PHYNOVA_GROUP_LIMITED - Accounts

The directors of the company have elected not to include a copy of the profit and loss account within the financial statements.true

These financial statements have been prepared and delivered in accordance with the provisions applicable to companies subject to the small companies regime.

Phynova Group Limited is a private company limited by shares incorporated in England and Wales. The registered office is Office 3, Magenta Storage, 2 Brookhill Way, Banbury, Oxfordshire, OX16 3ED.

These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006 as applicable to companies subject to the small companies regime. The disclosure requirements of section 1A of FRS 102 have been applied other than where additional disclosure is required to show a true and fair view.

For the year ended 31 December 2021 the company received income from a customer under a take or pay arrangement of £1,136,330 (2020 - £737,700) and an exclusivity deal of £101,182 (2020 - £101,182).  In the opinion of the directors, the commercial reality of these arrangements entitles the company to record this income as earned in the period.  Accruals of £568,165 (2020 - £368,850) and £50,400 (2020 - £98,118) have been made for purchases of goods in respect of these sales.  The terms of the contract stipulate that cash paid by the customer in respect of sales can be utilised for the purchase of goods at the option of the customer at a point in the future and therefore should only be recorded once the option lapses.  Recording this income within the year ended 31 December 2021 is a departure from the requirements of the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102), which requires the sales and purchases to be recognised once the option has lapsed.  In the opinion of the directors this does not represent the commercial reality of the contract and this departure from accounting standards is required to show a true and fair view and have applied this true and fair override within these financial statements, as deferring the income and associated costs would be misleading.

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.

The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.

The company has taken advantage of the exemption under section 399 of the Companies Act 2006 not to prepare consolidated accounts, on the basis that the group of which this is the parent qualifies as a small group. The financial statements present information about the company as an individual entity and not about its group.

The financial statements have been prepared on the going concern basis.

The company is currently reliant upon its ability to raise finance from issuing new shares to its investors to fund the company’s activities, whilst it continues to develop and market its products. At the date of approval of these financial statements, sufficient funds have been raised to meet the company’s expenses and liabilities as they fall due. Going forwards, the directors aim to supplement funds raised through the issue of new share capital with revenue from the sale of its products which it is bringing to the market.

The company has benefited from a favourable tax environment to be able to issue new shares under the Enterprise Investment Scheme (EIS), whereby certain investors obtain an additional tax benefit from investing in the company. This scheme operates up to a cap of £20,000,000 per company and the company has used up the majority of its limit. Going forwards the company will be more reliant upon issuing shares outside of this scheme and generating revenue from the sale of its products.

The directors are confident that the company will continue to attract sufficient funding, and the directors are confident the company has sufficient resources to support this company for the next 12 months.

Note 13, Events after the reporting date discloses the amount of new capital raised after the balance sheet date.

It is on this basis that the directors consider it appropriate to prepare the accounts on the going concern basis.

Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer (usually on dispatch of the goods), the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Where the company has a contractual right to receive income and cash flows are guaranteed, the company will recognise the income as turnover. When that the contract requires for the company to acquire product to satisfy these obligations after the balance sheet date, and these obligations can be reliably measured, costs will be accrued on the balance sheet. These accruals are assessed on an ongoing basis in order to ensure income and costs reflect the commercial terms of the contract.

Research expenditure is written off against profits in the year in which it is incurred. Identifiable development expenditure is capitalised to the extent that the technical, commercial and financial feasibility can be demonstrated.

Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.

Interests in subsidiaries are initially measured at cost and subsequently measured at cost less any accumulated impairment losses. The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in profit or loss.

A subsidiary is an entity controlled by the company. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.

At each reporting period end date, the company reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

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

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Stocks are stated at the lower of cost and estimated selling price less costs to complete and sell. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the stocks to their present location and condition.

Stocks held for distribution at no or nominal consideration are measured at the lower of cost and replacement cost, adjusted where applicable for any loss of service potential.

At each reporting date, an assessment is made for impairment. Any excess of the carrying amount of stocks over its estimated selling price less costs to complete and sell is recognised as an impairment loss in profit or loss. Reversals of impairment losses are also recognised in profit or loss.

Cash and cash equivalents are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

The company has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the company's balance sheet when the company becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset, with the net amounts presented in the financial statements, when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.

Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.

Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.

Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.

The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.

Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

Equity-settled share-based payments are measured at fair value at the date of grant by reference to the fair value of the equity instruments granted using the Black Scholes model. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the estimate of shares that will eventually vest. A corresponding adjustment is made to equity, within the equity reserve.

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation in the period are included in profit or loss.

In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.

Key sources of estimation uncertainty

The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows:

Impairment of loans and investments

The carrying value of company’s subsidiaries and their associated loans are monitored and provisions for impairment made when the recovery of those amounts are uncertain.  The directors consider all factors relating to the operation of the groups subsidiaries and their ability to repay the company and balances are impaired when necessary.

Share based payments

The company operates two share incentive schemes and issue share options to eligible employees, which can be converted to shares.  Share options are valued using the Black Scholes valuation method.

The average monthly number of persons (including directors) employed by the company during the year was:

The company operates two share incentive schemes. The first is an Enterprise Management Incentive (EMI) qualifying scheme, and the other in a non-EMI qualifying scheme. Employees that are eligible for EMI are issued options in the EMI qualifying scheme, parties that are ineligible for this scheme, or eligible employees who have exhausted their eligibility may also be included in the non-EMI qualifying scheme (to the extent their awards exceed the scheme limits). Other than the qualifying nature of the Employee the schemes' terms are identical. Share options issued are recorded in the financial statements as the vest using a valuation based upon the Black Scholes methodology.

With respect of the directors, the amount of exercised shares were £75,000.

The total expense arising from share-based payments recognised in the profit and loss was £nil.

During the year equity-settled schemes totalled £1,690,270 (2020 - £2,454,630).

All Ordinary Shares rank equally as regards to rights to voting, rights to dividends and rights to participating in a distribution on winding up.

The rights attached to the Series A Preferred Shares are:

1. Full voting rights;

    

2. Preferential dividends that are a fixed cumulative cash amount at an annual rate of 5% of the issued price to be paid on exit;

    

3. Series A Preferred Shares can be converted into Ordinary Shares at any time at the request of the shareholder; and

    

4. Any capital distribution on this class of shares takes priority to any other class of share. 

As the income statement has been omitted from the filing copy of the financial statements, the following information in relation to the audit report on the statutory financial statements is provided in accordance with s444(5B) of the Companies Act 2006:

The auditor's report was qualified and the auditor reported as follows:

Qualified opinion on financial statements

We have audited the financial statements of Phynova Group Limited (the 'company') for the year ended 31 December 2021 which comprise , the balance sheet and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

In our opinion, except for the effects of the matters described in the Basis for qualified opinion section of our report, the financial statements:

•     give a true and fair view of the state of the company's affairs as at 31 December 2021 and of its loss for the year then ended;

•     have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

•     have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for qualified opinion

Disagreement with accounting treatment of contract income

The company holds a ‘take or pay’ contract with a customer; which provides the company with guaranteed revenues each year until the contract expires. Under the terms of the contract the customer has committed to pay Phynova Group Ltd a minimum amount for each year of the contract, whether they order product or not. Once a payment is received, the customer then has twelve months to utilise these funds and allocate them to product purchases. The directors have recognised the income under this contract, from the date at which the monies are guaranteed to the company. The costs of providing goods to the customer have been estimated by the directors and accrued for within the financial statements.

Under the terms of the contract, the customer carries the credit on their account forward to be utilised against future orders. FRS102 requires that income should be deferred until such time that the customer’s contractual right to utilise its payment for goods expires (being twelve months from the balance sheet date). Accordingly turnover is overstated by £1,136,340 (2020 - £737,700) as this balance should be shown within deferred income, cost of sales and accruals are overstated by £568,165 (2020 - £368,850). Net loss after tax would increase and shareholders’ equity would decrease by £568,165 (2020 - £368,850).

In addition to the above, there is also an exclusivity agreement in place. A customer paid the company £398,600 for three years exclusive access to a product in a given market. The customer can utilise this payment against purchases of product made during the term of the agreement. The directors have recognised this element of income on a straight line basis.

In line with the accounting treatment described above, revenue and costs in respect of this contract should be recognised once a formal order has been placed by the company’s customer and the company has ordered product from its suppliers. As such, deferred income is understated by £297,418. Turnover is overstated by £101,182 in respect of the year ended 31 December 2021 and £101,182 in respect of the year ended 31 December 2020. The corresponding accrual for the associated product in relation to these amounts is overstated by £50,591 in respect of the year ended 31 December 2021 and £66,750 in respect of the year ended 31 December 2020. The year end accrual for product is overstated by £148,710. Net loss after tax would increase and shareholders’ equity would decrease by £50,591 and £148,710 respectively.

Limitation of scope

Due to geographical and other limitations we were not able to observe the counting of physical inventories held overseas at the end of the year. We were unable to satisfy ourselves by alternative means concerning the inventory quantities held at 31 December 2021 or at 31 December 2020, which are included in the balance sheet at £350,624 (2020 - £276,427), by using other audit procedures. Consequently we were unable to determine whether any adjustment to this amount was necessary.

Emphasis of matter

Overseas subsidiaries

Due to circumstances beyond the control of the directors, the company has not been able to obtain an audit of its subsidiaries in Hong Kong and China for the year ended 31 December 2021. The directors were unable to obtain access to the accounting records or to the management personnel of those companies.

The directors have confirmed that no guarantees have been given or security provided in respect to those companies and none are disclosed within these financial statements.

It has not been possible to obtain independent audit evidence from those jurisdictions to audit this assurance.

The following amounts were outstanding at the reporting end date:

The following amounts were outstanding at the reporting end date:

Due to circumstances beyond the control of the directors, it has not been possible to arrange for suitable audit procedures to be carried out in respect of the company's subsidiaries in China and Hong Kong. The position in respect to these jurisdictions means that the directors have been unable to secure reasonable evidence in respect to any security or guarantees granted by these companies.

In accordance with FRS102 the company has not disclosed transactions or balances with 100% owned members of the group.

Amounts owed by entities over which the entity has control were impaired by £nil (2020 - £2,450,136).

After the balance sheet date, but before these financial statement were approved by the board, the company raised £482,908 in new capital to support the business' ongoing activities.