TC BioPharm(TCBP) - 2023 Q2 - Quarterly Report

Unaudited Condensed Consolidated Statements of Income and Total Comprehensive Income The company experienced a significant revenue decline to zero in the first half of 2023, leading to a decrease in net income despite lower operating expenses Consolidated Statements of Income (Six Months Ended June 30) | | 2023 (£) | 2022 (£) | | :--- | :--- | :--- | | Revenue | - | 989,330 | | Research and development expenses | (4,077,774) | (3,698,142) | | Administrative expenses | (3,607,878) | (4,077,671) | | Total operating expenses, net | (7,773,283) | (8,854,910) | | Change in fair value of warrants | 7,637,088 | 10,537,611 | | Loss before tax | (346,418) | (207,342) | | Income tax credit | 700,000 | 720,000 | | Net income for the period | 353,582 | 512,658 | | Basic income per share | 0.12 | 0.93 | | Diluted income per share | 0.10 | 0.76 | - Revenue dropped to zero in the first six months of 2023 from £989,330 in the prior-year period[4] - Despite lower operating expenses, net income decreased to £353,582 from £512,658, influenced by changes in the fair value of financial instruments[4] Unaudited Condensed Consolidated Statements of Financial Position Total assets and liabilities significantly decreased, leading to an improvement in total equity from a deficit to a positive balance Consolidated Statements of Financial Position | | June 30, 2023 (£) | Dec 31, 2022 (£) | | :--- | :--- | :--- | | Total assets | 8,229,408 | 10,950,650 | | Cash and cash equivalents | 1,918,522 | 4,808,060 | | Total liabilities | 6,222,337 | 10,976,327 | | Convertible loan notes | 365,165 | 653,484 | | Warrants - derivative | 1,277,394 | 6,020,863 | | Total equity | 2,007,071 | (25,677) | - Total assets decreased to £8.2 million from £11.0 million, primarily due to a reduction in cash[7] - Total liabilities saw a significant drop to £6.2 million from £11.0 million, mainly driven by a decrease in the fair value of warrant derivative liabilities[7] - Consequently, total equity improved from a deficit of £25,677 to a positive £2.0 million[7] Unaudited Condensed Consolidated Statements of Changes in Equity Total equity significantly increased from a deficit to a positive balance, primarily driven by share capital issuance and net income Changes in Equity (Six Months Ended June 30, 2023) | | Amount (£) | | :--- | :--- | | As at January 1, 2023 | (25,677) | | Net income for the period | 353,582 | | Recognition of share-based payment costs | 142,321 | | Issue of share capital, net | 1,536,845 | | As at June 30, 2023 | 2,007,071 | - Total equity increased from a deficit of £25,677 at the beginning of the period to £2,007,071 as of June 30, 2023[9] - The increase was primarily driven by the net issuance of share capital (£1.54 million) and net income for the period (£0.35 million)[9] Unaudited Condensed Consolidated Statements of Cash Flows The company experienced a net cash outflow, primarily due to operating activities, partially offset by financing activities, reducing cash reserves Consolidated Statements of Cash Flows (Six Months Ended June 30) | | 2023 (£) | 2022 (£) | | :--- | :--- | :--- | | Net cash flows used in operating activities | (6,551,605) | (8,895,238) | | Net cash flows used in investing activities | (216,826) | (81,580) | | Net cash flows from financing activities | 3,998,049 | 13,169,716 | | Net (decrease)/increase in cash | (2,770,382) | 4,192,898 | | Cash at beginning of period | 4,808,060 | 1,566,688 | | Cash at end of period | 1,918,522 | 5,997,297 | - The company experienced a net cash outflow of £2.77 million during the first six months of 2023, reducing its cash and cash equivalents to £1.92 million[11] - This was a result of £6.55 million used in operations, partially offset by £4.0 million generated from financing activities, primarily from the sale of warrants and shares[11] Notes to the Financial Statements This section details the company's accounting policies, critical estimates, and judgments, alongside specific notes on financial instruments, share capital, and risk management 1. Accounting policies The company, a clinical-stage immunotherapy firm, faces significant going concern uncertainty due to limited cash, relying on future financing, and accounts for complex financial instruments as derivative liabilities - The Group's principal activity is as a clinical-stage immunotherapy company pioneering allogeneic, 'off-the-shelf' gamma-delta T cell ('GD-T') therapies[14] - A material uncertainty exists regarding the company's ability to continue as a going concern[33][38] - As of October 17, 2023, the Group had cash of $2.6 million, which is only sufficient to fund operations to November 2023, making future operations dependent on raising additional capital[33][38] - In March 2023, the company raised approximately $4.9 million net proceeds through a public offering of ADSs and Warrants[31] - In August 2023, it raised an additional $2.4 million through the exercise of certain warrants[32] - Convertible loans are accounted for as hybrid financial instruments, separating the loan component from the embedded conversion option derivative[42][43][44] - Warrants are accounted for as derivative liabilities because their exercise price is denominated in USD (a foreign currency to the functional currency, GBP) and they include a net settlement clause[60] 2. Critical accounting estimates and judgements Key management judgments include the going concern assumption, revenue recognition, and the valuation of financial instruments like warrants and share options using models due to market limitations - Management's going concern assessment acknowledges that existing cash will only fund operations to November 2023, but believes planned financings will provide sufficient liquidity for at least the next twelve months[68] - The fair value of listed warrants was determined using a Black-Scholes model instead of the market trading price, due to the market price not adjusting appropriately after a reverse share split and limited trading volumes[82] - For valuing share options, management used a volatility of 80%, derived from comparable publicly traded companies, as the company's own share price lacks sufficient historical data[85] 3. Revenue The company reported no revenue from collaboration agreements in the current period, with all prior deferred revenue fully recognized and no new agreements initiated Revenue from Collaboration Agreements | | Six months ended June 30, 2023 (£) | Six months ended June 30, 2022 (£) | | :--- | :--- | :--- | | Revenue | - | 989,330 | - No new collaboration agreements were entered into during the six months ended June 30, 2023[91] - Remaining deferred revenue from prior contracts was fully released as of December 31, 2022[91] 5. Finance costs Finance costs significantly decreased, primarily driven by a substantial reduction in interest expenses on convertible loans Finance Costs Breakdown | | Six months ended June 30, 2023 (£) | Six months ended June 30, 2022 (£) | | :--- | :--- | :--- | | Interest on lease liabilities | 92,365 | 122,304 | | Other interest | - | 13,503 | | Interest on convertible loan | 50,975 | 5,854,785 | | Total | 143,340 | 5,990,592 | 7. Basic and diluted income per share Basic and diluted income per share decreased significantly in 2023 compared to 2022, reflecting a prior reverse share split Income Per Share | | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | | Income for the period (£) | 353,582 | 512,658 | | Basic weighted average shares | 3,030,825 | 551,923 | | Diluted weighted average shares | 3,488,575 | 674,398 | | Basic income per share (£) | 0.12 | 0.93 | | Diluted income per share (£) | 0.10 | 0.76 | - All share and per-share amounts reflect a fifty-for-one reverse share split undertaken on November 18, 2022[96] 10. Convertible loan The convertible loan balance decreased due to conversions into equity and fair value adjustments, following substantial amendments to its terms in April 2023, which were treated as an extinguishment and new recognition Convertible Loan Movement (Six Months to June 30, 2023) | | Residual loan (£) | Embedded derivative (£) | Total (£) | | :--- | :--- | :--- | :--- | | Balance at Dec 31, 2022 | 653,484 | 2,439 | 655,923 | | Accrued interest | 50,975 | - | 50,975 | | Modification of loan notes | (53,619) | 699,464 | 645,845 | | Conversion of loan notes | (254,150) | - | (254,150) | | Fair value adjustment | - | (578,877) | (578,877) | | Currency adjustment | (31,525) | - | (31,525) | | Balance at June 30, 2023 | 365,165 | 123,026 | 488,191 | - On April 3, 2023, the terms of the loan notes were amended, extending the repayment date and revising the conversion price[103][112] - This was treated as a substantial modification, leading to the extinguishment of the original liability[103][112] - During the period, loan notes with a value of £254,150 were converted into 527,016 Ordinary Shares[104] - The remaining balance was converted into equity after the period end[104] 11. Warrants – derivative The warrant derivative liability significantly decreased due to a large positive fair value adjustment, despite the issuance of new warrants and amendments to existing warrant exercise prices Warrant Derivative Liability Movement (Six Months to June 30, 2023) | | Embedded derivative (£) | | :--- | :--- | | Balance at December 31, 2022 | 6,020,863 | | Fair value of warrants issued in the period | 2,893,619 | | Fair value adjustment | (7,637,088) | | Balance at June 30, 2023 | 1,277,394 | - In March 2023, the company issued Series C warrants to purchase up to 3,437,500 ADSs with an exercise price of $1.75 per ADS[121] - In connection with the March 2023 offering, the exercise price of existing warrants to purchase 2,800,000 ADSs was reduced from $5.00 to $1.75 per ADS[122] 13. Share capital and reserves Total share capital and premium increased, driven by a significant rise in outstanding ordinary shares from warrant exercises and convertible note conversions Share Capital Movement (Six Months to June 30, 2023) | | Number of shares | Share capital (£) | Share premium (£) | | :--- | :--- | :--- | :--- | | Balance at Dec 31, 2022 | 1,744,913 | 95 | 16,597,811 | | Issue of Ordinary shares | 4,849,340 | 485 | 1,536,360 | | Balance at June 30, 2023 | 6,594,253 | 580 | 18,134,171 | - During the period, holders of pre-funded warrants exercised them to purchase 4,114,500 ADSs, and holders of Convertible Loan Notes converted them to purchase 519,840 ADSs[144] 14. Share-based payments The company recognized £142,321 in share-based payment expense, with no new options granted and a forfeiture of 13,468 options under the 2021 scheme - The expense recognized for share-based payments for employee services during the six months to June 30, 2023 was £142,321[155] 2021 Share Option Scheme Movement | | Number of share options | Weighted avg. exercise price ($) | | :--- | :--- | :--- | | Outstanding at Dec 31, 2022 | 52,305 | 212.00 | | Granted during the period | - | - | | Forfeited during the period | (13,468) | 212.00 | | Outstanding at June 30, 2023 | 38,837 | 212.00 | 17. Risk management The Group manages primary financial risks including liquidity, currency, and equity price risk, with liquidity being critical due to its pre-revenue status and reliance on financing - The Group is exposed to liquidity risk, which it manages by monitoring cash flows and maintaining reserves[169][170] - It utilizes shareholder funds, collaboration agreements, and grant funding for working capital[169][170] - Currency risk primarily relates to US Dollar-denominated Convertible Loan Notes[174] - A 10% increase in the GBP/USD exchange rate would reduce the loan liability by £14,860[174] - The Group faces equity price risk as the fair value of its warrant derivative liabilities fluctuates with its ADS price[175] - A 10% increase in the ADS price would increase the derivative liability by £208,896[175] 18. Contingent liability The company is contesting a former note holder's claim for approximately $860,000, asserting the note was properly settled with shares and warrants - A former note holder filed a claim in June 2023, demanding payment of approximately $860,000 in cash for a convertible note that the company had settled through the issuance of shares and warrants[178] - The company is contesting the claim in its entirety, believes it acted correctly under the terms of the note, and has not provisioned for any liability related to this matter[178] 19. Subsequent events Post-period, the company amended warrant terms and successfully induced warrant exercises, generating approximately £2.2 million in gross proceeds - On July 10, 2023, the company amended existing warrants to purchase 6,237,500 ADSs, reducing the exercise price to £0.35 and extending the termination date for a portion of them[179] - On August 30, 2023, the company entered into an inducement offer with warrant holders, leading to the cash exercise of warrants for an aggregate of 6,237,500 ADSs, generating gross proceeds of approximately £2.2 million (approx. $2.8 million)[180][181]