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8. Give possible reasons why the potential new shares appear to be valued at 7.00p for the purposes of possible conversion of debt into equity
8. Give possible reasons why the potential new shares appear to be valued at 7.00p for the purposes of possible conversion of debt into equity (see appendix 2), despite the company never-yet having made a profit. (4 marks) Question 9. Outline the significance of the material uncertainty' referred to in the Auditors Report (Appendix 2). Your answer should make refence to the going concern concept and the cost concept. (10 marks) Appendix 2: Selections from the notes to the accounts and the Auditors Report. 1. The Auditors Report contained the following We draw attention to Note 17 in the financial statements, which indicates that the company incurred a net loss of 13,973 during the year ended 30 June 2021 and, as of that date, the company's current liabilities exceeded its total assets by 564,107. These events or conditions, along with other matters as set forth in Note 17, indicate that a material uncertainty exists that casts significant doubt on the company's ability to continue as a going concern. Stephen Parker Stephen Parker, Senior Audit Partner, Deloitte and Ernst. 2. A section of Note 17 of the accounts states: "The current solvency position of the company has been worsened by the unavailability of sufficient long-term finance owing to recent recessive conditions. But the Board is pleased to announced that a Loan pf 350k has been agreed with AMLAR Bioventures Fund, receivable in September 2021. If the loan is not repaid by 31st December 2022, AMLAR retain the option to convert the loan into new ordinary shares at a rate of 1 new share for every 7 worth of loan" 3. The administrative expenses include rent, wages and salaries, directors fees and audit fees. 4. The intangible assets include the capitalised element of qualifying development costs, including the fees of Patent Agents, as permitted under IAS38 (International Accounting Standard 38: Intangible Assets). After several weeks of financial match-making and negotiations, the first round finance for the newly formed company was as follows: * Setka HealthCare VCT plc (SETKA) bought into 300k worth of equity and made a 100k 'convertible' loan * Funds managed by Cambridge Research Innovation Ltd. (CRIL) made a loan of 100k * Funds under the management of Camelot Biomedica Ltd (a wholly owned business subsidiary of The Wellcome Trust that provides 'translation' funding). This provided funds totalling 536k * Second - round finance They have agreed to contribute: A 350K convertible loan (September 2021) to allow closure of first commercial deal (January 2022) 'Series A' funding: A predicted minimum of.4.5m starting in Sept. 2014 as equity capital, alongside one other major VC fund. The funding will be 'milestone-dependent' and provided in stages. - 'Series B' funding: AMLAR are anticipated to participate in a 15m (approx) funding round in Jun 2023 if necessary. There is a condition attached to the series B funding; in order to obtain it, the company has to generate (add) 10m in value - so called enterprise value see below: "adding value to the enterprise
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