Registered in England and Wales number 10114644 Verditek PLC Group Annual Report and Financial Statements Year Ended 31 December 2020 CONTENTS 2020 HIGHLIGHTS ................................................................................................................................ 1 CHAIRMAN’S STATEMENT........................................................................................................................... 1 CHIEF EXECUTIVE’S REVIEW ........................................................................................................................ 3 STRATEGIC REPORT ..................................................................................................................................... 6 FINANCIAL REVIEW ..................................................................................................................................... 8 PRINCIPAL RISKS AND UNCERTAINTIES ....................................................................................................... 9 GOVERNANCE .................................................................................................................................... 12 BOARD OF DIRECTORS .............................................................................................................................. 12 CORPORATE GOVERNANCE REPORT ......................................................................................................... 14 AUDIT COMMITTEE REPORT ..................................................................................................................... 19 DIRECTORS’ REMUNERATION REPORT ..................................................................................................... 20 CORPORATE AND SOCIAL RESPONSIBILITY ............................................................................................... 22 DIRECTORS’ REPORT ................................................................................................................................. 23 STATEMENT OF DIRECTORS’ RESPONSIBILITIES........................................................................................ 26 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VERDITEK PLC ............................................. 27 FINANCIAL STATEMENTS .................................................................................................................... 32 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ................................................................... 32 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ............................................................................ 33 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ............................................................................. 34 CONSOLIDATED STATEMENT OF CASH FLOWS ......................................................................................... 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ....................................................................... 36 COMPANY STATEMENT OF FINANCIAL POSITION .................................................................................... 62 COMPANY STATEMENT OF CHANGES IN EQUITY ..................................................................................... 63 NOTES TO THE COMPANY FINANCIAL STATEMENTS ................................................................................ 64 OFFICERS AND ADVISERS .......................................................................................................................... 70 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 2020 HIGHLIGHTS During 2020 Verditek moved from development phase to commercialization of its lightweight, flexible solar panels In the fourth quarter of the year, Verditek ramped up its operations at its plant in Lainate, Italy The plant has an operational capacity of over 80MW per annum Progress was made with Verditek’s partnership with Paragraf Revenues for the year were £21,521 with a loss after tax of £2,324,121 Fundraisings during the year contributed £5.1m cash after expenses CHAIRMAN’S STATEMENT The year to 31 December 2020 was an important period for Verditek’s development with the focus being primarily on the development of its lightweight solar panels which are manufactured at the Group’s factory on the outskirts of Milan, Italy. Following a lengthy period of research and development the Group moved into regular production during the fourth quarter of the year against the background of a significant pipeline of projects located around the world. Unfortunately, due to the pandemic, many of these projects have been delayed, but in recent weeks activity has increased again and we have received commitments to a number of smaller orders. Verditek’s solar modules offer several innovations including interconnectivity of individual PV cells and increased flexibility. They are particularly light weight compared to conventional PV modules. This opens markets (both on grid and off grid) that otherwise cannot consider solar energy to address their power requirements. Our factory now has proven production capability and has a potential capacity of producing over 80MW of panels per annum. Due primarily to operating efficiencies this is far higher than previously envisaged. Cell technology continues to advance and Verditek will soon be launching its second-generation panel with a power output of circa 350 watts per panel. New certification will be required for this product and this process is underway. During the year our executive team was changed with Rob Richards becoming CEO and Geoff Nesbitt taking on the vital role of CTO. Tim Bowen joined as CFO to replace Tim Lord. We would like to thank Geoff and Tim for their significant input into the Group. Geoff has a strong technical mastery of our products and in his new role as CTO he is focussing on our pioneering work with Paragraf exploring ways of using graphene in the production of solar panels. In the first half of 2020 the group raised fresh equity totalling £1.5m and in October £3.5m was raised from new and existing investors. As recently announced, the Group has also entered into a debt facility with Crowd for Angels. This platform is set to initially raise up to £500,000 from interested individuals and has already a commitment of £250,000. The Group also has a significant stock of solar panels that are being sold as new projects convert from pipeline opportunities to sales. 1 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 Whilst 2020 proved to be a year of global uncertainty, Verditek has proved itself from an operational point of view. We have a strong focus on sales, cutting edge R&D, and growing addressable markets. COP26 this year is bringing home the urgent need to go green. Verditek can contribute to many organisations’ green energy strategy with good value solutions. We should be well placed to deliver significant growth once normal trading conditions resume. The Rt Hon. Lord David Willetts FRS Non-Executive Chairman 2 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 CHIEF EXECUTIVE’S REVIEW Overview The year to December 2020 was an important one for Verditek and saw the Group focus on commercializing its flexible, lightweight solar panels. In the fourth quarter of the year production was ramped up at the Group’s factory in Lainate, Italy in anticipation of Verditek’s significant pipeline converting into orders. The year was not without its setbacks and whilst we were able to manage the impact of the pandemic from an operational point of view, the effects have been felt commercially as potential customers delay their transition to green energy. None the less, Verditek emerged from 2020 as a stronger company with a significant opportunity to play a major role in the flexible, lightweight solar panel marketplace. Strategy The Group’s historic strategy has been to identify early-stage business opportunities in the clean technology sector, invest in them and see them through to commercial success. Whilst this remains the Group’s objective most of 2020 was spent moving from the research and development phase into pipeline building for the Group’s solar opportunity. This is likely to be the case for the rest of 2021 and into 2022. As the world continues to evolve from its dependency on hydrocarbon-based energy sources to cleaner, more environmentally friendly energy, we believe the Verditek Solar product is extremely well positioned to become a market leader in the ultra-lightweight, flexible solar market. The Company's TUV approved product has numerous potential applications that are not available to the traditional, heavy and fragile solar panel technology. We believe major new market opportunities for our lightweight product will open up in areas such as military, transportation, cellular telecoms masts, new build homes (as part of an integrated roof tile system), and warehousing (where roofing structures are less rigid). Here the advantages of a highly durable, efficient ultra-lightweight solar solution can now be embraced. We believe the trend in the world moving from burning hydrocarbons as a primary energy source towards utilising solar solutions will accelerate. Operations The Group’s solar operations are based in a modern 2,000 square meter factory located in Lainate on the outskirts of Milan, Italy. From here a core staff together with a further flexible contract labour team manufacture Verditek’s flexible light weight solar panels using the latest components sourced from around the world. During the fourth quarter of 2020 production was significantly increased in anticipation of several pipeline orders closing. At this time, it became evident that working on a three-shift basis the plant could have potential production capacity in excess of 80MW per annum, far higher than previously thought. The technology used in cells continues to evolve and the Group is currently in the process of developing its second- generation panel. In a standard sized panel (with 60 cells) the power output will now increase to 350W. Whilst the Group has significant stock of its first-generation panel with a power output of 288W per panel, these are still suitable for most applications as solar solutions are sold by power output and not per panel. The certification process for the second-generation panels has commenced and is expected to conclude in the second half of 2021. This certification will cover the panels in a broad range of applications and will be tested for temperature, fire, hail damage and wind as well as durability. 3 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 Sales and Marketing During the year the Company put in place various routes to market, including commission only sales agents, employed sales consultants and distributors. Their efforts have led to a significant pipeline being built up, however many of these have been slow to close for various reasons including the current pandemic. The most disappointing delay was the SAF Pakistan order announced in 2020 that was put on hold due to the funding being redeployed by regional government to support the COVID-19 efforts. At this stage we do not know whether the project will resume or not. We developed two PowerMat solutions, whereby panels are joined together and housed in a shipping container for use in differing locations. The fabrication of a 75kWp re-deployable PowerMat for a project in Eastern Australia is now complete. Furthermore, we have developed a second demonstration model in Dubai which is currently undergoing commissioning before being dispatched to various sites for client proof-of-concept testing. We are discussing with a number of prospects in the Oil & Gas, Mining, and Civil Defence arenas for the deployment of this solution. Verditek Solar have signed a distribution agreement with Bradclad Limited, one of the UKs biggest supplier of standing seam roofs, and we have already received orders from this partner. The Metrotile co-operation has re-started following delays caused by COVID-19 and we have received our first commercial orders for this project. For the UK off-grid market, Verditek are now collaborating with Enershare which enables us to offer a complete solution for clients. This client has already ordered panels from Verditek. Verditek continue to supply panels for various marine applications including conventional yachts, electric powered yachts, and canal boats. On 13 July 2020 we announced an order from Black Tulip for delivery to Peru. The project is complete from our side however we are still awaiting payment before shipping the goods. Other Opportunities We are in discussions to license our manufacturing technology to a new plant and we have received expressions of interest from others to build similar plants elsewhere in the world. We have an exciting relationship in place with Paragraf, a Cambridge (UK) based start-up which has developed world-leading graphene technology. Together we have worked on two Joint Development Projects (“JDP”). The objectives of JDP 1 and 2 were for Verditek and Paragraf to grow large scale (e.g. 3x3cm) graphene surfaces directly on photovoltaic (“PV”) Proof of Concept (“PoC”)chips and eventually entire industrial PV wafers (15x15cm). During JDP1 several challenges were addressed pertaining to industrial PV wafer surface roughness, finding optimum growth conditions to balance chemical bonding (adhesion) with delocalization of electrons (conduction), determine the graphene transparency vs. build-up of electrical properties, and the creation of defect-free surfaces. 4 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 The main goals were divided into work programs to demonstrate that by replacing the metallic busbars with graphene we can improve the performance of PV wafers by: increasing the efficiency by removing the topside busbar shading of the PV surface increase the efficiency by harvesting electrons from the entire topside surface Improve the robustness of the wafer due to the physical resilience of graphene In the course of JDP 1 and 2 we have managed to accomplish the following deliverables: Successfully design conditions to grow graphene on an industrial grade mono-silicon PV wafer PoC with good adhesion and demonstrate a reliable I/V curve (conductance) Confirm that the methodology could control the deposition of graphene in layers Develop in-house methods to reliably measure graphene defect and conductance under illumination of the PoCs Extended growth to an entire 15.6 x 15.6mm wafer and have measured current flow Investigated methods to try and re-order the silicon wafer surface to provide a better template for graphene growth Improve the silicon to graphene to metal contact by investigating and selecting metal paste formulations to manage the conductance of charge across the Si-G-M interface Perform physical modelling of the graphene interface to better understand bonding Confirm the current density that could be harvested by a transparent Graphene layer The outcomes of JDP’s 1 & 2 have demonstrated positive results and potentially interesting applications for graphene in solar technologies. The Companies are currently exploring the next joint development program, JDP3, to continue the progress of graphene enhanced solar cell products. Finance For the year to 31 December 2020 the Group had revenues of £21,521 and recorded a loss after tax of £2.3m. Circa £5m of new equity was raised primarily to fund working capital but also to repay existing loans. At the year end the business had debt of £70,000 which has subsequently been repaid. During the second half of 2020 and into 2021 the overhead base of the Group was significantly reduced in order to conserve cash balances as the conversion period for prospects to become fee paying customers has taken longer than expected. As announced on 1 June 2021, the Group entered into a bond issue with Crowd for Angels whereby between £250,000 and £500,000 is to be raised. The bonds are for 2 years and pay a coupon of 7%. Outlook and Conclusion We are excited about the outlook for Verditek and believe the future remains very positive despite the headwinds of the last 18 months. Verditek was established with the vision of building a leading clean technology Group and delivering game changing technological solutions. Whilst the business still remains early stage, we believe our significant investment into the development of our flexible, lightweight solar panels will soon prove fruitful. I would like to take this opportunity to thank my fellow Board members, staff, valued shareholders and advisers for their support. We look forward to delivering on the vision of building a cash-generative and profitable clean technology company together. Rob Richards, Chief Executive Officer 5 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 STRATEGIC REPORT Verditek is a cleantech company with its principal interest being the manufacture and commercialistion of leading- edge solar technologies. Verditek Solar Italy (100% owned subsidiary) operates from a modern factory in Lainate, Italy and has manufacturing capacity to produce over 80MW innovative lightweight solar modules per annum. The market for Verditek’s solar products covers both on grid and off grid installations and has applications from single panel use such as in Tuk Tuks in Thailand to large projects which deliver power where conventional fossil fuel power production is both expensive and logistically difficult to manage. For such large rural projects, Verditek has developed its PowerMat concept where circa 250kw of panels are connected by one of two systems and are stored when not in use in a shipping container for easy transportation and re-use in different locations. Verditek’s light weight solar modules offer several innovations including: interconnectivity of individual PV cells, increased flexibility, and are particularly light weight compared to conventional PV modules. In addition to its solar business the Group has investments in two other clean tech businesses BBR and ICSI as well as entering into a series of joint development programmes with Paragraf, a pioneer in graphene technology. COVID-19 We have considered the impact of the COVID-19 pandemic on the businesses of the Group both in terms of experience to date and our assessment of its potential impact on the markets which Verditek expects to commercialise its products in. Italy was hit earlier and more severely than most countries by the outbreak of the virus in the first quarter of 2020. Fortunately, our factory was able to operate at required levels for all of the year with minimal interruptions. However, a number of pipeline projects we had expected to close in the fourth quarter of 2020 did not, due mainly to either the economic uncertainty created by the pandemic or the fact that funds were redeployed elsewhere. Unfortunately, many of these pipeline projects have remained on hold during the first half of 2021. The Group has prepared financial forecasts to model management’s assessment of the impact of COVID-19 on the business of the Group, including ongoing delays in pipeline projects being signed off as orders. Steps have been taken by the Directors to protect and manage the business during the coming period, including the introduction of temporary pay deferrals at Board level and further overhead reductions. S172 Statement As required by Section 172 of the Companies Act, a director of a company must act in the way he or she considers, in good faith, would likely promote the success of the company for the benefit of the shareholders. In doing so, the director must have regard, amongst other matters, to the following issues: • the likely consequences of any decisions in the long term; • the interests of the company’s employees; • the need to foster the company’s business relationships with suppliers/customers and others; • the impact of the company’s operations on the community and environment; • the company’s reputation for high standards of business conduct; and 6 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 • the need to act fairly between members of the company. The information required by s172 of the Companies Act 2006 is included in the Strategic Report above, the Corporate Governance Report pages 14 to 18 and the Corporate Social Responsibility report on page 22. On behalf of the Board Robert Richards Chief Executive Officer 29 June 2021 7 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 FINANCIAL REVIEW Income statement During the year 2020 the Group’s loss after taxation was £2,324,121 (December 2019: £1,864,313). The administration costs incurred for the year ended 31 December 2020 were £1,971,662. Loss per share The basic and diluted loss per share was £0.01(2019: £0.01). Financial Position At 31 December 2020, the Group’s net assets were £2,738,483 (2019: net liabilities of £365,035). This comprised total assets of £3,588,776 and total liabilities of £850,293. The total assets included property, plant and equipment of £586,612 (2019: £633,491). Cashflow The Group’s cash balance at the period end was £1,711,761 (2019: £107,243). During the period the net cash outflow from operating activities was £2,752,360 (2019: 1,324,285) with financing activities generating net proceeds of £4,388,219 (2019: £904,905). Dividends No dividend is recommended (2019: £nil) due to the early stage of the development of the Group. Capital management The Board’s objective is to maintain a statement of financial position that is both efficient and delivers long term shareholder value. The Group had cash balances of £1,711,761 as at 31 December 2020 (2019: £107,243). The Board continues to monitor the balance sheet to ensure it has an adequate capital structure. Key Performance Indicators As the Group’s revenues are still at an early stage, the main measures of performance are the level of expenditure compared to budget and forecast expectations. Going forwards the Board will work with the businesses to develop a suite of KPIs to monitor and report performance. Events after the reporting period Events after the reporting period are described in Note 25 to the financial statements. Tim Bowen Chief Financial Officer 8 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 PRINCIPAL RISKS AND UNCERTAINTIES The Board is committed to protecting and enhancing our reputation and assets, while safeguarding the interests of our shareholders. It has overall responsibility for the Group’s system of risk management and internal control. The Board assesses the Company’s principal risks and monitors the risk management process at least twice a year. Over the course of the year, the Board has also considered specific risks of intellectual property and physical asset security, fluctuations in exchange rates and liquidity. Accepting that it is not possible to identify, anticipate or eliminate every risk that may arise and that risk is an inherent part of doing business, our risk management process aims to provide reasonable assurance that we understand, monitor and manage the main uncertainties that we face in delivering our objectives. Our principal risks are shown in the table below. Risk Framework Managing risk is an inherent part of any vital commercial enterprise. The Company has prepared a risk review using an established framework that assists the recognition and mitigation of risk. Ranking risk and opportunity is critical to any successful business and assists the executive in managing priorities to extract the maximum value from our investments, while maintaining vigilance on those aspects which most influence an outcome. Over the course of the year we have continued to focus on the risk framework developed in our first year of operation to maintain and enhance a fit for purpose governance model and to ensure compliance. Financial control continues to figure prominently in this overall framework. Risk Review The key risks identified per business are as follows: RISK Solar: The solar marketplace continues to have increased efficiency (power output) and increased competition. s n o i t i d n o c t e k r a M MITIGATION and MANAGEMENT Verditek continues to monitor the efficiency of cells used in production of its solar panels, and seeks to remain at the forefront of technical advancements at all times. ASSESSMENT Medium risk 9 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 RISK Our products are considered too expensive versus traditional glass solar panels, or provide a low return on investment. Limited ability to negotiate bulk discounts. Establishing sales leads is slow. Failure to meet AIM corporate governance requirements. HSE violations in Group operating companies. Failure to secure cashflow and remain a going concern, also growth ambitions might outpace cash reserves. MITIGATION and MANAGEMENT In our solar business we are focused on both off-grid and on- grid, where traditional solar panels cannot be used. In its marketing materials, the Company distinguishes between traditional glass solar panels, versus its semi-flexible, lightweight solar panels. However, the Group’s product displaces diesel or other fossil fuel power sources. As the business scales, costs of raw materials will reduce. The Company constantly assesses its costs. The executive benchmarked its corporate governance, policies and procedures against the newly published QCA guidelines to ensure compliance. The Company has regular discussions with its nominated advisor and external counsel. The Company is directly responsible for installing and auditing an HSE culture. The Board reviews medium to long term cashflow forecasts, and aims to ensure sufficient funding is in place to meet requirements. Factory output levels reduce, poor quality, other operational issues including Board members not being able to visit the factory during pandemic The Group has systems in place for testing of each panel, and daily production levels are monitored and reported on regularly by local management. ASSESSMENT Medium risk Low risk Medium risk Medium risk Medium risk s s e c c u S l a i c r e m m o C e t a r e p O o t e s n e c i L l a i c n a n F i l a n o i t a r e p O 10 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 RISK l a g e L 9 1 - D V O C I Poorly constructed sales contracts expose the company to punitive commercial conditions. Partnering relationships expose the Company to unlimited liabilities. Adverse global trading conditions due to the COVID-19 pandemic, with companies and countries reducing their spend on capital projects. MITIGATION and MANAGEMENT The Company has secured Peachey & Co. LLP as their single corporate counsel and have developed a suite of proforma contracts to ensure commercial negotiations begin soundly. Contingency plans to control costs, through flex of production staff and supply chain streamlining. ASSESSMENT Low risk High risk 11 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 GOVERNANCE BOARD OF DIRECTORS The Board as at the date of signing the report and accounts comprised: Rob Richards (Chief Executive Officer) Rob was appointed Chief Executive Officer in May 2020. Rob is a chartered electrical engineer with over 20 years' experience in the Oil and Gas and Energy Industry. Rob joins Verditek plc, having held senior management positions in Ecolog International, FZE, Penspen Ltd, Thailand, KNM Process Systems Sdn Bhd in Malaysia and Siemens Oil and Gas, Singapore and Alstom Power. The Rt Hon. Lord David Willetts FRS (Non-Executive Chairman) The Rt Hon. Lord David Willetts FRS is the Chairman of Verditek plc. He is also the President of the Resolution Foundation. He served as the Member of Parliament for Havant (1992-2015), as Minister for Universities and Science (2010-2014) and previously worked at HM Treasury and the No. 10 Policy Unit. Lord Willetts is a visiting Professor at King’s College London, a Board member of UK Innovation and Research (UKRI) a Board member of Surrey Satellites and of the Biotech Growth Trust. He is an Honorary Fellow of Nuffield College Oxford. George Katzaros (Non-Executive Director) George is the founder of Verditek plc, identifying the three core technologies and leading the company to IPO on AIM. George has over 30 years’ experience in advisory and asset management as well as investment banking and venture capital particularly for cleantech companies. Gavin Mayhew (Non-Executive Director) Gavin was formerly the CEO of Energy Savers FZE, a UAE consultancy providing energy saving solutions to commercial and industrial clients. Before that Gavin was president of Zubair Terminal Company in Iraq, which was set up to finance, develop and operate a new commercial port in Iraq – a 38 year port concession was signed with the Iraqi government in 2018. He has over 20 years of business management experience in Latin America, Europe and the Middle East. Gavin has an MBA from INSEAD and undergraduate degree from Brown University in the USA The Board and responsibilities The Board hold monthly meetings to review, formulate and approve the Group’s strategy, budgets, corporate actions and oversee the Group’s progress towards its goals. There is an Audit Committee and a Remuneration Committee in place with formally delegated duties and responsibilities and with specific terms of reference. From time to time separate committees may be set up by the Board to consider specific issues when the need arises. Due to the size of the Group, the Directors have decided that issues concerning the nomination of directors will be dealt with by the Board rather than a committee but will regularly reconsider whether a nominations committee is required. Details of board meetings held, and attendance of Board directors is shown below: Board Members Executive Directors Rob Richards (appointed June 2020) Geoff John Nesbitt (resigned May 2020) Tim Lord (resigned August 2020) Non-Executive Directors The Rt Hon. Lord David Willetts FRS George Francis Katzaros Gavin Mayhew Eligible to attend Attended 7 3 9 12 12 12 7 3 9 12 12 12 12 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 The Audit Committee The Audit Committee comprises The Rt Hon. Lord David Willetts FRS as chairman and Gavin Mayhew. The Audit Committee determines the terms of engagement of the Group’s auditors and will determine, in consultation with the auditors, the scope of the audit. The Audit Committee receives and reviews reports from management and the Group’s auditors relating to the interim and annual accounts and the accounting and internal control systems in use throughout the Group. The Audit Committee has unrestricted access to the Group’s auditors. The Audit Committee Report is presented on page 19. The Remuneration Committee The Remuneration Committee comprises George Katzaros as chairman and Gavin Mayhew. The Remuneration Committee reviews the scale and structure of the executive Directors’ and senior employees’ remuneration and the terms of their service or employment contracts, including share option schemes and other bonus arrangements. The remuneration and terms and conditions of the non-executive Directors are set by the entire Board. The Directors’ Remuneration Report is presented on page 20. Investor relations The General Meeting is the principal forum for dialogue with shareholders. Updates on the progress of the business are regularly published on the Group’s website. On behalf of the Board Rob Richards Chief Executive Officer 13 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 CORPORATE GOVERNANCE REPORT The Directors recognise that good corporate governance is a key foundation for the long-term success of the Group. As the Company is listed on the AIM market of the London Stock Exchange and is subject to the continuing requirements of the AIM Rules. The Board has therefore adopted the principles set out in the Corporate Governance Code for small and midsized companies published by the Quoted Companies Alliance (“QCA Code”). The principles are listed below with an explanation of how the Company applies each principle, and what we do and why. QCA Code Principle Application (as set out by QCA) What we do and why 1. Establish a strategy and business model which promote long-term value for shareholders 2. Seek to understand and meet shareholder needs and expectations The board must be able to express a shared view of the company’s purpose, business model and strategy. It should go beyond the simple description of products and corporate structures and set out how the company intends to deliver shareholder value in the medium to long-term. It should demonstrate that the delivery of long-term growth is underpinned by a clear set of values aimed at protecting the company from unnecessary risk and securing its long-term future. Directors must develop a good understanding of the needs and expectations of all elements of the company’s shareholder base. The Board must manage shareholders’ expectations and should seek to understand the motivations behind shareholder voting decisions. 3. Take into account wider stakeholder and social implications for long-term success responsibilities and Long-term success relies upon good relations with a range of different stakeholder groups both internal (workforce) and external (suppliers, customers, regulators and others). The Company’s strategy is explained fully within our Chief Executive’s Report section of our Report and Accounts for the year ended 31 December 2020. Our strategy is focused on converting the current sales pipeline. The key challenges to the business and how these are mitigated are detailed on pages 9 to 11 of our Report and Accounts for the year ended 31 December 2020. Whilst the company is early stage, the Board is committed to returning value to our shareholders through execution of our strategy. Verditek plc encourages two-way communication with its investors and responds quickly to all queries received. The Board recognises the AGM as an important opportunity to meet shareholders. The Directors are available to listen to the views of shareholders informally immediately following the AGM. The people responsible for shareholder liaison are: The Chief Executive Officer The Chief Financial Officer Nomad (W.H. Ireland Limited) Details of the investor engagement and the people responsible for shareholder liaison can be found on the Company website. The executive maintains communications with trade and interest groups working in the markets where our products are sold and applied. 14 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 QCA Code Principle Application (as set out by QCA) What we do and why their implications for long- term success 4. Embed effective risk management, considering both opportunities and threats, throughout the organisation 5. Maintain the Board as a well- functioning, balanced team led by the chair The board needs to identify the company’s stakeholders and understand their needs, interests and expectations. Where matters that relate to the company’s impact on society, the communities within which it operates, or the environment have the potential to affect the company’s ability to deliver shareholder value over the medium to long-term, then those matters must be integrated into the company’s strategy and business model. Feedback is an essential part of all control mechanisms, and is welcomed from all stakeholder groups. The board needs to ensure that the company’s risk management framework identifies and addresses all relevant risks in order to execute and deliver strategy; companies need to consider their extended business, including the company’s supply chain, from key suppliers to end-customer. Setting strategy includes determining the extent of exposure to the identified risks that the company is able to bear and willing to take (risk tolerance and risk appetite). The Board members have a collective responsibility and legal obligation to promote the interests of the company and are collectively responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the chair of the Board. The Board (and any committees) should be provided with high quality information in a timely manner to facilitate proper assessment of the matters requiring a decision or insight. The Board should have an appropriate balance between executive and non-executive directors and should have at least The Company is committed to developing green technology, and this forms the backbone to decision making. Our website maintains a channel to receive feedback from all stakeholders. Risk Management on pages 9 to 11 of our Report and Accounts for the year ended 31 December 2020 details the risks to the business and how these are mitigated. The Board considers risk to the business a minimum of quarterly. The Board are appraised of any changes in the risk profile through monthly Board calls and quarterly face to face Board meetings. The Company formally reviews and documents the principal risks to the business at least annually. The Company is controlled by the Board of Directors. The Rt Hon. Lord David Willetts FRS, the Non-executive Chairman, is responsible for the running of the Board and Rob Richards, the Chief Executive, has executive responsibility for running the Group’s business and implementing Group strategy. All Directors receive regular and timely information on the Group’s operation and financial performance. Relevant information is circulated to the Directors in advance of meetings. All Directors have direct access to the advice and services of the Company Secretary and are able to take independent professional advice in the furtherance of the duties, if necessary, at the company’s expense. The Board comprises one Executive Directors and three Non-Executive Directors. The Board considers that all Non- executive Directors bring an independent judgement to bear. 15 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 QCA Code Principle Application (as set out by QCA) What we do and why 6. Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities two independent non- executive directors. Independence is a board judgement. The Board should be supported by committees (e.g. audit, remuneration, nomination) that have the necessary skills and knowledge to discharge their duties and responsibilities effectively. Directors must commit the time necessary to fulfil their roles. The board must have an appropriate balance of sector, financial and public markets skills and experience, as well as an appropriate balance of personal qualities and capabilities. The board should understand and challenge its own diversity, including gender balance, as part of its composition. The Board should not be dominated by one person or a group of people. Strong personal bonds can be important but can also divide a board. As companies evolve, the mix of skills and experience required on the board will change, and board composition will need to evolve to reflect this change. 7. Evaluate board performance based on clear and relevant objectives, seeking continuous improvement The Board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and the individual directors. The Executive Directors are full time and the Non-Executive Directors provide such time as is required to fully and diligently perform their duties. The Board holds monthly Board meetings. Details of the attendance record of each director at Board meetings is included in Director’s report of the Annual Report. Directors of the Board have attended professional NED instruction and have proven track-records of serving on boards previously. The Board will work to increase the diversity of the Directors. Further information about the Board’s skillset, including each Director’s experience and CV, is set out on the Company website and additional information is shown in page 12 of the Annual Report for the year ending 31 December 2020. The Company was admitted to trading on AIM in August 2017. Since that time there has been a greater than 50% turnover in Board membership. Appraisals are scheduled to be carried out each year with all Executive Directors. All continuing Directors stand for re- election on an annual basis. The Board performance review may be carried out internally or, ideally, The Company is early stage and as such the new Board has been focussed on 16 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 QCA Code Principle Application (as set out by QCA) What we do and why externally facilitated from time to time. The review should identify development or mentoring needs of individual directors or the wider senior management team. It is healthy for membership of the Board to be periodically refreshed. Succession planning is a vital task for boards. No member of the board should become indispensable. The Board should embody and promote a corporate culture that is based on sound ethical values and behaviours and use it as an asset and a source of competitive advantage. The policy set by the board should be visible in the actions and decisions of the chief executive and the rest of the management team. Corporate values should guide the objectives and strategy of the company. The culture should be visible in every aspect of the business, including recruitment, nominations, training and engagement. The performance and reward system should endorse the desired ethical behaviours across all levels of the company. The corporate culture should be recognisable throughout the disclosures in the annual report, website and any other statements issued by the company. The Company should maintain governance structures and processes in line with its corporate culture and appropriate to its: • size and complexity; and • capacity, appetite and tolerance for risk. ensuring that sufficient capital is in place to execute its strategy: first sales; investing in longer term development opportunities and developing the organisation. It is against the performance of this strategy that the Board is currently assessed. As the Board of the Company was formed only relatively recently, no formal succession plans are currently in place, but the Board will continue to review this also keeping in mind the outcome of each performance review. The Corporate and Social Responsibility section on page 22 of our Report & Accounts for the year ended 31 December 2020 details the ethical values of the Company. The Company’s Policy and Procedures manual is made available to staff as part of their induction and anti-bribery and anti- corruption training is compulsory. Staff are encouraged to ask questions and seek clarifications from senior members of the team on these policies. This year, to complement our existing Policies and Procedures, the company has implemented policies around Code of Conduct, Social Media and Share Dealing. Our Corporate Governance Report on page 14 to 18 of our Report & Accounts for the year ended 31 December 2020 details the Company’s governance structures and why they are appropriate and suitable for the Company. 17 8. Promote a corporate culture that is based on ethical values and behaviours 9. Maintain governance structures and processes that are fit for purpose and support good decision- making by the board Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 QCA Code Principle Application (as set out by QCA) What we do and why 10. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders. The governance structures should evolve over time in parallel with its objectives, strategy and business model to reflect the development of the company. A healthy dialogue should exist between the Board and all of its stakeholders, including shareholders, to enable all interested parties to come to informed decisions about the company. Appropriate communication and reporting structure should exist between the Board and all constituent parts of its shareholder base. This will assist: the communication of shareholders’ views to the board; and the shareholders’ understanding of the unique circumstances and constraints faced by the company. It should be clear where these communication practices are described (annual report or website). The Board has a formal schedule of matters reserved to it and is supported by the Audit and Remuneration Committees. Due to the size of the Group, the Directors have decided that issues concerning the nomination of directors will be dealt with by the Board rather than a committee but will regularly reconsider whether a nominations committee is required The Audit Committee and a Remuneration Committee have formally delegated duties and responsibilities and with specific terms of reference and these are available from the Company website. The Company encourages two-way communication with its investors and responds quickly to all queries received. The Board recognizes the AGM as an important opportunity to meet private shareholders. The Directors are available to listen to the views of shareholders informally immediately following the AGM. The executive has developed a mature communications program to engage in dialogue with our stakeholders through a mix of media channels. A range of corporate information (including all Company announcements, historical annual reports and other governance related material since the company was admitted to AIM in August 2017) is also available to shareholders, investors and the public on the Company website. The Company will disclose outcomes of all votes at shareholder meetings in a clear and transparent manner by either publishing a market announcement or by reporting it on the Company website. If a considerable proportion of votes (20%) have been cast against a resolution at any meeting of shareholders, the Company will include an explanation of what actions it intends to take to understand the reasons behind that vote result and, where appropriate, any different action it has taken, or will take, as a result of the vote. 18 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 AUDIT COMMITTEE REPORT The Audit Committee helps the Board discharge its responsibilities regarding financial reporting, external and internal audits and controls as well as reviewing the Group’s annual and half-year financial statements, other financial information and internal Group reporting. This includes: • • considering whether the Company has followed appropriate accounting standards and, where necessary, made appropriate estimates and judgments taking into account the views of the external auditors; reviewing the clarity of disclosures in the financial statements and considering whether the disclosures made are set properly in context; • where the audit committee is not satisfied with any aspect of the proposed financial reporting of the Company, reporting its view to the Board of Directors; • • reviewing material information presented with the financial statements and corporate governance statements relating to the audit and to risk management; and reviewing the adequacy and effectiveness of the Company’s internal financial controls and, unless expressly addressed by a separate board risk committee composed of independent directors, or by the Board itself, review the Company’s internal control and risk management systems and, except where dealt with by the Board or risk management committee, review and approve the statements included in the annual report in relation to internal control and the management of risk. The Audit Committee assists by reviewing and monitoring the extent of non-audit work undertaken by external auditors, advising on the appointment of external auditors and reviewing the effectiveness of the Group’s internal audit activities, internal controls and risk management systems. The ultimate responsibility for reviewing and approving the Annual Report and financial statements and the half-yearly reports remains with the Board. For the year under review, there were no non-audit services rendered to the Group and the Company. The audit committee considered the nature, scope of engagement and remuneration paid were such that the independence and objectivity of the auditors were not impaired. Fees paid for audit services are provided in Note 5. During the financial year, the Audit Committee met twice with the auditor, Crowe U.K. LLP, to review audit planning and findings with regard to the Annual Report and the comment review of the interim financial statements. Significant reporting issues considered during the year included the following: Going concern The Committee considered the Going Concern basis on which the accounts have been prepared and can refer shareholders to the Group’s accounting policy set out in Note 2.4. The directors are satisfied that the going concern basis is appropriate for the preparation of the financial statements. The Rt Hon. Lord David Willetts FRS Chairman – Audit committee 19 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 DIRECTORS’ REMUNERATION REPORT This report sets out the remuneration policy operated by the Company in respect of the Executive and Non- Executive Directors. The remuneration policy is the responsibility of the Remuneration Committee, a sub- committee of the Board. No Director is involved in discussions relating to their own remuneration. Remuneration policy The objective of the proposed remuneration policy is to attract, retain and motivate high calibre executives to deliver outstanding shareholder returns and at the same time maintain an appropriate compensation balance with the other employees of the Group. Directors’ remuneration The normal remuneration arrangements for Executive Directors consists of base salary, performance bonuses and other benefits as determined by the Board. Each of the Executive Directors has a service agreement that can be terminated at any time by either party giving to the other six months’ written notice. Compensation for loss of office is restricted to base salary and benefits only. The remuneration packages for the Executive Directors are detailed below: • • • • Base Salary: Annual review of the base salaries of the Executive Directors are concluded after considering the Executive Directors’ role, responsibilities and contribution to the Group performance. Performance Bonus: Bonus arrangements are discretionary and are payable depending on the performance of the Executive Directors in meeting their key performance indicators and in the wider context with the performance of the Group. Benefits: Benefits include payments for provident funds that are mandatory and statutory pension payments as required by laws of the resident countries of the Executive Directors, health insurance and other benefits. Longer term incentives: In order to further incentivise the Directors and employees, and align their interests with shareholders, the Company has granted share options in the current year, as set out below. The share options will vest at various future dates as described in the Note 21 to the financial statements. There are no conditions attached to vesting other than service conditions. Non-Executive Directors are remunerated solely in the form of Director Fees and shares options determined by the Board and not entitled to pensions, annual bonuses or employee benefits. 20 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 DIRECTORS’ REMUNERATION REPORT (Continued) Performance evaluation All Directors undergo a performance evaluation before being proposed for re- election to ensure that their performance is and continues to be effective, that where appropriate they maintain their independence and that they are demonstrating continued commitment to the role. Appraisals are carried out each year with all Executive Directors. All continuing Directors stand for re-election on annual basis. Succession planning at the current time is limited due to the current size of the Board. The remuneration of the directors in Verditek plc who held office during the year to 31 December 2020 was as follows: The emoluments of the Directors were as follows (Audited): Year ended 31 December 2020 Year ended 31 December 2019 Salary & Directors’ fees £ Pension Contribution s £ Share based payment £ Total Total £ £ Executive directors Geoff Nesbitt (resigned 7 May 2020) 132,662 Tim Lord (resigned 5 August 2020) Robert Richards (appointed 1 June 2020) 68,974 103,327 Non-executive directors The Rt Hon. Lord David Willetts FRS George Katzaros Gavin Mayhew Anthony Rawlinson March 2019) Total (Resigned 4 50,000 25,000 55,000 3,375 2,069 - - - - - - 136,037 71,043 20,535 123,912 13,024 - - 63,024 25,000 55,000 152,888 102,438 - 62,976 30,000 - 5,667 434,963 5,444 33,559 473,784 353,969 There are 1,500,000 share options held by The Rt Hon. Lord David Willetts FRS and 4,000,000 share options held by Robert Richards; details are shown in Note 21. No options were exercised in the year. During the year, the Remuneration Committee also agreed to issue a further 4m share options to Rob Richards at 6p and 4.3m share options to Tim Bowen at 8p. However, the share option grants were not formally made. George Katzaros Chairman – Remuneration committee 21 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 CORPORATE AND SOCIAL RESPONSIBILITY The Company understands that its impact reaches beyond that of its core business and into the environment and society in which it operates. With integrity at the heart of our corporate social goals our aim is to make a lasting positive contribution to all our stakeholders. In view of the limited number of stakeholders, the Company has not adopted a specific policy on Corporate Social Responsibility. However, it does seek to protect the interests of stakeholders in the Company through its policies, combined with ethical and transparent business operations. The Company has adopted an Anti-Corruption and Anti-Bribery Policy and compliance with regulations like Competition Law. Environment Verditek Plc is sensitive to the environment in which it operates and has established well defined operating guidelines with some of the manufacturing partners where it seeks their compliance with ISO14001 when relevant, to ensure certain environmental standards are complied with. Human Rights Verditek plc is committed to socially and morally responsible research, development and manufacturing processes for the benefit of all stakeholders. The activities of the Company are in line with applicable laws on human rights. Employees Our employees are key to achieving the business objectives of the Company. The Company has established policies for recruitment, diversity and equal opportunities, training and development. Our priority is to provide a working environment in which our employees can develop to achieve their full potential and have opportunities for both professional and personal development. We aim to invest time and resource to support, engage and motivate our employees to feel valued, to be able to develop rewarding careers and want to stay with us. The Company embraces employee participation in issue raising and resolution through regular update sessions that value contributions from all levels regardless of position in the business. Shareholders The Board of Directors actively encourage communication and they seek to protect the interest of shareholders at all times. The Company updates shareholders regularly through regulatory news, financial reports and research notes. The Company also engages directly with investors at our Annual General Meeting or investor events. Health and Safety Company activities are carried out in according with its Health and Safety Policy which adheres to all applicable laws and are audited both internally and by an external organisation. 22 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 DIRECTORS’ REPORT The Directors present their report and the audited financial statements for Verditek plc (“Verditek” or the “Company”) for the year ended 31 December 2020. The preparation of financial statements is in compliance with International Accounting Standards in conformity with the requirements of the Companies Act 2006. The Group financial statements comprise of the financial information of the parent Company and its subsidiaries (together the “Group”). The parent Company financial statements present information about the Company as a separate entity and not about its Group. Principal Activities Verditek plc is a holding company based in UK. The principal activity of the Group is to develop and commercialise clean technologies. A detailed review of the business activities of the Group is contained in the Strategic Report. Business review and future developments The review of the business’s operations, future developments and key risks is contained in the Strategic Report. The Directors do not recommend a final ordinary dividend for the year (2019: £nil). Directors and directors’ interests The directors who held office during the year and subsequently were as follows: Geoff John Nesbitt (Resigned on 7 May 2020) Tim Lord (Resigned on 5 August 2020) The Rt Hon. Lord David Willetts FRS George Francis Katzaros Gavin Mayhew Robert Richards (Appointed 1 June 2020) With regard to the appointment and replacement of Directors, the Company is governed by its articles of association, the Companies Act and related legislation. The articles themselves may be amended by special resolution of the shareholders. 23 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 DIRECTORS’ REPORT (Continued) Directors’ interests The Directors held the following beneficial interests in the shares of Verditek plc at 31st December 2020: Gavin Mayhew George Katzaros Robert Richards Notes 1.1 Shares held by Gavin Mayhew - through Platform Securities Nominees Limited 1.2 Shares held by George Katzaros - through BBHISL NOMINEES LIMITED A/c 120165 - through MF Limited - directly - family member Note Ordinary shares 1.1 1.2 of £0.0004 each 27,157,381 26,166,675 2,437,833 Issued share capital % 7.96% 7.66% 0.71% 27,157,381 10,550,000 5,900,000 9,000,000 716,675 26,166,675 There has been no change between the end of the reporting period and the reporting date. Directors’ indemnities The Company has taken out Directors’ and Officers’ indemnity insurance for the benefit of its Directors. Post Balance Sheet Events There are no material post balance sheet events to disclose, other than those disclosed in the note 25 of the accounts. Research and Development Activities Verditek continues to invest in research and development activities such as the joint development project with Paragraf Limited to research the application of graphene onto solar devices. Research and development seeks to develop and enhance the existing product portfolio and new products that will compliment and expand the product offering and spent £134,496 during the year (2019: £95,833). Additional research and development has been made on further generations of the semi-flexible, lightweight solar panels. Financial Risk management Details of financial risk management are provided in Note 3 to the accounts. Political and charitable contributions The Group made no charitable or political contributions during the year. 24 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 DIRECTORS’ REPORT (Continued) Going Concern As described in note 2.4, the Directors, having made appropriate enquiries, consider that the Company and the Group as a whole have adequate resources to continue in operational existence for the foreseeable future. Therefore, they continue to adopt the going concern basis in preparing the financial statements. Substantial shareholdings: The Company has been advised of the following interests in more than 3% of its ordinary share capital as at 31 December 2020: Hargreaves Lansdown (Nominees) Limited Platform Securities Nominees Limited The Bank of New York (Nominees) Limited Pershing Nominees Limited Jim Nominees Limited James Capel (Nominees) Limited HSDL Nominees Limited No. of Shares % 57,031,623 32,378,751 21,680,107 16,595,000 11,579,407 10,864,196 10,365,441 16.72% 9.49% 6.35% 4.86% 3.39% 3.18% 3.04% Statement of Disclosure to the Auditors All of the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Group’s auditors for the purposes 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. Auditors appointment Crowe U.K. LLP has indicated its willingness to continue in office and a resolution to re-appoint them will be proposed at the annual general meeting. By order of the Board Rob Richards Chief Executive Officer 25 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 STATEMENT OF DIRECTORS’ RESPONSIBILITIES The 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 Group and Company financial statements for each financial year. Under that law the Directors have elected to prepare the Group consolidated financial statements in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 (IFRSs) and elected to prepare the parent company financial statements under United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws including FRS 101 Reduced Disclosure Framework). 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 Group and the Company and of the profit or loss of the Group for that period. In preparing each of the Group and Company financial statements, the Directors are required to: • • • • • Select suitable accounting policies and then apply them consistently; Make judgments and estimates that are reasonable and prudent; State whether they have been prepared in accordance with IFRSs or UK Accounting Standards have been followed, subject to any material departures disclosed and explained; Prepare the Strategic Report and Directors’ report which comply with the requirements of the Companies Act 2006; and Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also generally responsible for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Information published on the website is accessible in many countries and legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. Each of the directors confirms that, to the best of their knowledge: The Group financial statements, which have been prepared in accordance with IFRSs and Companies Act 2006, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces. 26 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VERDITEK PLC Opinion We have audited the financial statements of Verditek plc (the ‘parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2020 which comprise the consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows, Company statement of financial position, company statement of changes in equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Accounting Standards in conformity with the requirements of the Companies Act 2006 (IFRSs). The financial reporting framework that has been applied in the preparation of the parent Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice). In our opinion: • • • • the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 December 2020 and of the Group’s loss for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs; the parent Company 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. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the parent Company and the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern In auditing the financial statements, we have concluded that the director's use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the ability of the Group and the Parent Company continue to adopt the going concern basis of accounting included the following procedures: We evaluated the Directors’ assessment of the Group’s ability to continue as a going concern, including challenging the underlying data and key assumptions used to make the assessment. Additionally, we reviewed and challenged the results of management’s stress testing, to assess the reasonableness of economic assumptions in light of the impact of COVID-19 on the Group’s solvency and liquidity position. Further details of the Directors’ assessment of going concern is provided in Note 2.4. 27 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VERDITEK PLC (Continued) Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the ability of the Group or the Parent Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Our audit approach Overview of the scope of our audit Our audit approach was developed by obtaining a thorough understanding of the Group’s activities and is risk based. Based on this understanding we assessed those aspects of the Group and subsidiary companies’ transactions and balances which were most likely to give rise to a material misstatement and were most susceptible to irregularities including fraud or error. Specifically, we identified what we considered to be key audit matters and planned our audit approach accordingly. We undertook a combination of analytical procedures and substantive testing on significant transactions, balances and disclosures, the extent of which was based on various factors such as our overall assessment of the control environment, the effectiveness of controls over individual systems and the management of specific risks. Materiality In planning and performing our audit we applied the concept of materiality. An item is considered material if it could reasonably be expected to change the economic decisions of a user of the financial statements. We used the concept of materiality to both focus our testing and to evaluate the impact of misstatements identified. Based on our professional judgement, we determined overall materiality for the financial statements as a whole to be £100,000 based on approximately 5% of Group’s normalised loss for the year (2019: £90,000), which is the most appropriate measure for an entity which has yet to record revenues. We use a different level of materiality (‘performance materiality’) to determine the extent of our testing for the audit of the financial statements. Performance materiality is set based on the audit materiality as adjusted for the judgements made as to the entity risk and our evaluation of the specific risk of each audit area having regard to the internal control environment. Where considered appropriate performance materiality may be reduced to a lower level, such as, for related party transactions and directors’ remuneration. We agreed with the Audit Committee to report to it all identified errors in excess of £3,000. Errors below that threshold would also be reported to it if, in our opinion as auditor, disclosure was required on qualitative grounds. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. 28 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VERDITEK PLC (Continued) Going concern was identified as a key audit matter and has been addressed within the “Conclusion relating to going concern” section of the audit report. We have determined that there are no other key audit matters to communicate in our report. Our audit procedures in relation to these matters were designed in the context of our audit opinion as a whole. They were not designed to enable us to express an opinion on these matters individually and we express no such opinion. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic report or the Directors’ report. We have nothing to report in respect of the following matters in relation to which 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. 29 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VERDITEK PLC (Continued) Responsibilities of the directors for the financial statements As explained more fully in the directors’ responsibilities statement on page 26, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group and the parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the parent Company or to cease operations or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: We obtained an understanding of the legal and regulatory frameworks within which the Group operates, focusing on those laws and regulations that have a direct effect on the determination of material amounts and disclosures in the financial statements. The laws and regulations we considered in this context were relevant company law and taxation legislation in the UK and Italy jurisdictions in which the Group operates. We identified the greatest risk of material impact on the financial statements from irregularities, including fraud, to be the override of controls by management. Our audit procedures to respond to these risks included enquiries of management about their own identification and assessment of the risks of irregularities, sample testing on the posting of journals and reviewing accounting estimates for biases. Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations. These inherent limitations are particularly significant in the case of misstatement resulting from fraud as this may involve sophisticated schemes designed to avoid detection, including deliberate failure to record transactions, collusion or the provision of intentional misrepresentations. 30 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VERDITEK PLC (Continued) A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report 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. Stephen Bullock (Senior Statutory Auditor) for and on behalf of Crowe U.K. LLP Statutory Auditor London 29 June 2021 31 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended 31 December 2020 £ Year ended 31 December 2019 £ Notes 4 5 7 8 Revenue Direct costs Administrative expenses Operating loss Finance income Finance costs Loss before tax Income Tax Loss for the period Other comprehensive income Items that will or may be reclassified to profit or loss: Translation of foreign operations Total comprehensive loss for the period from continuing operations Loss for the period attributable to: Owners of the Company Non-controlling interest Total comprehensive loss for the period attributable to: Owners of the Company Non-controlling interest 21,521 (320,473) (1,971,662) (2,270,614) 70 (152,025) (2,422,569) - - (1,660,719) (1,660,719) 185 (203,779) (1,864,313) 98,448 - (2,324,121) (1,864,313) 38,656 (43,942) (2,285,465) (1,908,255) (2,231,105) (93,016) (2,324,121) (1,867,957) 3,644 (1,864,313) (2,194,053) (91,412) (2,285,465) (1,906,885) (1,370) (1,908,255) Loss per ordinary share - basic and diluted (£) 9 (0.01) (0.01) The accompanying notes are an integral part of these financial statements. All amounts are derived from continuing operations. 32 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Notes 31 December 2020 £ 31 December 2019 £ Assets Non-current assets Investments Property, plant and equipment Right of use assets Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets TOTAL ASSETS Equity and liability Non-current liabilities Lease liabilities Total non-current liabilities Current liabilities Trade and other payables Loans and borrowings Lease liabilities Total current liabilities TOTAL LIABILITIES Equity Share capital Share premium account Share based payment reserve Accumulated losses Foreign exchange reserve Equity attributable to equity holders of the parent Non-controlling interests Total shareholder’s equity 10 11 13 14 15 16 19 17 18 19 20 20 21 22 23,405 586,612 207,104 817,121 636,041 423,853 1,711,761 2,771,655 24,229 633,491 249,706 907,426 35,038 437,075 107,243 579,356 3,588,776 1,486,782 149,051 149,051 585,359 70,000 45,883 701,242 186,612 186,612 959,360 668,319 37,526 1,665,205 850,293 1,851,817 136,470 10,733,073 99,184 (8,109,821) 864 2,859,770 (121,287) 2,738,483 91,666 5,466,376 21,703 (5,878,716) (36,190) (335,161) (29,874) (365,035) TOTAL EQUTY AND LIABILITES 3,588,776 1,486,782 These financial statements were approved and authorised for issue by the Board of directors on 29 June 2021 and were signed on its behalf by: Rob Richards Chief Executive Officer Company Registration Number: 10114644 The accompanying notes are an integral part of these financial statements. 33 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Issued Share capital £ 80,847 - - - - - Share Premium £ 3,858,691 - - - - - 10,819 - 91,666 - - 1,607,685 - 5,466,376 - - Share based payment reserve Accumulat ed losses £ Foreign Exchange reserve £ Non- Controlling interests £ Total £ 8,727 - - - (3,793,345) (1,867,957) - (1,867,957) 749 - (38,928) (38,928) (243,929) 3,644 (5,014) (1,370) (88,260) (1,864,313) (43,942) (1,908,255) - - - 12,976 21,703 - - (217,414) 1,989 215,425 (217,414) 1,989 215,425 - - - - (5,878,716) (2,231,105) - (2,231,105) - - (36,189) - 37,053 37,053 - - (29,874) (93,016) 1,603 (91,413) 1,618,504 12,976 (365,035) (2,324,121) 38,656 (2,285,465) 44,804 - 136,470 5,266,697 - 10,733,073 - 77,481 99,184 - - (8,109,821) - - 864 - - (121,287) 5,311,501 77,481 2,738,483 Adjusted balance at 1- Jan-19 Loss for the year Translation of subsidiary Total comprehensive loss Acquisition of NCI without a change in control Total changes in ownership interests Issue of shares net of expenses Share based payment Balance as at 31-Dec-19 Loss for the year Translation of subsidiary Total comprehensive loss Issue of shares net of expenses Share based payment Balance as at 31-Dec-20 The accompanying notes are an integral part of these financial statements. 34 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 CONSOLIDATED STATEMENT OF CASH FLOWS Cash flows from operating activities Loss before tax from continuing operations (2,422,569) (1,864,313) Year ended Year ended 31 December 2020 31 December 2019 £ £ Adjustments for: Finance costs Finance income Depreciation Loss on disposal of assets Share based payment Working capital adjustments Increase in inventory Increase in trade and other receivables (Decrease)/ increase in trade and other payables Cash used in operations Taxation Net cash outflow from operating activities Investing activities Purchase of property, plant and equipment Net cash outflow from investing activities Financing activities Issue of ordinary share capital (net of expenses) Loan interest payable Interest received Interest paid Proceeds from loans Repayments of loans (Refer note 18) Payments of lease liabilities Net cash inflows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Exchange gains on cash and cash equivalents Cash and cash equivalents at the end of the year 152,025 (70) 164,566 - 77,481 (2,028,567) (601,003) 638,595 (761,385) (2,752,360) - (2,752,360) (33,215) (33,215) 5,076,047 (162,894) 62 - - (455,076) (69,920) 4,388,219 1,602,644 107,243 1,874 1,711,761 The accompanying notes are an integral part of these financial statements. 203,779 (185) 70,742 1,119 12,976 (1,575,882) (35,038) (24,961) 311,596 (1,324,285) - (1,324,285) (156,399) (156,399) 521,469 - 180 (134) 455,076 - (71,686) 904,905 (575,779) 683,885 (863) 107,243 35 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate information Verditek plc (“Verditek”, “Company”) is a public limited company incorporated, registered and domiciled in England and Wales (registration number 10114644), whose shares are quoted on the Alternative Investment Market on the London Stock Exchange. Its registered office is located at 29 Farm Street, London W1J 5RL. Verditek is the holding company of a group of companies engaged in the clean technology sector. The consolidated financial statements comprised of the Company and its subsidiaries (together referred to as “the Group”) as at and for the year to 31 December 2020. The parent Company financial statements present information about the Company as a separate entity and not about its Group. The comparative financial information is for the year ended 31 December 2019. 2. Accounting policies The principal accounting policies applied in the preparation of the consolidated financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated. 2.1. Basis of preparation The financial statements have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 (IFRSs). The financial statements have been prepared on the historical cost basis except for certain assets which are stated at their fair value. The consolidated financial statements are presented in GBP, which is also the Company’s functional currency. 2.2. Basis of consolidation The financial information consolidates the financial statements of Verditek plc and the entities controlled by the Company. 2.2.1. Subsidiaries Subsidiaries are all entities (including special purpose entities) over whose financial and operating policies the Group has the power to govern, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of the potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Accounting policies of subsidiaries are changed where necessary to ensure consistency with the policies adopted by the Group. 36 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2.2. Basis of consolidation (continued) 2.2.2. Associates Where the Group has significant influence over (but not control of) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the consolidated statement of financial position at cost. Subsequently associates are accounted for using the equity method, where the Group's share of post-acquisition profits and losses and other comprehensive income is recognised in the consolidated statement of profit and loss and other comprehensive income (except for losses in excess of the Group's investment in the associate unless there is an obligation to make good those losses). 2.3. Changes in accounting policies and disclosures: 2.3.1. New standards, interpretations and amendments adopted in these financial statements: The following standards, amendments and interpretations became effective from 1 January 2020, however none of these new standards has had an impact on the Group financial statements: • • • • IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment – Disclosure Initiative - Definition of Material) IFRS 3 Business Combinations (Amendment – Definition of Business) Conceptual Framework for Financial Reporting (Revised) IBOR Reform and its Effects on Financial Reporting COVID-19 Related Rent Concessions – Amendment to IFRS 16 2.3.1. Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Company in the 31 December 2020 financial statements: There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the group has decided not to adopt early. The following amendments are effective for the period beginning 1 January 2022: • • • • Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37); Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16); Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); References to Conceptual Framework (Amendments to IFRS 3). The Directors do not expect that their adoption will have a material impact on the financial statements of the company in future years. The Directors continue to monitor the impact of future changes to the reporting requirements but do not believe the proposed changes will significantly impact the financial statements. 37 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2.4. Going concern The Going concern review has been based on current cash resources, expected costs and expected revenues. The Directors have prepared a cash flow forecast covering a period extending beyond 12 months from the date of the approval of these financial statements. The Group’s manufacturing site in Lainate Italy reopened in April 2020 and scaled up production in anticipation of commercial orders over the second half of 2020. COVID-19 has not significantly impacted production capabilities. However, the pandemic has affected global trading conditions, which has resulted in delays of expected sales and lower revenues than anticipated. Despite challenging conditions, the Group has grown a substantial pipeline of commercial opportunities, which management are working to convert into sales. In order to perform a meaningful Going concern review, Management prepared a “worst case” model of working capital requirements over the next 12 months, which contains certain assumptions about the performance of the business including revenue growth, overheads, margins, and the level of cash recovery from trading. The model included reduction in variable costs, but did not include more severe mitigation measures such as cutting existing fixed overheads or reducing cash payments to directors to preserve cash. Therefore, in addition to the worst case scenario devised there are further contingency measures that would still be open to the Directors to protect and manage the business in the event that unexpected costs are incurred or there is further postponement of revenues. The Directors are aware of the risks and uncertainties facing the business and the assumptions used are the Directors’ best estimate of the future development of the business. The Directors do not consider that the uncertainties facing the business indicate that a material uncertainty exists related to events or conditions that, individually or collectively, may cast significant doubt on the entity’s ability to continue as a going concern. After considering the forecasts and the risks, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting in preparing the annual financial statements. 2.5. Foreign currency The Group’s consolidated financial statements are presented in Sterling. The functional currencies of the Group’s subsidiaries include the Euro and the US dollar. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. The assets and liabilities of foreign operations are translated into sterling at the rate of exchange ruling at the balance sheet date. Income and expenses are translated at weighted average exchange rates for the period. The exchange differences arising on translation for consolidation are recognized in Other Comprehensive Income. 2.6. Operating segments Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the management team including the two main directors and two non-executive directors. The Board considers that the Group’s activity constitutes one operating and one reporting segment, as defined under IFRS 8. Management reviews the performance of the Company by reference to total results against budget. 38 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) The total profit measures are operating profit and profit for the period, both disclosed on the face of the income statement. No differences exist between the basis of preparation of the performance measures used by management and the figures in the Group’s financial information. Employee benefits and post-employment benefits 2.7. Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Group. The Group provides post-employment benefits through a defined contribution. The Group pays fixed contributions into independent entities in relation to several state plans and insurances for individual employees. The Group has no legal or constructive obligations to pay contributions in addition to its fixed contributions, which are recognised as an expense in the period that related employee services are received. Share-based payments 2.8. The Group has issued share options to one Non-Executive Director, in return for which the Group receives services from the Non-Executive Director. The fair value of the services received in exchange for the grant of the options is recognised as an expense. The Group valued the options at the grant date using the Black Scholes valuation model to establish the relevant fair values. The total amount to be expensed is determined by reference to the fair value of the options granted including any market performance conditions (for example the Group's share price) but excluding the impact of any service or non-market performance vesting conditions (for example the requirement of the grantee to remain an employee of the Group). Non-market vesting conditions are included in the assumptions regarding the number of options that are expected to vest. The total expense is recognised over the vesting period. At the end of each period the Group revises its estimates of the number of options expected to vest based on the non-market vesting conditions. It recognises the impact of any revision in the income statement with a corresponding adjustment to equity. 2.9. Deferred taxation Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the statement of financial position differs from its tax base, except for differences arising on: the initial recognition of goodwill; 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 or taxable profit; and 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 will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the deferred tax liabilities or assets are settled or recovered. Deferred tax balances are not discounted. Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities. 39 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2.10. Property, plant and equipment Property, plant and equipment is stated at historic cost, including expenditure that is directly attributable to the acquired item, less accumulated depreciation and impairment losses. Depreciation is provided to write off cost, less estimated residual values, of all property, plant and equipment, evenly over their expected useful lives, when the asset comes into service, and calculated at the following rates: Property improvements Plant and machinery Computer equipment - 20% straight line - 10% straight line - 33.33% straight line The carrying value of the property, plant and equipment is compared to the higher of value in use and the fair value less costs to sell. If the carrying value exceeds the higher of the value in use and fair value less the costs to sell the asset, then the asset is impaired and its value reduced by recognising an impairment provision. 2.11. Leased assets At the lease commencement date, the Group recognises a right-of-use asset and a lease liability, except for short- term leases that have a lease term of 12 months or less and leases of low-value assets, which are expensed to the profit & loss over the expense term. The right-of-use asset is initially recognised at cost, which comprises the initial amount of the lease liability plus any lease payments made at or before the commencement date, plus any initial direct costs incurred, plus any costs associated with restoring the asset to its original condition, less any lease incentive received. The right-of- use asset is subsequently stated at cost less accumulated depreciation and impairment losses. Lease payments included in the measurement of the lease liability comprise the following: fixed payments, including in-substance fixed payments; variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date; amounts expected to be payable under a residual value guarantee; and the exercise price under a purchase option that the group is reasonably certain to exercise, lease payments in an optional renewal period if the group is reasonably certain to exercise such an option to extend and penalties for early termination of a lease unless the group is reasonably certain not to terminate early. The lease liability is measured at amortised cost using the effective interest method. The liability recognised at inception of the lease comprises the present value of future payments payable under the lease contract, discounted at the rate implicit in the lease. If there is no discount rate implicit in the lease, then the incremental rate of borrowing is used. The liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, or there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, or there is a change arising from the reassessment of whether the Group will be reasonably certain to exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if carrying amount has been reduced to zero. 2.12. Financial Instruments The Group classifies a financial instrument, or its component parts, as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. 40 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Financial assets are de-recognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Financial assets 2.12.1. Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss (FVTPL). The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is de-recognised, modified or impaired. The Group’s financial assets at amortised cost includes trade receivables and loan to related parties, are included under other non-current financial assets. In the periods presented the Group does not have any financial assets categorised as fair value through OCI. Financial liabilities 2.12.2. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The Group has not designated any financial liability as at fair value through profit or loss. Loans after initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss. This category generally applies to interest-bearing loans and borrowings. A financial liability is de-recognised when the obligation under the liability is discharged, cancelled or expires. 41 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Impairment 2.12.3. The Group assesses all other current receivables on a forward-looking basis, with expected credit losses (ECL) associated with debt instruments measured at amortised cost. These are deemed short term (i.e., less than 12 months) and apply the Group policy for credit rating and risk management policies in place. The impairment stages are defined as: Stage 1 – When a receivable is recognised, ECLs resulting from default events that are possible within the next 12 months are expensed to the statement of comprehensive income (12-month ECL) and a loss allowance is established. On subsequent reporting dates, 12-month ECL also applies to existing receivables with no significant increase in credit risk since their initial recognition. In determining whether a significant increase in credit risk has occurred since initial recognition, the Company assesses the change, if any, in the risk of default over the expected life of the receivable (that is, the change in the probability of default, as opposed to the amount of ECLs). Stage 2 – If the receivables credit risk has increased significantly since initial recognition and is not considered low, lifetime ECLs are recognised. Stage 3 – If the receivables credit risk increases to the point where it is considered credit-impaired, lifetime ECLs are recognised, as in Stage 2. The impairment methodology applied for the Group is stage 1, which require 12 month expected credit losses to be recognised until a change in credit risk occurs in which case stage 2 would apply. 2.13. Inventories Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for, as follows: Raw materials: purchase cost on a first-in/first-out basis; Finished goods and work in progress: cost of direct materials and labour and a proportion of manufacturing overheads based on the normal operating capacity but excluding borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. 2.14. Cash and cash equivalents Cash and cash equivalents include cash in hand and deposits held on call, together with other short term highly liquid investments which are not subject to significant changes in value and have original maturities of less than three months. 2.15. Revenue recognition Revenue is generated from the manufacture and supply of lightweight solar panels. The Group recognises revenue when (or as) a performance obligation in the customer contract is satisfied. Performance obligations relevant to the customer contract are to manufacture goods in accordance with the specification in the customer order form and any other regulatory or statutory requirements. The performance obligations are satisfied at the point in time when the goods are deemed to be delivered. Revenue is measured as the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts and sales-related taxes. Customers are billed in advance of the delivery of goods, with 30 days terms. Upon receipt of an advanced payment a contract liability is recognized. The contract liability is released at the point in time goods are delivered. Under the Group’s standard terms and conditions there is a product warranty for ongoing acceptable function of the goods, for a period of 10 years after the point of installation, or 3 months after delivery, whichever is earlier. 42 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) This warranty is not sold as a separate component. This length of warranty is standard in the industry. This is not a separate service, and is deemed an “assurance” type warranty under IFRS 15 guidance; and is therefore accounted for separately under IAS 37 instead. 2.16. Summary of critical accounting estimates and judgements The preparation of financial information in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Directors to exercise their judgement in the process of applying the accounting policies which are detailed above. These judgements are continually evaluated by the Directors and management and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The key estimates and underlying assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The estimates and judgements which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below: 2.16.1. Estimates Useful lives of depreciable assets Management reviews the useful lives and residual value of depreciable assets at each reporting date to ensure that the useful lives represent a reasonable estimate of likely period of benefit to the Group. Tangible fixed assets are depreciated over their useful lives taking into account the residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In re- assessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values. Lease liability discount rate The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. To determine the incremental borrowing rate, the Group: • Where possible, uses recent third-party financing received by the individual lessee as a starting point, • adjusted to reflect changes in financing conditions since third party financing was received; Uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the company, which does not have recent third party financing; and • Makes adjustments specific to the lease, e.g. term, currency and security. The Group used incremental borrowing rates at a prevailing rate of 15%. Share based payments Share options are recognised as an expense based on their fair value at date of grant. The fair value of the options is estimated through the use of a valuation model – which require inputs such as the risk-free interest rate, expected dividends, expected volatility and the expected option life - and is expensed over the vesting period. Some of the inputs used to calculate the fair value are not market observable and are based on estimates derived from available data, such as employee exercise behaviour and employee turnover. 43 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2.16.2. Judgements Associates Where the Group holds more than 20% but less than 50% of voting rights in an investment but the Group has the power to exercise significant influence, such an investment is treated as an associate, unless it can be clearly demonstrated that this is not the case. The Company holds a 11.6% investment stake in Industrial Climate Solutions (ICSI), an unlisted company registered in Canada. As the directors have no seat on the board of ICSI, they consider that they do not have significant influence over the business, and therefore that ICSI is not an associate. The investment has therefore been classified as a financial asset measured at fair value through the profit or loss. 3. Financial Risk Management The Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. 3.1. Principal financial instruments and their categories The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows: Categories of financial assets Cash and cash equivalents Trade receivables – net of provision Loans to related parties Total current financial assets at amortised cost 31 December 2020 £ 31 December 2019 £ 1,711,761 206 100 1,712,067 107,243 - 62,100 169,343 Categories of financial liabilities Trade payables Wages payable Pension payable Accruals Loans from related parties Trade and other payables Current loans and borrowings Non current loans and borrowings Loans and borrowings Current lease liabilities Non current lease liabilities Lease liabilities 31 December 2020 £ 31 December 2019 £ 201,453 15,849 175 331,189 - 548,666 70,000 - 70,000 45,883 149,051 194,934 364,632 57,235 1,750 429,102 38,542 891,261 668,319 - 668,319 37,526 186,612 224,138 Total financial liabilities at amortised cost 813,600 1,783,718 44 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3.2. General objectives, policies and processes The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group's finance function. The Board receives monthly reports from the CFO through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Further details regarding these policies are set out below: 3.2.1. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. In order to minimise this risk the Group endeavours only to deal with companies which are demonstrably creditworthy. The aggregate financial exposure is continuously monitored. The maximum exposure to credit risk is the value of the outstanding amount of bank balances. The Group’s exposure to credit risk on cash and cash equivalents is considered low as the bank accounts are with banks with high credit ratings. Amounts due from related parties is considered to be low risk as the large part of this amount is related to a payment in advance under a distribution rights agreement. The analysis of trade receivables and expected credit loss allocation is detailed in note 15. 3.2.2. Liquidity risk Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain cash balances (or agreed facilities) to meet expected requirements for a period of at least 45 days. The Group currently holds cash balances to provide funding for normal trading activity and is managed centrally. Trade and other payables are monitored as part of normal management routine. The Board receives rolling 12-month cash flow projections on a monthly basis as well as information regarding cash balances. At the end of the financial year, these projections indicated that the Group expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances. The liquidity risk of each group entity is managed centrally by the group treasury function. Each operation has a facility with group treasury, the amount of the facility being based on budgets. The budgets are set locally and agreed by the Board in advance, enabling the Group's cash requirements to be anticipated. Where facilities of group entities need to be increased, approval must be sought from the group finance director. Where the amount of the facility is above a certain level, agreement of the Board is needed. The following table sets out the contractual maturities (representing undiscounted contractual cash-flows, including contractual interest) of financial liabilities: 45 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3.2. General objectives, policies and processes (continued) 31 December 2020 Up to 3 Months Between 3 and 12 months Between 1 and 2 year Between 2 and 5 years Trade payables Wages payable Pension payable Accruals Amounts due from related parties Current related party loan Lease liability Current related party loan – interest bearing Non-current loan – interest bearing Undiscounted financial liabilities at amortised cost 201,453 15,849 175 331,189 - - 18,396 70,000 - - - - - - - - - - - 55,464 - - 187,012 - - - - 637,062 55,464 187,012 - - - - - - - - - - 31 December 2019 Up to 3 Months Between 3 and 12 months Between 1 and 2 year Between 2 and 5 years Trade payables Wages payable Pension payable Accruals Amounts due from related parties Current related party loan Lease liability Current related party loan – interest bearing Non-current loan – interest bearing Undiscounted financial liabilities at amortised cost 364,632 57,235 1,750 429,102 38,542 43,243 17,415 - - - - - - - - 52,636 455,076 186,396 - - - - - - - - - - - 70,707 - 179,027 - - - - 951,919 694,108 70,707 179,027 3.2.3. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s debt obligations with floating interest rates. The Group’s exposure to interest rate risk is minimal as all its loans and borrowings are interest-free except for the convertible loan £70,000 (2019: £170,000), which has a fixed interest rate of 10%. The interest bearing related party fixed rate loan was repaid in the year (2019: £455,076) which had an interest rate of 20%. 3.2.4. Foreign exchange risk Foreign exchange risk arises when individual Group entities enter into transactions denominated in a currency other than their functional currency. The Group's policy is, where possible, to allow group entities to settle liabilities denominated in their functional currency with the cash generated from their own operations in that currency. Where group entities have liabilities denominated in a currency other than their functional currency 46 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (and have insufficient reserves of that currency to settle them), cash already denominated in that currency will, where possible, be transferred from elsewhere within the Group. In the current year the Group is predominantly exposed to currency risk on purchases made in EUR and USD. The following table details the Group’s exposure at the end of the year to currency risk arising from recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate. Differences resulting from the translation of the financial statements of the entity within the Group into the Group’s presentation currency are excluded: As of 31 December 2020 the Group’s exposure to changes in foreign exchange rate was as follows: Forex sensitivity calculation Effect on net assets USD £ GBP £ EUR £ Effect on loss before tax USD £ GBP £ EUR £ 1% -1% 4,893 (4,893) - - 2,382 (2,382) (4,893) 4,893 - - (2,382) 2,382 As of 31 December 2019 the Group’s exposure to changes in foreign exchange rate was as follows: Change in USD Effect on Loss before tax Change in Net Assets Change in EUR Effect on Loss before tax Change in Net Assets 1% -1% £ (5,214) 5,214 £ 5,214 (5,214) 1% -1% £ (364) 364 £ 364 (364) 4. Revenue and segmental information Revenues Sale of Goods Total Year ended 31 December 2020 £ 21,521 21,966 Year ended 31 December 2019 £ - - The Group had 2 customers that exceeded 10% of revenue in 2020. Segment information The chief operating decision maker has been identified as the management team including the executive and non- executive directors. The chief operating decision-maker allocates resources and assesses performance of the business and other activities at the operating segment level. The chief operating decision maker has determined that in the year ended 31 December 2020 Verditek had one operating segment, the development and commercialisation of clean technologies, although it is likely that in future periods the Group’s segmental reporting will be expanded as different technologies are developed and commercialised. 47 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Geographical Segments Apart from holding company activities in the UK the Group’s had operations in Italy in Europe in the period. An analysis of revenue, operating loss and total assets less current liabilities by geographical market is given below: Year ended 31 December 2020 £ Year ended 31 December 2019 £ Revenue UK Rest of Europe Total revenue Operating loss UK Rest of Europe Total operating loss Non current assets UK Rest of Europe Total non current asset 5. Operating loss - 21,521 21,521 (1,336,955) (933,659) (2,270,614) 24,623 792,498 817,121 - - - (1,243,757) (416,962) (1,660,719) 24,994 882,431 907,425 Year ended 31 December 2020 £ Year ended 31 December 2019 £ Operating loss is stated after charging: Auditors’ remuneration: Audit fees – audit of the company and its subsidiaries pursuant to legislation Direct costs Non-audit fees – other assurance services Depreciation of fixed assets Provision against non-trading receivables Disposal of asset Director’s fee and staff costs (note 6) Advertising, marketing and development Re-organisation costs Research costs Other costs 29,500 320,473 2,500 164,566 472,150 - 689,760 220,492 - 134,496 259,630 28,000 - 2,500 70,742 - 1,119 645,380 323,906 54,582 95,833 438,657 48 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Employees and directors 6. The average number of employees (including directors) during the period was made up as follows: Directors Administrative Total Year ended 31 December 2020 Number 4 3 7 Year ended 31 December 2019 Number 5 1 6 The cost of employees during the period was made up as follows: Salaries Directors’ fees Share based payments Social security costs Pension costs Costs capitalised as part of inventories Total staff cost in the statement of comprehensive income Consisting of: Employee costs included in direct costs Employee costs included in admin expenses Year ended 31 December 2020 £ 405,630 186,972 Year ended 31 December 2019 £ 592,938 - 77,481 36,024 14,211 720,318 (25,297) 695,021 5,261 689,760 12,976 32,112 7,355 645,381 - 645,381 - 645,381 Key management personnel include both board and non-board members. Key management personnel compensation is as follows: Key management personnel compensation Salaries Fees Share based payments Social security costs Pension costs Year ended 31 December 2020 £ 273,862 186,972 33,377 23,100 5,444 522,755 Year ended 31 December 2019 £ 335,667 - 12,976 19,146 5,326 373,115 49 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. Finance costs Finance expenses Interest on loans (note 18) Finance charge Finance lease interest Interest on Overdue Taxation Total finance expense Details of the interest rate on the loans are shown in note 18. 8. Income tax UK Corporation tax Tax credit/ (expense)– current year Tax credit/ (expense)– prior year Total current tax Deferred tax Origination and reversal of timing differences Total tax credit/(expense) Year ended 31 December 2020 £ Year ended 31 December 2019 £ 116,616 - 33,300 2,109 152,025 165,480 127 38,172 - 203,779 Year ended 31 December 2020 Year ended 31 December 2019 £ - 98,448 98,448 - 98,448 £ - - - - - Factors affecting the tax expense The reasons for the difference between the actual tax expense for the year and the standard rate of corporation tax in the United Kingdom applied to the result for the year are as follows: Loss on ordinary activities before income tax Standard rate of corporation tax Loss before tax multiplied by the standard rate of corporation tax Effects of: Adjustment in respect of the previous year Non-deductible expenses Difference in overseas tax rates Deferred tax not recognised Withholding tax Tax credit Year ended 31 December 2020 £ Year ended 31 December 2019 £ (2,422,569) 19.00% (1,864,313) 19.00% (460,288) (354,219) 98,448 125,878 (48,147) 382,557 - 98,448 - 9,485 (27,791) 372,525 - - 50 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Group has not recognised deferred tax assets arising from the accumulated tax losses due to uncertainty of their future recovery. The deferred tax asset not recognised is £1,093,739 at 31 December 2020 (2019: £852,807). 9. Loss per share Basic and diluted Loss for the period and earnings used in basic & diluted EPS (£) Weighted average number of shares used in basic and diluted EPS Loss per share: Basic and diluted Year ended 31 December 2020 Year ended 31 December 2019 (2,231,105) (1,867,957) 280,609,258 206,787,734 0.8p 0.9p Basic loss per share is calculated by dividing the loss for the period from continuing operations of the Group by the weighted average number of ordinary shares in issue during the period. Due to the loss in the periods and there are no potentially dilutive ordinary shares, there is no difference between the basic and diluted loss per share. 10. Investments Cost At 1 January 2019 Reclassification Exchange difference At 31 December 2019 Exchange difference At 31 December 2019 Financial assets at fair value through profit or loss £ Investment in associates £ Loans to associates £ - 25,153 (924) 24,229 (824) 23,405 25,153 (25,153) - - - - - - - - - - Total £ 25,153 - (924) 24,229 (824) 23,405 The Company holds a 11.6% investment stake in Industrial Climate Solutions (ICSI), an unlisted company registered in Canada. The directors estimated the recoverable amount of Verditek’s investment in ICSI at the reporting date to be £23,405 (2019: £24,229). As the directors have no seat on the board of ICSI and the investment stake is under 20%, they consider that they do not have significant influence over the business, and therefore that ICSI is not an associate. The investment has therefore been reclassified as a financial asset measured at fair value through the profit or loss. 51 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. Property, plant and equipment Plant & Machinery Computer equipment £ £ Leasehold Improvement s 472,524 135,648 - (25,145) 583,027 32,266 32,757 648,050 1,248 14,773 - (564) 15,457 108,411 1,916 125,784 567,570 522,266 6,033 699 (3,709) - 3,023 949 - 3,972 3,394 1,311 (2,589) 142 2,258 495 - 2,753 765 1,219 27,313 46,495 - (1,459) 72,349 - 4,078 76,427 2,259 5,195 - (261) 7,193 5,642 465 13,300 65,156 63,128 Total £ 505,870 182,842 (3,709) (26,604) 658,399 33,215 36,835 728,449 6,901 21,279 (2,589) (683) 24,908 114,548 2,381 141,837 633,491 586,612 Cost At 1 January 2019 Additions Disposal of assets Exchange adjustments At 31 December 2019 Additions Exchange adjustments At 31 December 2020 Depreciation At 1 January 2019 Charge for the year Disposal of assets Exchange adjustments At 31 December 2019 Charge for the year Exchange adjustments At 31 December 2020 Net book value At 31 December 2019 At 31 December 2020 52 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 12. Subsidiary undertakings As at 31 December 2020, the subsidiaries of Verditek plc, all of which have been included in these consolidated financial statements, are as follows: Proportion of ownership interest at 31 December 2020 100% 100% 100% 51% 50.49% 100% Nature of business Dormant Dormant Solar technology services Filtration technology services Dormant Dormant Greenflex Energy Limited Verditek plc Verditek plc BBR Filtration Limited Verditek plc Name Greenflex Energy Limited1 Country of incorporation Parent UK Verditek plc Greenflex RSM S.r.l 2 San Marino Verditek Solar S.r.l BBR Filtration Limited BBR Filtration USA, LLC Verditek USA, Limited Verditek Solar Solutions Limited Italy UK USA USA UK Verditek plc N/A Dormant 1 On 17th April 2019 the Minority shareholder in Greenflex UK Limited transferred his 49% shareholding to Greenflex UK Limited, resulting in Verditek shareholding being increased to 100%. 2 - Greenflex RSM S.r.l ceased to trade in July 2018, and an application to liquidate the company was made in February 2019; Name Registered address Greenflex Energy Limited 29 Farm Street, London, England, W1J 5RL Greenflex RSM S.r.l Verditek Solar S.r.l Via L. Cibrario, 25, 47893 Cailungo, San Marino Via Pogliano, 26, 20020 Lainate, Italy BBR Filtration Limited 29 Farm Street, London, England, W1J 5RL BBR Filtration USA, LLC (99%) Verditek USA, Limited C/o 2605, Ponce De Leon, Boulevard, Coral Gables, Florida 33134 Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801 Greenflex Trading Limited Verditek Solar Solutions Limited 29 Farm Street, London, England, W1J 5RL 29 Farm Street, London, England, W1J 5RL 53 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 13. Right of use asset Cost At 1 January 2019 Recognition of right-of-use asset on initial application of IFRS 16 Adjusted balance at 1 January 2019 Exchange At 31 December 2019 Remeasurement Exchange At 31 December 2020 Depreciation At 1 January 2019 Recognition of right-of-use asset on initial application of IFRS 16 Adjusted balance at 1 January 2019 Charge for the year Unwind of discount of other receivables Exchange At 31 December 2019 Charge for the year Unwind of discount of other receivables Exchange At 31 December 2020 Net book value At 31 December 2019 At 31 December 2020 Building £ - 347,105 347,105 (18,544) 328,561 (1,906) 18,977 345,632 - 27,769 27,769 49,463 4,121 (2,498) 78,855 50,471 4,178 5,024 138,528 249,706 207,104 The right-of-use asset is the present value of a lease asset on a factory in Lainate, Italy signed in 2018 for 6 years. The lease term expires in 2024, with an option to renew for another 6 years. The rental amount is reviewed on an annual basis, with increase in rental value linked to 75% of the consumer price index for white and blue collar worker households established by ISTAT (a national central statistics institute). 14. Inventories Finished goods Work in progress Raw materials Packaging Total Inventories During the period £169,751 inventories were recognized as a cost in the P&L. 2020 £ 516,144 - 119,895 - 636,039 2019 £ 6,899 14,378 12,683 1,078 35,038 54 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 15. Trade and other receivables Trade receivables – gross Less: provision for expected credit losses Trade receivables - net Advance to suppliers and deposits Amounts due from related parties VAT and other taxes receivable Prepayments Total trade and other receivables The ageing of trade receivables and ECL allocation is as follows: 31 December 2020 Not past due and not impaired Up to 30 days past due 31 to 60 days past due 61 to 90 days Over 90 days Total 16. Cash and cash equivalents Cash at bank and in hand Gross £ - 206 - 191,520 539,207 730,933 2020 £ 730,933 (730,727) 206 298,055 100 116,249 9,243 423,853 ECL £ - - - 191,520 539,207 730,933 2019 £ - - - 91,748 62,100 273,542 9,685 437,075 Net £ - 206 - - - 206 2020 £ 2019 £ 1,711,761 107,243 The fair value of the cash & cash equivalent is as disclosed above. For the purpose of the cash flow statement, cash and cash equivalents comprise of the amounts shown above. 17. Trade and other payables Trade payables Accruals Contract liability Wages payable Pension payable Amounts due to related parties Financial liabilities at amortised costs other than loans and borrowings Social security & other taxes payables Total trade and other payables 2020 £ 201,452 331,189 29,576 15,849 175 - 578,241 7,118 585,359 2019 £ 364,632 429,102 - 57,235 1,750 38,542 891,261 68,099 959,360 55 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) During the reporting period, a contract liability of £221,096 has been recognized in respect of advanced billing of customers. 18. Loans and borrowings Current Interest free related party loan Interest bearing related party secured loan Non – current Convertible loans Total current and non - current loans and borrowings 2020 £ - - 70,000 70,000 2019 £ 43,243 455,076 170,000 668,319 The related party loans are repayable on demand. The Interest-bearing related party secured loan, fully repaid in the year in cash, had a fixed interest rate of 20%, and was repayable on demand. On the 17 December 2018 the Company issued unsecured convertible loan notes with a conversion price of £0.10 per ordinary share. The loan notes carry a 10% fixed rate redeemable on the earliest of • • • 17th December 2020; or Date of change of control; or If the investor majority determines following a material breach. At the date of issue of the convertible loan notes the company’s share price was at a substantial discount to the conversion price of 10p. The quantum of any possible equity component relating to conversion rights is therefore considered to be immaterial to the fair value of the convertible loans, equity in the statement of financial position and potential consequent impact on the finance charge on the instruments and therefore no equity component was recognised. On 3 September 2020, £100,000 of the unsecured convertible loan notes, plus accrued interest at that date, were converted to ordinary shares at 10p per share, in accordance with the terms of the convertible loan notes. The residual balance of the convertible loan notes was converted to ordinary shares in January 2021. Cashflow - net debt analysis Related party loan Convertible bonds Secured loan Lease liability 01-Jan-20 Cash flow £ 43,243 170,000 455,076 224,138 892,457 £ - - (455,076) - (455,076) Non-cash: conversion to ordinary shares £ - (100,000) - - (100,000) Non-cash: Released 31-Dec-20 £ (43,243) - - 40,716 (2,527) £ - 70,000 - 194,934 264,934 56 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 19. Lease liability Current Lease liability Non-Current Lease liability Total Current loans and borrowings Lease liabilities are payable as follows: 2020 £ 45,883 149,051 194,934 2019 £ 37,526 186,612 224,138 Future minimum lease payments £ 73,860 Interest £ (27,977) Present value of minimum lease payments £ 45,883 five 149,051 194,934 The cash outflow on lease liability payments in the year was £69,920 (2019: £71,685). The interest expense on lease liabilities recognised in the year was £33,300 (2019: £38,172). (37,961) (65,938) 187,012 260,872 Less than one year Between one and years 20. Share capital and reserves At 31 December 2018 Shares issued (net of expenses) October 2019 Conversion of loan notes to ordinary shares December 2019 At 31 December 2019 Exercise of shares for cash Shares issued March 2020 Shares issued May 2020 Shares issued August 2020 – exercise of warrant Shares issued October 2020 Share issue costs Exercise of shares – non-cash Shares issued September 2020 – satisfaction of debts Conversion of convertible loan note to equity September 2020 At 31 December 2020 Number of Shares Par Value £0.0004 £ 202,117,265 13,333,332 13,712,937 229,163,534 20,230,000 40,000,000 3,753,456 43,750,000 Share capital £ 80,847 5,333 5,486 91,666 8,092 16,000 1,501 17,500 Share premium £ 3,858,691 516,135 1,091,550 5,466,376 497,658 984,000 336,309 3,482,500 (267,514) 3,090,909 1,236 115,764 1,184,544 341,172,443 475 136,470 117,980 10,733,073 During the year there were share placements of 60,230,000 ordinary shares at 2.5p per share, and 43,750,000 at 8.5p. There was also exercise of 3,753,456 warrants, granted at the time of IPO, at 9.0p. There were also non-cash share issues in the year, including conversion of loan notes and accrued interest equivalent to £118,454, and shares issued in satisfaction of trading debts of £117,000. 21. Share based payment reserve The Company operates an equity-settled share-based remuneration schemes for Senior Executives, under the terms of the Company's EMI and Non-Qualifying Share Option Plan (the "Option Plan"). The options are valid for 57 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 10 years from the date of grant. After satisfaction of any performance condition included in the award the options will become exercisable in equal tranches on each anniversary of the Grant Date during the first three years. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted including any market performance conditions (for example the Company's share price) but excluding the impact of any service or non-market performance vesting conditions (for example the requirement of the grantee to remain an employee of the Group). Non-market vesting conditions are included in the assumptions regarding the number of options that are expected to vest. The total expense is recognised over the vesting period. At the end of each period the Group revises its estimates of the number of options expected to vest based on the non-market vesting conditions. It recognises the impact of any revision in the income statement with a corresponding adjustment to equity. The Company uses a Black Scholes model to estimate the cost of share options. The following information is relevant in the determination of the fair value of options granted. The assumptions inherent in the use of this model are as follows: • The option life is the estimated average period over which the options will be exercised. • There are no vesting conditions remaining which apply to the share options other than that they vest at the earlier of 3 years’ continued service with the Group. • No variables change during the life of the option (e.g. dividend yield remains zero). During the year there were various issues to new executives. The key assumptions used in the fair value calculation for issues is as follows Issue date Stock price at grant date Volatility Time to maturity (months) Risk free rate 06/04/2020 2.0p 73% 111 0.6528% 27/11/2019 3.8p 73% nil 0.7949% The movement in outstanding share options is as follows: Number of share options Opening at 31 December 2019 5,500,000 Weighted average strike price (pence) 8.3 Weighted average term (years) 9.5 Issued Forfeit Lapsed At 31 December 2020 4,000,000 (1,333,334) (2,666,666) 5,500,000 3.0 8.0 8.0 4.6 10.0 9.0 9.0 8.7 1,500,000 options were granted under the scheme in April 2018 to Chairman, Lord David Willetts, with an exercise price of 9.0p. During the year there were 4,000,000 options issued to CEO, Rob Richards at an exercise price of 3.0p. The share based payment expense recognised during the period was £77,481. 58 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 22. Non-controlling interests BBR Filtration Limited is a 51% owned subsidiary of the Company, and therefore has a material NCI. Summarised financial information in relation BBR Filtration Limited, before intra-group eliminations, is presented below together with amounts attributable to NCI: For the period ended 31 December 2020 Revenue Loss after tax Total comprehensive income allocated to NCI Cash flows from operating activities Net cash inflows Total assets Total liabilities Net Assets/(Liabilities) Accumulated non-controlling interests BBR Filtration £ - (189,829) (93,016) - - 618 (248,152) (247,534) (121,287) 23. Reserves The following describes the nature and purpose of each reserve within equity: Share premium - Amount subscribed for share capital in excess of nominal value. This includes share issue costs, which are deducted from share premium. Share based payment reserve - The share based payment reserve represents equity settled share based employee remuneration until such share options are exercised. Foreign exchange reserves - Foreign exchange translation gains and losses on the translation of the financial statements of subsidiary from the functional to the presentation currency, and also foreign exchange on intra- group funding balances. Retained earnings - All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere. 59 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 24. Related Party Transactions The Group has related party transactions with related parties who are not members of the group. Transactions during the year Amounts owed by related parties Amounts owed to related parties/loans 2020 £ £ £ 2019 2020 2019 2020 Geoff John Nesbitt1 Timothy Lord2 The Rt Hon. Lord David Willetts FRS3 George Katzaros4 Gavin Mayhew5 Rob Richards C2E Holdings Limited7 Jeremy Evans8 BBR Enviro Systems Pvt Ltd9 James Buchan11 132,662 152,888 68,974 50,000 25,000 153,423 103,327 102,488 62,976 30,000 62,188 - - - - - £ £ - 1,063 - - - - - - 62,000 - - - - - - - - - - - 2019 £ 136,486 - 83,266 63,243 455,076 - 10,403 10,000 - 19,000 - - - - - - - - - - Notes: 1Geoff John Nesbitt (resigned 7 May 2020) 2Timothy Lord (resigned 5 August 2020) 3 The Rt Hon. Lord David Willetts FRS 4George Katzaros 5Gavin Mayhew 6Rob Richards (appointed 1 June 2020) 7C2E Holdings Limited 8Jeremy Evans 9BBR Enviro Systems Pvt Ltd 10James Buchan Mr. Geoff John Nesbitt, Director of Verditek plc, was entitled to Director’s and other fees of £136,000 during the year. Geoff ceased to be a director of Verditek plc in October 2020, but has been retained on a consultancy basis. During the year Timothy Lord, and executive director of Verditek plc, was entitled to £68,974 for his services as a Director. Timothy ceased to be a director of Verditek plc in September 2020. David Willetts, Chairman of the Company, was entitled to fees and services of £50,000 during the period. David Willets was also issued some share options in 2018, with which there was an associated £13,024 charge during the year. Mr. George Katzaros, a non-executive director of Verditek plc, was entitled to Directors fees of £25,000 during the year. Gavin Mayhew is a non-executive director of the Company, and during the year was entitled to £55,000 fees. During the year the secured loan outstanding at the prior year end (£455,076) and associated accrued interest was repaid (£162,894). Gavin also separately subscribed for 6,000,000 ordinary shares as part of the fundraise in March 2020, for consideration of £150,000. Rob Richards is a Director of the Company. During the year he was entitled to £103,327 in fees for his services as director. During the year he was also issued share options, and there was an associated charge of £20,535. C2E Holdings Limited(“C2E”) is a shareholder of BBR Filtration Limited. Theo Chapman and James Buchan have an interest in C2E. A shareholder of Verditek plc BBR Enviro Systems Pvt Ltd who have a 10% stake in BBR Filtration, owed £62,000 in respect of royalty advances, which was provided for in the year. A shareholder of Verditek plc 60 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Details of the directors’ emoluments, together with the other related information, are set out in the Directors Report of the Remuneration Committee. 25. Events subsequent to the reporting date On 1 June 2021 the Group issued a corporate “green” bond to raise up to £500,000. The bond, yielding 7%, is being issued through crowdfunding platform Crowd for Angels, which is underwriting the first £225,000. The bond term is two years and interest will be paid quarterly. Security will be by way of a floating charge on the assets of the company. Verditek will also issue to Crowd for Angels 10 warrants for each £1 invested for a term of 36 months to subscribe for new ordinary shares at the closing bid price immediately prior to the date of the Loan Note agreement. The closing bid price on 28 May 2021 was 3.1p. In addition, one of Verditek's non-executive directors has entered into a bond with similar terms for £25,000 directly with the Company. On 24 June 2021 the Company announced that there had been a theft from its facility at Lainate which an initial physical stock check indicated a shortfall against book stock of approximately £300,000. 26. Ultimate controlling party There is no ultimate controlling party of the Company. 61 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 COMPANY STATEMENT OF FINANCIAL POSITION Non-current assets Investments in subsidiaries Investments in associates Property, plant and equipment Total non-current assets Current assets Trade and other receivables Net amounts due from subsidiaries Cash and cash equivalents Total current assets Total assets Current liabilities Trade and other payables Loans and borrowings Total current liabilities Net assets Share capital Share premium Share based payment reserve Retained losses Total equity Notes 3 4 5 6 7 8 9 10 11 12 31 December 2020 31 December 2019 £ 8,916 23,406 1,218 33,540 123,796 2,868,906 1,657,717 4,650,419 4,683,959 268,207 70,000 338,207 £ 169,454 24,229 765 194,448 57,438 1,734,197 73,316 1,864,951 2,059,399 863,181 668,319 1,531,500 4,345,752 527,899 136,470 10,733,073 99,184 (6,622,975) 4,345,752 91,666 5,466,376 21,703 (5,051,846) 527,899 The Company’s loss for the year was £1,571,129 (2019: £1,443,119) and is included within the consolidated statement of comprehensive income. These financial statements were approved and authorised for issue by the Board of Directors on 29 June 2021 and were signed on its behalf by: Rob Richards Chief Executive Officer Company Registration Number: 10114644 The accompanying notes are an integral part of these financial statements. 62 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 COMPANY STATEMENT OF CHANGES IN EQUITY Equity as at 1 January 2019 Loss for the year Total comprehensive loss Share capital £ 80,847 - - Share premium £ 3,858,691 - - Share issue (net of expenses) 10,819 1,607,685 Share based payments Equity as at 31 December 2019 Loss for the year Total comprehensive loss - 91,666 - - - 5,466,376 - - Share issue (net of expenses) 44,804 5,266,697 Share based payments - - Equity as at 31 December 2020 136,470 10,733,073 Share based payment reserve Retained losses £ Total £ 8,727 (3,608,727) 339,538 - - - 12,976 21,703 - - - 77,481 99,184 (1,443,119) (1,443,119) (1,443,119) (1,443,119) - - (5,051,846) (1,571,129) 1,618,504 12,976 527,899 (1,571,129) (1,571,129) (1,571,129) - - 5,311,501 77,481 (6,622,976) 4,345,752 The accompanying notes are an integral part of these financial statements. 63 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE COMPANY FINANCIAL STATEMENTS 1. Accounting policies The accounting policies that are applicable, as set out in note 1 to the consolidated financial statements have been applied together with the following accounting policies that have been consistently applied in the preparation of these Verditek PLC (“the Company”) financial statements. Basis of preparation The financial statements of Verditek PLC have been prepared in accordance with Financial Reporting Standard 101, ‘Reduced Disclosure Framework’ (FRS 101). The financial statements have been prepared under the historical cost convention, as modified and in accordance with the Companies Act 2006. The Company has taken advantage of Section 408 of the Companies Act 2006 in not presenting its own statement of comprehensive income. The Company has taken advantage of the following disclosure exemptions under FRS 101, on the basis that equivalent disclosures are, where required, are given in the consolidated financial statements of Verditek plc: a. a Cash Flow Statement and related notes as required by IAS 7 – ‘Statement of Cashflows’; b. the requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present comparative information in respect of paragraph 79(a)(IV) of IAS 1 – a reconciliation of the share capital at beginning and end of the period; the requirements of paragraph 134 – 136 of IAS 1 ‘Presentation of Financial Statements’ to disclose the management of the capital of the Company; c. d. the requirements of paragraphs 30 and 31 of IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’ to disclose the new or revised standards that have not been adopted and information about their likely impact; e. all of the disclosure requirements of IFRS 7 ‘Financial Instruments: Disclosures’; f. the requirements of paragraph 17 of IAS 24, ‘Related Party Disclosures’ to disclose key management personnel; and the requirements in IAS 24 ‘Related Party Disclosures’ to disclose related party transactions entered into between two or more members of a group, provided that any subsidiaries which is a party to the transaction is wholly owned by such a member. g. Investments in subsidiaries The Company’s investment in its subsidiaries are carried at cost less provision for any impairment. Investments denominated in foreign currency are recorded using the rate of exchange at the date of acquisition. The carrying value is tested for impairment when there is an indication that the value of the investment might be impaired. When carrying out impairment tests, the recoverable amount is based upon future cash flow forecasts and these forecasts would be based upon management judgement. Where the carrying value is more than the recoverable amount, no impairment provision is made. Trade and other receivables The Company assesses on a forward-looking basis the expected credit losses associated with its receivables, including the amounts due from subsidiaries, carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Company applies the simplified approach permitted by IFRS 9, resulting in trade receivables recognised and carried at original invoice amount less an allowance for any uncollectible amounts based on expected credit losses. 64 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Critical accounting estimates and judgments The preparation of financial information in conformity with FRS 101 requires the use of certain critical accounting estimates. It also requires the Directors to exercise their judgement in the process of applying the accounting policies which are detailed above. These judgements are continually evaluated by the Directors and management and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follow: Impairment of investments in subsidiaries This is detailed in the accounting policy ‘Investment in subsidiaries’ above. Impairment of the amounts due from subsidiaries The Company is required to assess the carrying values of each of the amounts due from subsidiaries, considering the requirements established by IFRS 9 Financial Instruments. The IFRS 9 impairment model requiring the recognition of ‘expected credit losses’. Where conditions exist for impairment on amounts due from subsidiaries expected credit losses assume that repayment of a loan is demanded at the reporting date. If the subsidiary has sufficient liquid assets to repay the loan if demanded at the reporting date, the expected credit loss is likely to be immaterial. However, if the subsidiary could not demonstrate the ability to repay the loan, if demanded at the reporting date, the Company calculated an expected credit loss. This calculation considers the percentage of loss of the amount due from subsidiaries, which involves judgement around how amounts would likely be recovered, and over what time they would be recovered. 2. Staff costs The average number of employees (including directors) during the period was made up as follows: Directors Administrative Total 2020 Number 3 1 4 2019 Number 5 1 6 The cost of employees (including directors) during the period was made up as follows: Salaries (including directors) Share based payment Social security costs Pension cost Total staff costs 2020 £ 383,981 77,481 33,883 7,444 2019 £ 499,123 12,976 32,112 7,355 502,789 551,566 65 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) 3. Investments in subsidiary undertakings At 1 January 2019 Transfer from investments in associates Additions Write off investments At 31 December 2019 Additions Write off investments At 31 December 2020 IMPAIRMENT At 1 January 2019 Impairment of investment in subsidiary At 31 December 2019 Impairment of investment in subsidiary At 31 December 2020 Net book value At 31 December 2019 At 31 December 2020 Investment in subsidiary £ 608,916 - - - 608,916 - - 608,916 439,462 - 439,462 160,538 600,000 169,454 8,916 The impairment in the year has been recognized due to doubts over the recoverability of the investment in BBR Filtration Limited (BBR) as the Company is not investing further in BBR due to its current focus on the solar opportunity. The details of the subsidiaries of Verditek plc, are set out in the Note 13 to the consolidated financial statements. 4. Other investments Cost At 1 January 2019 Additions Reclassification Exchange difference At 31 December 2019 Additions Reclassification Exchange difference At 31 December 2020 Financial assets at fair value through profit or loss Investment in associates Loans to associates £ 25,153 - (25,153) - - - - - - - - 25,153 (924) 24,229 - - (823) 23,406 £ - - - - - - - - - Total £ 25,153 - - (924) 24,229 - - (823) 23,406 The Company holds a 11.6% investment stake in Industrial Climate Solutions (ICSI), an unlisted company registered in Canada. The directors estimated the recoverable amount of Verditek’s investment in ICSI at the reporting date to be £23,406 (2019: £24,229). 66 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) As the directors have no seat on the board of ICSI and stake is under 20%, they consider that they do not have significant influence over the business, and therefore that ICSI is not an associate. The investment has therefore been reclassified as a financial asset measured at fair value through the profit or loss. 5. Property, plant and equipment Plant and machinery £ 1,873 - - 1,873 - 1,873 1,248 625 - 1,873 - 1,873 - - Computer equipment £ 629 699 - 1,328 949 2,277 140 423 - 563 496 1,059 765 1,218 Total £ 2,502 699 - 3,201 949 4,150 1,388 1,048 - 2,436 496 2,932 765 1,218 31 December 2020 £ 7,548 98,448 17,800 123,796 31 December 2019 £ 8,359 - 49,079 57,438 At 1 January 2019 Additions Disposal of asset At 31 December 2019 Additions At 31 December 2020 DEPRECIATION At 1 January 2019 Charge for the year Disposal of asset At 31 December 2019 Charge for the year At 31 December 2020 Net book value At 31 December 2019 At 31 December 2020 6. Trade and other receivables Prepayments Corporation tax receivable VAT receivable Total trade and other receivables All amounts are due within three months. 7. Amounts due from subsidiaries The directors consider that the carrying amounts owed by and to group undertakings approximates their fair value. The amounts reported under current assets have no fixed repayment terms and repayment on demand. At 31 December 2020 there was no provision held in respect of the recoverability of amounts due from subsidiaries. 67 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) 8. Cash and cash equivalent Cash at bank and in hand 1,657,717 73,316 31 December 2020 £ 31 December 2019 £ 9. Trade and other payables Trade payables Accruals and deferred income Social security & other taxes payable Pension cost Loans from related parties Total trade and other payables 10. Loans and borrowings Current Interest free related party loans Convertible Loans Interest bearing secured related party loan Total loans and borrowings 31 December 2020 £ 31 December 2019 £ 102,461 155,961 9,610 175 - 268,207 326,701 406,554 119,037 1,750 9,139 863,181 31 December 2020 31 December 2019 £ - 70,000 - 70,000 £ 43,243 170,000 455,076 668,319 See note 18 of the consolidated financial statements for details. 68 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) 11. Share capital For details of share capital see note 20 to the consolidated financial statements. 12. Share based payment reserve For details of the share based payments see note 21 to the consolidated financial statements. 13. Related party transactions The Group has related party transactions with entities in which directors have significant financial interests. For details of the related party transactions see note 24 to the consolidated financial statements. Details of the directors’ emoluments, together with the other related information, are set out in the Report of the Directors. There are no other related party transactions. 14. Commitments The Company has no lease or capital commitments at the end of the reporting period. 15. Contingent liabilities The Company has no contingent liabilities, other than what has been disclosed already. 16. Ultimate controlling party The Company does not have an ultimate controlling party. 17. Events after reporting date For details of events after reporting date see note 25 of the consolidated financial statements. 69 Verditek PLC Annual Report and Financial Statements For the year ended 31 December 2020 OFFICERS AND ADVISERS Directors: The Rt Hon. Lord David Willetts FRS Geoff John Nesbitt (resigned 7 May 2020) George Francis Katzaros Tim Lord (resigned 5 August 2020) Gavin Mayhew Robert Richards (appointed 1 June 2020) Company secretary and registered office: Nominated Adviser and Broker: Bankers: Auditors: Solicitors: Registrars: Company Number: Website: David Wilson Peachey & Co LLP 95 Aldwych London, WC2B 4JF W H Ireland Limited 24 Martin Lane, London EC4R 0DR Natwest Bank plc Crowe U.K. LLP 55 Ludgate Hill London, EC4M 7JW Peachey & Co LLP 95 Aldwych London, WC2B 4JF Neville Registrars Neville House 18 Laurel Lane Halesowen B63 3DA 10114644 www.verditek.com 70