Investment in Wanda, related party transactions

NetScientific plc

("NetScientific", the "Group" or the "Company")

Investment in 30% of Wanda and Related Party Transactions

NetScientific plc (AIM: NSCI), the deep tech and life sciences VC investment group, announces its investment in 30 per cent. of the issued share capital of Wanda Connected Health Systems Limited (Wanda Health), an intelligent platform for remote patient monitoring and virtual care in the UK and the US (Investment). Connected with the Investment, the Group has restructured some of its engagements relating to Wanda Health.

Background to and rationale for the Investment

On 22 March 2019, the Group sold its c.90 per cent. interest in Wanda, Inc. (Wanda US) to Deeptech Disruptive Growth Investments Limited (Deeptech) as the Company's previous management had concluded that the Group was no longer in a position to provide financial support to Wanda US.

The sale to Deeptech was managed by EMV Capital Limited (EMV Capital) (which at that time was not owned by NetScientific). Thereafter, EMV Capital entered into a management agreement with Deeptech on 5 August 2020 whereby, EMV Capital agreed to provide certain investment advisory services to Deeptech in respect of, inter alia, Wanda US (Management Agreement). EMV Capital was subsequently acquired by NetScientific on 24 August 2020 and is now a wholly owned subsidiary.

Following various fundraisings and strategic changes to the Wanda business as detailed below, the NetScientific Directors believe that the Wanda business has now been materially de-risked, having made significant commercial and operational progress, underpinning significant growth prospects, placing it in a stronger position than in 2019. The Board is accordingly delighted for the Group to be in a position to re-acquire a strategic stake in Wanda, providing it with exposure to the fast-growing remote patient monitoring market. The Investment is in line with the Company's strategy of deepening stakes in selected portfolio companies with high return potential.

About Wanda

Wanda Health is an intelligent platform for remote patient monitoring and virtual care. Wanda Health is empowering healthcare providers and payers with early detection of exacerbations in patients with acute, chronic, and specialty diseases, helping them speed interventions, prevent adverse events, and improve patient adherence. Wanda is a UCLA spin-out focused on intelligent remote monitoring of physiological data, patient engagement and healthcare analytics for post-acute care, chronic disease patients and population health.

Wanda's platform enables the control and reduction of hospitalisation and readmission rates through a remote patient monitoring system that collects data from patients' homes or community settings and provides it to clinicians, highlighting high risks cohorts. Wanda also uses its comprehensive multi-modality patient engagement tools to ensure that adherence to treatment protocols increases, improving patient outcomes. This patient centric approach to care model delivery, combined with secure computing and revolutionary data mining and analytics provides actionable insights to the care provider to improve patient outcomes, whilst reducing cost of care of chronic conditions.

Strategic and operational changes in Wanda

Upon the acquisition of Wanda US by Deeptech in March 2019, Dr Ilian Iliev (now the NetScientific's Chief Executive Officer) was appointed as Chairman of Wanda. The aim of Deeptech (and Dr Iliev as Chairman and EMV Capital as a fundraising adviser and investment adviser) was to progress the Wanda business from an R&D business into a commercially and growth focused business, and to prepare it for scale-up and further external fundraising. Activities over the previous five year period have included: further product development, business development (including strategic partnerships and increasing sales), filing for FDA clearance for software as a medical device status, re-launch of US sales, the implementation of a quality management system, and reducing operational costs.

To commercialise the technology in the UK and Europe, Wanda Health was incorporated by Deeptech on 20 June 2020 as a sister company to Wanda US, and a UK-based CEO was hired to lead Wanda.

Immediately prior to the Investment, Wanda Health acquired the issued share capital of Wanda US owned by Deeptech (Restructuring). The rationale behind the Restructuring was to bring Wanda Health and Wanda US together within the same corporate group, enabling it to seek third party fundraising and benefit from EIS investment.

Principal details of the Investment

In recognition of the services provided by EMV Capital to Wanda Health in relation to monitoring loans made to it and to Wanda US, Wanda Health agreed to pay EMV Capital a fee of approximately £62,658 (Wanda Invoice). EMV Capital assigned the Wanda Invoice to NetScientific UK Limited (NSUK), another subsidiary of the Company.

In lieu of a cash payment to settle the Wanda Invoice, NSUK has subscribed for 6,125 ordinary shares in the capital of Wanda Health, equivalent to the value of the Wanda Invoice and amounting to 30 per cent. of the enlarged issued share capital of Wanda Health (Share Subscription).

In the 12 month period ended 31 December 2023, Wanda Health and Wanda US incurred a loss before taxation of £1.5 million.

Connected with its services in structuring, and preparing the documentation relating to, the Restructuring, the Investment and matters ancillary thereto, EMV Capital has charged a corporate finance transaction fee of £20,000 to Wanda Health (Transaction Fee).

Management Agreement and New Engagement Letters

As the current value of Wanda is perceived by EMV Capital to be significantly lower than the performance fee hurdle rate of £9.5 million in the Management Agreement, EMV Capital and Deeptech have agreed to terminate the Management Agreement. Accordingly, on completion of the Investment, the Management Agreement shall terminate (as it only relates to Wanda and another company that Deeptech has since realised). The Group remains interested in the increase in value of Wanda Health due to its (now) direct interest in 30 per cent. of the issued shares of Wanda Health.

The Group has entered into two services agreements with Wanda Health (New Engagement Letters), the principal terms of which include:

·        advising on a proposed third party fundraising by Wanda Health (Fundraising), pursuant to which EMV Capital will charge customary fees to Wanda Health, including a commission of 6 per cent. of investment monies introduced by EMV Capital to Wanda Health; and

·        providing value creation services, pursuant to which EMV Support Services Limited (a wholly owned subsidiary of the Company) will charge an initial fee of c.£138,500, corporate finance fees of c.£32,000 (conditional upon completion of the Fundraising), an ongoing monthly retainer of £8,000 (which may increase by an agreed daily rate and where third party suppliers are provided), and sales commissions relating to the introduction of purchasers and licensing, joint development or joint development counterparties.

Related Party Transactions

Each of (i) the Share Subscription, (ii) the Transaction Fee; (iii) the termination of the Management Agreement; and (iv) the New Engagement Letters, being entered into by a company controlled by a substantial shareholder of NetScientific, represents a related party transaction in accordance with the AIM Rules for Companies.

At the time of entering into the related party transactions, Wanda Health is a company wholly owned by Deeptech, which in turn is an investment vehicle currently owned as to 97.5 per cent. by Melvin Lawson (who is currently interested in c.16.65 per cent. of the issued share capital of NetScientific), and as to 2.5 per cent. by Dr Ilian Iliev, the Chief Executive Officer of NetScientific (who is currently interested in c.15.21 per cent. of the issued share capital of NetScientific).

The Directors, excluding Dr Ilian Iliev (by reason of his interest in Deeptech), consider, having consulted with the Company's nominated adviser, Panmure Gordon (UK) Limited, that the terms of each of these transactions are fair and reasonable in so far as shareholders of NetScientific are concerned.

Dr Ilian Iliev, CEO of NetScientific, and Chair of Wanda Health, said:

"NetScientific is pleased to secure a 30 per cent. direct stake in Wanda, which meets our criteria for deeper involvement in selected portfolio companies, focused on delivering enhanced shareholder returns. We re-gain an interest in a significantly strengthened and de-risked version of Wanda, at a time where we see significant upside potential for the business in a transformed digital healthcare market.

"We look forward to working closely with Wanda's management team on the proposed fundraising and to deploying our value creation services team to drive growth in the fast-growing remote patient monitoring market."

The person responsible for arranging the release of this announcement on behalf of the Company is Edward Hooper, General Counsel and Executive Director of the Company.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE UK VERSION OF REGULATION (EU) NO 596/2014 WHICH IS PART OF UK LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018, AS AMENDED. UPON THE PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

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About NetScientific

NetScientific plc (AIM: NSCI) is a deep tech and life sciences VC investment group with an international portfolio of innovative companies.

NetScientific identifies, invests in, and builds high growth companies in the UK and internationally.

The company adds value through the proactive management of its portfolio, progressing to key value inflection points, and delivering investment returns through partial or full liquidity events.

NetScientific differentiates itself by employing a capital-efficient investment approach, making judicial use of its balance sheet and syndicating investments through its wholly owned VC subsidiary, EMV Capital. The group secures a mixture of direct equity stakes and carried interest stakes in its portfolio of companies, creating a lean structure that can support a large portfolio.

NetScientific is headquartered in London, United Kingdom, and is admitted to trading on AIM, a market operated by the London Stock Exchange.

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