Company Registration No. 09910883 Belluscura plc Annual report and financial statements for the year 31 December 2021 Belluscura plc Report and financial statements 2021 Contents OFFICERS AND PROFESSIONAL ADVISORS CHAIRMAN’S STATEMENT CHIEF EXECUTIVE’S REVIEW FINANCIAL REVIEW GOVERNANCE DIRECTORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE STRATEGIC REPORT, THE DIRECTORS’ REPORT AND THE FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BELLUSCURA PLC CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME CONSOLIDATED BALANCE SHEET COMPANY BALANCE SHEET CONSOLIDATED STATEMENT OF CHANGES IN EQUITY COMPANY STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE ACCOUNTS 1 2 3 4 6 8 10 11 15 16 17 18 19 20 21 Belluscura plc Report and financial statements for the year to 31 December 2021 OFFICERS AND PROFESSIONAL ADVISORS Registered Office Belluscura plc 15 Fetter Lane Holborn London EC4A 1BW Officers Adam Reynolds Bob Rauker Tony Dyer Dr Patrick Strollo David Poutney Ric Piper Non-Executive Chairman Chief Executive Officer Chief Financial Officer Non-Executive Director Non-Executive Director Non-Executive Director Auditor Jeffreys Henry Audit Limited Finsgate 5-7 Cranwood Street London EC1B 9EE Banks Barclays Bank Plc 1 Churchill Place Canary Wharf London E14 5HP Solicitor DWF PLC 20 Fenchurch Street London EC3M 3AG Comerica Bank PO Box 650282 Dallas Texas TX 75265-0282 JPMorganChase 2200 Ross Ave, Floor 8 Dallas Texas TX 75201 Nominated Advisor Spark Advisory Partners Limited 5 St John's Ln London EC1M 4BH Broker Dowgate Capital Ltd 15 Fetter Ln London EC4A 1BW 1 Belluscura plc Report and financial statements for the year to 31 December 2021 CHAIRMAN’S STATEMENT I am pleased to report on the performance of Belluscura as my first year as Chairman after listing on AIM in May 2021. Belluscura is a business founded on the principle of making healthcare both more affordable and more available while returning a strong profit to our shareholders. In February 2017, the Group entered into a co-exclusive licence and development agreement with Separation Design Group IP Holdings LLC (“SDG”) to complete the development of the X-PLOR, a portable oxygen concentrator, used to deliver concentrated oxygen to a patient requiring oxygen therapy. Belluscura and SDG delivered a working prototype within five months of acquiring the X-PLOR licence. X-PLOR received 510(k) clearance from the Food and Drug Administration (“FDA”) on 2 March 2021. Our products are currently manufactured in the US and the Group is delighted to have commercially launched the X-PLOR in September 2021. The Group has also developed follow-on products which will target the same oxygen markets and continues to work on other oxygen enrichment technologies in complementary markets We believe that the X-PLOR range of products will provide significant growth for the Group. The global demand for medical oxygen continues to grow with an estimated 300m people suffering from Chronic Obstructive Pulmonary Disease (“COPD”) and the disease expecting to become the leading cause of death worldwide in 15 years. Additionally, even though the COVID-19 pandemic appears to be easing, recent studies reveal that nearly one in five people that contracted COVID-19 showed lung abnormalities, potentially resulting in a future need for supplemental oxygen1. The Company looks forward with optimism and will be updating shareholders on a regular basis. Adam Reynolds Non-Executive Chairman 28 March 2022 1 The unmet global burden of COPD - UCL Respiratory, University College London, London, UK - https://discovery.ucl.ac.uk/id/eprint/10052604/ 2 Belluscura plc Report and financial statements for the year to 31 December 2021 CHIEF EXECUTIVE’S REVIEW 2021 has been a transformational year for Belluscura. On 2 March 2021 we received 510(k) clearance from the US FDA for the X-PLOR Portable Oxygen Concentrator. This underpinned our successful £17.5 million ($24.5 million) fundraise and IPO listing on AIM on 28 May 2021. Whilst we had many distributor enquiries, both in the US and internationally, in order to manage the launch and ensure we would have continuity of supply to our customers, we limited the number of initial distributor agreements. We signed our first distribution agreement in June 2021 and now have more than ten in place. Following a successful Pre-Market Evaluation, where the units were tested with 17 volunteer oxygen users, we launched the X-PLOR in early September and in the four months to 31 December 2021 we sold 377 X-PLOR units, significantly exceeding our initial forecasts. Our device is priced competitively for the B2B market and during 2022 we will expand into the B2C marketplace which allows the Company to retain higher gross margins. Recognising the current global supply chain challenges, the Company has significantly increased inventory levels of key components and other raw materials to pre-empt any potential disruption on production levels allowing them to be maintained in the current financial year and beyond. Inevitably, whilst these shortages remain, costs are higher, but as we increase volume and the shortages ease, we will start to benefit from economies of scale along with the potential benefits of reducing costs in 2023. The Group’s manufacturing capability has been scaled up significantly to ensure that the Company can continue to meet the increased demand from US distributors, with the Company continuing to broaden its sales network with both online and brick & mortar distributors. The Company also continues to move forward toward launching the product outside the US, having received multiple enquiries from distributors globally. We continue to strengthen the Belluscura team, increasing headcount (excluding non-executive Directors) from 9 at the time of IPO to 16 at the end of the year. We will continue to invest in our engineering and manufacturing capability along with sales and marketing to build out our B2B sales, B2C sales and the brand. We will also invest in our quality and compliance infrastructure that any fast-growing business requires. Forecasts of the supplementary oxygen market now expect it to grow from $3.14bn in 2021 to $5.64bn by 2027, representing a Compound Annual Growth Rate (CAGR) of 10.17%2. The longer-term impact on oxygen requirements for recovering COVID-19 patients is yet unknown; however, there has been increased demand for oxygen related devices globally. In addition, supply chain disruption has caused a shortage of devices across the industry, which opens up opportunities for Belluscura. Outlook Trading in the beginning of 2022 has continued to accelerate. In the first six weeks of 2022 we increased the number of distributors to more than 10 and had combined sales and orders for more X-PLOR units than the total number of X-PLOR units we sold in 2021. We will increase production commensurate with market demand and manufacturing capabilities which we expect to grow significantly. The Group also continues to satisfactorily progress regulatory clearances in territories outside the US. Development of the follow-on products, the X-PLOR CX and X-PLOR DX, continues to progress well with the expected launch of these next generation products to be in Q2 2022 and Q3 2022 respectively. The Company has a strong balance sheet and is well positioned to deliver substantial growth in 2022. We look forward to the future with confidence. Robert Rauker Chief Executive Officer 28 March 2022 2 Medical Oxygen Concentrators & Oxygen Cylinders Market Research Report by Product, by Technology, by End-user, by Region - Global Forecast to 2027 - Cumulative Impact of COVID-19 (yahoo.com) 3 Belluscura plc Report and financial statements for the year to 31 December 2021 FINANCIAL REVIEW Income statement Revenue for the year to 31 December 2021 was $420,316 (2020: $nil). This revenue was generated in the final four months of the year following the launch of the X-PLOR. All revenue was generated in the US. There was a small Product Gross Loss in the year of $52,171 (2020: $nil). With X-PLOR being the Group’s first product to be launched, pricing was deliberately competitive to establish early B2B sales, with cost of goods sold reflecting the initial small volumes. Other income of $209,690 (2020: $11,493) was from COVID-19 related grants and forgiven loans. Operating Loss for the year was $5.19m (2020: $1.95m) and Total Comprehensive Loss was $6.37m (2020: $1.59m). Adjusted Operating Loss of $4.21m (2020: $1.30m) is calculated before IFRS2 Share Based Payment Charge and Surrendered Share Options (Note 6.2), Depreciation, Amortisation, Interest, Exchange Differences and IPO Costs. Note 26 Alternative Performance Measure reconciles the Total Comprehensive Loss to the Adjusted Operating Loss. Loss per share The basic and diluted loss per share was $0.055 (2020: $0.036). Financial position The Group net assets at 31 December 2021 were $24.67m (2020: $4.67m). This comprised total assets of $26.00m (2020: $5.24m) and total liabilities of $1.33m (2020: $0.57m). The total assets included intangible assets (capitalised research and development costs), property, plant and equipment and right-of-use assets of $7.05m (2020: $4.52m). Cashflow The Group had net cash of $15.59m (2020: $0.52m) as at 31 December 2021. Net cash inflow of funds raised in the year was $25.47m (2020: $2.25m). During the year the net cash outflow from operating activities was $7.29m (2020: $1.47m). The Group raised £17.5 million ($24.5 million) from investors in May when its shares were admitted to trading on AIM, before expenses of £1.4 million ($1.9 million); of which £0.5 million ($0.6 million) were charged to the Income Statement and £0.9 million ($1.3 million) were charged to the Share Premium Account. These funds are being applied in pursuing the Group’s strategic objectives. Dividends No dividend is recommended (2020: £nil) due to the early stage of the development of the Group. Events after the reporting period At the date of these Final Results, there were no events after the reporting period. Change of auditors At the Annual General Meeting on 7 May 2021 the shareholders approved the re-appointment of KPMG LLP as the Group’s independent auditor. Subsequent to this, as requested by the Board, the Audit Committee considered the appointment of a new independent auditor for the year ending 31 December 2021. The Board accepted the Committee’s recommendation that Jeffreys Henry Audit Limited be appointed as the Group’s independent auditor. The Board wishes to thank KPMG for their work as the Group’s independent auditor since 2017. Principal Risks and Uncertainties The Group actively considers and manages its risks. The Directors consider the following areas of business and operational risk and details how this risk is managed or mitigated: • Generating revenue. The Group’s primary source of revenue is from sales of its X-PLOR product. Management performs regular reviews of the sector to ensure it is targeting large markets. • Successful product development. The Group received FDA 510(k) clearance for X-PLOR on 2 March 2021. The Group’s follow-on products are in advanced development and are based upon shared technology with X-PLOR. The Board regularly monitors the carrying value of capitalised product development in the light of plans for future revenue and margin. • Credit risk. The Group’s principal financial assets are cash, and trade and other receivables. The Group monitors receivables and should any be the subject of an identified loss event, allowance is made for impairment if required. At the end of the period the Group had four customers. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. Further, apart from intercompany consolidated transactions the Group has no current debt outstanding (excluding leases capitalised under IFRS16). 4 Belluscura plc Report and financial statements for the year to 31 December 2021 • Liquidity risk. To support expansion plans for future development, the Group regularly reviews its financing arrangements and cash flows to ensure there is sufficient funding in place. • Foreign exchange risk. As the Group holds Sterling cash deposits and reports its financial performance in US Dollars, this exposes the Group to a potential unrealised currency risk on its Sterling bank balances. This relates to the raising of capital in the United Kingdom. The Directors review this exposure on a regular basis. Companies Act S.172 The Directors acknowledge their duty under s.172 of the Companies Act 2006 and consider that they have, both individually and together, acted in the way that, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole. In doing so, they have had regard (amongst other matters) to: • • • • • the likely consequences of any decision in the long term. The Group’s long-term strategic objectives, including progress made during the year and principal risks to these objectives, are shown in the Chairman Statement, Chief Executive’s Review and Financial Review. the interests of the Company’s employees. Our employees are fundamental to us achieving our long-term strategic objectives. We aim to be a responsible employer in our approach to the pay and benefits our employees receive. Further details can be found in the Remuneration Report. the impact of the Company’s operations on the community and the environment. The Group operates honestly and transparently. We consider the impact on the environment, the people who work for us and the wider community and how we can minimise this. the desirability of the Company maintaining a reputation for high standards of business conduct. Our intention is to behave in a responsible manner, operating high standard of business conduct and good corporate governance. the need to act fairly as between members of the Company. Our intention is to behave responsibly towards our shareholders and treat them fairly and equally so that they may benefit from the successful delivery of our strategic objectives. Contingent Liabilities On 24 February 2017, the Company entered into a co-exclusive licence and development agreement with Separation Design Group, LLC and SDG (together the “SDG Parties”) (“SDG Licence”) which was subsequently amended by an amendment agreement dated 19 March 2021. Pursuant to the SDG Licence: if by 3 September 2025, cumulative sales of the X-PLOR have not exceeded $20 million dollars, Belluscura must make a one-time payment of $3 million to the SDG Parties to maintain the exclusive SDG licence. COVID-19 The Board have reviewed and assessed the impact of the COVID-19 pandemic on the Group. This did result in an elongated FDA clearance process, however clearance was received on 2 March 2021. We face similar challenges to businesses due to disruption caused by COVID-19, however, we believe that we are in a strong position to progress. Russia/Ukraine The Board have reviewed and assessed the impact of the current Russia/Ukraine conflict on the Group. The Group believe that based upon our current structure and plans that there will be minimal impact on the Group. Analysis of Financial and non-Financial Key Performance Indicators The Board continues to monitor performance regularly throughout the year by reviewing a range of key performance indicators. These include revenue growth, progress towards operational break even, expenditure (both current and investment) control against budget and cash used and remaining. The Directors expect further improvement in performance in future periods as it achieves success in the Group’s strategy to launch its products and grow through continual investment. Tony Dyer Chief Financial Officer 28 March 2022 5 Belluscura plc Report and financial statements for the year to 31 December 2021 GOVERNANCE Board of Directors Adam Reynolds - Non-Executive Chairman Adam began his career in the City in 1980 and in 2000 established his own PR/IR/Corporate finance firm which listed on AIM in November 2000 and was then later sold in 2004 via a reverse takeover. He was approached in 2005 to become non-executive Chairman of International Brand Licensing Plc (“IBL”). The company at this time had substantial debt and the remit was to turn it around, and following the sale of a number global sports IP assets, IBL became a cash shell. In 2009 Adam introduced David Evans and Julian Baines, two leading diagnostic specialists in the UK, to the company and the Plc changed direction. That business is today called EKF Diagnostic Holdings Plc, and Adam remains a non-executive director and shareholder. In November 2012 Adam launched a successful agreed bid for the trading assets and business of Autoclenz Plc alongside its management team. Adam remains a director and shareholder. In addition, Adam is currently non-executive Chairman of AIM-quoted Yourgene Health Plc and MyHealthChecked Plc, and a non-executive director of Sosandar Plc. Adam joined the Board in April 2021. Robert “Bob” Rauker - Chief Executive Officer Bob is a senior management executive with a track record in the medical device sector. Over his career Bob has been involved in the valuation, acquisition and sale of multiple medical devices. Bob has served as Head of Medical Device & Life Sciences Group for Acacia Research Group (NASDAQ) in the role of SVP, where he built the medical device business to $30 million in revenue. Previously he served as global chief IP counsel for Synthes Inc. (SIX) and the Boston Scientific Corporation (NYSE) Endoscopy business, both multi-billion dollar companies, where he managed the medical products acquisition and licensing transactions along with other senior management roles. Bob has a bachelor’s degree in mechanical engineering and an MBA from the University of Massachusetts and a juris doctorate from the New Hampshire School of Law. Additionally, he is a registered patent attorney, a named inventor on 13 patents and pending applications in the medical device sector and joint inventor of the X-PLO2R portable oxygen concentrator. Bob joined the Board in August 2016. Anthony “Tony” Dyer - Chief Financial Officer Tony has over ten years’ experience in acting as a public company chief financial officer. Between 2004 and 2017 he led the finance function and played a key strategic role in Gattaca plc becoming one of the UK’s leading engineering and technology recruiters growing from one office, 40 staff and revenues of £30 million in 1996 to 14 offices in ten countries, 800 staff and global revenues of £650 million in 2017, 30 per cent. of which was generated outside the UK. Tony was a core member of the team that completed the over-subscribed fundraising and admission to trading on AIM of Gattaca plc (then Matchtech Group plc). He also led the successful £60 million acquisition and integration of AIM quoted Networkers International plc. Tony joined the Board in November 2017. Dr. Patrick Strollo - Non-Executive Director Dr. Strollo is Professor of Medicine and Clinical and Translational Science at the University of Pittsburgh. He has been an active member of the American Thoracic Society and the American Academy of Sleep Medicine for over 25 years. By profession, Dr. Strollo is a pulmonologist and has been in practice for over 20 years, he has over 100 publications that include 81 papers in peer reviewed journals in Sleep and Pulmonary Medicine, and 67 book chapters and invited papers. Dr. Strollo also served the United States Air Force for 31 sixteen years and ultimately rose to the rank of Lieutenant colonel. Patrick joined the Board in April 2021. David Poutney – Non-Executive Director David is Chief Executive of Dowgate Capital Limited. Previously he was Head of Corporate Broking at Numis Securities Limited and Numis Corporation Plc, where he was an Executive Director until he stood down in February 2016. He started his career in commercial banking before becoming a number one ranked financials analyst at a number of leading firms including BZW, James Capel and UBS. In his 20 years as a corporate broker, David worked directly on the listings of over 30 companies. He is currently a Non-Executive Director of AIM quoted Franchise Brands plc. David joined the Board in May 2021. Richard (“Ric”) Piper - Non-Executive Director Ric read Economics at Cambridge University and qualified as a Chartered Accountant in 1977. He held senior finance roles in ICI, Citicorp, Logica and WS Atkins, where he was Group Finance Director from 1993 to 2002. He is currently a non-executive director of AIM-quoted GRCI plc and a partner at Restoration Partners. A former member of the Financial Reporting Review Panel, in the last five years he has also been chairman of Main-Listed Lakehouse plc and AIM-quoted Checkit plc and Turbo Power Systems, Inc plc and a non-executive director of Main-Listed Waterman Group plc and AIM-quoted Gattaca plc. Ric joined the Board in May 2021. 6 Belluscura plc Report and financial statements for the year to 31 December 2021 Board Governance The Directors acknowledge the importance of high standards of corporate governance and intend, given the Company’s size and the constitution of the Board, to comply with the principles set out by the Quoted Companies Alliance (“QCA”) in the QCA Code. AIM-quoted companies are required to adopt a recognised corporate governance code with effect from their admission to trading on AIM however, there is no prescribed corporate governance regime for AIM companies. The QCA has published the QCA Code, a set of corporate governance guidelines, which include a code of best practice, comprising principles intended as a minimum standard, and recommendations for reporting corporate governance matters. The Directors acknowledge the importance of high standards of corporate governance and intend, given the Company’s size and the constitution of the Board, to comply with the principles set out in the QCA Code. Since Admission, the Board has comprise of six Directors, two executive and four non-executive directors, reflecting a blend of different experiences and backgrounds. The Board believes that the composition of the Board brings a desirable range of skills and experience in light of the Company’s challenges and opportunities following Admission, while at the same time ensuring that no individual (or a small group of individuals) can dominate the Board’s decision making. The Board meets regularly (typically monthy) to review, formulate and approve the Group’s strategy, budgets, corporate actions and oversee the Group’s progress towards its goals. The Company has established an Audit Committee, a Remuneration Committee and a Nomination Committee, each with formally delegated duties and responsibilities and with written terms of reference. From time to time, separate committees may be set up by the Board to consider specific issues when the need arises. Audit committee The Audit Committee has primary responsibility for monitoring the quality of internal controls and ensuring that the financial performance of the Company is properly measured and reported on. It will receive and review reports from the Company’s management and auditors relating to the interim and annual accounts and the accounting and internal control systems in use throughout the Company. The Audit Committee meets regularly in each financial year, including ahead of the publication of the interim and annual accounts. It has unrestricted access to the Company’s auditors, including for agreeing the audit plan. Members of the Audit Committee are Adam Reynolds, David Poutney and Ric Piper, with Ric Piper acting as chairman. Remuneration committee The Remuneration Committee will review the performance of the executive Directors and make recommendations to the Board on matters relating to their remuneration and terms of employment. It will also make recommendations to the Board on proposals for the granting of share options and other equity incentives pursuant to any share option scheme or equity incentive scheme in operation from time to time. In exercising this role, the Directors shall have regard to the recommendations put forward in the QCA Code. No director is permitted to participate in discussions or decisions concerning his own remuneration. The Remuneration Committee will meet not less than twice in each financial year. Members of the Remuneration Committee are Adam Reynolds, David Poutney and Ric Piper, with Adam Reynolds acting as chairman. Nomination committee The Nomination Committee will lead the process for board appointments and make recommendations to the Board. The Nomination Committee shall evaluate the balance of skills, experience, independence and knowledge on the board and, in the light of this evaluation, prepare a description of the role and capabilities required for a particular appointment. The Nomination Committee will meet as and when necessary, but at least once each year. Members of the Nomination Committee are Adam Reynolds, David Poutney and Ric Piper, with Adam Reynolds acting as chairman. Board Independence In line with the QCA Code the Board has considers that Adam Reynolds, Dr Patrick Strollo and Ric Piper are independent directors. David Poutney is a substantial shareholder in the Company and is not considered independent. Mr Reynolds has assisted the Company by introducing investors since 2019. The Board does not consider Mr Reynolds’ involvement in this capacity adversely impacts the assessment of his independence. By order of the Board of Directors and signed on behalf of the Board Tony Dyer Chief Financial Officer 28 March 2022 7 Belluscura plc Report and financial statements for the year to 31 December 2021 DIRECTORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2021 The Directors present their annual report and the audited financial statements for the year ended 31 December 2021. The principal activity of the parent company is that of a holding management company and that of the Group is to develop and commercialise in oxygen related medical device products. This is achieved by using its proprietary oxygen enrichment technologies to advance the use of oxygen in medical products. Review of the Business Belluscura is a public English company limited by shares founded on the principle of making healthcare both more affordable and more available while returning a strong profit to our shareholders. In February 2017, the Company entered into a co-exclusive licence and development agreement with Separation Design Group (“SDG”) to complete the development of the X-PLOR, a portable oxygen concentrator, used to deliver concentrated oxygen to a patient requiring oxygen therapy. Belluscura and SDG delivered a working prototype within five months of acquiring the X-PLOR licence. X-PLOR received 510k clearance from the FDA on 2 March 2021. Further information about the business (including an indication of likely future developments in the business and particulars of significant events which have occurred since the end of the financial year) is provided in the Group’s Strategic Report, being together the Chairman’s Statement on page 3, the Chief Executive’s Review on page 3 and the Financial Review on page 4. Research and development The Group continues to invest in the development of the X-PLORTM range of products. Proposed dividend No dividend was paid or was proposed during the period ended 31 December 2021. Directors The following Directors held office during the period, and to the date of this report. Adam Reynolds Robert (“Bob”) Rauker Anthony (“Tony”) Stephen Dyer Dr Patrick Strollo David Poutney Richard (“Ric”) John Piper Appointed 21 April 2021 18 August 2016 13 November 2017 12 April 2021 28 May 2021 28 May 2021 Going concern US FDA 510(k) clearance of the Group’s X-PLOR was received on 2 March 2021. The subsequent successful IPO on the AIM market of the London Stock Exchange on 28 May 2021, raised £17.5m ($24.5m) before expenses. The Group has commenced manufacturing of the X-PLOR, launched in September 2021, and the follow-on products, the X-PLOR CX and X-PLOR DX, are expected to be commercialised within the next 12 months. The Group had $15.6 million cash at the period end and the Directors have produced budgets and cashflow forecasts which show sufficient cash resources for the next 12 months. On this basis, the Directors have concluded that the Group will have adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing these Financial Results. Political contributions Neither the Company nor any subsidiaries made any political donations or incurred any political expenditure during the period. Remuneration Report (this is a voluntary unaudited disclosure note) Directors’ Emoluments Directors’ emoluments are detailed in note 7.1. 8 Belluscura plc Report and financial statements for the year to 31 December 2021 Directors’ beneficial interests in shares Adam Reynolds Robert Rauker Anthony Dyer Dr Patrick Strollo David Poutney Ric Piper As at 10 March 2021 No of Shares 1,634,471 955,684 778,345 - 11,605,731 80,000 As at 31 December 2021 No of Shares 1,634,471 955,684 778,345 - 11,605,731 80,000 Disclosure of information to auditor The directors who held office at the date of approval of this directors’ report confirm that, so far as they are each aware, there is no relevant audit information of which the company’s auditor is unaware; and each director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the company’s auditor is aware of that information. Auditor In accordance with Section 489 of the Companies Act 2006, a resolution for the re-appointment of Jeffries Henry LLP as auditor of the company is to be proposed at the forthcoming Annual General Meeting. By order of the Board of Directors and signed on behalf of the Board Robert Rauker Chief Executive Officer 28 March 2022 9 Belluscura plc Report and financial statements for the year to 31 December 2021 STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE STRATEGIC REPORT, THE DIRECTORS’ REPORT AND THE FINANCIAL STATEMENTS The directors are responsible for preparing the Strategic Report, the Directors’ Report and the group and parent company financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law they have elected to prepare the group financial statements in accordance with International Financial Reporting Standards as adopted by the UK as adopted IFRS and applicable law and have elected to prepare the parent company financial statements in accordance with UK accounting standards and applicable law (UK Generally Accepted Accounting Practice), 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 parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; • • make judgements and estimates that are reasonable, relevant, reliable and prudent; • for the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the UK; for the parent company financial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; assess the group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and • • • use the going concern basis of accounting unless they either intend to liquidate the group or the parent company or to cease operations or have no realistic alternative but to do so. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility 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. 10 Belluscura plc Report and financial statements for the year to 31 December 2021 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BELLUSCURA PLC Opinion We have audited the financial statements of Belluscura Plc (the ‘parent company’) and its subsidiaries (‘the group’) for the year ended 31 December 2021 which comprise consolidated Statement of Profit and Loss and Other Comprehensive Income, Consolidated Balance Sheet, Company Balance Sheet, Consolidated Statement of Changes in Equity, Company Statement of Changes in Equity, Consolidated Statement of Cashflows and related notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and UK adopted international accounting standards. 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 2021 and of the group’s loss for the year then ended; the group financial statements have been properly prepared in accordance with UK adopted international accounting standards; the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; 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 group an the parent company 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, 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 group’s and parent company’s ability to continue to adopt the going concern basis of accounting included review of current cash reserves and critical review of forecasts for a period of at least 12 months from when the financial statements are authorised for issue. 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 group’s ability to continue as a going concern for a period of at least 12 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. An overview of the scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgments, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. How we tailored the audit scope: We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the Company, the accounting processes and controls, and the industry in which they operate. We performed audits of the complete financial information of Belluscura Plc and Belluscura LLC. 11 Belluscura plc Report and financial statements for the year to 31 December 2021 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. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Key audit matter How our audit addressed the key audit matter Carrying value of intangible assets and capitalisation of development costs The Group undertakes research and development activity, in respect of the licences it holds. As at the year end the Group holds intangible assets of $6,535,385 (2020: $4,129,660). The development costs are amortized in a straight line over 10 years, a period that the directors consider reasonable based on the life of the patents behind the development. Carrying value of intangible assets and capitalisation of development costs Under IAS 38 there are strict capitalisation criteria, being that the intangible asset can be measured reliably and there is probable economic future benefit attributable to the asset. We have evaluated the capitalised development costs against these criteria for reasonableness. We have assessed the useful economic life of eth assets and found it to be reasonable. We have reviewed the assets for any indicators of impairment given the Group is loss making. No impairment was required following a critical review of discounted cashflow forecasts. Our application of materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgment, we determined materiality for the financial statements as a whole as follows: Overall materiality How we determined it Rationale for benchmark applied Company financial statements £183,000 or $247,000 Based on 1% of gross assets limited by group materiality We believe that gross assets is a primary measure used by shareholders in assessing the performance of the Company and is a generally accepted auditing benchmarks. Group financial statements $260,000 Based on 1% of gross assets We believe that gross assets is a primary measure used by shareholders in assessing the performance of the Company and is a generally accepted auditing benchmarks. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $13,000 as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Other information The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. 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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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. 12 Belluscura plc Report and financial statements for the year to 31 December 2021 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 the 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. Responsibilities of directors As explained more fully in the directors’ responsibilities statement (page 10), 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’s 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: The extent to which the audit was considered capable of detecting irregularities including fraud Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows: • the senior statutory auditor ensured the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations; • we focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the company. • we assessed the extent of compliance with the laws and regulations identified above through making • enquiries of management and inspecting legal correspondence; and identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit. 13 Belluscura plc Report and financial statements for the year to 31 December 2021 We assessed the susceptibility of the company’s financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by: • making enquiries of management as to where they considered there was susceptibility to fraud, their • knowledge of actual, suspected and alleged fraud; considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations. To address the risk of fraud through management bias and override of controls, we: • performed analytical procedures to identify any unusual or unexpected relationships; • • tested journal entries to identify unusual transactions; assessed whether judgements and assumptions made in determining the accounting estimates set out in Note 3 were indicative of potential bias; investigated the rationale behind significant or unusual transactions. • In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to: • agreeing financial statement disclosures to underlying supporting documentation; • reading the minutes of meetings of those charged with governance; • enquiring of management as to actual and potential litigation and claims; • Obtaining confirmation of compliance from the company’s legal advisors. There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any. Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion. A further description of our responsibilities for the audit of 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. Our audit opinion is consistent with the additional report to the audit committee. 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. Sanjay Parmar Senior Statutory Auditor For and on behalf of Jeffreys Henry Audit Limited Finsgate 5-7 Cranwood Street London EC1V 9EE 28 March 2022 14 Belluscura plc CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 31 December 2021 Group Continuing Operations Revenue Cost of sales Gross Profit/(Loss) Other operating income Administrative expenses Operating Loss Finance costs Finance costs - net Loss before income tax Income tax expense Loss after tax for the period Other comprehensive income Items that are or may be reclassified subsequently to profit or loss: Foreign currency translation differences – foreign operations Total other comprehensive income Note 5 6.1 6.2 8 9 2021 US $ 420,316 (472,487) (52,171) 209,690 (5,344,176) (5,186,657) 2020 US $ - - - 11,493 (1,956,682) (1,945,189) (26,837) (32,956) (26,837) (32,956) (5,213,494) (1,978,145) - - (5,213,494) (1,978,145) (1,153,148) (1,153,148) 391,737 391,737 Total comprehensive loss for the year attributable to the equity holders (6,366,642) (1,586,408) Earnings per share Basic: Loss per share Diluted: Loss per share 10 10 (0.055) (0.055) (0.036) (0.036) Items in the statement above are disclosed net of tax. The notes on pages 21 to 41 are an integral part of these consolidated financial statements. 15 Belluscura plc CONSOLIDATED BALANCE SHEET As at 31 December 2021 Group Assets Non-current assets Tangible assets Intangible assets Product development Right of use asset Non-current assets Current assets Inventory Trade and other receivables Cash and cash equivalents Current assets Total assets Current liabilities Trade and other payables Current liabilities Non-current liabilities Trade and other payables Non-current liabilities Total liabilities Net assets Equity attributable to the owners of the parent Share capital Share premium Capital contribution Retained earnings Translation reserve Total equity Note 2021 US $ 2020 US $ 12 13 13 12 14 15 16 20 20 18 18 19 19 19 47,156 - 6,723,883 277,803 7,048,842 309,159 3,059,363 15,587,552 18,956,074 13,818 - 4,129,660 375,852 4,519,330 - 197,653 520,070 717,723 26,004,916 5,237,053 (1,084,601) (1,084,601) (230,136) (230,136) (247,823) (247,823) (338,053) (338,053) (1,332,424) (568,189) 24,672,492 4,668,864 1,548,227 26,025,760 165,000 (2,349,966) (716,529) 24,672,492 823,201 556,683 165,000 2,687,361 436,619 4,668,864 The notes on pages 21 to 41 are an integral part of these financial statements. The financial statements on pages 15 to 41 were authorised for issue by the Board of Directors on 28 March 2022 and were signed on its behalf. Robert Rauker Chief Executive Officer Tony Dyer Chief Financial Officer Belluscura plc registered number 09910883 16 Belluscura plc COMPANY BALANCE SHEET At 31 December 2021 Company Assets Non-current assets Tangible assets Intangible assets Loans to subsidiaries Non-current assets Current assets Trade and other receivables Cash and cash equivalents Current assets Total assets Current liabilities Trade and other payables Current liabilities Non-current liabilities Trade and other payables Non-current liabilities Total liabilities Net assets Equity attributable to the owners of the parent Share capital Share premium Capital contribution Retained earnings Translation reserve Total equity Note 2021 US $ 2020 US $ 12 13 15 15 16 20 20 18 18 19 19 19 5,077 - 14,570,635 14,575,712 - - 6,245,745 6,245,755 707,230 13,063,238 13,770,468 187,681 317,606 505,287 28,346,180 6,751,042 (86,677) (86,677) (62,907) (62,907) (23,026) (23,026) - - (109,703) (62,907) (28,236,477) 6,688,135 1,548,227 26,025,760 165,000 1,214,019 (716,529) 28,236,477 823,201 556,683 165,000 4,706,632 436,619 6,688,135 The Parent Company’s loss before tax for the period 31 December 2021 was $3,668,779 (2020: $1,649,098). The Group has used the exemption under S408 CA 2006 not to disclose the company income statement. The notes on pages 21 to 41 are an integral part of these financial statements. The financial statements on pages 15 to 41 were authorised for issue by the Board of Directors on 28 March 2022. Robert Rauker Chief Executive Officer Belluscura plc registered number 09910883 Tony Dyer Chief Financial Officer 17 Belluscura plc CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2021 Attributable to equity holders of the parent company Group Balance at 31 December 2019 Note Ordinary Shares US $ 648,298 Share Premium US $ 5,714,678 Translation Reserve US $ Capital Contribution US $ 44,882 165,000 Retained earnings US $ (2,844,929) Total US $ 3,727,929 Issue of ordinary shares Reduction in capital 18 174,903 - 2,233,896 (7,391,891) - - Loss for the year 19 Other comprehensive income 19 Total comprehensive income - - - - - - - 391,737 391,737 - - - - - - 7,391,891 2,408,799 - (1,978,145) - (1,978,145) (1,978,145) 391,737 (1,586,408) Share based payments Balance at 31 December 2020 19 - 823,201 - 556,683 - 436,619 - 165,000 118,544 2,687,361 118,544 4,668,864 Balance at 31 December 2020 823,201 556,683 436,619 165,000 2,687,361 4,668,864 Issue of ordinary shares 18 725,026 25,469,077 Loss for the year 19 Other comprehensive income 19 Total comprehensive income Share based payments Balance at 31 December 2021 19 (1,153,148) (1,153,148) (5,213,494) (5,213,494) 26,194,103 (5,213,494) (1,153,148) (6,366,642) 1,548,227 26,025,760 (716,529) 165,000 176,167 (2,349,966) 176,167 24,672,492 The notes on pages 21 to 41 are an integral part of these financial statements. 18 Belluscura plc COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2021 Attributable to equity holders of the parent company Group Balance at 31 December 2019 Note Ordinary Shares US $ 648,298 Share Premium US $ 5,714,678 Translation Reserve US $ Capital Contribution US $ 44,882 165,000 Retained earnings US $ (1,154,705) Total US $ 5,418,153 Issue of ordinary shares Reduction in capital 18 174,903 - 2,233,896 (7,391,891) - - - - - 7,391,891 2,408,799 - Loss for the year 19 Other comprehensive income 19 Total comprehensive income - - - - - - - 391,737 391,737 - (1,649,098) - - (1,649,098) - (1,649,098) 391,737 (818,366) Share based payments Balance at 31 December 2020 19 - 823,201 - 556,683 - 436,619 - 165,000 118,544 4,706,632 118,544 6,688,135 Balance at 31 December 2020 823,201 556,683 436,619 165,000 4,706,632 6,688,135 Issue of ordinary shares 18 725,026 25,469,077 Loss for the year 19 Other comprehensive income 19 Total comprehensive income Share based payments Balance at 31 December 2021 19 (1,153,148) (1,153,148) (3,668,780) (3,668,780) 26,194,103 (3,668,780) (1,153,148) (4,821,928) 1,548,227 26,025,760 (716,529) 165,000 176,167 1,214,019 176,167 28,236,477 The notes on pages 21 to 41 are an integral part of these financial statements. 19 Belluscura plc CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December 2021 Group Cash flows from operating activities Cash generated from operations Taxation paid Net cash used in operating activities Cash flows from investing activities Purchases of property, plant and equipment Intangible assets under development Net cash used in investing activities Cash flows from financing activities Proceeds from issuance of ordinary shares (net) Lease Payments Net cash generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Exchange loss on cash and cash equivalents Cash and cash equivalents at end of year Note 2021 US $ 2020 US $ 24 12 13 18 22 (7,289,072) - (7,289,072) (1,470,773) - (1,470,773) (45,461) (2,750,997) (2,796,458) - (1,194,432) (1,194,432) 25,469,077 (108,392) 25,360,685 15,275,155 520,070 (207,673) 15,587,552 2,251,774 (118,859) 2,132,915 (532,290) 1,033,512 18,848 520,070 The notes on pages 21 to 41 are an integral part of these financial statements. 20 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 1. General Information Belluscura plc is a public company limited by shares incorporated in England and Wales and domiciled in the UK. Company Registration No. 09910883. On 28 November 2017 the company changed its name from Belluscura Limited to Belluscura plc. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied, unless otherwise stated. 2. 2.1 Accounting Policies Statement of compliance The group financial statements consolidate those of the Company and its subsidiaries (together referred to as the “Group”). The parent company financial statements present information about the Company as a separate entity and not about its group. These consolidated financial statements are prepared in accordance with United Kingdom adopted International Financial Reporting Standards (IFRS) and issued by the International Accounting Standards Board (IASB). The consolidated financial statements are presented in US Dollars, the Group’s functional currency. The financial statements for the Company have been prepared in accordance with Financial Reporting Standard 101 by applying the recognition and measurement requirements of United Kingdom adopted International Financial Reporting Standards (“IFRS”), amended where necessary in order to comply with Companies Act 2006. The Company has notified shareholders of this disclosure. Critical accounting estimates and judgements made by the directors, in the application of these accounting policies that have significant effect on the financial statements are disclosed in note 4 (a)-(c) applicable for the whole Group and 4 (d) applicable for the Company only. a Cash Flow Statement and related notes; In these financial statements, the company has applied the exemptions available under FRS 101 in respect of the following disclosures: • • Disclosures in respect of transactions with wholly owned subsidiaries; • Disclosures in respect of capital management; • • Disclosures in respect of the compensation of Key Management Personnel; • Related party transactions with wholly owned members of the group The effects of new but not yet effective IFRSs; and As the consolidated financial statements include the equivalent disclosures, the Company has also taken the exemptions under FRS 101 available in respect of the following disclosures • Certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial Instrument Disclosures. IFRS 2 Share Based Payments in respect of group settled share based payments • The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements 2.1.1 Going concern US FDA 510(k) clearance of the Group’s X-PLOR was received on 2 March 2021. The subsequent successful IPO on the AIM market of the London Stock Exchange on 28 May 2021, raised £17.5m ($24.5m). The Group has commenced manufacturing of the X-PLOR, launched in September 2021, and the follow-on products, the X-PLOR CX and X-PLOR DX, are expected to be commercialised within the next 12 months. The Group had $15.6 million cash at the year end and the Directors have produced budgets and cashflow forecasts which show sufficient cash resources for the next 12 months. On this basis, the Directors have concluded that the Group will have adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing these Financial Results. 2.1.2 Measurement convention The financial statements are prepared on the historical cost basis except that assets and liabilities are stated at their fair value. 2.1.3 Changes in accounting policy In these financial statements, where the Group has adopted new or updated standards, there is not a material impact on the financial information and on the Company’s future financial statements. 21 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 2.2 Basis of Consolidation Belluscura plc was incorporated on 10 December 2015. On 16 May 2016, a US incorporated company, Belluscura LLC, was formed as a 100% owned subsidiary. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. IFRS 13 did not affect any fair value measurements of the Group’s assets or liabilities and therefore had no effect on the Group’s financial position or performance. 2.3 Foreign currencies (a) Functional and presentation currency These consolidated financial statements are presented in US Dollars which is the presentation currency of the Group, because the majority of the Group’s transactions are undertaken in US Dollars. Each entity within the Group has its own functional currency which is dependent on the primary economic environment in which that subsidiary operates. (b) Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within ‘finance income or costs’. (c) Group companies The results and financial position of all Group entities (none of which has the currency of a hyper- inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each balance sheet presented are translated at the closing exchange rates at the date of that balance sheet income and expense for each income statement are translated at the average rates of exchange during the year (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions) all resulting exchange differences are recognised in other comprehensive income. (ii) (iii) 2.4 Business combinations All business combinations are accounted for by applying the acquisition method. Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Acquisitions on or after 1 January 2010 For acquisitions on or after 1 January 2010, the Group measures goodwill at the acquisition date as: • • • • the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquiree; plus the fair value of the existing equity interest in the acquiree; less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred. 22 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. On a transaction-by-transaction basis, the Group elects to measure non-controlling interests, which have both present ownership interests and are entitled to a proportionate share of net assets of the acquiree in the event of liquidation, either at its fair value or at its proportionate interest in the recognised amount of the identifiable net assets of the acquiree at the acquisition date. All other non-controlling interests are measured at their fair value at the acquisition date. 2.5 Employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Share-based payment transactions Share-based payment arrangements in which the Group receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions. The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. 2.6 2.7 For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. Interest income and expenses Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. Property, plant and equipment Property, plant and equipment are stated at historical cost less depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation of assets is calculated is provided to write off the cost less the estimated residual value of tangible fixed assets by equal instalments over the estimated useful economic lives as follows: Furniture - 5 years; Computer equipment - 3 years; Leasehold improvements - 5 years. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the assets carrying value is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are recognised within administrative expenses in the income statement. When re-valued assets are sold, the amounts are included in other reserves are transferred to retained earnings. 23 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 2.8 Intangible assets Licences and development costs Costs associated with the acquisition of Licences for technologies and distribution rights are recognised as an intangible asset when they meet the criteria for capitalisation. That is, they are separately identifiable, measurable and it is probable that economic benefit will flow to the entity. Further development costs attributable to the licenced technology and recognised as an intangible asset when the following criteria are met: (i) (ii) management intends to complete the technology and use or sell it; (iii) there is an ability to use or sell the technology; (iv) (v) adequate technical, financial and other resources to complete the development and to use or sell the it is technically feasible to complete the technology for commercialisation so it will be available for use; it can be demonstrated how the technology will generate probable future economic benefits; technology are available; and (vi) the expenditure attributable to the technology during its development can be reliable measured. Licences and their associated development costs are amortised over the life of the licence or the underlying patents, whichever is shorter. The estimated useful life of the licences and development costs is 10-15 years. 2.9 Impairment of non-financial assets The carrying amounts of the non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. 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 the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash- generating unit”). An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. 2.10 Financial assets 2.10.1 Classification The Group classifies its financial assets depending on the purpose for which the asset was acquired. Management determines the classification of its financial assets at initial recognition. During the financial period the Group held loans and receivables that are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities that are greater than 12 months after the end of the reporting year. These are classified as noncurrent assets. The Group’s loans and receivables comprise ‘trade and other receivables’ in the balance sheet. The Group also has cash and cash equivalents. 2.10.2 Recognition and measurement Loans and receivables are recognised on the trade date in which the transaction took place, and are recognised at their fair value with transaction costs expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the loans or receivables have been collected, expired or transferred and the Group has subsequently transferred substantially all risks and rewards of ownership. 24 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 2.11 Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is the intention to settle on a net basis or realise the asset and settle the liability simultaneously. 2.12 Impairment of financial assets Assets carried at amortised cost A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. Evidence of impairment may include indications of that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. For loans and receivables category, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement. If a loan or held-to maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price. If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as the improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated income statement. 2.13 Leases At the inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. As a lessee The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right- of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred, less any lease incentives received. is subsequently depreciated using the straight-line method The right-of-use asset from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. 25 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 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 a rate, initially measured using the index or rate as 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 an extension option, 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. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, to the extent that the right-of-use asset is reduced to nil, with any further adjustment required from the remeasurement being recorded in profit or loss. The Group presents right-of-use assets that do not meet the definition of investment property in 'property, plant and equipment' and lease liabilities in 'loans and borrowings' in the statement of financial position. Short-term leases and leases of low-value assets The Group has elected not to recognise right-of-use assets and lease liabilities for lease of low-value assets (liabilities under $5,000 per annum) and short-term leases (less than 12 months). The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. 2.14 Inventory Inventory comprises goods held for resale and are stated at the lower of cost or net realisable value. Cost is based on First In, First Out (FIFO) principle and includes all direct expenditure and other appropriate attributable costs incurred in bringing the inventory to its present location and condition. 2.15 Trade receivables Trade receivables are amounts due from customers for the sale of goods in the ordinary course of business. Collection is normally expected within three months or less (in the normal operating cycle of the business) and is classified as current assets. In the rare circumstances that they exceed a period of greater than one year they are presented as non-current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. 2.16 Cash and cash equivalents In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with other banks, other short term highly liquid investments with maturities of three months or less and bank overdrafts. 2.17 Equity Share capital and share premium The share capital account has been established to represent the nominal value for all share issues. The share premium account has been established to represent the excess of proceeds over the nominal value for all share issues, including the excess of the exercise share price over the nominal value of the shares on the exercise of share options as and when they occur. Incremental costs directly attributable to the issue of new ordinary shares and new shares options are shown in equity as a deduction, net of tax, from the proceeds. Capital contribution Capital contributions are contributions made by the ultimate parent for which no consideration is given. Retained earnings Retained earnings are the consolidated retained earnings and share based payments reserve for the group or company. Translation reserve The translation reserve is the accumulated reserves created by Foreign Exchange Differences on the consolidation of group balances into the reporting currency of US$. 26 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 2.18 Trade payables Trade payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method. 2.19 Current and deferred tax The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on amounts expected to be paid to the tax authorities. Deferred income tax is recognised on temporary timing differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries only to the extent that it is probable the temporary difference will reverse in full in the future and there is sufficient taxable profit available against which the temporary difference can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle balances on a net basis. 2.20 Provisions Provisions and any other anticipated foreseen liabilities are recognised: when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties, and employee termination payments. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering a class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as an interest expense. 27 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 2.21 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for the goods supplied, stated net of discounts, and value added taxes. The Group recognises revenue when the amount of revenue can reliably be measured; when it is probable that future economic benefits will flow to the Group; and when specific criteria have been met for each of the Group’s activities, described below. The Group bases its estimate of return on historical results taking into consideration type of customer, type of transaction and specifics of each arrangement. Income is derived from the sale of goods when the goods have been shipped to the customer. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. 2.22 Government grants Government grants are recognised at the fair value of the asset received or receivable when there is reasonable assurance that the grant conditions will be met and the grants will be received. A grant that specifies performance conditions is recognised in income when the performance conditions are met. Where a grant does not specify performance conditions it is recognised in income when the proceeds are received or receivable. A grant received before the recognition criteria are satisfied is recognised as a liability 3. 3.1 Financial Risk Management The Company’s Directors review the financial risk of the Group. Due to the early stage of its operations the Group has not entered into any form of hedging instruments to assist in the management of risk during the period under review. Financial risk factors Liquidity Risk Cash flow forecasting is performed on a Group basis. The Directors monitor rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs. At the reporting date the Group held bank balances of US $15,587,552. The contractual maturities of financial liabilities are shown in note 17. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. 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 (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. Due to low value and number of financial transactions that involve foreign currency and the fact that the Group has no borrowings to manage, the Directors have not entered into any arrangements, adopted or approved the use of derivative financial instruments to assist in the management of the exposure of these risks. The Group’s exposure to foreign currency risk is based on the carrying amount for monetary financial instruments. The gross foreign currency exposure below is with respect of pound Sterling to US Dollars. Cash and cash equivalents Trade receivables (gross) Trade payables Net exposure 31 December 2021 5,579,784 20,945,635 (109,704) 26,415,715 31 December 2020 317,606 10,380,745 (62,908) 10,635,443 The trade receivables shown above relates to the UK entity’s intercompany balance with the US entity, which will be repaid in Sterling. A 10% percent strengthening of the pound sterling against the US Dollar at 31 December 2021 would have increased (decreased) equity and profit or loss by the amounts shown below. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures existing at that date. 28 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 This analysis assumes that all other variables, in particular other exchange rates and interest rates, remain constant. The analysis is performed on the same basis for 31 December 2020. 2021 US $ (2,641,571) Equity 2020 US $ (1,063,544) Profit or Loss 2021 US $ (2,641,571) 2020 US $ (1,063,544) A 10% percent weakening of the above currencies against the pound sterling at 31 December 2021 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. Translation exposures The Group’s results, as presented in US Dollars, are subject to fluctuations as a result of exchange rate movements. The Group does not hedge this translation exposure to its earnings. Gains or losses arise on the retranslation of the net assets of foreign operations at different reporting dates and are recognised within the consolidated statement of comprehensive income. They will predominantly relate to the retranslation of opening net assets at closing foreign exchange rates, together with the retranslation of retained foreign profits for the year (that have been accounted for in the consolidated income statement at average rates) at closing rates. Exchange rates for major currencies are set out below The following exchange rates have been used in the translation of the results of foreign operations: Weighted average rate for 2020 1.2841 Weighted average rate for 2021 1.3751 Closing rate for 2020 1.3652 Closing rate for 2019 1.3270 US Dollar Closing rate for 2021 1.3534 3.2 Capital management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders, benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to adjust or maintain the capital structure, the Group may adjust the level of dividends paid to its shareholders, return capital to shareholders, issue new shares or sell assets to reduce borrowings. This policy is periodically reviewed by the Directors, and the Group’s strategy remains unchanged for the foreseeable future. The capital structure of the Group consists of cash and bank balances and equity consisting of issued share capital, reserves and retained earnings of the Group. 3.3 Fair value Financial instruments are measured at fair value including cash and cash equivalents trade and other payables, and borrowings. Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables, and trade and other payables approximate their fair value. 4. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Key judgement The following judgement (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements. (a) Intangible fixed assets (see note 13) Intangible fixed assets, are depreciated over their useful lives taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on the 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. Development costs attributable to the licenced technology and recognised as an intangible asset when the criteria in note 2.8 are met. 29 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 (b) Impairment reviews The Group undertakes an impairment review annually, or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable. In respect of impairment reviews, the key assumptions are as follows: • Growth rates. The value in use of the intangible assets is calculated from cash flow projections for the relevant business activities based on the latest financial projections covering the anticipated useful economic life of the intangible assets. • Discount rates. The pre-tax discount rate used to calculate value is determined in relation to the relevant business activities and their geographic location, using external benchmarks where possible to arrive at a relevant weighted average cost of capital. (c) Deferred taxes Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Deferred tax is recognised as a component of the tax expense in the income statement, except where it relates to items charged or credited to other comprehensive income or directly to equity. (d) Recoverability of intercompany debt by the company from its subsidiaries. The directors assess the recoverability of amounts owed by the subsidiary to the parent company, which requires judgement to be made. This involves forecasting sales revenues to be earned by the subsidiary which will enable it to repay the parent company. 5. Segmental reporting The chief operating decision makers consider that in the year to 31 December 2021 there is only one operating segment, being the sale of oxygen concentrators in the United States. The Group generated revenue of $420,316 in the year (2020: $nil). All sales were in the United States. 6. Other operating income and administrative expenses 6.1 Other operating income Group Grants Purchase of option right SBA Loan forgiveness Total 6.2 Expenses by nature Group Depreciation of property plant and equipment Depreciation of right of use asset Amortisation of product development Costs related to fundraising activities Realised and Unrealised foreign exchange movements Employee benefit expense IFRS2 Share Based Payment Charge Surrendered Share Options Sales & Marketing Other administration expenses Administration expenses 2021 US$ 6,876 - 202,814 209,690 2021 US $ 14,531 98,049 156,774 646,042 (734,678) 1,838,779 180,091 611,947 1,118,472 1,414,169 5,344,176 2020 US$ 6,421 5,072 - 11,493 2020 US $ 8,544 98,049 - 78,911 405,370 911,327 111,350 - - 343,131 1,956,682 P&L foreign exchange movements in Other Comprehensive Income Total expenses 1,153,148 6,497,324 (391,737) 1,564,945 As disclosed in the Admission Document, published ahead of admission to trading on AIM in May 2021, Robert Rauker agreed to surrender part of the options over 439,373 ordinary shares granted on 29 October 2019 and over 815,496 ordinary shares granted on 7 May 2020 in exchange for a cash payment. The consideration paid by the Company to Mr Rauker in relation to the surrender of the respective parts of Mr Rauker’s options was calculated based on the difference between the Placing Price of 45p per share and the exercise price per Share payable by the Option Holder for the respective option multiplied by the number of Shares that are being surrendered. This amount is included within Employee Benefit Expense. 30 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 6.3 Auditor remuneration During the period, the Group (including its subsidiaries) obtained the following services provided by the auditor and its associates: Group Fees payable to the Group’s auditor and its associated for the audit of the Group and Company financial statements Fees payable to the Company’s auditor for other services - Total Tax advisory services 2021 US$ 2020 US$ 35,753 37,098 1,375 37,128 7,705 44,803 7. Employees 7.1 Directors’ emoluments Adam Reynolds Robert Rauker Anthony Dyer Dr Patrick Strollo David Poutney Ric Piper Total Salary & fees US $ 47,414 314,172 283,329 28,333 24,285 28,333 715,866 Benefits in kind US $ - 39,713 11,539 - - - 51,252 Pension US $ - 21,454 15,381 - - - 36,835 2021 US $ 47,414 375,339 310,249 28,333 24,285 28,333 813,953 2020 US $ - 231,105 173,230 - - - 404,335 No Directors received or exercised share options during the year. On 7 December 2021 Robert Rauker exercised 179,537 Warrant Shares at an average price of 13.45 pence per share and Tony Dyer exercised 141,404 Warrant Shares at a price of 13.00 pence per share. 7.2 Employee benefit expense Group Wages and salaries Social security costs Medical Insurance Pension and other benefits Share based payments Surrendered Share Options Total employee benefit expense 7.3 Average number of people employed Group Average number of people (including executive directors) employed Directors Operations Administration Total average headcount 8. Finance income and costs Group Finance Cost: - - Finance Cost Interest cost on Right of Use Asset Interest on COVID-19 Small Business Association Loan 2021 US$ 1,536,707 122,759 130,961 48,352 1,838,779 180,091 611,947 2,630,817 2020 US$ 765,854 61,396 84,077 - 911,327 111,350 - 1,022,677 2021 US$ 2020 US$ 2 7 2 11 2021 US$ 26,837 - 26,837 2 4 - 6 2020 US$ 32,443 513 32,956 31 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 9. Income tax expense Group Current tax on profits for the year Adjustments in respect of prior year Total current tax Income tax expense 2021 US$ - - - - 2020 US $ - - - - The charge for the year can be reconciled to the loss per the Income Statement as follows: Group (Loss) before tax Tax calculated at domestic tax rates applicable to profits in the respective countries Tax effects of: - Expenses not deductible for tax purposes - Capital allowances in excess of depreciation - Unrelieved tax losses and other deductions Total income tax charge 2021 US$ (5,213,493) 2020 US$ (1,978,145) (1,042,493) (403,628) (129,212) (9,431) 1,181,342 - 36,150 (2,760) 370,238 - The tax on the Group’s loss before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to losses. The weighted average applicable UK tax rate was 19%. Unused tax losses for which no deferred tax assets have been recognised is attributable to the uncertainty over the recoverability of those losses through future profits. 10 Earnings/(Loss) per share Group Profit/(Loss) for the year US$ Weighted Average Shares in Issue Basic Loss per Share US$ Weighted Average Shares, Warrants and Options in Issue Diluted Loss per Share US$ 2021 US$ (5,213,494) 2020 US$ (1,978,145) 94,724,153 (0.055) 109,794,921 (0.055) 55,598,175 (0.036) 75,534,490 (0.036) All potentially dilutive items are disregarded for the purpose of the diluted earnings per share as they are considered antidilutive. 11. Investment in subsidiaries Company Cost and net book value Balance at 31 December 2020 Balance at 31 December 2021 Shares in subsidiaries 10 - Total US $ 10 - Principal subsidiaries name Belluscura LLC Country of Incorporation & place of business USA Class of share held Ordinary % of ordinary shares directly held 2021 2020 100% 100% Nature of business Sale of medical devices Registered office of Belluscura LLC is 160 Greentree Drive, Suite 101, Dover, Delaware 19904, County of Kent 32 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 12. Property, plant and equipment Group Cost At 1 January 2020 Additions during the year Disposals during the year At 31 December 2020 At 1 January 2021 Additions during the year Disposals during the year At 31 December 2021 Accumulated depreciation At 1 January 2020 Depreciation charge for the year Depreciation charge on disposals At 31 December 2020 At 1 January 2021 Depreciation charge for the year Depreciation charge on disposals At 31 December 2021 Net book value At 31 December 2020 At 31 December 2021 Land & buildings (Right of Use Asset) US$ 571,950 - - 571,950 Furniture and Equipment US $ 35,880 - - 35,880 Computer Equipment US $ 7,034 - - 9,581 571,950 - - 571,950 (98,049) (98,049) - (196,098) (196,098) (98,049) - (294,147) 35,880 16,162 - 52,042 (16,224) (7,176) - (23,400) (23,400) (8,629) - (32,029) 9,581 31,706 (7,034) 34,253 (6,876) (1,367) - (8,243) (8,243) (5,902) 7,035 (7,110) Total US $ 614,864 - - 617,411 617,411 47,868 (7,034) 658,245 (121,149) (106,592) - (227,741) (227,741) (112,580) 7,035 (333,286) 375,852 277,803 12,480 20,013 1,338 27,143 389,670 324,959 Right-of-use assets related to lease properties that do not meet the definition of investment properties are presented as Land & Building (see note 22). Company Cost At 1 January 2020 Additions during the year Disposals during the year At 31 December 2020 At 1 January 2021 Additions during the year Disposals during the year At 31 December 2021 Accumulated depreciation At 1 January 2020 Depreciation charge for the year Depreciation charge on disposals At 31 December 2020 At 1 January 2021 Depreciation charge for the year Depreciation charge on disposals At 31 December 2021 Net book value At 31 December 2020 At 31 December 2021 Furniture and Equipment US $ - - - - Computer Equipment US $ - - - - - 2,103 - 2,103 - - - - (297) - - (297) - 1,806 - 3,909 - 3,909 - - - - (638) - - (638) - 3,271 Total US $ - - - - - 6,011 - 6,011 - - - - (935) - - (935) - 5,077 33 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 13. Intangible assets Group Cost At 1 January 2020 Additions during the year At 31 December 2020 At 1 January 2021 Additions during the year Disposal during the year At 31 December 2021 Accumulated amortisation and impairment At 1 January 2020 At 31 December 2020 At 1 January 2021 Amortisation in the year Disposal during the year At 31 December 2021 Net book value At 31 December 2020 At 31 December 2021 Company Cost At 1 January 2020 Additions during the year At 31 December 2020 At 1 January 2021 Additions during the year Disposal during the year At 31 December 2021 Accumulated amortisation and impairment At 1 January 2020 At 31 December 2020 At 1 January 2021 Amortisation in the year Disposal during the year At 31 December 2021 Net book value At 31 December 2020 At 31 December 2021 14. Inventory Group Finished goods Total inventory Company The Company held no inventory. Purchased intangible assets Licences US $ 189,506 - 189,506 189,506 - (189,506) - (189,506) (189,506) (189,506) - 189,506 - Product Development US$ 3,205,378 1,194,432 4,399,810 4,399,810 2,750,997 - 7,150,807 Total US$ 3,394,884 1,194,432 4,589,316 4,589,316 2,750,997 (189,506) 7,150,807 (270,150) (270,150) (459,656) (459,656) (270,150) (156,774) - (426,924) (459,656) (156,774) 189,506 426,924 - - 4,129,660 6,723,883 4,129,660 6,723,883 Purchased intangible assets Licences US $ 189,506 - 189,506 189,506 - (189,506) - (189,506) (189,506) (189,506) - 189,506 - - - 2021 US $ 309,159 309,159 Total US$ 189,506 - 189,506 189,506 - (189,506) - (189,506) (189,506) (189,506) - 189,506 - - - 2020 US $ - - 34 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 15. Trade and other receivables Group Trade receivables Less provision for impairment of trade receivables Trade receivables – net VAT Deposits, prepayments and other debtors Total trade and other receivables 2021 US $ 224,918 - 224,918 216,136 2,618,309 3,059,363 2020 US $ - - - 16,146 9,972 197,653 The fair value of trade and other receivables are not materially different to those disclosed above. The Groups exposure to credit risk related to trade receivables is detailed in note 3 to the accounts on page 29. Company – Current Receivable from shareholders Prepayments and other debtors VAT Total trade and other receivables Company – Non-Current Receivables from Group companies Less provision for impairment of Intercompany receivables Total trade and other receivables Ageing of trade receivables: 2021 US $ - 491,094 216,136 707,230 2020 US $ 171,535 - 16,146 187,681 2021 US $ 20,945,635 (6,375,000) 14,570,635 2020 US $ 10,380,745 (4,135,000) 6,245,745 Group 2020 2021 0-30 days US $ - 142,778 30-60 days US $ - 78,920 60-90 days US $ - 3,210 90+ days US $ - - Total Gross US $ - 224,918 ECL US $ - - Total Net US $ - 224,918 Company The Company had no trade receivables. The amount receivable from Group companies is an interest free loan given and is repayable on demand. Management doesn’t intend to recall it in the next 12 months and hence same has been disclosed as Non-Current. The basis of the impairment of Intercompany receivables is the management intends to recall it within 5 years (2020: 7 years) so it is discounted over 5 years at 7%. The majority of investment has been used to develop and sell products initially in the US market. The Group expects the US entity to become profitable and cash positive within 2 years. A 10% percent increase in the discount rate would increase the impairment by $540,000 (2020: $322,000) and a 10% reduction in the discount rate would reduce impairment by $505,000 (2020: 337,000). 16. Cash and cash equivalents Group Cash and bank and in hand Total cash and cash equivalents Company Cash at bank and in hand Total cash and cash equivalents 2021 US $ 15,587,552 15,587,552 2021 US $ 13,036,238 13,036,238 The Groups exposure to foreign exchange risk is detailed in note 3 to the accounts on page 28. 2020 US $ 520,070 520,070 2020 US $ 317,606 317,606 35 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 17. Categories of financial assets and financial liabilities Group Financial assets Trade and other receivables at amortised cost Receivables from shareholders Cash and equivalents Financial liabilities Trade and other payables at amortised cost Lease liability COVID-19 Loan Company Financial assets Loans and receivables at amortised cost Provision Net loans and receivables at amortised cost Other receivables at amortised cost Cash and equivalents 2021 US $ 2020 US $ 2,385,689 - 15,587,552 17,973,241 768,314 335,830 33,834 1,137,978 2021 US $ 20,945,635 (6,375,000) 14,570,635 338,343 13,063,239 27,972,217 - 171,535 520,070 691,605 73,391 417,384 77,314 568,089 2020 US $ 10,380,745 (4,135,000) 6,245,745 171,535 317,606 6,734,886 Financial liabilities Trade and other payables at amortised cost 1,983 62,797 Maturity Analysis of financial liabilities The following are the contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated contractual interest payments and exclude the effect of netting agreements: Group 2020 Trade and other payables at amortised cost Lease liability COVID-19 Small Business Association Loan 2021 Trade and other payables at amortised cost Lease Liability COVID-19 Small Business Association Loan Carrying amount US $ Contractual cashflows US $ 1 year or less US $ 1-5 years US $ 5 years and over US $ 73,391 417,384 77,314 568,089 768,314 335,830 33,834 1,137,978 73,391 474,759 77,314 625,464 73,391 118,183 77,314 268,888 - 356,576 - 356,576 768,314 335,830 33,834 1,137,978 768,314 111,033 4,629 883,976 - 224,797 29,205 254,002 - - - - - - - - 18. Share capital and premium Share capital Group Issued and fully paid up At 1 January 2020 Shares issued for cash Shares issued for cash received post year end At 31 December 2020 At 1 January 2021 Shares issued for cash At 31 December 2021 No of shares of £0.01 each Total US $ 49,132,482 12,887,361 885,918 62,905,761 62,905,761 50,929,683 113,835,444 648,298 163,653 11,250 823,201 823,201 725,026 1,548,227 The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. 36 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 Share premium Group Allotted and fully paid up At 1 January 2020 Premium on shares issued (net of cost of issue of shares) Reduction in Capital At 31 December 2020 At 1 January 2021 Premium on shares issued Cost of issue of shares At 31 December 2021 Ordinary Shares US $ Total US $ 5,714,678 2,233,896 (7,391,891) 556,683 5,714,678 2,233,896 (7,391,891) 556,683 556,683 26,795,879 (1,326,802) 26,025,760 556,683 26,795,879 (1,326,802) 26,025,760 At the end of the year there were 1,666,665 share warrants in issue at an average subscription price of $0.50 (2020: 8,122,243 at $0.18 per share). There was no consideration paid for the warrants. Share options During the year staff were granted share options, vesting 100% on an exit or in equal annual thirds following Grant Date. Award Unapproved EMI Unapproved Unapproved EMI Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Total 2021 000’s 2020 000’s 4,893 1,882 100 60 10 100 100 40 20 40 20 20 20 530 6,775 Date of Grant 07/05/2020 07/05/2020 07/04/2021 12/04/2021 28/05/2021 01/06/2021 14/06/2021 23/08/2021 13/09/2021 20/09/2021 25/10/2021 22/11/2021 01/12/2021 Exercise Price $0.195 $0.195 $0.195 $0.618 $0.639 $0.779 $0.699 $1.365 $1.287 $1.167 $1.390 $1.328 $1.285 Exercise Period From To 07/05/2020 07/05/2020 07/04/2021 12/04/2021 28/05/2021 01/06/2021 14/06/2021 23/08/2021 13/09/2021 20/09/2021 25/10/2021 22/11/2021 01/12/2021 07/05/2030 07/05/2030 07/04/2031 12/04/2031 28/05/2031 01/06/2031 14/06/2031 23/08/2031 13/09/2031 20/09/2031 25/10/2031 22/11/2031 01/12/2031 Avg remaining contractual life 8.6 years 8.6 years 9.3 years 9.3 years 9.4 years 9.5 years 9.5 years 9.7 years 9.7 years 9.7 years 9.8 years 9.9 years 9.9 years Key assumptions used in the calculation of share option fair value Date of Grant 07/05/2020 07/05/2020 07/04/2021 12/04/2021 28/05/2021 01/06/2021 14/06/2021 23/08/2021 13/09/2021 20/09/2021 25/10/2021 22/11/2021 01/12/2021 Award Unapproved EMI Unapproved Unapproved EMI Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Share price on the date of grant $ 0.195 0.195 0.195 0.618 0.639 0.779 0.699 1.365 1.287 1.167 1.390 1.328 1.285 Exercise price $ 0.195 0.195 0.195 0.618 0.639 0.779 0.699 1.365 1.287 1.167 1.390 1.328 1.285 Volatility % 28.5 28.5 28.5 28.5 28.5 28.5 28.5 28.5 28.5 28.5 28.5 28.5 28.5 Expected Dividend Yield % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% (%) Vesting period Years 2.50 2.50 3.17 3.17 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 Risk-free rate of interest % 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 Fair value $ 0.03 0.03 0.03 0.08 0.08 0.09 0.08 0.17 0.16 0.14 0.17 0.16 0.16 The key assumptions used in calculating the share-based payments were as follows: a. The Black-Scholes model is used to value both the options. b. The expected volatility is based on a comparator set of similar stocks. c. The risk-free rate of return which is commensurate with the expected term. d. Expected forfeiture rates are based on recent experience of staff turnover levels. e. The charge is spread over the vesting period on a straight-line basis. 37 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 Movement in share options Outstanding at 1 January 2020 Granted Outstanding at 31 December 2020 Outstanding at 1 January 2021 Granted Lapsed/forgiven Outstanding at 31 December 2021 Share based payments charge Group Charge in year 19. Reserves Retained earnings At 1 January 2020 Loss for the year Reduction in Capital Share based payments charge At 31 December 2020 Loss for the year Share based payments charge At 31 December 2021 Number 000’s 5,655 6,775 12,430 12,430 530 (1,460) 11,500 Weighted average exercise price $ 0.085 0.195 0.145 Weighted average share price $ 0.078 0.195 0.142 0.145 0.788 0.202 0.167 2021 US $ 180,091 0.142 0.788 0.135 0.172 2020 US $ 118,544 Group US $ (2,844,929) (1,978,145) 7,391,891 118,544 2,687,361 (5,213,494) 176,167 (2,349,966) Company US $ (1,154,705) (1,649,098) 7,391,891 118,544 4,706,632 (3,668,780) 176,167 (1,214,019) On 7 October 2020, the shareholders of the group passed a special resolution, pursuant to Chapter 2 of Part 13 of the Companies Act 2006, to cancel the balance standing to the credit of the share premium account and transfer the same to reserves. Capital Contribution At 31 December 2019 Capital contribution received At 31 December 2020 Capital contribution received At 31 December 2021 Group US $ 165,000 - 165,000 - 165,000 The Capital Contribution relates to the acquisition of intangible product licences. Translation reserve At 1 January 2020 Foreign exchange (loss)/gain At 31 December 2020 Foreign exchange (loss)/gain At 31 December 2021 Group US $ 44,882 391,737 436,619 (1,153,148) (716,529) Company US $ 165,000 - 165,000 - 165,000 Company US $ 44,882 391,737 436,619 (1,153,148) (716,529) The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations, primarily relating to the statement of financial position at the reporting dates. The reporting date foreign exchange rates by major currency are provided in note 3. 38 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 20. Trade and other payables Group – Current Trade creditors Social security and other taxes Lease liability COVID-19 Loans Accruals and other creditors Total current trade and other payables Group – Non-current COVID-19 Loans Lease liability Total non-current trade and other payables There are no amounts included with lease liability repayable after five years Company – Current Trade creditors Social security and other taxes COVID-19 Loans Accruals and other creditors Total trade and other payables Company – Non-current COVID-19 Loans Total trade and other payables 2021 US $ 768,314 20,269 111,033 10,808 174,177 1,084,601 2021 US $ 23,026 224,797 247,823 2021 US $ 1,983 20,269 10,808 53,617 86,677 2021 US $ 23,026 23,026 2020 US $ - 100 92,217 64,428 73,391 230,136 2020 US $ 12,886 325,167 338,053 2020 US $ - 100 - 62,807 62,907 2020 US $ - - The fair values of trade and other payables are not materially different to those disclosed above. The Group’s exposure to currency and liquidity risk is detailed in note 3 to the accounts on page 28. 21. Deferred income tax Unused tax losses for which no deferred tax assets have been recognised are attributable to the uncertainty over the recoverability of those losses through future profits. A blended tax rate of 20% has been used to calculate the potential deferred tax. Group Deferred tax Accelerated capital allowances Share based payments Short term timing differences Tax losses Unprovided deferred tax asset Deferred Tax Company Deferred tax Accelerated capital allowances Share based payments Short term timing difference Tax losses Unprovided deferred tax asset 2021 US $ (9,431) 57,113 - 2,815,024 2,805,593 (2,805,593) - 2020 US $ (2,760) 23,642 - 2,035,030 2,055,912 (2,055,912) - 2021 US $ - 57,113 470,400 433,772 961,285 (961,285) - 2020 US $ - 23,642 201,400 332,088 557,130 (557,130) - 39 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 22. Leases as a lessee Right-of-use assets Right-of-use assets related to lease properties that do not meet the definition of investment properties are presented as property, plant and equipment (see note 11): Group At 1 January 2020 Depreciation charge for the year At 31 December 2020 Depreciation charge for the year At 31 December 2021 Land and buildings US$ 473,901 (98,049) 375,852 (98,049) 277,803 Amounts recognised in profit or loss The following amounts have been recognised in profit or loss for which the Group is a lessee Interest expense on lease liability Depreciation on right of use assets Amounts recognised in statement of cash flows Total cash outflow for leases Lease Liabilities Group At 1 January 2020 Interest Payment At 31 December 2020 At 1 January 2021 Interest Payment At 31 December 2021 Maturity analysis of undiscounted cash flows due for leases Within one year After one year but not more than five years After five years Total 2021 US $ 26,837 98,049 2021 US $ 108,391 Land and buildings US$ 498,398 32,443 (113,457) 417,384 417,384 26,837 (108,391) 335,830 2021 US$ 122,235 234,340 - 356,575 Total US $ 473,901 (98,049) 375,852 (98,049) 277,803 2020 US $ 32,443 98,049 2020 US $ 118,859 Total US $ 498,398 32,443 (113,457) 417,384 417,384 26,837 (108,391) 335,830 2020 US $ 118,183 356,576 - 474,759 23. Dividends No dividend has been declared for the year ended 31 December 2021 and no dividend was paid during the year. 40 Belluscura plc NOTES TO THE ACCOUNTS For the year ended 31 December 2021 24. Cash generated from operating activities Group Loss before income tax Adjustments for - Depreciation - ROU Depreciation - Amortisation and impairment - No cash interest expense - Movement in foreign exchange - Movement in trade and other receivables Inventory movement Movement in trade and other payables Cash generated from operating activities Share based payments 2021 US $ (5,213,494) 14,531 98,049 156,774 26,837 333,842 180,091 (2,179,894) (309,159) (396,649) (7,289,072) 2020 US $ (1,978,145) 8,544 98,049 - 32,956 (68,056) 111,350 81,268 - 243,261 (1,470,773) 25. Contingent Liability On 24 February 2017, the Company entered into a co-exclusive licence and development agreement with Separation Design Group, LLC and SDG (together the “SDG Parties”) (“SDG Licence”) which was subsequently amended by an amendment agreement dated 19 March 2021. Pursuant to the SDG Licence: if by 3 September 2025, cumulative sales of the X-PLOR have not exceeded $20 million dollars, Belluscura must make a one-time payment of $3 million to the SDG Parties to maintain the exclusive SDG licence. 26. Alternative Performance Measures Operating Loss is reconciled to Adjusted Operating Loss as follows: Group IFRS2 Share Based Payment Charge Surrendered Share Options Total Comprehensive Loss for the year Adjustments for - - - Depreciation - Amortisation - Non-cash interest expense - Costs of raising funds charge to P&L - Total Adjustments Exchange differences 2021 US $ (6,366,642) 2020 US $ (1,586,408) 180,091 611,947 112,580 156,774 26,837 646,062 418,470 2,152,761 111,350 - 106,593 - 32,956 - 33,633 284,532 Adjusted Operating Loss (4,213,881) (1,301,876) 27. Related party transactions As disclosed in the Admission Document, prior to Robert Rauker joining the Company, he undertook independent patent work for Separation Design Group IP Holdings LLC (“SDG”). Pursuant to a Patent Broker Agreement dated 22 October 2015 SDG entered into an agreement with Medicinus IP LLC (“Medicinus”), of which Robert Rauker is the sole shareholder, under which Medicinus has agreed to facilitate the sale and/or licence of intellectual property owned by SDG which includes soliciting potential buyers and licencees of such intellectual property. In consideration for the provision of these services, Medicinus receives a fee of 12.5 per cent. of the licence fees, sales price and/or royalties received by SDG which will include 12.5 per cent. of the royalties the Company will pay to SDG in relation to sales of the X-PLOR, pursuant to the agreement entered into between SDG and the Company. The agreement can be terminated by either party by written notice. The non-executive fees paid to Adam Reynolds were paid through his company Reyco Limited. In the period the Company paid $1,065,781 to Dowgate Capital Limited in relation to brokerage fees, research and fundraising activities. David Poutney is the Chief Executive Officer of Dowgate Capital Limited. 28. Events after the reporting period At the date of these Final Results there have been no events that require disclosure in accordance with IAS10, 'Events after the balance sheet date'. 41 Perivan 263151
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