TEK Tekcapital Plc

Share capital represents the amount subscribed for share capital at nominal value.

Share premium represents the amount subscribed for share capital in excess of nominal value and net of any directly attributable issue costs.

Translation reserve - foreign exchange differences recognised in other comprehensive income.

Other reserve - historic other reserve outside of share premium and translation reserve.

Retained earnings - cumulative net gains and losses recognised in the consolidated statement of comprehensive income, net of dividends paid.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2024

Notes to the financial information

1.    General information

Tekcapital PLC is a company incorporated in England and Wales and domiciled in the UK. The address of the registered office is 12 New Fetter Lane, London, United Kingdom, EC4A 1JP. The Company is a public limited company, which has been quoted on the AIM market of the London Stock Exchange since 2014.

The principal accounting policies applied in the preparation of this consolidated financial information are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

2.    Basis of preparation

The financial information for the six months ended 30 June 2024 set out in this interim financial information is unaudited and does not constitute statutory financial statements. The interim condensed financial information has been presented in US Dollars ("$") and is rounded to the nearest dollar.

3.    Accounting policies

3.1 Statement of compliance

The accounting policies applied by the Group and its subsidiaries in these unaudited half year results are consistent with those applied in the annual financial statements for the year ended 31 December 2023.  

The financial statements of Tekcapital PLC Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) as adopted by the United Kingdom and the Companies Act 2006. The financial statements have been prepared under the historical cost convention.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4 of the FY 2023 accounts. The estimates that changed since then are disclosed in Note 7.

4.    Going concern

The 2024 interim financial information has been prepared on a going concern basis.

The Group and Company meet its day to day working capital requirements through its service offerings, monetisation of quoted equity stakes and monies raised through issues of equity.

The Group's forecasts and projections indicate that the Group and Company have sufficient cash reserves to operate within the level of its current funds. The Group has no third party debt facilities. 

The Directors have prepared detailed cash flow projections for the period to 30 September 2025 ("going concern assessment period"). The cash flow projections have been subjected to sensitivity analysis which demonstrates that the Group and Company will maintain a positive cash balance through the going concern assessment period.

The Directors have also considered the geo-political environment, including rising inflation, and whilst the impact on the Group is currently deemed minimal, the Directors remain vigilant.

On this basis, the Directors have therefore concluded that it is appropriate to prepare this financial information on a going concern basis.

5.    Taxation

Immaterial charge of US$1,675 has arisen in the six-month period ended 30 June 2024 (30 June 2023: US$1,089).

6.    Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of Ordinary Shares outstanding during the period.

Diluted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the sum of weighted average number of (1) Ordinary Shares outstanding during the period and (2) Ordinary Shares to be issued assuming exercise of outstanding stock options with intrinsic value above $0 at 30 June 2024:

Financial Assets at Fair Value through Profit or Loss

The Group's financial assets at fair value through profit and loss consist of equity investments (2024: US$61,934,271, 31 December 2023: US$41,125,568) and convertible loan notes (2024: US$7,547,721 December 2023: US$5,528,427) totaling US$69,481,993 (31 December 2023: US$46,653,995).

Equity investments

The valuation techniques used fall under, Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets, and Level 3- Other techniques as defined by IFRS 13. These techniques were deemed to be the best evidence of fair values considering the early stage of portfolio companies. 

Microsalt plc commenced trading on the London Stock Exchange on 1 February 2024. As such, the Group's investment in Microsalt has been re-classified under Level 1 as of 30 June 2024. Fair value measurement hierarchy for financial assets as at 30 June 2024 with comparative amounts as of 31 December 2023:

Guident (Nil Gain / Nil loss)

The total fair value remains unchanged from 31 December 2023 and is based on a Private Placement Memorandum outlining offering of securities at $1 per unit, with 18,115,942 shares held. Upon review of business updates in H1 2024, management noted no material events necessitating revisions.

Microsalt (US$21.1m gain)

The total fair value of US$38,890,073 is based on valuation of 33,305,749 shares held in Microsalt plc at GBP0.925, the observed closing price on the London Stock Exchange as of 30 June 2024. Accounting for cost addition of US$1.39m, fair value gain of US$21.0m was arrived at as of 30 June 2024.

Lucyd Ltd (US$0.4m gain)

The fair value of the holding increased by US$0.4m during the year due to the movement in the Company's share price at NASDAQ market, and closing price of US$0.495 as of 30 June 2024, compared to US$0.42 as of 31 December 2023. With 5,189,085 shares held by Tekcapital plc, a fair value of US$2,568,597 was arrived at as of 30 June 2024.

Belluscura (US$0.9m loss)

The fair value of the holding decreased by US$0.9m during the period due to the movement in Company's share price at AIM market of London Stock Exchange and closing price of 16p as of 30 June 2024, compared to 23p as of 31 December 2023. With 10,638,767 shares held by Tekcapital plc and disposal of 3,500,000 shares during the period at 16.15p per share, a fair value of US$2,162,351 was arrived at as of 30 June 2024.

GENIP Limited (Nil Gain / Nil loss)

The fair value of the holding, following the transfer of assets from Tekcapital LLC as of 4 June 2024, totals US$0.2m

Other investments (Nil Gain / Nil loss)

Given early stage of commercialisation, the fair value of Smart Food TEK was recorded based on the cost of acquired IP, as the carrying amounts represent a reasonable approximation of fair value.

Under level 3 unobservable inputs. In the absence of observable inputs, the directors have considered the entities own data to determine the fair value, which equates to the original funds invested. They do not consider that any other available information would materially change or give a more reliable representation of the value. 

This is the only category of financial instruments measured and re-measured at fair value.

        Convertible loan notes

During the year, the Group also held multiple convertible loans issued by its portfolio companies, including:

•     Convertible note issued by Guident Ltd for the total of US$5,000,000, issued at 10% coupon rate including option to convert the debt into shares at market price (no discount against future equity placements offered). The note can be converted into Guident's equity upon occurrence of certain conversion events including future share placements. The US$5,000,000 note originated in September 2023 or can be converted into Guident's equity upon occurrence of certain conversion events. No conversions occurred during the period. As of 30 June 2024, US$4,262,903 was outstanding.

•     Convertible loan note instruments in favour of Microsalt Inc were constituted on 21 September 2020 (2020 CLN) and 1 June 2022 (2022 CLN). The principal amounts of convertible loan notes under the 2020 CLN and the 2022 CLN was each limited to US$2,000,000. The convertible loan notes under the 2020 CLN and the 2022 CLN each carry interest at the rate of 10 per cent. per annum. As of 30 June 2024, US$2,000,000 was outstanding on the convertible loan notes.

•     A convertible loan note instrument in favour of Tek Europe was constituted by the Company on 1 March 2023. The principal amount of convertible loan notes was limited to US$2,000,000. The convertible loan notes carry interest at the rate of 10 per cent. per annum. A convertible loan note instrument in favour of Tek Europe, as assignee of Tekcapital, was constituted by the Company on 7 November 2023. The principal amount of convertible loan notes was limited to US$2,000,000. The convertible loan notes carry interest at the rate of 10 per cent. per annum. As of 30 June 2024, US$1,221,275 was outstanding on the convertible loan notes.

7.    Related party transactions

The Group has generally taken advantage of the exemption in IAS 24 "related parties" not to disclose transactions with Group companies other than newly formed GENIP Ltd, disclosed below. During the period the Group did not employ any services of non-Group companies meeting the definition of related parties.

On 14 August 2024, the Company entered into an Asset Purchase Agreement with Tekcapital plc and Tekcapital LLC. In accordance with the terms of the Agreement, effective 4 June 2024, the Company acquired certain assets and liabilities related to Invention Evaluator and Vortechs business. Following assets and liabilities were transferred to the Company as part of capital contribution of US$191,564 by Tekcapital plc, for the consideration of US$1. US$191,564 was recorded as an addition to Financial Assets at Fair Value as of 30 June 2024 being the book value of the assets and liabilities transferred from Tekcapital LLC.

Assets:

Intangible Assets of US$183,229, representing Net Book Value of Invention Evaluator (US$397,773 cost and US$318,897 accumulated depreciation) and Vortechs (US$462,771 cost and US$358,418 accumulated depreciation).

Trade receivables of US$58,370 representing trade receivables of Invention Evaluator and Vortechs businesses.

Trademark cost related to Invention Evaluator value of $2,089.

Liabilities:

Deferred income of US$50,035 representing prepayments made in 2023 and 2024 by customers of Invention Evaluator before the reports were delivered.

Additionally, the Company entered into a management service agreement with Tekcapital Europe ltd as of 23 February 2024, compensating Tekcapital Europe Limited in the amount of US$35,000 per quarter for a number of support services. This agreement expired effective 30 June 2024, with US$38,846 charged and unpaid as of 4 June 2024.

8.    Interim results

The interim results for the six months ended 30 June 2024 will not be sent to shareholders but will be available from the Company's website at http://tekcapital.com/

General Risk Factors and Forward-Looking Statements

This Report is directed only at Relevant Persons and must not be acted on or relied upon by persons who are not Relevant Persons. Any other person who receives this Report should not rely or act upon it. By accepting this Report the recipient is deemed to represent and warrant that: (i) they are a person who falls within the above descrip-tion of persons entitled to receive the Report; (ii) they have read, agreed and will comply with the contents of this notice. The securities mentioned herein have not been and will not be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or under any U.S. State securities laws, and may not be offered or sold in the United States of America or its territories or possessions (the "United States") unless they are registered under the Securities Act or pursuant to an exemption from or in a transaction not subject to the registration requirements of the Securities Act. This Report is not being made available to persons in Australia, Canada, Japan, the Republic of Ireland, the Republic of South Africa or any other jurisdiction in which it may be unlawful to do so, and it should not be delivered or distributed, directly or indirectly, into or within any such jurisdictions.

Investors must rely on their own examination of the legal, taxation, financial and other consequences of an investment in the Com-pany, including the merits of investing and the risks involved. Prospective investors should not treat the contents of this Report as advice relating to legal, taxation or investment matters and are advised to consult their own professional advisers concerning any acquisition of shares in the Company. Certain of the information contained in this Report has been obtained from published sources prepared by other parties. Certain other information has been extracted from unpublished sources prepared by other parties which have been made available to the Company. The Company has not carried out an independent investigation to verify the accuracy and completeness of such third-party information. No responsibility is accepted by the Company or any of its directors, officers, em-ployees or agents for the accuracy or completeness of such information.

All statements of opinion and/or belief contained in this Report and all views expressed represent the directors' own current as-sessment and interpretation of information available to them as at the date of this Report. In addition, this Report contains certain "forward-looking statements", including but not limited to, the statements regarding the Company's overall objectives and strategic plans, timetables and capital expenditures. Forward-looking statements express, as at the date of this Report, the Company's plans, estimates, valuations, forecasts, projections, opinions, expectations or beliefs as to future events, results or performance. Forward-looking statements involve a number of risks and uncertainties, many of which are beyond the Company's control, and there can be no assurance that such statements will prove to be accurate. No assurance is given that such forward looking statements or views are correct or that the objectives of the Company will be achieved. Further, valuations of Company's portfolio investments and net asset value can and will fluctuate over time due to a wide variety of factors both company specific and macro-economic. Changes in net asset values can have a significant impact on revenue and earnings of the Company and its future prospects. As a result, the reader is cautioned not to place reliance on these statements or views and no responsibility is accepted by the Company or any of its directors, officers, employees or agents in respect thereof. The Company does not undertake to update any forward-looking statement or other information that is contained in this Report. Neither the Company nor any of its shareholders, directors, officers, agents, employees or advisers take any responsibility for, or will accept any liability whether direct or indirect, express or implied, contractual, tortious, statutory or otherwise, in respect of, the accuracy or completeness of the information contained in this Report or for any of the opinions contained herein or for any errors, omissions or misstatements or for any loss, howsoever arising, from the use of this Report. Neither the issue of this Report nor any part of its contents is to be taken as any form of contract, commitment or recommendation on the part of the Company or the directors of the Company. In no circumstances will the Company be responsible for any costs, losses or expenses incurred in connection with any appraisal, analysis or investigation of the Company. This Report should not be considered a recommendation by the Company or any of its affiliates in relation to any prospective acquisition or disposition of shares in the Company. No undertaking, Report, warranty or other assurance, express or implied, is made or given by or on behalf of the Company or any of its affiliates, any of its directors, of-ficers or employees or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this Report and no responsibility or liability is accepted for any such errors or omissions.

Intellectual Property Risk Factors

Tekcapital's mission is to create valuable products from university intellectual property that can improve people's lives.  Therefore, our ability to compete in the market may be negatively affected if our portfolio companies lose some or all of their intellectual property rights, if patent rights that they rely on are invalidated, or if they are unable to obtain other intellectual property rights. Our success will depend on the ability of our portfolio companies to obtain and protect patents on their technology and products, to protect their trade secrets, and for them to maintain their rights to licensed intellectual property or technologies. Their patent applications or those of our licensors may not result in the issue of patents in the United States or other countries. Their patents or those of their licensors may not afford meaningful protection for our technology and products. Others may challenge their patents or those of their licensors by proceedings such as interference, oppositions and re-examinations or in litigation seeking to establish the invalidity of their patents. In the event that one or more of their patents are challenged, a court may invalidate the patent(s) or determine that the patent(s) is not enforceable, which could harm their competitive position and ours. If one or more of our portfolio company patents are invalidated or found to be unenforceable, or if the scope of the claims in any of these patents is limited by a court decision, our portfolio companies could lose certain market exclusivity afforded by patents owned or in-licensed by us and potential competitors could more easily bring products to the market that directly compete with our own. The uncertainties and costs surrounding the prosecution of their patent applications and the cost of enforcement or defense of their issued patents could have a material adverse effect on our business and financial condition.

To protect or enforce their patent rights, our portfolio companies may initiate interference proceedings, oppositions, re-examinations or litigation against others. However, these activities are expensive, take significant time and divert management's attention from other business concerns. They may not prevail in these activities. If they are not successful in these activities, the prevailing party may obtain superior rights to our claimed inventions and technology, which could adversely affect their ability of our portfolio companies to successfully market and commercialise their products and services. Claims by other companies may infringe the intellectual property rights on which our portfolio companies rely, and if such rights are deemed to be invalid it could adversely affect our portfolio companies and ourselves as investors in these companies.

From time to time, companies may assert patent, copyright and other intellectual proprietary rights against our portfolio company's products or technologies. These claims can result in the future in lawsuits being brought against our portfolio companies or their holding company. They and we may not prevail in any lawsuits alleging patent infringement given the complex technical issues and inherent uncertainties in intellectual property litigation. If any of our portfolio company products, technologies or activities, from which our portfolio companies derive or expect to derive a substantial portion of their revenues and were found to infringe on another company's intellectual property rights, they could be subject to an injunction that would force the removal of such product from the market or they could be required to redesign such product, which could be costly. They could also be ordered to pay damages or other compensation, including punitive damages and attorneys' fees to such other company. A negative outcome in any such litigation could also severely disrupt the sales of their marketed products to their customers, which in turn could harm their relationships with their customers, their market share and their product revenues. Even if they are ultimately successful in defending any intellectual property litigation, such litigation is expensive and time consuming to address, will divert our management's attention from their business and may harm their reputation and ours.

Several of our portfolio companies may be subject to complex and costly regulation and if government regulations are interpreted or enforced in a manner adverse to them, they may be subject to enforcement actions, penalties, exclusion, and other material limitations on their operations that could have a negative impact on their financial performance. All of the above-listed risks can have a material, negative affect on our net asset value, revenue, performance and the success of our business and the portfolio companies we have invested in.

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