AND OTHER COMPREHENSIVE INCOMEfor the year ended 31 December 2014


Notes2014

£2013

£

Loss for the year (7,126,798) (4,337,264)Items that may be subsequently reclassified to profit or loss:Exchange differences on translation of foreign operations 295,989 87,377

Total comprehensive loss for the year (6,830,809) (4,249,887)

Attributable to:Owners of the parent (6,129,022) (4,025,188)Non-controlling interests (701,787) (224,699)

(6,830,809) (4,249,887)

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




CONSOLIDATED STATEMENT OF FINANCIAL POSITIONas at 31 December 2014


Notes2014

£2013

£

AssetsNon-current assetsIntangible assets 11 10,244 638,492Property, plant and equipment 12 348,245 67,101Investments in equity accounted associates 13(c) 228,883 –Investments in equity accounted joint ventures 13(d) – 69,872Available for sale investments 13(e) 1,806,608 2Derivative financial assets 14 100,159 –Other receivables 15 545,606 18,905

Total non-current assets 3,039,745 794,372

Current assetsTrade and other receivables 15 853,022 306,746Cash and cash equivalents 16,867,198 25,546,951

Total current assets 17,720,220 25,853,697

Total assets 20,759,965 26,648,069

LiabilitiesCurrent liabilitiesTrade and other payables 16 (1,281,242) (1,113,490)Loans and borrowings 17 (43,250) (3,250)

Total current liabilities (1,324,492) (1,116,470)

Non-current liabilitiesTrade and other payables 16 (52,537) (49,723)Loans and borrowings 17 (687,369) (475,109)Provision for deferred tax 18 – (106,965)

Total non-current liabilities (739,906) (1,748,537)

Total liabilities (2,064,398) (2,865,277)

Total net assets 18,695,567 24,899,532

Issued capital and reservesAttributable to the parentCalled up share capital 19 1,795,101 1,795,101Share premium account 20 30,844,552 30,844,552Capital reserve account 20 236,745 236,745Foreign exchange reserve 20 446,120 150,131Retained earnings 20 (13,529,442) (7,459,726)

Equity attributable to the owners of the parent 19,793,076 25,566,803Non-controlling interests (1,097,509) (667,271)

Total equity 18,695,567 24,899,532

The financial statements on pages 18 to 43 were approved and authorised for issue by the Board of Directors on 23 March 2015 and were signed on its behalf by:

Peter ThomsChief Financial Officer




CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2014


Shareholders’ equity

Share capital

£

Share premium

£

Capital reserve

£

Retained earnings

£

Foreign exchange

reserve £

Total £

Non- controlling

interests £

Total equity

£

1 January 2013 1 – – (4,064,395) 62,754 (4,001,640) (242,036) (4,243,676)

Comprehensive IncomeLoss for the year – – – (4,112,565) – (4,112,565) (224,699) (4,337,264)Other comprehensive income – – – – 87,377 87,377 – 87,377Acquisition of subsidiary – – – – – – (203,357) (203,357)Increase in subsidiary shareholding – – – – – – (6,772) (6,772)Dilution in subsidiary shareholdings – – – – – – 9,593 9,593Issue of share capital 1,795,100 32,279,998 – – – 34,075,098 – 34,075,098Share issue costs – (1,435,446) – – – (1,435,446) – (1,435,446)Waiver of loan interest on share issue – – 236,745 – – 236,745 – 236,745Share-based payments – – – 717,234 – 717,234 – 717,234

Total comprehensive income 1,795,100 30,844,552 236,745 (3,395,331) 87,377 29,568,443 (425,235) 29,143,208

31 December 2013 1,795,101 30,844,552 236,745 (7,459,726) 150,131 25,566,803 (667,271) 24,899,532

Comprehensive IncomeLoss for the year – – – (6,425,011) – (6,425,011) (701,787) (7,126,798)Other comprehensive income – – – – 295,989 295,989 – 295,989Acquisition of subsidiaries – – – – – – 78,580 78,580Increase in subsidiary shareholding – – – (489,893) – (489,893) 489,893 –Dilution in subsidiary shareholding – – – 128,187 – 128,187 (128,187) –Disposal of subsidiaries – – – – – – 2,785 2,785Foreign exchange differences – – – – – – (171,522) (171,522)Share-based payments – – – 717,001 – 717,001 – 717,001

Total comprehensive income – – – (6,069,716) 295,989 (5,773,727) (430,238) (6,203,965)

31 December 2014 1,795,101 30,844,552 236,745 (13,529,442) 446,120 19,793,076 (1,097,509) 18,695,567




CONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended 31 December 2014


2014 £

2013 £

Cash flows from operating activitiesLoss before income tax (7,313,806) (4,351,417)Adjustments for:Depreciation of property, plant and equipment 65,981 5,508Amortisation of intangible assets 1,614 1,616Loss on disposal of property, plant and equipment 768 –Share of loss of associates and joint venture 119,991 27,832Impairment of intangible assets 641,767 –Share-based payments 717,001 717,234Finance income (77,465) (37,566)Finance costs 45,671 35,210

(5,798,478) (3,601,583)

Changes in working capital:Increase in trade and other receivables (962,051) (245,100)Increase in trade and other payables 129,757 167,977

Cash used in operations (6,630,772) (3,678,706)

Income tax received 19,399 –

Net cash used in operating activities (6,611,373) (3,678,706)

Cash flows from investing activitiesInvestment in joint venture (35,119) (60,354)Investment in associate (239,189) –Cash acquired on acquisition of subsidiary 52,000 1,973Purchase of available for sale investments (1,806,606) –Purchase of derivative financial assets (100,159) –Purchase of property, plant and equipment (337,469) (60,861)Proceeds from sale of property, plant and equipment 1,054 –Interest received 66,661 37,566Increase shareholding in subsidiary undertaking – (6,772)

Net cash used in investing activities (2,398,827) (88,448)

Cash flows from financing activitiesProceeds from loans 190,000 428,457Proceeds from share issue – 29,912,750Share issue cost – (1,435,446)

Net cash from financing activities 190,000 28,905,761

(Decrease)/increase in cash and cash equivalents (8,820,200) 25,138,607Cash and cash equivalents at beginning of year 25,546,951 410,788Exchange gains/(losses) on cash and cash equivalents 140,447 (2,444)

Cash and cash equivalents at end of year 16,867,198 25,546,951




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2014

1. GENERAL INFORMATIONThe 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.

2. ACCOUNTING POLICIES Basis of preparationThe Group financial information has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union that are effective for accounting periods beginning on or after 1 January 2014. The principal accounting policies adopted in the preparation of the financial information are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.The Group financial information is presented in sterling.

Basis of consolidationThe consolidated financial statements incorporate the financial statements of the company and its subsidiaries made up to the reporting date. Investees are classified as subsidiaries where the company has control, which is achieved where the company has the power to govern the financial and operating policies of an investee entity, exposure to variable returns from the investee and the ability to use its power to affect those variable returns. All intra-group transactions, balances, income and expenses are eliminated on consolidation.The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree’s identifiable assets and liabilities are initially recognised at their fair values at acquisition date. The results of acquired entities are included in the consolidated statement of comprehensive income from the date at which control is obtained and are deconsolidated from the date control ceases.

AssociatesAssociates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the Group’s share of the profit or loss of the investee after the date of acquisition.The Group’s share of post-acquisition profit or loss is recognised in the income statement and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment.The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to ‘share of profit/(loss) of associates’ in the income statement.

Joint venturesJointly controlled entities are included in the financial statements using the equity method, with the accounts reflecting the Group’s investment in the joint venture less its share of its losses.

GrantsGrants for research and development activities are recognised as income over the periods in which the relevant research and development costs are to be incurred and expensed to the income statement. Grants for future research and development costs are recorded as deferred income. Grant income is included in other operating income.Grants where the Group purchase, construct or otherwise acquire capital expenditure are recognised as deferred revenue in the consolidated statements of financial position and credited to the profit and loss on a systematic and rational basis over the useful lives of the related assets.

GoodwillPurchased goodwill (representing the excess of fair value of the consideration given over the fair value of the separable net assets acquired) arising on consolidation in respect of acquisitions is capitalised. The carrying amount is subject to an impairment review by the Directors at the end of each accounting period in accordance with International Accounting Standard 36, Impairment of Assets.

Intangible assetsAcquired in process research and development (IPRD) is an indefinite-lived asset, subject to impairment testing until the completion or abandonment of the related project. No further costs will be capitalised in respect of this IPRD unless it meets the criteria for research and development capitalisation as set out below. As per IFRS 3, once the incremental research and development is completed, the carrying value of the acquired IPRD is reclassified as a finite-lived asset and amortised over its useful life.




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED

2. ACCOUNTING POLICIES continued

Property, plant and equipmentProperty, plant and equipment are stated at cost less any accumulated depreciation and any accumulated impairment losses. Depreciation is provided at the following annual rates in order to write off the cost of each asset, less its estimated residual value, over its estimated useful life.Property, plant and equipment – between 20% and 50% per annum on a straight line basis or 33.33% on a reducing balance basis.The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.

Cash and cash equivalentsThe consolidated statements of cash flows and financial position, cash and cash equivalents includes cash in hand, deposits at call with banks and other short-term highly liquid investments with original maturities of three months or less.

Financial instrumentsFinancial assets and financial liabilities are recognised in the Group’s combined statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Financial assetsLoans and receivablesThese assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable; the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable.The Group’s loans and receivables comprise trade and other receivables, other financial assets and cash and cash equivalents in the consolidated statement of financial position. Cash and cash equivalents includes cash in hand and deposits held at call with banks.

Available-for-saleNon-derivative financial assets not included in the above categories are classified as available-for-sale and comprise principally the investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair value, other than those arising due to exchange rate fluctuations and interest calculated using the effective interest rate, recognised in other comprehensive income and accumulated in the available-for-sale reserve.Where there is a significant or prolonged decline in the fair value of an available for sale financial asset (which constitutes objective evidence of impairment), the full amount of the impairment, including any amount previously recognised in other comprehensive income, is recognised in profit or loss.Purchases and sales of available for sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the available-for-sale reserve.On sale, the cumulative gain or loss recognised in other comprehensive income is reclassified from the available-for-sale reserve to profit or loss.

Financial liabilitiesThe Group classifies its financial liabilities as financial liabilities held at amortised cost. Trade payables are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.

TaxationIncome tax is recognised or provided at amounts expected to be recovered or to be paid using the tax rates and tax laws that have been enacted or substantively enacted at the reporting date. Research and development tax credits are included as an income tax credit under current assets.Deferred tax balances are recognised in respect of all temporary differences that have originated but not reversed by the reporting date except for differences arising on: • investments in subsidiaries where the Group is able to control the timing of the reversal of the difference and it is probable that the

difference could not reverse in the foreseeable future; and • the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects

neither accounting nor taxable profit.The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).Recognition of deferred tax assets is restricted to those instances where it is probable that a taxable profit will be available against which the temporary difference can be utilised. Deferred tax balances are not discounted.




Research and developmentAll on-going research expenditure is currently expensed in the period in which it is incurred. Due to the uncertainties inherent in the development of the Group’s products, the criteria for development costs to be recognised as an asset, as set out in IAS 38 “Intangible Assets”, are not met until it is probable that future economic benefit will flow to the Group. The Group currently has no such qualifying expenditure.

LeasesLeases in which a significant portion of the risk and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. The Group does not have any finance leases.

Foreign currenciesTransactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities are denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date.On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in the foreign exchange reserve.

Non-controlling interestsThe total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interest in proportion to their relative ownership interests.

Share-based paymentFor all grants of share options, the fair value as at the date of the grant is calculated using an appropriate option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that are likely to vest, except for options with market based conditions where the likelihood of vesting is factored into the fair value attributed to those options. The expense is recognised over the vesting period of the option. The credit for any charge is taken to equity.

Accounting developmentsThe following new standards, new interpretations and amendments to standards and interpretations are applicable for the first time for the financial year ended 31 December 2014. None of them has any impact on the financial statements of the Group, other than the additional disclosure included in note 13 in accordance with the requirements of IFRS 12. IFRS 10 Consolidated Financial StatementsIFRS 11 Joint ArrangementsIFRS 12 Disclosure of Interests in Other EntitiesThe following standards, interpretations and amendments to existing standards are not yet effective, have not yet been endorsed by the EU and have not been adopted early by the Group. The future introduction of these standards are not expected to have a material impact on the financial statements of the Group:

Standard or interpretation Title Effective from

Annual Improvement to IFRS 2010-2012 Cycle 1 February 2015Annual Improvement to IFRS 2011-2013 Cycle 1 January 2015Annual Improvement to IFRS 2012-2014 Cycle 1 January 2016

IAS 1 Disclosure Initiative 1 January 2016IFRS 11 Accounting for Acquisitions of Interests in Joint Operations 1 January 2016IAS 16 & 38 Clarification of Acceptable Methods of Depreciation and Amortisation 1 January 2016IAS 27 Equity Method in Separate Financial Statements 1 January 2016IFRS 10 & IAS 28 Sale or contribution of assets between an investor and its associate or joint venture 1 January 2016IFRS 15 Revenue from Contracts with Customers 1 January 2017IFRS 9 Financial Instruments 1 January 2018





3. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTSThe Directors make judgements and estimates concerning the future. Estimates and judgements are continually evaluated and are based on historical experience and other factors, such as expectations of future events, and are believed to be reasonable under the circumstances. Actual results could differ from these estimates. The estimates and assumptions that have the most significant effects on the carrying amounts of the assets and liabilities in the financial statements are discussed below.

GoodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets and allocated from the acquisition date to each of the Group’s cash-generating units (“CGUs”) that are expected to benefit from the business combination. Goodwill may be allocated to CGUs in both the acquired business and in the existing business.

Indefinite lived intangible assets Acquired in process research and development (IPRD) is an indefinite-lived asset. The value of such acquired assets is based to a considerable extent on the use of professional advisers in conjunction with management judgement and is the subject of impairment reviews until the completion or abandonment of the related project. Management takes into consideration the requirements of IFRS 3, once the incremental research and development is completed, the carrying value of the acquired IPRD will be required to be reclassified as a finite-lived asset and amortised over its useful life.

Impairment of intangible assets (including goodwill)Goodwill is not subject to amortisation but is tested for impairment annually and whenever events or circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are tested for impairment when events or a change in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and the value in use. For the purposes of assessing impairments, assets are grouped at the lowest levels for which there are identifiable cash flows (i.e. CGUs). Following the review of the Group’s strategy and portfolio to focus on core projects and the uncertainty and timing of the commercialisation of the underlying technology an impairment charge was made during the year on goodwill and IPRD, see note 11.

Valuation of unquoted equity investmentsThe judgements required in order to determine the appropriate valuation methodology of unquoted equity investments have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities. These judgements include making assessments of the future earnings potential of portfolio companies, appropriate earnings multiples to apply, and marketability and other risk discounts.

Share-based paymentThe critical accounting estimates, assumptions and judgements underpinning the valuation of the option are disclosed in note 27.

4. SEGMENTAL REPORTINGIFRS 8 “operating segments” defines operating segments as those activities of an entity about which separate financial information is available and which are evaluated by the Chief Operating Decision Maker to assess performance and determine the allocation of resources. The Chief Operating Decision Maker has been identified as the Board of Directors. The Directors are of the opinion that under IFRS 8 the Group has only one operating segment, being the development of intellectual property. The Board of Directors assess the performance of the operating segment using financial information which is measured and presented in a manner consistent with that in the financial statements.




5. EMPLOYEES AND DIRECTORSThe average number of persons (including executive Directors) employed by the Group during the year was:

2014 Number

2013 Number

Central Group Functions* 12 10R&D 11 3

23 13

* Central Group Functions comprise general management, investment, finance, human resources and marketing.

The aggregate employee benefit expense (including Directors):

2014 £

2013 £

Wages and salaries 2,398,316 795,810Social security costs 223,196 74,886Share-based payment expense 717,001 717,234

3,338,513 1,587,930

The Directors represent the key management personnel and details of their remuneration are given in the Directors’ Remuneration Report. In respect of Directors’ remuneration, the disclosures required by Schedule 5 to Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 are included in the detailed disclosures in the audited section of the Remuneration Report on pages 14 to 16, which are ascribed as forming part of these financial statements.

6. FINANCE INCOME

2014 £

2013 £

Interest income arising from: Cash and cash equivalents 67,661 37,566 Loans and receivables 9,804 –

77,465 37,566

7. FINANCE EXPENSE

2014 £

2013 £

Interest payable on loans 45,671 35,210





8. LOSS FROM OPERATIONSThe loss before income tax is stated after charging:

2014 £

2013 £

Depreciation of property, plant and equipment (see note 12) 65,981 5,508Amortisation of intangible assets (see note 11) 1,614 1,616Loss on disposal of plant, property and equipment 768 –Impairment of intangible assets (see note 11) 641,767 –Impairment of joint venture (see note 13(d)) 91,880 –Operating lease charges Land and buildings 90,550 –Net foreign exchange losses 1,923 123,961

Fees payable to the company’s auditor for the audit of the company’s financial statements 8,000 25,000

Audit of the company’s subsidiaries pursuant to legislation 27,000 15,000

Fees payable to the company’s auditors for other services:Corporate finance services (i) – 101,167 Tax compliance services 21,512 24,023 Tax advisory services 7,000 2,500 Audit related services 11,500 15,000 Other non-audit related services 600 3,050

(i) In addition to the above fees charged by the auditors further corporate finance fees of £nil (2013: £39,181) have been charged to the share premium account.

9. TAXATION

Analysis of tax credit2014

£2013

£

Current tax:UK research and development tax credit for the year 49,039 –UK research and development tax credit in respect of prior periods 24,950 14,153

Income tax credit on current year loss 73,989 14,153

Deferred tax adjustment:Reversal of deferred tax on acquired intangibles 113,019 –

Income tax credit 187,008 14,153




Factors affecting the tax expenseThe tax credit on the Group’s loss before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to the losses of the consolidated entities as follows:

2014 £

2013 £

Loss before taxation (7,313,806) (4,351,417)

Tax at domestic rates applicable to losses in the respective countries 28.73% (2013: 23.25%) (2,101,415) (1,011,704)

Effects of:Expenses not deductible for tax purposes 352,127 315,612Share-based payments 161,899 166,757Timing differences 425,717 825Unutilised tax losses arising in the period 1,141,876 430,273Research and development adjustment (29,243) 98,237Research and development tax credit in respect of prior period (24,950) (14,153)Reversal of deferred tax on acquired intangibles (113,019) –

Income tax credit (187,008) (14,153)

Tax effects relating to effects of other comprehensive incomeExchange differences on translation of foreign operations

2014 £

2013 £

Gross 295,989 87,377Tax – –

Net 295,989 87,377

There are tax losses available to carry forward against future trading profits of approximately £7,217,798 (2013: £3,326,523). A deferred tax asset in respect of these losses of approximately £1,901,699 (2013: £878,151) has not been recognised in the accounts, as the utilisation of these losses in the foreseeable future is uncertain.





10. LOSS PER SHAREBasic loss per share is calculated by dividing the loss for the financial year attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year.Diluted loss per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares.

2014 £

2013 £

Loss attributable to equity holders of the company (6,425,011) (4,112,565)Weighted average number of ordinary shares in issue 35,902,020 19,558,458

The loss attributable to ordinary shareholders and weighted average number of ordinary shares for the purpose of calculating the diluted loss per ordinary share are identical to those used for basic loss per share. Whilst the parent company has share options in existence they are not dilutive as their exercise would have the effect of reducing the loss per ordinary share.

11. INTANGIBLE ASSETS

Goodwill £

In process research and development

£Patents and licences

£Total

£

CostAt 1 January 2013 – – 15,230 15,230Additions 359,220 267,414 – 626,634

At 31 December 2013 359,220 267,414 15,230 641,864Exchange Adjustments -– 15,133 – 15,133

At 31 December 2014 359,220 282,547 15,230 656,997

AmortisationAt 1 January 2013 – – 1,756 1,756Charge for the year – – 1,616 1,616

At 31 December 2013 – – 3,372 3,372Charge for the year – – 1,614 1,614Impairment charge (i) 359,220 282,547 – 641,767

At 31 December 2014 359,220 282,547 4,986 646,753

Net book valueAt 31 December 2014 – – 10,244 10,244

At 31 December 2013 359,220 267,414 11,858 638,492

At 31 December 2012 – – 13,474 13,474

(i) The goodwill and in process research and development arose on the acquisition of Qlida Diagnostics, Inc. Following the review of the Group’s strategy and portfolio to focus on core projects and the uncertainty and timing of the commercialisation of the underlying technology an impairment charge based on value in use was made during the year, which has been recognised in the consolidated income statement.




12. PROPERTY, PLANT AND EQUIPMENT

Furniture, fittings and equipment

£

Plant and machinery

£Totals

£

CostAt 31 December 2012 16,814 – 16,814Additions 2,843 57,998 60,861

At 31 December 2013 19,677 57,998 77,675Exchange adjustments 931 12,008 12,940Additions 21,788 315,681 337,469Disposals (4,927) – (4,927)

At 31 December 2014 37,469 385,687 423,156

DepreciationAt 31 December 2012 5,066 – 5,066Charge for the year 3,546 1,962 5,508

At 31 December 2013 8,612 1,962 10,574Exchange adjustments 172 1,288 1,460Charge for the year 7,554 58,427 65,981Disposals (3,104) – (3,104)

At 31 December 2014 13,234 61,677 74,911

Net book valueAt 31 December 2014 24,235 324,010 348,245

At 31 December 2013 11,065 56,036 67,101

At 31 December 2012 11,748 – 11,748





13. INVESTMENTS

13(a) Subsidiary undertakingsThe Group had the following subsidiaries at 31 December 2014:

Name

Country of incorporation or

registration

Proportion of ownership

interest At 31 December

2014

Proportion of ownership interest At 31 December

2013


interest held by non-controlling

interests At 31 December

2014


interest held by non-controlling

interests At 31 December

2013

NetScientific UK Limited UK 100% 100% – –Glucosense Diagnostics Limited* (v) UK 100% 100% – –Watermass Limited* UK 100% 100% – –Nearfield Communications Limited* UK 100% 100% – –RoboScientific Limited* UK 80% 80% 20% 20%IsraelScientific Ltd* (i) UK 100% 100% – –ProAxsis Ltd* UK 56.5% – 43.5% –MOF Technologies Limited* UK 51% 51% 49% 49%Healthbox Israel LLP* (iv) UK 50% – 50% –NetScientific America, Inc. USA 100% 100% – –Advanced Cardiotech, Inc. USA 87.5% 87.5% 12.5% 12.5%Advanced BioSensors, Inc.* (ii) USA 37% 87.5% 63% 12.5%Cardio-Scientific, Inc.* USA 100% 100% – –Glycotest, Inc. (iii) USA 87.5% 87.5% 12.5% 12.5%Vortex BioSciences, Inc. (iii) USA 95% 95% 5% 5%Wanda, Inc. (iii) USA 71% 57% 29% 43%Qlida Diagnostics, Inc. USA 51% 51% 49% 49%Moftek, Inc. USA 100% 100% – –SwissScientific SA Swiss 100% – – –Morphodyne SA* Swiss 60% – 40% –

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(i) Name changed on 26th November 2014 from Dexmead Systems Ltd to IsraelScientific Ltd.(ii) This entity is considered to be a subsidiary by virtue of the Group’s practical ability to exert control over the strategy and relevant activities

of the company.(iii) Options have been issued by Vortex BioSciences, Inc., Glycotest, Inc. and Wanda, Inc. which if exercised would dilute the Company’s

shareholding by 19%, 14% and 13% respectively.(iv) The Group holds 50% of the voting shares and has the casting vote. The Group is entitled to 80% of profits subsequent to repayments of

capital and member operational expenses.(v) Following a restructure post year end the Group’s interest was reduced to 51.2%.

Acquisition of subsidiariesOn 20 February 2014 the Group subscribed for 56.5% of the share capital of ProAxsis Ltd, a newly formed company involved in the development of novel medical diagnostic devices for the monitoring of patients with cystic fibrosis and other respiratory diseases. ProAxsis Ltd was incorporated on 16 August 2013 and was dormant and did not trade until 20 February 2014. The price paid for the shares subscribed for was £100,000.On 23 April 2014 the Company created a new wholly owned subsidiary SwissScientific SA, to explore investment opportunities in Switzerland, by paying CHF 1 million for its entire issued share capital.On 11 August 2014 the Group formed a new entity, Morphodyne SA, and owns 60% of the issued capital. Morphodyne aims to commercialise bioprinted 3d tissue models that capture the physiologic or pathologic function of native tissue. The price paid for the issued shares was CHF 60,000.




13(b) Non-controlling interestsThe total non-controlling interest at 31 December 2014 is £1,097,509 (2013: £667,271), of which £333,539 (2013: £370,001) is for Wanda, Inc. and £394,058 (2013: £299,628) for Qlida Diagnostics, Inc.Set out below is the summarised financial information for Wanda, Inc. and Qlida Diagnostics, Inc. which have non-controlling interests that are material to the Group.

Summarised balance sheetWanda, Inc.

As at 31 December Qlida Diagnostics, Inc.

As at 31 December

2014 £

2013 £

2014 £

2013 £

CurrentAssets 681,166 999,295 202,771 56,435Liabilities (1,838,072) (1,860,695) (650,210) (393,802)

(1,156,906) (861,400) (447,439) (337,367)

Non-currentAssets 6,770 1,089 5,799 –Liabilities – – (362,560) (274,014)

6,770 1,089 (356,761) (274,014)

Net liabilities (1,150,136) (860,311) (804,200) (611,381)

Accumulated non-controlling interest (333,539) (370,001) (394,058) (299,628)

Summarised statement of comprehensive incomeWanda, Inc.

For the year ended 31 December Qlida Diagnostics, Inc.

For the year ended 31 December

2014 £

2013 £

2014 £

2013 £

Revenue – – – –

Loss for the year before and after taxation (1,496,163) (409,713) (149,893) (144,265)

Other comprehensive income – – – –

Total comprehensive loss for the year (1,496,163) (409,713) (149,893) (144,265)

Total comprehensive loss attributable to non-controlling interests (435,462) (409,713) (73,448) (144,265)





13. INVESTMENTS continued

Summarised cash flows Wanda, Inc.

For the year ended 31 December Qlida Diagnostics, Inc.

For the year ended 31 December

2014 £

2013 £

2014 £

2013 £

Net cash used in operating activities (1,339,455) (390,426) (411,169) (21,695)

Net cash used in investing activities (7,621) (1,096) (5,826) –

Net cash inflows from financing activities 977,299 1,380,306 378,766 76,627

Net decrease in cash and cash equivalents (369,777) 988,784 (38,229) 54,932

Cash and cash equivalents at beginning of year 983,075 – 56,434 1,973

Exchange gains/(losses) on cash and cash equivalents 35,048 (5,709) 1,065 (471)

Cash and cash equivalents at end of year 648,346 983,075 19,270 56,434

The information above is the amount before inter-company eliminations.

13(c) Associates

2014 £

At 1 January –Additions 239,189Loss after tax recognised in the consolidated income statement (10,306)

At 31 December 228,883

Set out below is the associate of the Group as at 31 December 2014:

Name Country of incorporation Place of business % of ownership interest Measurement method2014 2013

DName-iT NV Belgium Belgium 38% – Equity

DName-iT NV is developing solutions to improve the quality and workflow on next generation genetic sequencing diagnostic tests.Set out below is the summarised financial information of DName-iT NV which has been accounted for using the equity method. The investment was made during the year ending 31 December 2014 and as such no comparative financial information has been disclosed.




Summarised balance sheet

As at 31 December 2014

£

DName-iT NV

Current assetsCash and cash equivalents 233,691

Non-current assetsIntangible assets 389,378

Total assets 623,069

Current liabilitiesTrade and other payables (27,186)

Net assets 595,883

Summarised statement of comprehensive income

For the year ending 31 December 2014

£

DName-iT NV

Administrative expenses (27,121)

Loss for the year before and after taxation (27,121)

Other comprehensive income –

Total comprehensive loss for the year (27,121)

13(d) Joint venture

Interest in joint ventureThe Group has a 50% interest in a jointly controlled entity, Butterfly BioSciences LLC, which has been included in the consolidated accounts using the equity method. Butterfly BioSciences LLC is an early-stage drug discovery company that employs a proprietary random library-based technology for the discovery of novel RNAi drugs with innovative targeting properties and improved therapeutic indices, its principal place of business is the USA. Following the review of the Group’s strategy and portfolio to focus on core projects and the uncertainty and timing of the commercialisation of the underlying technology an impairment charge has been made.

2014 £

2013 £

At 1 January 69,872 37,350Exchange adjustments 4,694 –Additions 35,119 60,354Loss after tax recognised in the consolidated income statement (17,805) (27,832)Impairment charge (91,880) –

At 31 December – 69,872





13. INVESTMENTS continuedSet out below is the summarised financial information for Butterfly Biosciences LLC.

Summarised Statement of Financial Position

As at 31 December

CURRENT 2014

£2013

£

Current liabilities (477,035) (416,004)

Net liabilities (477,035) (416,004)

Summarised statement of comprehensive income

For the year ended 31 December2014

£2013

£

Administrative expenses (35,610) (55,664)

Loss before tax (35,610) (55,664)Taxation – –

Loss for the year (35,610) (55,664)Other comprehensive income (25,421) –

Total comprehensive loss for the year (61,031) (55,664)

The losses recognised in the income statement in respect of associates and joint ventures are as follows:

2014 £

2013 £

Associates 10,306 –Joint ventures 17,805 27,832Impairment of joint venture 91,880 –

119,991 27,832

13(e) Available for sale investmentsRepresent unquoted equity securities

2014 £

2013 £

At 1 January 2 2Additions 1,806,606 –

At 31 December 1,806,608 2

Name Country of incorporation % of issued share capital Currency denomination £

PDS Biotechnology Corporation USA 14.85% US$ 1,657,030CytoVale, Inc. USA 2.15% US$ 149,576Other 2

1,806,608

The Company acquired its investments in PDS Biotechnology Corporation on 15 December 2014 and its investment in CytoVale, Inc. in March 2014. In the opinion of the Directors the fair value of these investments at year end equates to their cost.




14. DERIVATIVE FINANCIAL ASSETS

2014 £

2013 £

Warrants 100,159 –

The Group have warrants to acquire equity shares in PDS Biotechnology Corporation at an agreed price at any time prior to 15 December 2016. The warrants have been valued using the Black-Scholes Model.

15. TRADE AND OTHER RECEIVABLES

2014 £

2013 £

Current:

Trade receivables 57,265 260Taxation 105,598 83,456Other receivables 145,189 16,851Prepayments and accrued income 544,970 206,179

853,022 306,746

Non-current: other receivables 545,606 18,905

Aggregate amounts 1,398,628 325,651

16. TRADE AND OTHER PAYABLES

2014 £

2013 £

Current:

Trade payables 636,808 645,646Accruals 609,715 432,593Social security and other taxes – 1,003Other payables 34,719 34,248

1,281,242 1,113,490

Non-current: Other creditors 52,537 49,723

Aggregate amounts 1,333,779 1,163,213





17. LOANS AND BORROWINGS

2014 £

2013 £

Total falling due within one year 43,250 3,250

Total falling due after more than one year 687,369 475,109

Total 730,619 478,359

The maturity of the loans are as follows:

Amounts falling due within one year on demand 43,250 3,250

Amounts falling due between one and two years 221,096 –

Amounts falling due between two and five years 466,273 201,095

Amounts falling due in more than five years – 274,014

Financial liabilities and Borrowings represent:The loans falling due within one year are interest free, unsecured and repayable on demand.Convertible loan notes totalling £350,000 (2013: £200,000) plus accrued interest to 31 December 2014 of £27,346 (2013: £1,096) issued by a UK subsidiary company in December 2013 and August 2014 are unsecured. Interest is payable on any outstanding loan notes thirty-six months after execution of the convertible loan note instrument at a rate of 10% per annum, but is only payable subject to certain conditions being met and the company agreeing to the redemption of the loan. All outstanding convertible loan notes not redeemed shall convert into fully paid senior shares at a conversion price based on the value of future fundraising or fair value at the date of conversion. The date of conversion is determined by events set out in the convertible loan note instrument, but in any event will be no later than thirty-six months after conversion of the convertible loan note instrument.Borrowings falling due between two and five years include the sterling equivalent of unsecured loans totalling US$400,000 (2013: US$400,000), plus accrued interest of US$83,884 (2013: US$51,884), which has been obtained by a US subsidiary in accordance with a Seed Capital Funding Agreement effective September 2013. Interest of 8% arises on the loans and the maturity date for these loans is 31 March 2019. The agreement includes the option for the loans to be converted into equity interests in the US subsidiary, providing certain criteria are met. Concurrently with the execution of the agreement the US subsidiary was required to issue a warrant in favour of the lender, although the company has the option to repurchase the warrants at any time prior to their exercise and the lender can require settlement of the warrants in cash after 5 years.In the opinion of the Directors, materially these constitute debt instruments and therefore no element has been reallocated as equity.

18. PROVISION FOR DEFERRED TAX

2014 £

2013 £

Deferred Tax – (106,965)

Deferred Tax £

Balance as at 1 January 2014 106,965Exchange adjustment 6,054Reversal on impairment of acquired intangibles (see note 9) (113,019)

Balance as at 31 December 2014 –-

The reversal of the provision arises on the impairment of the capitalised in process research and development which arose on the acquisition of a subsidiary in a prior period, see note 11.




19. CALLED UP SHARE CAPITALIssued and fully paid:

2014£

2013£

35,902,020 ordinary shares of 5p each (2013: 35,902,020 shares of 5p each) 1,795,101 1,795,101

Details of share options can be found in note 27. The Group has no legal or constructive obligation to repurchase or settle the options in cash.

20. CAPITAL AND RESERVES

Share capitalShare capital represents the nominal value of shares issued.

Share premium accountShare premium represents amounts subscribed for share capital in excess of nominal value less the related costs of shares issued.

Capital reserve accountCapital reserve represents the waiver of loan interest on conversion of the loans provided to the group into ordinary shares.

Foreign exchange reserveThe foreign exchange reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries of the group.

Retained earningsRetained earnings are in deficit and represents cumulative net gains and losses recognised in the consolidated statement of comprehensive income adjusted for cumulative share-based payments.

21. FINANCIAL INSTRUMENTS

Currency riskDuring the year under review, the Group was exposed to US dollar exposure as a significant element of its research and development expenditure is denominated in this currency. The Group holds an element of its cash in US dollars to reduce its exposure to movements in exchange rates. Similarly, the Group has exposure to the Swiss franc upon establishing research and development activities in Switzerland in the latter part of 2014. Cash is held in Swiss francs to reduce exposure to movements in exchange rates.The currency and interest rate exposure of the Group’s borrowings is shown below.

Total £

Floating borrowings £

Fixed borrowings £

Weighted average interest rate

%

As at 31 December 2013Sterling 3,250 – 3,250 0.0%Sterling 201,095 – 201,095 10.0%US Dollar 274,014 – 274,014 8.0%

478,359 – 478,359 8.8%

As at 31 December 2014Sterling 43,250 – 43,250 0.0%Sterling 377,346 – 377,346 10.0%US Dollar 310,023 – 310,023 8.0%

730,619 – 730,619 8.5%

The interest rate is fixed for the duration of the loans.





21. FINANCIAL INSTRUMENTS continued

Interest rate and currency of cash balancesFloating rate financial assets of £16,867,198 (2013: £25,546,951) comprises sterling £13,693,170 (2013: £18,538,806), US dollar US$3,997,494 (2013: US$11,557,132) and Swiss franc CHF 946,171 (2013: CHF nil) cash deposits with the banks current accounts. Interest receivable for the year ended 31 December 2014 was £67,661 (2013: £37,566).The Group has purchased loan notes totalling US$750,000 (2013: US$ nil) which have accrued interest of US$16,146 (2013: US$ nil). The interest rate on loan notes totalling US$500,000 is fixed at 6% and on loan notes for US$250,000 the rate is 7%.

Currency exposureThe group’s currency exposure, i.e. those exposures arising from transactions, the net currency gains and losses from which will be recognised in the profit and loss account, is shown below.

Function of currency of group operations

Net foreign currency monetary assets

Euro £

Dollar £

CHF £

Total £

As at 31 December 2014Sterling 65,415 280 41,929 107,424Dollar 10,210 – – 10,210

75,625 280 41,929 117,634

The exposures comprise the monetary assets and liabilities of the group that are not denominated in the operating or ‘functional’ currency of the operating unit involved.

Undrawn bank facilitiesThe Group does not have in place any undrawn committed bank borrowing facilities available to it.

Credit riskThe Group follows a risk-averse policy of treasury management. Sterling, US dollar and Swiss Franc cash balances are held with reputable financial institutions to minimise credit risk. The Group’s primary treasury objective is to minimise exposure to potential capital losses whilst at the same time securing prevailing market rates. Additionally, the Group has borrowings in Sterling and US dollars, being the currencies in which main business activities are undertaken.

Interest rate riskThe Group’s cash held at bank is subject to the risk of fluctuating base rates. The interest rate on US dollar purchase loan notes is fixed. The Group has sterling and US dollar fixed rate borrowings, see note 17 for profile of maturities.

Capital risk managementThe Group is funded by primarily by equity finance and has some fixed term borrowings. Management regard the capital structure of the company to consist of all elements of invested capital and non-controlling interests.

Liquidity RiskThe Group’s policy is to maintain adequate cash resources to meet liabilities as they fall due. Cash balances are placed on deposit for varying periods with reputable banking institutions to ensure there is limited risk of capital loss. The Group does not maintain an overdraft facility. Cash flow forecasts are used to facilitate the management of cash resources.

22. CONTINGENT LIABILITIESThere are no contingent liabilities in current and prior period.




23. COMMITMENTS

(a) Capital commitments

2014 £

2013 £

Contracted but not provided for in the financial statements – 106,005

(b) Operating lease commitmentsAt 31 December 2014 the Group had the following future value of minimum lease payments due as set out below.

Land and buildings

2014 £

2013 £

No later than 1 year 216,608 –

24. RELATED PARTY DISCLOSURESThoms International Limited, a company controlled by the P Thoms family, charged fees in respect of services provided by Peter Thoms, a director of NetScientific plc, of £6,697 (2013: £11,977). Additionally in 2013, a further fee of £100,000 was paid on the successful AIM listing, in respect of international consulting services provided to NetScientific UK Limited from March 2011 to 2013.Nicholas Heckford, a director of NetScientific plc, charged fees in respect of services of £nil (2013: £7,833). No amounts were outstanding at year end (2013: £nil).David Gough, a director of NetScientific plc, charged fees in respect of services of £nil (2013: £12,000). No amounts were outstanding at year end (2013: £nil).Dr. Michael Boyce–Jacino, a director of NetScientific plc, charged fees in respect of services of £nil (2013: £5,083). No amounts were outstanding at year end (2013: £nil).Farad Azima is a director and shareholder of Quantadyne Limited, which charged fees in respect of services provided by Farad Azima of £nil (2013: £32,000). No amounts were outstanding at year end (2013: £nil).H Azima, a close relative of Farad Azima a former director of NetScientific plc, charged fees in respect of services in the USA of £9,104 (2013: £9,149). No amounts were outstanding at year end (2013: £nil).On a rent free basis the Group used premises provided by entities connected with Farad Azima for office space and as accommodation for visiting employees during the year. The Group paid the service charges, utilities and cleaning expenses on these premises which totalled £28,300 (2013: £nil).Loans and borrowings include:During the prior year there were loans from Mehdi Trust to the Group. Farad Azima is a beneficiary of this trust. Interest charged in the year totalled £nil (2013: £9,786). No amounts were outstanding at year end (2013: £nil).During the prior year there were loans from Zahra Holdings Limited to the Group. Farad Azima is a beneficiary of this trust. Interest charged in the year totalled £nil (2013: £12,771). No amounts were outstanding at year end (2013: £nil).

25. EVENTS AFTER THE REPORTING PERIOD

Management changesAt the beginning of 2015, Farad Azima, the CEO, left the Group and Sir Richard Sykes took on the role of Executive Chairman until a new CEO is appointed. As outlined below, Farad Azima is the Executive Chairman of Frontier BioSciences Limited (‘Frontierbio’), a company jointly owned by the Group. The search for a new CEO is underway. Until a new candidate is found, responsibilities have been organised geographically. Dr. Michael Boyce-Jacino now manages all USA investments and David Gough now manages European investments. Both directors have extensive life sciences experience; Dr. Michael Boyce-Jacino was a founder of Orchid Biosciences, Inc. and Vice President at Beckman Coulter, Inc. and David Gough was formerly Head of Healthcare and Biotechnology at PA Consulting Group, a founder of Vectura Group plc and a healthcare venture capitalist.On 26 February 2015, NetScientific announced that Jonathan Paisner would join the board as a Non-Executive Director. He is being appointed by the Azima family trusts pursuant to their rights under the NetScientific Articles of Association to nominate a director.Lady Barbara Judge stepped down on 23 March 2015. She was recently elected as Chairman of the Institute of Directors and is reducing her other commitments. A search is underway for a replacement Non-Executive Director.





25. EVENTS AFTER THE REPORTING PERIOD continued

Frontier BioSciences LimitedAs part of the Group’s ongoing review of its portfolio, the Board has agreed to reduce its commitment but retain an interest in certain projects that fall outside its core area of focus. The projects relate to three sponsored research agreements with Leuven University, Belgium (the ‘SRAs’) and its 38% shareholding in DName-iT NV, a Belgian company, part owned by Leuven University, which were announced to the market on 7 January 2015.The Group has agreed to transfer these projects (including its DName-iT NV shareholding) to a new company, Frontierbio. On completion of this transfer Frontierbio will be controlled by Zahra Holdings Limited (‘Zahra’), a company wholly-owned by a family trust of the former CEO, Farad Azima, which together with two other companies controlled by Azima family trusts, holds 47.8% of the shares in NetScientific (in addition Farad Azima has a personal holding of 0.4%). Zahra will own 50.01% of the equity in Frontierbio, with the remaining equity held by the Group.As part of a shareholders’ agreement dated 23 March 2015 between Zahra and NetScientific UK Limited (‘NUK’), a wholly-owned NetScientific subsidiary, the parties have committed funding to Frontierbio on completion to the value of £1.8m. Zahra, through its ownership of Frontierbio, will assume 50.01% of this funding commitment (£0.9m). NUK’s funding commitment (£0.9m) will be satisfied by the c.£0.53m it has already spent to date on the SRAs and DName-iT shareholding (some of which will be capitalised as equity in Frontierbio and the rest converted into debt) and a commitment to transfer a further c.£0.37m on completion. The combined new funding of c.£1.27m provided on completion will be used to (a) acquire a controlling shareholding in DName-iT NV and (b) satisfy payment obligations under the SRAs. Funding beyond this £1.27m is discretionary for both parties.Under the shareholders’ agreement day to day operational control of Frontierbio will be with its board of directors (of which a majority will be appointed by Zahra and the Executive Chairman of Frontierbio is Farad Azima), subject to reserved shareholder rights in favour of NUK. Instead of receiving a salary as Executive Chairman of Frontierbio for the following two years, Farad Azima can receive up to 5% share options in Frontierbio (but not exercisable until after that two year period).On its IPO, NetScientific entered into a relationship agreement with the three Azima family trusts, which through controlled companies (including Zahra) hold shares in NetScientific, to regulate the ability of NetScientific and its subsidiaries to act independently of those trusts and controlled companies. NetScientific has agreed an amendment with the parties to the relationship agreement to allow Zahra to enter into and perform its obligations under the shareholders’ agreement with NUK.As Zahra, Farad Azima and his family trusts are related parties under the AIM Rules for Companies, the Directors (Jonathan Paisner abstaining by virtue of being appointed a director on the nomination of the Azima family trusts) consider, having consulted with Liberum in its capacity as the Company’s nominated adviser, that the shareholders’ agreement terms and the relationship agreement amendment are fair and reasonable insofar as NetScientific shareholders are concerned.

26. ULTIMATE CONTROLLING PARTYThe Directors believe there to be no ultimate controlling party.

27. SHARE-BASED PAYMENTSThe Group operates a share option scheme for certain Directors and employees of the Group. Options are exercisable at a price defined by the individual option agreement. The vesting period varies according to the individual employment contract. If the options remain unexercised during the specified period from the date of grant, the options expire. Options are generally forfeited if the employee leaves the Group before the options vest; however this is at the discretion of the board.Total options existing over 5p ordinary shares in the Company as of 31 December 2014 are summarised below:

Date of grant

Number of shares at

1 January 2014Granted during

the year

Number of shares as at

31 December 2014 Note Exercise price Date of expiry*

September 2013 2,513,140 – 2,513,140 1 £1.60 September 2023January 2014 – 179,510 179,510 2 £1.60 January 2024January 2014 – 89,775 89,775 3 £1.60 January 2024

2,513,140 269,285 2,782,425

* All options lapse in full if they are not exercised by the date of expiry.1. Options were granted on 16 September 2013, the date of the Company’s Admission to AIM. The vesting terms were one third on date

of grant and the next third on the first anniversary of the date of Admission and the final third on the second anniversary of the date of Admission.

2. Option vest at the rate of one third per year commencing one year after the date of grant.3. Options vest in three years after the date of grant.




Movement in the number of share options outstanding are as follows:

2014 Weighted average

exercise price £

2014 Number

2013 Weighted average

exercise price £

2013 Number

Outstanding at 1 January 1.60 2,513,140 – –Granted during the year 1.60 269,285 1.60 2,513,140

Outstanding at 31 December 1.60 2,782,425 1.60 2,513,140

Fair value chargeThe fair value charge for the share options have been based on the Black-Scholes model with the following key assumptions:

Date of grantExercise price

£

Share price at date of grant

£Risk free rate

%

Assumed time to exercise

Years

Assumed volatility

%

Fair value per option

£

September 2013 1.60 1.60 1.66 5 40% 0.59January 2014 1.60 1.60 1.59 4 40% 0.39January 2014 1.60 1.60 1.15-1.98 2-4 40% 0.38

No dividends are assumed. The risk free rate is taken from the yield on zero coupon UK government bonds on a term consistent with the expected life. Assumed volatility is based on a review of comparators and analysis of movements to the share price since the Company’s listing. The Group did not enter into any share-based payment transactions with parties other than Directors or employees during the current or previous year.See note 5 for the total expense recognised in the income statement for share options granted to Directors and employees.The total charge for the year in respect of share-based payments was £717,001 (2013: £717,234) (see note 5). £61,951 (2013: £nil) of this sum represents the share-based charge on options granted by subsidiary entities.




PARENT COMPANY FINANCIAL POSITIONfor the year ended 31 December 2014

Notes2014

£2013

£

Fixed assetsTangible assets 5 1,446 1,658Investment in subsidiary undertakings 6 1,886,934 501Other investments 7 1,906,765 –Loans to subsidiary undertakings 8 7,821,514 1,207,511

Total non-current assets 11,616,659 1,209,670

Current assetsDebtors amounts falling due within one year 9 131,216 9,388,153Cash at bank 13,131,868 18,291,771

Total current assets 13,263,084 27,679,924

CreditorsAmounts falling due within one year 10 (185,171) (159,095)

Net Current Assets 13,077,913 27,520,829

Net assets 24,694,572 28,730,499

Capital and reservesCalled up share capital 11 1,795,101 1,795,101Share premium account 12 30,844,552 30,844,552Capital redemption account 12 236,745 236,745Profit and loss account 12 (8,181,826) (4,145,899)

Total shareholders’ Funds 13 24,694,572 28,730,499

The financial statements on pages 44 to 50 were approved by the Board of Directors on 23 March 2015 and signed on its behalf by:

Peter ThomsChief Financial Officer




NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTSfor the year ended 31 December 2014

1. BASIS OF PREPARATIONNetScientific plc’s financial statements have been prepared under the historical cost convention and in accordance with, applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).As permitted by FRS1 ‘Cash Flow Statements’, no cash flow statement for the Company has been included on the grounds that the Group includes the Company in its own published consolidated financial statements. The Company has taken advantage of the exemptions in FRS8 ‘Related Party Disclosures’ not to disclose related party transactions with wholly-owned subsidiaries.

2. ACCOUNTING POLICIESThe following accounting policies have been applied consistently in dealing with items which are considered material to the Company’s financial statements.

RevenueTurnover represents management fees charged to subsidiary undertakings, excluding Value Added Tax.

Investment in Subsidiary UndertakingsInvestments in subsidiary undertakings where the Company has control are stated at cost less any provisions for impairment. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Provisions are based upon an assessment of events or changes in circumstances that indicate that an impairment has occurred such as the performance and/or prospects (including the financial prospects) of the investee company being significantly below the expectations on which the investment was based, a significant adverse change in the markets in which the investee company operates or a deterioration in general market conditions.

Other InvestmentsInvestments held as fixed assets are stated at costs less any provision for impairment.

Intercompany loansAll intercompany loans are initially recognised at fair value and subsequently measured at amortised cost. Where intercompany loans are intended for use on a continuing basis in the Company’s activities and there is no intention of their settlement in the foreseeable future, they are presented as fixed assets.

Tangible Fixed AssetsDepreciation is provided at the following annual rates in order to write off each asset over its estimated useful life:Fixtures, fitting and equipment – 33.3% reducing balance

Share-based paymentFor all grants of share options, the fair value as at the date of the grant is calculated using an appropriate option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that are likely to vest, except for options with market based conditions where the likelihood of vesting is factored into the fair value attributed to those options. The expense is recognised over the vesting period of the option. The credit for any charge is taken to equity

TaxationThe charge for taxation is based on the loss for the period and takes into account taxation deferred.Current tax is measured at amounts expected to be paid using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, except that the recognition of deferred tax assets is limited to the extent that the company anticipates making sufficient profits in the future to absorb the reversal of the underlying timing differences.Deferred tax balances are not discounted.




NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTSCONTINUED

3. PROFIT OF THE PARENT COMPANY

Loss in the yearAs permitted by Section 408 of the Companies Act 2006, the Company’s profit and loss account has not been included in these financial statements. The loss dealt with in the financial statements of the Parent Company for the year ended 31 December 2014 was £4,690,977 (2013: £4,863,133).

Auditors’ remunerationThe remuneration of the auditors is disclosed in note 8 to the Consolidated Financial Statements.

Share-based paymentsFull details of the Company’s share-based payments are set out in note 27 of the Consolidated Financial Statements.

4. DIRECTORS REMUNERATIONThe remuneration of the Directors’ is disclosed in the Directors’ Remuneration Report on pages 14 to 16.

5. TANGIBLE FIXED ASSETS

£

COSTAt 1 January 2014 1,774Additions 1,652Disposals (1,774)

At 31 December 2014 1,652

DEPRECIATIONAt 1 January 2014 116Charge for the year 681Disposals (591)

At 31 December 2014 206

NET BOOK VALUEAt 31 December 2014 1,446

At 31 December 2013 1,658

6. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS

£

At 1 January 2014 501Additions 863,242Conversion of loan to equity 1,207,511Impairment (183,919)Disposals (401)

At 31 December 2014 1,886,934




Details of the Company’s subsidiary undertakings at 31 December 2014 are as follows:

NameCountry of incorporation or registration

Proportion of ownership interest under common control at 31 December 2014 Nature of business

Held directly by NetScientific plcNetScientific UK Limited UK 100% IP CommercialisationAdvanced Cardiotech, Inc. USA 87.5% See table note (i)Glycotest, Inc. (v) USA 87.5% See table note (i)NetScientific America, Inc. USA 100% Holding companyVortex BioSciences, Inc. (v) USA 95% See table note (i)Wanda, Inc. (v) USA 71% See table note (i)Qlida Diagnostics, Inc. USA 51% See table note (i)Moftek, Inc. USA 100% Holding companySwissScientific SA Switzerland 100% Holding company

Held via subsidiary companiesWatermass Limited UK 100% CleanTech research and product

developmentNearfield Communications Limited UK 100% Security research and product

developmentRoboscientific Limited UK 80% Development and commercialisation of

sensor productsAdvanced BioSensors, Inc. (iv) USA 37% See table note (i)Cardio-Scientific, Inc. USA 100% See table note (i)MOF Technologies Limited UK 51% CleanTech research and product

developmentGlucosense Diagnostics Limited (iii) UK 100% See table note (i)ProAxsis Ltd UK 56.5% See table note (i)IsraelScientific Ltd (ii) UK 100% Holding companyHealthbox Israel LLP (vi) UK 50% Healthcare business acceleratorMorphodyne SA Switzerland 60% See table note (i)

(i) Nature of business – Healthcare diagnostics research and product development.(ii) Name changed on 26th November 2014 from Dexmead Systems Limited.(iii) Following a restructure post year end the Group’s interest was reduced to 51.2%.(iv) This entity is considered to be a subsidiary by virtue of the Group’s practical ability to exert control over the strategy and relevant

activities of the company.(v) Options have been issued by Vortex BioSciences, Inc., Glycotest, Inc. and Wanda, Inc. which if exercised would dilute the Company’s

shareholding by 19%, 14% and 13% respectively.(vi) The Group holds 50% of the voting shares and has the casting vote. The Group is entitled to 80% of profits subsequent to repayments of

capital and member operational expenses. For all undertakings listed above, the country of operation is the same as its country of incorporation or registration.During the year an application for de-registration was filed for NetScientific Solutions Limited, a company was incorporated in Hong Kong which has been dormant since January 2013.The following dormant companies are also held via subsidiaries:

EcoScience Limited UK 100% DormantNetScientific Technologies, Inc. USA 100% Dormant





7. OTHER INVESTMENTS

£

At 1 January 2014 –Additions 1,906,765

At 31 December 2014 1,906,765

NameCountry of

incorporation% of issued

share capitalCurrency

denominationCost

£

PDS Biotechnology Corporation USA 14.85% US$ 1,757,189Cyto Vale, Inc. USA 2.15% US$ 149,576

1,906,765

8. LOANS TO SUBSIDIARY UNDERTAKINGS

£

At 1 January 2014 1,207,511Transferred from debtors falling due within one year 9,253,178Conversion of loan to equity (1,207,511)Additions 1,490,353Provision (2,922,017)

At 31 December 2014 7,821,514

The amounts due from subsidiary undertakings are unsecured and repayable on demand. Interest has been charged on certain loans.

9. DEBTORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

2014 £

2013 £

Other taxes and social security 17,648 103,514Other receivables 39,770 –Prepayments and accrued income 73,798 31,461Amounts owed by group undertakings – 9,253,178

131,216 9,388,153

10. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

2014 £

2013 £

Trade creditors 30,276 35,069Accruals and deferred income 154,895 123,625Amounts due to group undertaking – 401

185,171 159,095




11. CALLED UP SHARE CAPITAL

2014 £

2013 £

Issued and fully paid: 35,902,020 ordinary shares of 5p each (2013: 35,902,020 of 5p each) 1,795,101 1,795,101

12. RESERVES

Retained earnings £

Share premium £

Capital redemption £

Total £

At 1 January 2014 (4,145,899) 30,844,552 236,745 26,935,398Loss for the year (4,690,977) – – (4,690,977)Share-based payments 655,050 – – 655,050

At 31 December 2014 (8,181,826) 30,844,552 236,745 22,899,471

13. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS

2014£

2013 £

Loss for the financial year (4,690,977) (4,863,133)Shares issued during the year – 34,075,098Share issue costs – (1,435,446)Capital contribution – 236,745Share-based payments 655,050 717,234

Net (reduction)/addition to shareholders’ funds (4,035,927) 28,730,498

Opening shareholders’ funds 28,730,499 1

Closing shareholders’ funds 24,694,572 28,730,499

14. RELATED PARTY TRANSACTIONSThe following balances are due to/(from) NetScientific plc from/(to) fellow non wholly owned subsidiary undertakings:

Amount due from

as at 2014 £

Amount due from/(to)

as at 2013 £

Vortex BioSciences, Inc. 1,866,361 341,564Wanda, Inc. 1,596,777 1,832,681Glycotest, Inc. 515,120 133,347Advanced Cardiotech, Inc. 451,205 –Qlida Diagnostics, Inc. 320,812 1,384RoboScientific Limited – 30,053NetScientific Solutions Ltd – (401)

Impairment allowances of £451,205 and £320,812 have been provided against the debts due from Advanced Cardiotech, Inc. and Qlida Diagnostics, Inc. respectively. This has resulted in an impairment expense of £772,017 in the year.





14. RELATED PARTY TRANSACTIONS continuedThe following management fees were charged by NetScientific plc to fellow non wholly owned subsidiary undertakings:

2014 £

2013 £

Wanda, Inc. 167,854 128,995Vortex BioSciences, Inc. 85,869 91,159Glycotest, Inc. 46,361 69,433

Interest was charged by NetScientific plc to the following non wholly owned subsidiary undertakings:

2014 £

2013 £

Vortex BioSciences, Inc. 67,737 –Wanda, Inc. 25,471 –Glycotest, Inc. 2,563 –Advanced Cardiotech, Inc. 2,242 –Qlida Diagnostics, Inc. 1,602 –

Other related parties have been disclosed in note 24 to the consolidated financial statements.



CONTENTS

NETSCIENTIFIC PLC ANNUAL REPORT

PageOverview

– Chairman’s Statement 1

Strategic Report

– Strategic Report 4

– Financial Review 6

Corporate Governance

– Board of Directors 7

– Report of the Directors 9

– Corporate Governance Report 12

– Directors’ Remuneration Report 14

Financial Statements

– Independent Auditors’ Report 17

– Consolidated Income Statement 18

– Consolidated Income Statement and Other Comprehensive Income 19

– Consolidated Statement of Financial Position 20

– Consolidated Statement of Changes in Equity 21

– Consolidated Statement of Cash Flows 22

– Notes to the Consolidated Financial Statements 23

– Parent Company Financial Position 44

– Notes to the Parent Company Financial Statements 45

COMPANY INFORMATION

DIRECTORS:Sir R SykesDr. M T Boyce-JacinoD A GoughP Y ThomsN C HeckfordB W WilsonJ Paisner

SECRETARY:E Schneider

REGISTERED OFFICE:Anglo HouseBell Lane Offi ce VillageBell LaneAmershamBuckinghamshireHP6 6FA

REGISTERED NUMBER: 08026888 (England and Wales)

AUDITORS:BDO LLPArcadia HouseMaritime WalkOcean VillageSouthamptonHampshireSO14 3TL

SOLICITORS:Simmons & Simmons LLPCityPointOne Ropemaker StreetLondonEC2Y 9SS

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