ANNUAL REPORT & ACCOUNTS For the year ended 31 March 2022 fusionantibodies.com HEADLINES FOR THE YEAR INVESTMENT IN R&D £0.7M (2021: £0.6M) FULL YEAR REVENUES INCREASED BY 15% TO £4.8M (2021: £4.2M) LOSS FOR THE YEAR OF £1.2M (2021: LOSS £2.9M) FIRST SUCCESS MILESTONES RECEIVED FROM CLIENTS CASH POSITION AT THE YEAR-END £2.0M (2021: £2.7M) POST YEAR END AND LOOKING AHEAD APPOINTMENT OF ADRIAN KINKAID AS CEO, AUGUST 2022 01 Annual Report and AccountsFor the year ended 31 March 2022 02 Fusion Antibodies plc CONTENTS STRATEGIC REPORT Fusion at a glance Chairman’s statement Company overview Executive report and operations review Principal risks and uncertainties CORPORATE GOVERNANCE Board of directors Corporate governance statement Directors’ report FINANCIAL STATEMENTS Independent auditors’ report to the members of Fusion Antibodies plc Statement of profit or loss and other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows 04 06 09 15 20 24 27 33 40 46 47 48 49 Notes to the financial statements 50-68 Company information 69 03 Annual Report and AccountsFor the year ended 31 March 2022 STRATEGIC REPORT FUSION AT A GLANCE Fusion Antibodies plc (“Fusion Antibodies”, “Fusion” or the “Company”) is an Early Discovery Contract Research Organisation (CRO) located in Northern Ireland that offers a range of antibody engineering services for all stages of therapeutic and diagnostic antibody development. Our unrivalled experience working with antibodies makes Fusion Antibodies a first choice partner for the development of antibodies for both therapeutic drug and diagnostic applications. Our three service areas, which are explained more fully later in this report, include: SNAPSHOT 55 85% staff based in Belfast, UK of our revenues are from outside the UK £4.8M generated revenues THE BUSINESS Discovery: the creation, screening and sequencing of novel monoclonal antibodies for therapeutic and diagnostic applications; We are an established contract research organisation, providing a multi-service offering from antibody discovery and development to clinical supply; Engineering: maximising the performance of an antibody drug including CDRxTM humanisation, Antibody Developability by Design (ADDTM), RAMPTM and OptiMASTM; and Our customers are pharmaceutical, biotech and diagnostic companies seeking to develop antibody based therapeutic drugs and diagnostics; Supply: the production of material for clinical We continue to invest in technological advances production or further research, including transient expression and cGMP ready stable cell line development. Our mission is to enable biopharmaceutical and diagnostic companies to develop innovative products in a timely and cost-effective manner for the benefit of the global healthcare industry. to ensure our offering to customers is at the industry’s leading edge: exemplified by the current R&D investment in the OptiMALTM, Mammalian Antibody Library; and Our clients have progressed projects into clinical trials confirming the value of our work. 04 Fusion Antibodies plc 05 Annual Report and AccountsFor the year ended 31 March 2022 STRATEGIC REPORT CHAIRMAN’S STATEMENT The last twelve months have seen the effects of the Covid-19 pandemic on both our staff and the business diminish and the vaccination programme has made a significant difference to how we can carry out our business. Northern Ireland has been slower to ease Covid-19 restrictions than other parts of the UK and our business development and financial teams continued to work from home for most of the year. However, the whole team have continued to work well together and shown a level of commitment that I am proud of and something for which I would like to thank them. Availability of some reagents and consumables have occasionally been affected but overall, the Company was able to meet the challenges presented and has demonstrated good growth over the financial period concerned. Revenues increased for FY2022 delivering year on year revenue growth of 15% with revenue of £4.8m for the year marginally above market expectation. This growth came from a good performance in our transient expression service significantly outperforming on the previous year. The revenue included two milestone payments totalling £300,000 from projects carried out in 2016 and 2018. The loss for the year was £1.2m (FY2021: £2.9m loss) as is explained in the Executive’s report on page 15. Our OptimasTM service continues to give us a unique edge in the market. This service covers a range of antibody engineering benefits based on the RAMPTM platform, which encompasses affinity maturation, the potential to optimize the manufacturing efficiency and improve the antibody yield from cell culture thus reducing the overall cost of goods. Additionally, in many cases the overall stability of the antibody can be improved and the immunogenicity reduced, with the opportunity to maximise the efficiency of a client’s therapeutic antibody. Although not yet in itself a significant contributor to revenue, this service attracts customers as a powerful option that is available, if required, downstream of our humanization and discovery services. We have begun to position ourselves as more of an outsourced full development partner, collaborating in project planning, and acting as a natural extension of our customer’s business, promoting our world class scientific expertise across the range of services which covers the drug development programme from discovery to supply. This change resulted in our first and significant collaborative research and development agreement worth a minimum of $1.83m over a two-year period with a US biotechnology start-up company that has been specifically incorporated to focus on a number of innovative early-stage antibody discovery and development programmes. I see this as the beginning of an exciting partnership where Fusion will provide its 06 Fusion Antibodies plc discovery and engineering services in relation to the research and development of several pre-determined projects. Should a product be successfully developed, registered and commercialised, the Company will be entitled to both milestone and royalty payments based on a percentage of sales figures of that product. Concurrently, I was pleased to announce the appointment of Dr Matthew Baker who joined the Board as a Non-Executive Director. He was, and continues to be, a member of SAP and his extensive experience of the antibody services business, both from a technical and commercial perspective, will be a great benefit to the Company going forward. As part of our strategy to grow into more global territories, we entered into a commercial collaboration agreement with Eurofins Discovery (Eurofins), a leading provider of products and services to the drug discovery industry. Fusion will provide comprehensive pre-clinical antibody development services from discovery, engineering and supply to Eurofins’ customers. While not expected to have a material impact on the Company’s earnings in the short term, we consider that it demonstrates a commitment by both parties to provide world-class scientific expertise and next-generation technology to the market. The formation of the new Scientific Advisory Panel (the “SAP”) is an exciting next step to ensure that we remain at the cutting edge of the science involved in antibody drug development. The SAP consists of leading experts to support the Company’s research and development across its range of antibody services, and to provide advice regarding emerging science and technology issues and trends. The appointment of these industry experts adds a depth of expertise that will provide Fusion with relevant and informed technical and scientific counsel and broadens our access to a network of clinical and scientific advisors, as well as academic collaborators. I am delighted to welcome them to the team. There have been a number of changes to the Board during the financial year and in the period since the reporting date. In March 2022 Dr Alan Mawson stepped down as a Non-Executive Director and on behalf of the Board, I would like to offer our sincere thanks. Alan has contributed greatly to the Company over many years, both pre and post Fusion’s admission to listing on AIM and the Company has benefited a great deal from his wise advice and guidance. A search for a new CEO started when we learnt that Dr Richard Jones, was moving on to pursue other career opportunities. He added significant value to the Company, both operationally and commercially during his short stay and I wish him well for the future. In July we announced the appointment of Dr Adrian Kinkaid as CEO and he has recently taken up that post. Adrian brings a lot of experience in the life science and biotherapeutics industries and joins at an exciting time as the Company focuses on growing our existing services and finalising our current development programmes, including OptiMALTM. We have continued to invest in improving our current services and in the development of new technologies to further enhance the service offered to our customers. Improvement in our B-cell cloning services have been made and further equipment purchased to deliver the growth in transient expression. The Mammalian Antibody Library Discovery Platform (OptiMALTM) is an ongoing R&D programme. Since our last report processes to screen and select antibodies have been optimised and work has commenced on extracting neutralising antibodies to oncology targets to build a body of data with a view to establishing commercial relationships for further validation by the end of the financial year. CORPORATE GOVERNANCE The long-term success of the business and delivery on strategy depends on good corporate governance. The Company complies with the Quoted Companies Alliance Corporate Governance Code as explained more fully in the Governance Report. 07 Annual Report and AccountsFor the year ended 31 March 2022 CURRENT TRADING Despite a second uniquely challenging year due to the pandemic, we continued to see growth and invest further in our core scientific based services. Our commitment to new R&D projects was maintained and OptiMALTM remains on track to deliver initial revenues in the current financial year. The Covid-19 pandemic did not have a material impact on operations as the Company implemented procedures to protect our laboratory services. Again, my thanks to all the staff who, as a team, were committed to maintaining the full operations of the Company though either working from home or, for those in the laboratories, working flexible hours in controlled conditions. I would also like to thank the shareholders for their continued support. Post year end trading has been in line with expectations. While conditions in the UK have improved significantly, there remains considerable uncertainty from current global macro conditions. Challenges remain for much of our international customer base, but the Board believe the Company has the expertise to meet these challenges and capitalise on opportunities as we have done over the past year. Dr Simon Douglas Chairman 22 August 2022 08 Fusion Antibodies plc STRATEGIC REPORT COMPANY OVERVIEW Fusion Antibodies is an established Early Discovery Contract Research Organisation (CRO), providing a multi-service offering, from antibody discovery to clinical supply, to global pharmaceutical, biotech and diagnostic companies looking to develop antibody based therapeutic drugs and diagnostics. Why antibodies? Antibodies Therapies now account for around 20% of new drugs approved by the USA Food and Drugs administration (FDA): Antibodies are naturally occurring biological molecules which are produced by the immune system in the body to neutralise pathogens such as bacteria and viruses circulating in the blood stream or to remove other foreign bodies. They are specialised in targeting a very specific structure on the surface of a cell or protein in the body. Monoclonal antibodies are made in the laboratory by identical immune cells, which are isolated and engineered to ensure they are as specific and homogeneous as possible. They maintain their unique specificity characteristics as found in nature but now can be intentionally directed towards a therapeutic target. For example, in cancer therapy, antibodies can be used to bind selectively to the receptors of the cancer cells which can stimulate the body’s defences and lead to cell death, making it possible to mark and to fight specific abnormal cells. Healthy cells are not usually attacked in this process so there are often fewer side effects than in classic chemotherapy. This has led to the rapid growth in the search for, and development of, monoclonal antibodies to target many clinical conditions. Total Market size $186.1 billion with a projected value of $445 billion in 2028 100 approved antibody therapies on the market as at May 2021 Over 5438 Antibodies in development in 2019, of which 78% (4241) were within the preclinical stage. Investment in the industry continues with calendar year 2020 seeing the highest ever VC Biotech funding recorded in the United States. The global therapeutic market for monoclonal antibodies alone was $114.43 billion in 2021. 09 Annual Report and AccountsFor the year ended 31 March 2022 Fusion Antibodies partners with clients involved in early discovery for novel and biosimilar antibody therapeutic research. Our clients range from global pharmaceutical companies, through asset-centric “virtual” companies to smaller research institutes and university-based research teams. The directors believe that the Company’s directly addressable research market in the year was approximately $170m (growing annually at 4-8%). Proof-of-concept development of OptiMALTM, the Company’s Mammalian display library platform, is ongoing during FY2022, expanding the discovery service offering. The development of the Library is expected to increase the Company’s directly addressable market to $2.0 billion through custom products and licencing. (Source TABS Antibodies Database) Current services Fusion offers antibody engineering services to companies and academic research institutes engaged in research, development and commercialisation of monoclonal antibodies. Our three key service areas offered are: Antibody discovery: the creation and screening of novel antibodies for therapeutic and diagnostic applications. A first step and key to success in this area is to design and create a suitable target (antigen) to induce well-targeted antibodies. Fusion uses a combination of extensive 3D modelling and scientific expertise to design effective antigens to successfully generate the specific immune response required. Specific antibodies can then be produced that bind specifically to this target. The Company is highly experienced, and its work is well regarded in the traditional hybridoma method of antibody generation and more recently have developed a B-cell capability. Fusion’s expertise and experience in De Novo antibody discovery involving the immunisation, isolation and cloning of the animal’s B-cells, ensures that we can partner with our clients through their early discovery journey. As this service is at the early stage of drug discovery it ensures that the Company is well positioned to provide downstream antibody engineering and expression services as the customer progresses with its development programme. Antibody engineering CDRxTM Antibody Humanisation Platform: genetic engineering techniques are used to convert antibodies from other species so that they are suitable for human applications. This process makes these antibodies as close in structure to human antibodies as possible thereby reducing the likelihood of rejection by the body before the patient receives the therapeutic benefit. Since 2012, the Company has performed over 200 antibody humanisations and, our understanding is that eight antibodies from our first 33 projects have been taken into in-human trials. This figure is an estimation as the Company will not always be notified when its customers’ projects progress to human trials, however, as the Company has expanded its capacity we believe that more will follow. The Company’s proprietary CDRxTM platform enables the rapid, accurate and detailed analysis of the variable part of the antibody that gives it its unique specificity (the complementarity determining region or “CDR”). This platform utilises bespoke software and in-depth knowhow which provides a market leading solution for antibody humanisation. This is borne out in the percentage of customer projects which have progressed to clinical trials. RAMPTM: This is a technically advanced platform to improve the performance of antibody-based drugs. Our rational design approach allows for the optimisation of biophysical properties by changing part of the structure of the antibody that can have a beneficial effect on the strength of the antibody binding (affinity) to the target can be improved through the affinity maturation process. OptiMASTM: Applying the RAMPTM platform in different scenarios can improve various aspects of the antibody drug. This technique has produced additional benefits to the molecules screened from our clients, including increased functionality, 10 Fusion Antibodies plc improved manufacturability, and enhanced specificity. In some cases, the altered structure has enabled our customers to file for new patents effectively extending the patent life of their therapeutic antibody. Antibody Supply Transient gene expression: Our clients require research grade recombinant proteins and antibodies for testing and analysis, and we do this by the expression of a gene resulting from the introduction of foreign or synthetic DNA material that is not stably integrated into the cell’s genome. We have optimised processes which deliver reliable proteins with optimal yields in a very good timescale. Demand for this has grown over the last two years as we are one of a small number of companies able to deliver complex molecules to a very high grade. Stable cell line development: Progressing a drug through development into cGMP production requires the development of a stable cell line. A stable cell line is an everlasting cell line used to express large amounts of the given antibody required for production. Fusion has expertise in the identification of high expressing, stable clones which are necessary for downstream development. The Company offers a range of cell lines including CHO-GS from Merck and CHOvolutionTM for which the Company has a cGMP partnership with Celonic AG. This offers our customers the option to seamlessly transfer cell lines to a cGMP facility and allow Fusion to support our customers throughout the entire course of their drug development process. SUPPLY Recombinant Protein Expression D I S C O V E R Y G RIN G I N E E N E Monoclonal Antibody Discovery and Development Antibody Sequencing Antibody Engineering Antibody humanization & RAMP Stable Cell Line Development and cGMP scale up 11 Annual Report and AccountsFor the year ended 31 March 2022 Business model Fusion performs all of its operations through a single trading entity. Initial engagement with prospective customers is usually through a business development (“BD”) team member although both BD and scientists are involved throughout the client engagement. Our approach throughout the selling and project delivery phases is to work closely alongside the customer team to help them to achieve their desired outcomes. Increasingly, this positions the Company as a trusted partner collaborating on research as demonstrated in the announcement in year of our first significant collaborative research and development collaboration. Understanding our customers’ requirements involves business development (“BD”) staff as well as scientist-to-scientist conversations to arrive at a tailored approach and job specification, with the range of services offered giving the flexibility desired by our customers to accelerate their drug development programmes. This flexibility includes the ability to access our range of services at any point. The process can last for several months as a customer formulates and brings their project to the point where Fusion becomes involved. It is the nature of the industry that some customer projects are cancelled or postponed prior to reaching this point. A client order is usually divided into a number of development stages, each dependent on the results of the previous stage. On more complex projects there may be points where the customer further reviews their project which can lead to a decision to continue, to proceed on an amended programme of work or to stop. This structure means that there is significant scientific and commercial uncertainty in forecasting the commencement date of a project and the timing of later stages. The Company uses its extensive experience of these uncertainties when scheduling projects, planning purchases and staff and equipment allocation as well as forecasting revenues but the inherent uncertainty in forecasting activity, and therefore revenue, cannot be completely eliminated. Payment for current services is primarily by way of “fee for service” revenue model. In certain circumstances, particularly when there is a significant contribution to the client’s intellectual property, the Company will also obtain a commercial interest in the client project. This may take the form of a milestone based success payment or it may be by way of a royalty on future income streams. The number and potential value of such commercial interest increases periodically as the Company enters into new agreements and reduces either when a milestone is realised or when a project is ceased before a payment milestone is reached. At the reporting date the Company had an interest in thirteen such client projects which it understands its clients to be actively developing: four projects have fixed success payments with a maximum potential income of £1,225,000 and nine projects carry royalty agreements. Such payments would be expected a number of years after the service is performed and would depend on the successful further progression of the project by the client. Due to the uncertainty of the success of such development programmes and the commercial sensitivities for our clients, the Company will not be fully aware of a project’s status at any given point in time, and therefore does not intend to regularly update the market on the above figures nor does it estimate a potential value of future revenues or include such a value in its Statement of Financial Position. The Company announced in July 2021 that it had received £150,000 milestone payment as a result of a humanised antibody project which was successfully commercialised by a key client. This was the first such payment received by the Company and is in line with our strategic objectives of unlocking the intrinsic value that our service offerings represent to our clients where we have access to the downstream value of successful projects. In January 2022 a different client entered clinical trials with an antibody that was humanised by the Company in 2016 and this gave rise to a second milestone payment of £150,000. In October 2021 the Company entered into a collaborative research and development agreement with a US biotechnology start-up company. This agreement provides for both success milestones and royalties based on future revenues arising from the collaboration. The projects covered by this agreement are yet to be delivered and therefore have not been included in the thirteen projects referred to above. 12 Fusion Antibodies plc The discovery of antibodies is a long, arduous and cost intensive process. As a result, many developers opt to outsource all or parts of these operations. Fusion Antibodies has developed a suite of service platforms that address the need to produce highly manufacturable, scalable therapeutic antibodies from the discovery phase through to the production of stable, high yielding CHO cell lines for clinical supply. Future services The Company continues to innovate and develop new services. The most significant project under way is the development of a Mammalian Antibody Library, branded OptiMALTM. This will reduce the number of development steps in the discovery of a new antibody drug by allowing the screening of new targets against a panel of whole antibodies that are already human in nature removing the need for animal hosts. The Board believes development of the Library will provide significant scientific and commercial benefits for drug developers in terms of shortening the development time, therapeutic effectiveness and manufacturability. Additionally, the Company will explore the opportunity to make its proprietary discovery platforms available to drug developers under licence. Licencing drug discovery operations can offer licensees time and cost related benefits. As demand for therapeutic products increases and as future services are developed and marketed, the opportunities for the Company are expected to increase in the foreseeable future. Summary of Fusion’s competitive advantages A broad range of services from discovery to clinical supply High quality client base Proprietary humanisation CDRxTM platform Proprietary RAMPTM platform for engineering antibody developability In silico computational analysis of antibodies and antigens form the core of our service platforms In house characterisation of customer molecules Technical expertise and scientific knowhow Continuous improvement in services including those currently under development: new drug discovery technologies including a Mammalian Library Platform 13 Annual Report and AccountsFor the year ended 31 March 2022 14 Fusion Antibodies plc STRATEGIC REPORT EXECUTIVE REPORT AND OPERATIONS REVIEW FY 2022 was a second year of business with challenges and restrictions for all of us due to the COVID-19 pandemic. The Company delivered 15% revenue growth in the year and continued to invest for growth and increased investment in R&D by 14%. As a result of the ongoing investment strategy, the Company continues to return losses which reduced this year to £1.2m (FY2021: £2.9m loss for the year). Despite the challenges throughout the year, the Company’s staff were able to win a new major client contract which contributed to delivery on the financial performance, and to enter into a commercial collaboration with Eurofins Discovery. Once again, we recognise and thank the staff who worked through the challenges to enable our clients to advance their discovery and development projects and to progress our pipeline of projects. Included in the year’s results are two milestones totalling £300,000. These arise from our clients’ successes: one humanisation project performed in 2018 was successfully commercialised, and one project performed in 2016 which has commenced clinical trials. Client success is a clear demonstration of the value of the work done by the Company for clients developing the drugs of the future. Business review The Company’s revenue for the financial year to 31 March 2022 grew by 15% vs FY2021 to £4.8m which was marginally ahead of market expectations. Growth was seen in both H1 and H2 of FY2022 compared to the comparable periods in FY2021. This growth has come from the expansion of our existing services in discovery, engineering and supply, as well as recognition of two milestone receipts. We see increasing interest in the RAMPTM technology service platform which represents a key driver of growth for the business and was a major factor in winning new business in the year. We are pleased to report that the Company saw continued growth in our key geographical markets, in particular in North America which represented 42% of revenues and with an increasing number of key client accounts. Our main Asia Pacific markets such as Japan, India and Korea, where we have appointed distributors, continue to be impacted by the global pandemic, although client relationships and opportunities are increasing and the appointment of distributors in earlier years has counteracted the lack of travel to those countries from the UK. Certain customer projects involve a significant level of contribution from Fusion to the development programme or the intellectual property. When this occurs, we seek to enter into a collaboration agreement structure which will enable Fusion to 15 Annual Report and AccountsFor the year ended 31 March 2022 Fusion Antibodies plc 16 access the downstream value of the services and share in the commercial success. This will further enable Fusion to unlock the intrinsic value that our service platforms provide to our clients and generate additional shareholder value. During the year the Company entered into such an agreement with a US based biotech company with a structure of milestone success payments and royalties in addition to fee for service-based contract value. We continued to drive investment and innovation to improve our current services and develop new technologies to further enhance the service offered to our customers. Investment in R&D increased by 14% to £699,000. Improvements in our B-cell cloning services have been made and further equipment has been purchased to create more capacity, and hence deliver growth, for transient expression. Our humanisation and RAMPTM procedures are beginning to benefit from improved computer-based design selection. We strongly believe that the Mammalian Antibody Library Discovery Platform (OptiMALTM) represents a key future driver of growth for the business, and is an ongoing R&D programme. There are several key steps in the OptiMALTM programme including design; DNA synthesis, cloning, expression, screening and lead selection. Since our last report we have completed the process development of all of the steps, in particular, processes to screen and select antibodies have been optimised using a combination of a new magnetic bead system and single cell sorting. The synthesis of the core Library oligo mix is outsourced and has been continually improved. The latest version has additional mutational hotspots to increase diversity. Work has been successful on extracting spiked-in control antibodies to model oncology targets to build a body of data with a view to further optimisation. This work is continuing post year end with a view to establishing commercial relationships for further validation by the end of the financial year. The year also saw the first meeting of a Scientific Advisory Panel of industry experts and thought leaders in the field of antibody discovery and services. The Panel is expected to meet up to four times a year to guide the direction of future R&D in the Company. As reported in October 2020, the Company received grants from Invest Northern Ireland to support Fusion’s COVID-19 Discovery programme as part of the NI COVID-19 Antibody Development Alliance (NICADA) a collaboration between Fusion and Queen’s University Belfast with an aim to develop and test antibodies to assist in tackling the COVID-19 pandemic. A portion of the grant was used to support the OptiMALTM programme and to reinforce the work being performed at Fusion to produce fully human antibodies targeting the SARS-CoV-2 virus which could be used in therapeutic and diagnostic applications. The collaboration was initially for a period of one year but was extended to April 2022. The project did not produce any antibodies for further development and commercialisation but provided useful material and insight in the ongoing OptiMALTM development programme. Supply chain disruption from the UK’s departure from the European Union and the COVID-19 pandemic continued throughout the year. As a result, the quantity and value of consumable stock held by the Company has been increased further in the year. The Company’s revenues arising from exports to EU countries increased to £1.4m, representing 29% of total revenues. The Company continues to monitor potential risks and opportunities arising as negotiations with the EU continue, particularly in respect of the Northern Ireland Protocol. We also continue to develop other export markets to mitigate risks of overexposure to any one geographical market. As pandemic restrictions around the world were eased the industry as a whole saw an increase in staff turnover as individuals sought new opportunities. The departure of a few employees during the year presented challenges but also an opportunity to strengthen our team with new talent bringing fresh ideas and experience. We are very grateful for the commitment, dedication and resilience shown by our staff over the last two years. Post year end events Appointment of Adrian Kinkaid as CEO in August 2022 17 Annual Report and AccountsFor the year ended 31 March 2022 The Company ended the year with £2.0m of cash and cash equivalents, having used £0.3m of cash in operations during the year, invested £0.3m in property, plant and equipment and £0.1m servicing asset-based borrowings. This cash level puts the Company in a strong position to progress plans for growth in existing services in FY2023. The Company’s full results are set out in the financial statements included with this report. Financial Results The Company has continued to build on the revenue growth in the second half of FY2021 with revenue growth seen in both H1 and H2 relative to the comparable period in the previous year. Full year revenues for the year in total were up 15% to £4.8m (FY2021: £4.2m). The EBITDA loss for the year was £0.6m (FY2021: £0.5m loss) (see note 27). However, excluding the R&D expenditure of £0.7m, EBITDA for the year was marginally positive. The loss before tax was similar at £1.3m (FY2021: £1.3m loss). The Company held current net assets of £3.1m at 31 March 2022 (2021: £3.7m) which mainly comprised inventories and cash and cash equivalents. Revenues 0 0 0 £ ’ 3000 2500 2000 1500 1000 500 0 18 H1 2017 H2 2017 H1 2018 H2 2018 H1 2019 H2 2019 H1 2020 H2 2020 H1 2021 H2 2021 H1 2022 H2 2022 Fusion Antibodies plc Key performance indicators The key performance indicators (KPIs) regularly reviewed by the Board are: KPI FY2022 FY2021 Revenue change year on year 15% 7% EBITDA (£0.6m) (£0.5m) Cash used in operations (£0.3m) (£1.1m) Fusion is at a key value inflection point in its evolution. The Company has world class and cutting-edge Antibody Discovery, Engineering and Supply technology platforms with the potential to generate significant future shareholder value. The Company’s vision is to move into the next phase of its evolution as a commercially successful antibody service provider with a diversified range of technology platforms to enable our customers in pharma and biotech to identify and commercialise antibodies more cost effectively, more rapidly, with a higher probability of success and with a more competitive profile. Corporate strategy Outlook The Company continues to grow by following the existing Corporate Strategy of investing for growth through market development and the introduction of new services developed in-house. Post year end trading has been in line with expectations. While conditions in the UK have improved significantly, there remains considerable uncertainty from current global macro conditions. Challenges remain for much of our international customer base, but the Board believe the Company has the expertise to meet these challenges and capitalise on opportunities as we have done over the past year. Richard Buick Chief Scientific Officer James Fair Chief Financial Officer 22 August 2022 19 Annual Report and AccountsFor the year ended 31 March 2022 STRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES Risk is an inherent feature of the Company’s business. The Board meets regularly to review operations and to assess and monitor the business risks faced by the Company. Set out below are some key risks, together with associated mitigating factors. This list does not purport to be exhaustive. RISKS RELATING TO THE COMPANY AND ITS BUSINESS 1 Dependence on agreements with third parties 2 Potential product liability litigation, regulatory The Company enters into agreements, including partnerships and collaborations, with third parties in respect of development, production, marketing, sales and distribution and supply of materials and equipment in order to develop and market products and services and to enable it to reduce the cost incurred by the Company in doing this. There are no guarantees that the Company will be able to find suitable, commercially viable relationships nor that any parties with whom it enters into commercial arrangements will meet their obligations. This could impact upon the Company’s revenue and profitability and potentially leave the Company with a financial loss, unable to proceed with development or sale of the products or services and/or needing to enter into litigation with the partner which could have both negative finance and reputational consequences. intervention, adverse PR and business interruption If the Company produces any products or services which are defective, or which are alleged to be defective, it may face a liability claim in respect of those products or services. Any serious quality or safety incident may result in adverse reporting in the media, which in turn may damage the Company’s public relations and could potentially interrupt its business. This in turn could affect the Company’s financial condition, operational results and prospects, including damage to the Company’s reputation and/or its brands. Third parties may assert their own intellectual property infringement claims against the Company’s use of technology or products and require the Company to cease the infringing activity and/or require the Company to enter into licensing and royalty arrangements. The third party could take legal action against the Company; if the Company is required to defend itself against charges of patent infringement or to protect its own proprietary rights against third parties, substantial costs and significant management time and effort could be incurred regardless of whether 20 Fusion Antibodies plc the Company is successful. Such proceedings are typically protracted and there is no certainty of success. If there is an adverse outcome, this could subject the Company to significant liabilities to third parties, and force it to curtail or even cease altogether the development of products or the provision or particular services (if provision of those services is reliant on a particular method which is the subject of the proceedings), or the sale or licensing of products. In addition, the Company may be required to develop alternative, non-infringing solutions which may require significant time and substantial, unanticipated resources. It is therefore possible that such claims could have a material adverse effect on the Company’s business, financial condition or results. 3 Risk that services will not achieve commercial success The Company currently offers a range of services, namely: antibody sequencing, antibody humanisation, stable cell line development, antibody engineering, monoclonal antibody production, transient protein expression and affinity maturation. It is also developing a mammalian antibody library. The commercial success of each of these services is in part based on factors outside the Company’s control, including market demand for those services. There can be no assurance that market demand for any of these areas will continue to exist and/or increase, or that the Company’s services will be favourably received by the market, will be profitable or will produce a reasonable return, if any, on investment. If the service is not commercially successful it could result in a financial loss to the Company. Furthermore there can be no assurance that the development of the new services is successful. Whilst the Company considers it offers a competitive pricing model, there is the risk that it will not be able to attract market interest in its services or to maintain or develop that interest if received. For example, a competitor may undercut it with a pricing model it is unable to match; alternatively or additionally, a competitor with access to superior levels of capital may be able to inject more capital into its business and, as a consequence, develop new systems for delivering comparable services to those offered by the Company at lower cost and/or more effectively. There is therefore no guarantee that any of the Company’s services will be commercially successful in the future or that it will continue to be competitive in the markets in which it operates. 4 The Company relies on certain key personnel The Company’s senior management and key research and development personnel are experienced in different fields of research, development, production, marketing and corporate management in the antibodies industry. As such, the Company’s success is in part attributable to the expertise and experience of its senior management and key research and development personnel, who carry out key functions in the operations of the Company. The Company’s research capability, financial condition, operation and prospects may be detrimentally affected if the Company loses the services of any of its senior management and/ or key research and development personnel, whether through illness or death, or them moving employment. No assurance can be given that the Company will be able to retain and incentivise all the staff and key personnel that it needs in order to achieve its business objectives (a) at all or (b) on commercially acceptable terms. This could in turn adversely affect its business, financial condition, results and/or future operations. As stated above, the Company’s success is in part attributable to the expertise and experience of its senior management and key research and development personnel. However, it may need to attract and recruit additional personnel, either in addition to existing personnel or to replace departing personnel, across all areas of its business. This could in turn adversely affect its business, financial condition, results and/or future operations. 21 Annual Report and AccountsFor the year ended 31 March 2022 5 Risks associated with reliance on IT systems, key equipment and laboratory space The Company is reliant upon the use of certain IT systems, equipment and laboratory space which is critical to its ability to carry out its core business. There is a risk that key IT systems, equipment, and/or the laboratory space itself may become unavailable. In this event, the Company’s ability to deliver its services may be detrimentally affected, which could in turn have an impact upon its ability to deliver projects on time and which could consequently adversely affect its business, financial condition results, and/or future prospects. There is a risk that the Company’s operations may be affected by a fire or flood at its premises. GENERAL RISKS RELATING TO THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES 1 There may be a general reduction in the demand for antibody services in the pharmaceutical and biotechnology industries As a CRO, the Company’s revenue is primarily generated through contracts with pharmaceutical and biotechnology companies and is dependent upon there being a demand in these industries for its antibody services. There is a risk that there may be a reduction in the demand in the pharmaceutical and biotechnology industries for antibody services, even if expenditure on drug development and discovery is maintained or increased. For example, the discovery of new technologies may reduce altogether the need for the antibody services provided by the Company (either currently or in the future), or it may enable drug development companies to meet their requirements for antibody services internally rather than outsourcing these to CROs such as the Company. 2 The Company is subject to regulations governing the pharmaceutical and biotechnology industries The regulations governing the biotechnology and pharmaceutical industries in the countries in which the Company operates may be subject to change without prior notice or consultation. Any such changes or amendments may significantly impact the business of the Company. For example, at the moment it is generally easier to both import and export goods within the EU than to other international companies due to the UK being part of the customs union. However, in view of the ongoing EU trade negotiations and the uncertainty surrounding the effect these will have on the free movement of goods, it is not clear whether such rules will significantly change and, if so, exactly how they will differ. There may also be increased costs to the Company of complying with any changes in the regulatory requirements of the biotechnology and pharmaceutical industries which could have an impact on the financial prospects of the Company. The strategic report on pages 4 to 22 was approved by the Board on 22 August 2022 and signed on its behalf by: Simon Douglas Director 22 Fusion Antibodies plc 23 Annual Report and AccountsFor the year ended 31 March 2022 CORPORATE GOVERNANCE BOARD OF DIRECTORS Dr Simon Douglas Non-executive Chairman Simon, 63, was appointed Non-executive Chairman in September 2011 having previously been CEO. He has over 30 years’ experience in the biotech industry, including 10 years working for Amersham International (now GE), ICI and Zeneca (now Astra Zeneca), in a variety of commercial and technical positions, and over five years with Tepnel Life Sciences plc (now Hologic Inc), a London Stock Exchange listed diagnostic company where he was Chief Executive. He has been the CEO/Executive Chairman on three other venture capital backed Life Science companies and headed up the trade sale of two of these. He is currently Chairman of Omega Diagnostics Group plc, an AIM listed in-vitro diagnostics company and C-Major Medical Ltd and HexagonFab Ltd, two venture capital backed companies. Simon is not considered to be independent as he formerly held the position of CEO. Richard Buick PhD - CSO Richard, 46, was appointed director and Chief Technical Officer in September 2011 and Chief Scientific Officer in 2021. Richard has worked in the Company since 2002 and been responsible for overseeing contract research services. He previously had four years’ experience discovering novel antibodies from synthetic libraries for diagnostic purposes. Richard has been appointed as a legal expert witness in a number of drug patent dispute cases and in 2018 he was made Honorary Senior Lecturer in Queen’s University, Belfast. 24 Fusion Antibodies plc James Fair CFO and Company Secretary James, 56, was appointed director and Chief Financial Officer in August 2017 and has 13 years’ experience in the biotech industry. He qualified as a chartered accountant with Price Waterhouse and has held senior management positions in business, internal audit and professional practice. Matthew Baker PhD2 Non-Executive Director Matthew, 51, joined the Company as a non-executive director in 2022 and has more than 20 years’ experience developing biologics in biotech and pharma companies and is a research expert in lymphocyte immunology. During his career Matthew has founded and led a number of biotech companies to exits, including acquisition of Antitope (CEO/CSO) and the IPO of Abzena (CSO). Matthew has held a number of biotech Non-Executive Director positions including Oxgene which was acquired by Wuxi Apptech in 2021. He is currently CEO of NeoPhore, a private company focused on the discovery and development of novel small molecule therapies to treat cancer through stimulation of the immune system. Matthew brings detailed immunology and virus-based mammalian display knowledge as well as industry and market insight. Matthew is also a member of the Company’s Scientific Advisory Panel. Sonya Ferguson1 Senior Independent Director Sonya, 51, joined the Company as a non-executive director in 2016. Her current position at Novartis Pharma UK is Global Head of External Relationship Management for Central Laboratories, Imaging Reading and Biomarkers. Prior experience includes nine years in the Central Laboratory industry at Q2 Solutions (an IQVIA owned company) applied to clinical trials and 18 years in the Invitro Dignostics industry. Sonya is the senior independent director on the Board. 25 Annual Report and AccountsFor the year ended 31 March 2022 Colin Walsh1 Non-executive director Colin, 66, is chief executive and founder of Crescent Capital NI Limited and has been an active venture capital investor in the high-tech sector for the past 28 years. He joined the Company as a non-executive director in 2007 as a representative of Crescent Capital. Crescent Capital is the fund manager of Crescent Capital III LP which is a shareholder in the Company. Due to Crescent Capital’s shareholding in the Company, Colin is not considered to be independent under the QCA Code. Tim Watts2 Non-executive director Tim, 65, has over 30 years’ experience in the pharmaceutical and biotech sectors, and joined the Company as a non-executive director in December 2017. He is a chartered accountant, and joined ICI Pharmaceuticals in 1990, was appointed Finance Director of the Zeneca Pharmaceuticals business in 1998 and became Group Financial Controller of AstraZeneca plc in 2002. Between 2007 and 2017 he held positions as CFO of Archimedes Pharma and then Oxford Biomedica plc from which he retired in September 2017. From 2018 Tim was CFO of Shield Therapeutics PLC and was appointed CEO and a director from April 2020. He retired from Shield in April 2020. Tim is an independent director. 1 member of the Remuneration Committee | 2 member of the Audit Committee 26 Fusion Antibodies plc CORPORATE GOVERNANCE CORPORATE GOVERNANCE STATEMENT Stakeholder engagement (inclusive of s172 disclosure) At Fusion we value the views of not only our shareholders but also our wider stakeholder group. We aim to provide clear and understandable information about the Company and our activities and to welcome and consider the views of stakeholders. Under section 172 of the Companies Act 2006 the Directors have a duty to act in good faith in a way that is most likely to promote the success of the Company for the benefit of its members as a whole, having regard to the likely consequences of decisions for the long term, the interests of the Company’s employees, the need to foster relationships with other key stakeholders, the impact on the community and the environment, maintaining a reputation for high standards of business conduct, and the need to act fairly as between members of the Company. At the current stage of the Company’s development there is a need to deliver continued growth year on year and be able to respond swiftly to short-term risks, challenges and opportunities. The longer-term consequences of our decisions are equally important, and these decisions are made within the Company’s strategy for delivering revenue growth and providing innovative solutions to our customer base. 27 Annual Report and AccountsFor the year ended 31 March 2022 Our stakeholder engagement in the year ended 31 March 2022 was as follows: STAKEHOLDER WHO ENGAGED HOW WE ENGAGED OUTCOMES Shareholders/ investors/ analysts Board/CEO/CFO/ CTO Our AGM (subject to Covid restrictions) and the distribution of the Annual Report remain the primary method of engagement with our private shareholders. Formal and informal feedback received from investors is welcomed and used by the Board to inform future decisions. Shareholders/ investors/ analysts Chairman/CEO/ CFO Employees CEO/CFO/CTO Employees All line managers No face to face investor meetings have been held in the year. For institutional investors individual videocalls are offered at the time of publication of trading updates, annual and interim results. To be able to reach smaller and private investors and potential investors, the Company utilises the Investor Meets Company platform for investor briefings. During the year two such briefings were held following the publication of the annual and then the half-year results. Our employees form a key stakeholder group with whom we engage on a daily basis. Company-wide email communication and periodic CEO presentations to all staff enable two-way communications across all levels of staff. Video conferencing was used to ensure the participation of those working from home during the pandemic. A system of regular 1-1 meetings or calls, usually weekly, between all line managers and their direct reports was rolled out. A number of questions were put to the Company representatives who were able to explain the current position and longer-term plans including for the development of new services. The Company plans to continue to use this method of investor engagement for results briefings and other major announcements. Enabled us to update all employees on developments and initiatives, R&D strategy and the Company’s financial performance, and to receive feedback and suggestions for improvements. This was particularly important for those working remotely or in a hybrid manner to create protected time for direct support and communication in a busy working environment. 28 Fusion Antibodies plc STAKEHOLDER WHO ENGAGED HOW WE ENGAGED OUTCOMES Employees Available to all employees Customers CEO/Business Development team/Quality Manager Suppliers Production manager/CFO Community CEO/CTO/CFO In response to increased levels of stress among employees as a result of the pandemic and a restriction on social events an Employee Assistance Programme from an external provider was made available to all employees. Support material was made available and counselling and support can be accessed from the service. Customers and potential customers engage initially on a scientist-to-scientist basis as they seek solutions for their research programmes. Personal contact and calls combine for customer engagement, although site visits have not been possible this year. Customer feedback is gathered across the Company, collated by the Quality manager and fed back to relevant parties. Suppliers and supply chains continue to require attention with the ongoing uncertainties created by the departure of the UK from the EU and the global pandemic. The Production manager oversees individual supplier engagement, approving new scientific suppliers, negotiating terms and meeting supplier representatives. The CFO oversees approval of non-scientific suppliers, the purchasing and payment interactions with suppliers. The Company aims to support the local community through its interaction with and support for the academic and scientific community in the two universities in Northern Ireland. The Company has joint PhD students and Knowledge Transfer Partnerships with, and the CSO is an Honorary Senior Lecturer at Queen’s University. A number of employees benefitted from the counselling service for support during the year and access to a 24 hour support helpline. Our approach is to work as scientific partners to aid our customers in their development programmes. Feedback is used to improve our practices, be they communication (oral and written), technical or commercial to enhance customer satisfaction. The primary outcome has been to identify potential risks to the supply chain and mitigate these by reducing reliance on single suppliers and by holding larger stocks of key consumables and items with supply risks. Good supplier relations and payment practices ensure the stability of the supply chain and improve value for money. The academic and scientific community in Northern Ireland is a source of business, ideas and graduates for the Company. Engagement activities enable the Company to keep a high profile in that community to mutual benefit. 29 Annual Report and AccountsFor the year ended 31 March 2022 Compliance Statement The Board seeks to follow best practice in corporate governance appropriate to the Company’s size and in accordance with the regulatory framework that applies to AIM companies. The Company has adopted the Quoted Companies Alliance’s Corporate Governance Code 2018 (“QCA Code”) and has set out on its website how, with regard to the size and the nature of the Company’s business, it applies the principles and disclosures as set out in the QCA Code. Given its size and the nature of its current operations, the Company has not adopted the full UK Corporate Governance Code. There have been no key governance related matters, or changes in governance arrangements during the year. The main features of the Company’s corporate governance arrangements are: The Chairman retains responsibility for, and takes the lead on, all matters of corporate governance; The Board meets regularly for formal Board meetings. It met eight times in FY2022. It will consider strategy, performance and approve financial statements, dividends and significant changes in accounting practices and key commercial matters, such as decisions on the introduction of new services. There is a formal schedule of matters reserved for decision by the Board; The Company has an audit committee and remuneration committee, further details of which are provided below; and The Company does not have a nomination committee, as the Board does not consider it appropriate to establish one at this stage of the Company’s development. The Board as a whole takes decisions regarding the appointment of new directors and this will follow a thorough assessment of a potential candidate’s skill and suitability for the role. Board composition The Company is managed by a Board of Directors and they have the necessary skills and experience to effectively operate and control the business. There are currently seven directors at the date of this report being: Simon Douglas, Richard Buick, James 30 Fair, Matthew Baker, Sonya Ferguson, Colin Walsh and Tim Watts. The Board normally comprises five non- executive directors and three executive directors. During the year the Chairman led a board evaluation exercise considering composition of the Board and its committees and director’s individual skills and contribution. The Chairman held one to one evaluations with directors to assess how skillsets meet the needs of the Company and identify where skills need to be added to the existing Board, and the Senior Independent Director performed this evaluation in respect of the Chairman. During the year Dr Alan Mawson resigned as a non-executive director and Matthew Baker PhD was appointed as a non-executive director. Also, during the year, Richard Jones resigned as CEO. Board members are expected to attend relevant continuing professional development to ensure their technical skills are kept up to date as well as attending relevant industry and regulatory conferences and briefings. The Board considers Sonya Ferguson, Tim Watts and Matthew Baker to be independent in character and judgement. Sonya Ferguson was appointed as the senior independent director on 11 December 2017. Whilst Colin Walsh is not deemed independent for the purposes of the QCA Code, the Board considers that his considerable experience and long-standing knowledge of the business are essential in guiding the overall strategy of the Company. Simon Douglas is not deemed independent as he is a former CEO of the Company. The Senior Independent Director serves as a key sounding board for the Chairman and acts as an intermediary for other directors, including in respect of appraisal of the Chairman’s performance. The Company Secretary advises the Board, through the Chairman, on legal, governance and procedural matters. The Chairman and the Company Secretary together review the Company’s governance processes and consider improvements and initiatives to maintain standards at a high level. As the business develops, the composition of the Board will remain under review to ensure that it remains appropriate to the managerial requirements of the Company. All new directors appointed since the previous Annual General Meeting are required to seek election at the next Annual General Meeting and directors retire annually in accordance with the Company’s articles of association in order that every Fusion Antibodies plc director has been elected or re-elected within the last three years. This enables the shareholders to decide on the election of the Company’s Board. The mix of skills required on the Board is aligned to the needs of the Company and delivery of current strategy. Board committees The Company has an Audit Committee and a Remuneration Committee with formally delegated duties and responsibilities. The composition of these committees may change over time as the composition of the Board changes. The reports of the Audit Committee and Remuneration Committee are included within the Governance report and Directors’ Report rather than as separate sections of the Annual Report. Audit Committee The audit committee has responsibility for, among other things, the monitoring of the financial integrity of the financial statements of the Company, and the involvement of the Company’s auditors in that process. It focuses, in particular, on compliance with the accounting policies and ensuring that an effective system of external audit and financial control is maintained, including considering the scope of the annual audit and the extent of non-audit work undertaken by external auditors and advising on the appointment of external auditors. Given the size and nature of the Company the audit committee has recommended, and the Board accepts, that an internal audit function is not appropriate for the Company. The audit committee meets at least twice a year at the appropriate times in the financial reporting and audit cycle. The audit committee comprises two members, who are both non-executive directors: Tim Watts chairs the committee and following the retirement of Alan Mawson, Matthew Baker has been appointed as the second member. The CEO and CFO are invited to attend as appropriate, and the auditors have the opportunity for direct access to the committee without executive directors present. Since the last Annual Report, the audit committee has met three times with both members in attendance, in November 2021, March 2022 and July 2022. The auditors were in attendance at all three of these meetings. At the November 2021 meeting the main agenda item was to review the draft financial statements for the six months ended 30 September 2021. At the March 2022 meeting Kevin McAllister resigned as the Senior Statutory Auditor and was replaced by Emma Murray, both of PwC. During the March meeting, the committee reviewed and approved the proposed audit plan for the year ending 31 March 2022. At that meeting it also reviewed the need for an internal audit function and concluded that this was unnecessary and inappropriate given the relatively small size of the company. In July 2022 the committee met to review the auditors’ report to the Audit Committee and the financial statements for the year ended 31 March 2022. Regarding the financial statements, the key areas of focus for the audit committee were: Revenue recognition relating to customer contract work being performed both before and after the year end, and Going concern. Management have prepared forecasts demonstrating that the Company has sufficient resources to continue as a going concern. Internal controls and financial risk management The directors are responsible for the Company’s system of internal controls, the setting of appropriate policies on these controls and regular assurance that the system is functioning effectively and that it is effective in managing business risk. Risk management is embedded as part of the Board culture and is on the agenda of every meeting to ensure that it is at the centre of arriving at, and monitoring strategy. Principal risks and uncertainties are discussed in the Strategic Report and financial risk management policies are detailed in note 21 of the Notes to the Financial Statements. The audit committee monitors the Company’s internal control procedures, reviews the internal control procedures and reports its conclusions and recommendations to the Board. 31 Annual Report and AccountsFor the year ended 31 March 2022 Remuneration Committee The remuneration committee has responsibility for the determination of remuneration packages for each of the executive directors, including pension rights and any compensation payments, recommending and monitoring the level and structure of remuneration of senior management, and the implementation of the employer share option scheme, or other performance related schemes. It meets at least twice a year. The report of the remuneration committee is included in the Directors’ Report below. The remuneration committee comprises two members who are non-executive directors: Colin Walsh (chair) and Sonya Ferguson. Meetings and attendance BOARD AUDIT COMMITTEE REMUNERATION COMMITTEE Meetings held during the year Attendance: Simon Douglas Richard Jones Richard Buick James Fair Matthew Baker Sonya Ferguson Alan Mawson Colin Walsh Tim Watts 8/8 7/7 8/8 8/8 1/1 8/8 8/8 8/8 8/8 1/1 2/2 3/3 3/3 3/3 As restrictions on travel and meetings eased during the year meetings of the board in person resumed and a combination of in person meetings and video calls is planned for the coming year. The board met 8 times in the year (2021: 12 times). Non-executive directors are expected to spend a minimum of one day a month on Company activities in addition to preparation for and attendance at Board and sub-committee meetings. The Chairman will routinely spend an additional day per month, however, this year he worked more closely with the Executives on the management throughout periods of lockdown as well as for the recruitment and appointment of the new CEO. Communication with shareholders Good and effective communication with shareholders is a high priority for the Board. Good communication with investors and analysts is an essential part of the operation of the Company. The Company is committed to providing up to date corporate information to existing and potential shareholders and maintains a website (www.fusionantibodies.com) which contains an Investor Relations section. Existing and potential investors can use the website to access Company information and reports and to contact the Company. Further details of communication with shareholders are given above under Stakeholder Engagement. The corporate governance report on pages 24 to 32 was approved by the Board on 22 August 2022 and signed on its behalf by: Dr Simon Douglas Chairman 32 Fusion Antibodies plc CORPORATE GOVERNANCE DIRECTORS’ REPORT FOR THE YEAR ENDED 31 MARCH 2022 The directors present their annual report and the audited financial statements of the Company for the year ended 31 March 2022. The Company is a public company limited by shares incorporated and domiciled in the United Kingdom, and registered in Northern Ireland. The Company’s shares are listed on AIM, a market operated by London Stock Exchange. Principal activities The principal activity of the Company is the research, development and manufacture of recombinant proteins and antibodies, particularly in the areas of cancer and infectious diseases. Review of the business and future developments A review of the business and its outlook, including commentary on the key performance indicators, and the principal risks and uncertainties facing the Company is included in the statements within the Strategic Report and included in this report by cross reference. Directors Biographical information on each of the directors at the date of signing this report is set out on pages 24 to 26. The directors who served during the year and up to the date of signing comprised those directors and Richard Jones who resigned as a director and CEO on 11 March 2022 and Dr Alan Mawson who resigned as a non-executive director on 31 March 2022. In accordance with the Company’s Articles of Association Simon Douglas, Matthew Baker and Richard Buick will retire and offer themselves for re- election at the 2022 Annual General Meeting. Directors’ remuneration The remuneration committee comprises Colin Walsh as chair and Sonya Ferguson. The committee is responsible for reviewing the Company’s remuneration policy, the emoluments of the executive directors and other senior management and the Company’s pension arrangements and for making recommendations thereon to the Board. The committee also makes recommendations to the Board in respect of awards of options under the EMI and Unapproved Employee Share Option Scheme under which employees and executive directors may be granted options to acquire Ordinary Shares. It also reviews the terms of service contracts with senior employees and the executive directors and any compensation arrangements resulting from the termination by the Company of such contracts. 33 Annual Report and AccountsFor the year ended 31 March 2022 Policy on executive directors and senior management remuneration When determining the Board policy for remuneration, the Committee considers all factors which it deems necessary including relevant legal and regulatory requirements and the provisions and recommendations of relevant guidance. The objective of this policy is to help attract, retain and motivate the executive and senior management of the Company without paying more than necessary. The remuneration policy bears in mind the Company’s appetite for risk and is aligned to the Company’s long term strategic goals. A significant proportion of remuneration is structured to link rewards to corporate and individual performance and be designed to promote the long- term success of the Company. Bonus payments All executive directors and senior management are eligible for a discretionary annual bonus. Annual Movement in options held by directors are as follows: cash bonuses are paid on the achievement of pre-set strategic objectives. These objectives relate to Company strategy and may be achievements other than financial performance targets. The Committee, in conjunction with the Board, reviews and sets these objectives at the start of each financial year. For the year ended 31 March 2022 executive director bonuses have been awarded on the basis of the achievement of financial performance in relation to target, and for the attainment of individual non- financial performance targets for the CSO and CFO. Long term incentives At the reporting date the Company had three share based reward schemes, two of which are now closed to new awards. Details of share options in issue are included in note 9. Company policy is no longer to award share options to non-executive directors. At 1 April 2021 Granted in year Exercised in Year Lapsed in year At 31 March 2022 Exercise period Exercise price per share 125,000 200,000 325,000 - - - (125,000) (20,000) (145,000) - - - - 2018-2027 £0.04 180,000 2019-2028 180,000 £0.545 - 250,000 75,000 200,000 275,000 25,000 - - - - - - - - (25,000) (250,000) - 2022-2031 £1.275 - - - - 75,000 2018-2027 £0.04 200,000 2019-2028 275,000 £0.545 - 2018-2027 £0.04 Richard Buick 2017 Share Scheme 2017 EMI and Unapproved Employee Share Option Scheme Richard Jones 2017 EMI and Unapproved Employee Share Option Scheme James Fair 2017 Unapproved Share Scheme 2017 EMI and Unapproved Employee Share Option Scheme Sonya Ferguson 2017 Unapproved Share Scheme 34 Fusion Antibodies plc Directors’ remuneration The remuneration of directors for the year ended 31 March 2022 was as follows: Salary & fees £’000 Benefits £’000 Bonus £’000 Company pension contributions £’000 Total £’000 Executive directors Richard Jones1 Richard Buick James Fair Paul Kerr2 Non – executive directors Simon Douglas Sonya Ferguson Matthew Baker3 Alan Mawson Colin Walsh Tim Watts Total 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2022 2021 2022 2021 2022 2021 2022 2021 153 18 112 107 106 102 - 151 35 50 23 23 2 23 23 27 27 27 27 508 528 1 Richard Jones remuneration up to 11 March 2022. 2 Paul Kerr remuneration up to 16 February 2021. 3 Matthew Baker remuneration from 1 March 2022. Directors and their interests - - - - - - - - - - - - - - - - - - - - - - - 4 17 6 17 - - - - - - - - - - - - - 10 34 9 1 7 7 6 6 - 9 - - - - - - - - - - - 22 23 162 19 123 131 118 125 - 160 35 50 23 23 2 23 23 27 27 27 27 540 585 Richard Buick James Fair Simon Douglas Sonya Ferguson Matthew Baker Colin Walsh Tim Watts At 1 April 2021 486,250 - 255,800 67,567 - - 27,575 % issued share capital 1.90% - 1.00% 0.26% - - 0.11% Shareholding at 31 March 2022 631,250 - 255,800 92,567 - - 27,575 % issued share capital 2.43% - 0.98% 0.36% - - 0.11% 35 Annual Report and AccountsFor the year ended 31 March 2022 Results and dividends No dividends were paid (2021: £nil). The directors do not recommend payment of a final dividend (2021: £nil). The loss before tax for the year was £1,333,000 (2021: loss £1,264,000) and Loss Before Interest Taxation Depreciation and Amortisation (EBITDA) was £574,000 (2021: £535,000 loss). Principal shareholders After an income tax credit of £133,000 (2021: £1,635,000 charge) the loss for the financial year of £1,200,000 (2021: loss £2,899,000) has been transferred to reserves. The results for the year are set out the statement of comprehensive income. At the close of business on 22 August 2022 (being the latest practical date prior to the signing of this report) the Company had received notification of the following substantial interests representing over 3% of the issued share capital: Invest Northern Ireland Amati Global Investors Limited Viridian Growth Fund LP Octopus Investments Limited Hargreave Hale Limited Jim Johnston Canaccord Genuity Livingbridge VC LLP Unicorn AIM VCT plc Paul Warwick Pension The Company operates a defined contribution pension scheme. Research and development During the year ended 31 March 2022 the Company has invested £699,000 (2021: £613,000) in research and development. This is incurred in the development of existing and new antibody engineering services and is expensed until the development project meets the criteria in IAS 38. Number of Ordinary 4p shares 3,197,865 2,341,463 1,831,500 1,525,258 1,402,439 1,317,325 1,268,865 1,219,512 1,219,512 1,036,363 Percentage held 12.29 9.00 7.04 5.86 5.39 5.06 4.88 4.69 4.69 3.98 Financial risk management The Company’s approach to risk management is described in Principal risks and uncertainties within the Strategic Report and is included in this report by cross reference. Financial risks are disclosed in note 21 to the financial statements. Going concern The Company has returned a loss of £1,200,000 for the year and at the year-end had net current assets of £3,074,000 including £2,049,000 of cash and cash equivalents. The impact of the Covid-19 pandemic has had limited impact on trading and the Company was able to remain open and operational throughout the period of most stringent Government restrictions. The Company continues to 36 Fusion Antibodies plc expend cash in a planned manner to both grow the trading aspects of the business and to develop new services through research and development projects. The directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for 12 months from the reporting date. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements. In arriving at this conclusion, the directors have reviewed detailed forecast models for the Company. These models are based on best estimates of future performance and have been adjusted to reflect various scenarios and outcomes that could potentially impact the forecasts. Payments to suppliers The Company seeks to abide by the payment terms agreed with suppliers when it is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. Directors’ indemnity Every director and other officer of the Company is entitled to be indemnified out of the assets of the Company against all losses or liabilities properly incurred by him or her in or about the discharge of the duties of his or her office. This qualifying third party indemnity was in force throughout the financial year and also at the date of approval of the financial statements. The Company has insurance cover in place to mitigate such costs. Political donations There were no political donations made by the Company during the year (2021: none). Corporate governance The Corporate Governance Report on pages 24 to 32 forms part of the Directors’ Report and is included in this report by cross reference. Post balance sheet events There are no matters to report. Annual General Meeting The resolutions to be proposed at the Annual general meeting together with the explanatory notes, will appear in the Notice of the Annual general meeting which will be circulated with the annual report when sent to all shareholders. Statement of Directors’ Responsibilities in respect of the financial statements The directors are responsible for preparing the Annual report and accounts and the financial statements in accordance with applicable law and regulation. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the financial statements in accordance with UK-adopted international accounting standards. Under company law, 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 company and of the profit or loss of the company for that period. In preparing the financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; state whether applicable UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; 37 Annual Report and AccountsFor the year ended 31 March 2022 make judgements and accounting estimates that the Annual report and accounts includes a fair are reasonable and prudent; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. review of the development and performance of the business and the position of the company, together with a description of the principal risks and uncertainties that it faces. In the case of each director in office at the date the directors’ report is approved: so far as the director is aware, there is no relevant audit information of which the company’s auditors are unaware; and they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the company’s auditors are aware of that information. Independent Auditors PricewaterhouseCoopers LLP has expressed its willingness to continue in office as auditors. By order of the Board James Fair Company Secretary 22 August 2022 Company registration number NI039740 The directors are responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. The directors are responsible for the maintenance and integrity of the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors’ confirmations The directors consider that the Annual report and accounts and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company’s position and performance, business model and strategy. Each of the directors, whose names and functions are listed in Board of Directors confirm that, to the best of their knowledge: the company financial statements, which have been prepared in accordance with UK-adopted international accounting standards, give a true and fair view of the assets, liabilities, financial position and loss of the company; and 38 Fusion Antibodies plc 39 Annual Report and AccountsFor the year ended 31 March 2022 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FUSION ANTIBODIES PLC Report on the audit of the financial statements Opinion In our opinion, Fusion Antibodies plc’s financial statements: • give a true and fair view of the state of the company’s affairs as at 31 March 2022 and of its loss and cash flows for the year then ended; • have been properly prepared in accordance with UK-adopted international accounting standards; and • have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual report and accounts (the “Annual Report”), which comprise: the Statement of Financial Position as at 31 March 2022; the Statement of Profit or Loss and Other Comprehensive Income, the Statement of Changes in Equity and the Statement of Cash Flows for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Our audit approach Overview Audit scope • 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 judgements, 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 address 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. Key audit matters • Accounting for revenue recognition including accrued and deferred income Materiality • Overall materiality: £66,600 (2021: £63,200) based on 5% of loss before tax. • Performance materiality: £49,950 (2021: £47,400). 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. 40 Fusion Antibodies plc INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FUSION ANTIBODIES PLC CONTINUED Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the 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) identified by the auditors, 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, and any comments we make on the results of our procedures thereon, 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. Accounting for revenue recognition including accrued and deferred income is a new key audit matter this year. Accounting for deferred tax asset and the impact of Covid 19, which were key audit matters last year, are no longer included because of the fact the deferred tax asset was written off in the prior year and Covid 19 was no longer considered to present a significant impact on or risk to business operations. Otherwise, the key audit matters below are consistent with last year. Key audit matter How our audit addressed the key audit matter Accounting for revenue recognition including accrued and deferred income The company’s activities fall within one revenue stream, that of research, development and manufacture of recombinant proteins and antibodies. Revenue for the 2022 year was £4,799k and £4,165k in the comparative year. The company recognises revenue over time, based on the stage at which a particular project is in terms of completion. Each project consists of a number of different stages with associated distinct performance obligations. Assessment of the stage of completion is through the review of ‘lab books’ which are updated by the project scientists. A significant judgement note has been included in the financial statements to recognise the judgement involved in revenue recognition. To test the revenue recognition: • • • • We updated our understanding around revenue streams and respective recognition policies, specifically for those contracts that were open around the year end; Our approach to testing revenue recognition involved identifying the substance of the contracts, identifying the performance obligations included, determining the transaction price of the contract and subsequently identifying the allocation of the transactional price against the performance obligation milestones; Each stage is considered to be a performance obligation, with the delivery of a project plan on commencement of the project being a separate performance obligation. In order to identify performance obligations, we obtained evidence from management to support the transfer of knowledge and to demonstrate that a deliverable is being transferred at each stage of the contract. We obtained evidence that the customer can benefit from the plan/ knowledge transfer and that the company’s promise to transfer the plan is separately identifiable from the other stages of the contract; In order to determine the transaction price which should be allocated to each performance obligation, we obtained appropriate evidence from both management and project managers/scientists over what a reasonable allocation would be for both the initial stage and other stages in the contract. We held discussions with and challenged project managers to ensure that the revenue recognised during the year was a fair representation of the stage of the project; 41 Annual Report and AccountsFor the year ended 31 March 2022 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FUSION ANTIBODIES PLC CONTINUED Key audit matter How our audit addressed the key audit matter • • • We obtained the lab books for a sample of projects ongoing at year end and assessed the reasonableness of the stage of completion at the year end based on commencement and completion dates for each project, challenging management and scientists involved in the projects on the stage of completion. Where applicable, we sought evidence to support the amount of revenue that had been either accrued or deferred at the year-end; For those projects that were completed during the year, we obtained evidence of signed contract, invoice and payment as well as final deliverables provided to the customer; and We performed look back procedures on open projects at the previous year end to assess if the stage of completion assessment at FY21 remained appropriate. Based on our procedures, we concluded that the Company’s accounting policy for revenue recognition is reasonable and has been appropriately applied. 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 structure of the company, the accounting processes and controls, and the industry in which it operates. 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 accounting processes and controls and the industry in which they operate. We ensured that sufficient and appropriate audit procedures were performed to achieve sufficient coverage over the financial statement line items. 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 judgement, we determined materiality for the financial statements as a whole as follows: Overall company materiality £66,600 (2021: £63,200). How we determined it 5% of loss before tax Rationale for benchmark applied We believe that the loss before tax is the primary measure used by the shareholders in assessing the performance of the entity, and is a generally accepted auditing benchmark. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2021: 75%) of overall materiality, amounting to £49,950 (2021: £47,400) for the company financial statements. 42 Fusion Antibodies plc INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FUSION ANTIBODIES PLC CONTINUED In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate. We agreed with those charged with governance that we would report to them misstatements identified during our audit above £3,330 (2021: £3,160) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. Conclusions relating to going concern Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern basis of accounting included: • Obtaining cash flow forecasts and financial projections for the Group that included a base case and severe but plausible downside scenario that could arise; • Confirming the cash flow forecasts and financial projections were mathematically accurate; • Assessing and challenging the assumptions used by management and comparing the forecasts against historical performance, factoring in knowledge of the entity’s plans, as well as knowledge of the entity and the sector in which it operates; and Considering whether the going concern disclosure in the financial statements gives a full and accurate description of the Directors’ assessment of going concern. • 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 company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the company’s ability to continue as a going concern. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, 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 audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. 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 based on these responsibilities. With respect to the Strategic report and Directors’ report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below. 43 Annual Report and AccountsFor the year ended 31 March 2022 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FUSION ANTIBODIES PLC CONTINUED Strategic report and Directors’ report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ report for the year ended 31 March 2022 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic report and Directors’ report. Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the Statement of Directors’ Responsibilities in respect of the financial statements, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also 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. In preparing the financial statements, the directors are responsible for assessing the 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 company or to cease operations, or have no realistic alternative but to do so. Auditors’ 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 auditors’ 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. Based on our understanding of the company and industry, we identified that the principal risks of non- compliance with laws and regulations related to the Companies Act 2006 and UK tax regulations, and we considered the extent to which non-compliance might have a material effect on the financial statements. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting of inappropriate journal entries and management bias in accounting for judgements including judgements relating to revenue recognition. Audit procedures performed by the engagement team included: • • • • • • Discussions with management and those charged with governance, including consideration of known or suspected instances of non-compliance with laws and regulations and fraud; Procedures to ensure compliance with relevant tax regulations; Evaluation of the effectiveness of management’s controls designed to prevent and detect irregularities; Review of minutes of meetings; Identification and testing of journal entries, in particular any journal entries posted with unusual account combinations, unusual words or users; and Testing of assumptions and judgements made by management in making significant accounting estimates. 44 Fusion Antibodies plc INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FUSION ANTIBODIES PLC CONTINUED There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not obtained all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or • certain disclosures of directors’ remuneration specified by law are not made; or • the financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Emma Murray (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Belfast 22 August 2022 45 Annual Report and AccountsFor the year ended 31 March 2022 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2022 Revenue Cost of sales Gross profit Other operating income Administrative expenses Operating loss Finance income Finance expense Loss before tax Note 4 5 8 8 2022 £’000 4,799 (2,333) 2,466 30 2021 £’000 4,165 (2,141) 2,024 194 (3,821) (3,467) (1,325) (1,249) 1 (9) (1,333) 3 (18) (1,264) Income tax credit/(charge) 10 133 (1,635) Loss for the financial year (1,200) (2,899) Total comprehensive expense for the year (1,200) (2,899) Loss per share Basic Pence Pence 11 (4.6) (11.4) The statement of comprehensive income has been prepared on the basis that all operations are continuing operations. The accompanying notes on pages 50 to 68 form an integral part of the financial statements. 46 Fusion Antibodies plc STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2022 Assets Non-current assets Intangible assets Property, plant and equipment Current assets Inventories Trade and other receivables Current tax receivable Cash and cash equivalents Total assets Liabilities Current liabilities Trade and other payables Borrowings Net current assets Non-current liabilities Borrowings Provisions for other liabilities and charges Total liabilities Net assets Equity Called up share capital Share premium reserve Accumulated losses Total equity Notes 12 13 16 17 18 19 19 20 22 2022 £’000 - 633 633 585 1,517 131 2,049 4,282 4,915 1,142 66 1,208 3,074 3 20 23 1,231 3,684 2021 £’000 2 1,123 1,125 480 1,440 99 2,686 4,705 5,830 833 163 996 3,709 67 20 87 1,083 4,747 1,040 7,647 (5,003) 3,684 1,024 7,547 (3,824) 4,747 The accompanying notes on pages 50 to 68 form an integral part of these financial statements. The financial statements on pages 46 to 68 were approved by the Board on 22 August 2022 and signed on its behalf: Simon Douglas Director James Fair Director Registered in Northern Ireland, number NI039740 47 Annual Report and AccountsFor the year ended 31 March 2022 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2022 At 1 April 2020 Loss and total comprehensive expense for the year Issue of share capital Cost of issuing share capital Share options – value of employee services Total transactions with owners, recognised directly in equity At 31 March 2021 At 1 April 2021 Loss and total comprehensive expense for the year Issue of share capital Share options – value of employee services Total transactions with owners, recognised directly in equity At 31 March 2022 Called up share capital £’000 884 Share premium reserve £’000 4,872 Accumulated losses £’000 (944) Total equity £’000 4,812 - 140 - - 140 1,024 - 2,879 (204) - 2,675 7,547 (2,899) - - 19 19 (3,824) 1,024 7,547 (3,824) - 16 - 16 1,040 - 100 - 100 7,647 (1,200) - 21 21 (5,003) (2,899) 3,019 (204) 19 2,834 4,747 4,747 (1,200) 116 21 137 3,684 The accompanying notes on pages 50 to 68 form an integral part of these financial statements. 48 Fusion Antibodies plc 2022 £’000 2021 £’000 (1,200) (2,899) STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2022 Cash flows from operating activities Loss for the year Adjustments for: Share based payment expense Depreciation Amortisation of intangible assets Finance income Finance costs Income tax (credit)/charge Increase in inventories Increase in trade and other receivables Increase in trade and other payables Cash used in operations Income tax received Net cash used in operating activities Cash flows from investing activities Purchase of property, plant and equipment Finance income – interest received Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital net of transaction costs Proceeds from new borrowings Repayment of borrowings Finance costs – interest paid Net cash (used in)/generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 21 749 2 (1) 9 (133) (105) (77) 309 (426) 101 (325) (258) 1 (257) 116 - (162) (9) (55) (637) 2,686 2,049 The accompanying notes on pages 50 to 68 form an integral part of these financial statements. 19 712 2 (3) 18 1,635 (140) (553) 5 (1,204) 68 (1,136) (365) 3 (362) 2,815 14 (164) (18) 2,647 1,149 1,537 2,686 49 Annual Report and AccountsFor the year ended 31 March 2022 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 1 General information Fusion Antibodies plc is a company incorporated and domiciled in the United Kingdom, and is registered in Northern Ireland having its registered office at Marlborough House, 30 Victoria Street, Belfast BT1 3GG. The principal activity of the Company is the research, development and manufacture of recombinant proteins and antibodies, particularly in the areas of cancer and infectious diseases. 2 Significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented unless otherwise stated. Basis of preparation The financial statements have been prepared on the historical cost convention, modified to include certain financial instruments at fair value. The financial statements are prepared in sterling, which is the functional currency of the Company. Monetary amounts in these financial statements are rounded to the nearest £1,000. On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. Fusion Antibodies plc transitioned to UK-adopted International Accounting Standards in its financial statements on 1 April 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework. The financial statements of Fusion Antibodies plc have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. International Financial Reporting Standards The following new accounting standards, amendments and/or interpretations have been published and have been considered by the Company but are not expected to have a material impact on the financial statements in the current or future reporting periods and on the foreseeable future transactions: Amendment to IFRS 16 Leases Covid 19 – related rent concessions (effective 1 April 2021) Amendments to IFRS 4 Insurance Contracts – deferral of IFRS 9 (effective date 1 January 2021) Amendments to IFRS 7, IFRS 4 and IFRS 16 Interest rate benchmark reform – phase 2 (effective 1 January 2021) The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3. 50 Fusion Antibodies plc 2 Significant accounting policies continued Going concern The Company has returned a loss of £1,200,000 for the year and at the year-end had net current assets of £3,074,000 including £2,049,000 of cash and cash equivalents. The Company was able to remain open and operational throughout the period of most stringent Government restrictions. The Company continues to expend cash in a planned manner to both grow the trading aspects of the business and to develop new services through research and development projects. The directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for 12 months from the reporting date. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements. In arriving at this conclusion, the directors have reviewed detailed forecast models for the Company. These models are based on best estimates of future performance and have been adjusted to reflect various scenarios and outcomes that could potentially impact the forecasts. Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the provision of services in the ordinary course of the Company’s activities. Revenue is shown net of value added tax and where a contractual right to receive payment exists. The Company’s performance obligations for its revenue streams are deemed to be the provision of specific services or materials to the customer. Performance obligations are identified on the basis of distinct activities or stages within a given contract that the customer can benefit from, independent of other stages in the contract, The transaction price is allocated to the various performance obligations, based on the relative fair value of those obligations, and then revenue is recognised as follows: revenue is recognised over the period that services are provided using the percentage of completion method, based on the input method using costs incurred to date relative to the expected total costs for each performance obligation; and Where a contract includes a payment contingent upon the customer subsequently achieving a pre-defined milestone with their development programme, revenue in the amount of the total success payment due is recognised when the pre-defined condition(s) have been met. Contract assets arise on contracts with customers for which performance obligations have been satisfied (or partially satisfied on an over time basis) but for which the related amounts have not yet been invoiced or received. Contract liabilities arise in respect of amounts invoiced during the year for which the relevant performance obligations have not been met by the year-end. The Company’s contracts with customers are typically less than one year in duration and any contract liabilities would be expected to be recognised as revenue in the following year. Grant income Revenue grants received by the Company are recognised in a manner consistent with the grant conditions. Once conditions have been met, grant income is recognised in the Statement of Comprehensive Income as other operating income. 51 Annual Report and AccountsFor the year ended 31 March 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2022 2 Significant accounting policies continued Research and development Research expenditure is written off as incurred. Development expenditure is recognised in the Statement of Comprehensive Income as an expense until it can be demonstrated that the following conditions for capitalisation apply: it is technically feasible to complete the scientific product so that it will be available for use; management intends to complete the product and use or sell it; there is an ability to use or sell the product; it can be demonstrated how the product will generate probable future economic benefits; adequate technical, financial and other resources to complete the development and to use or sell the product are available; and the expenditure attributable to the product during its development can be reliably measured. Intangible assets Software Software developed for use in the business is initially recognised at historical costs, net of amortisation and provision for impairment. Subsequent development 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 Company and the cost of the item can be measured reliably. Software is amortised over its expected useful economic life, which is currently estimated to be 4 years. Amortisation expense is included within administrative expenses in the Statement of Comprehensive Income. Property, plant and equipment Property, plant and equipment are initially recognised at historical cost, net of depreciation and any impairment losses. 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 Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is de-recognised. All other repairs and maintenance are charged to the statement of comprehensive income during the financial year in which they are incurred. Subsequently, property plant and equipment are measured at cost or valuation net of depreciation and any impairment losses. Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Software acquired with hardware is considered to be integral to the operation of that hardware and is capitalised with that equipment. Software acquired separately from hardware is recognised as an intangible asset and amortised over its estimated useful life. Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost less estimated residual value of each asset on a straight line basis over its expected economic useful life as follows: Right of use assets The remaining length of the lease Leasehold improvements The lesser of the asset life and the remaining length of the lease Plant and machinery 4 years Fixtures, fittings & equipment 4 years 52 Fusion Antibodies plc 2 Significant accounting policies continued Leases Leases in which a significant portion of the risks and rewards of ownership remain with the lessor are deemed to give the Company the right-of-use and accordingly are recognised as property, plant and equipment in the statement of financial position. Depreciation is calculated on the same basis as a similar asset purchased outright and is charged to profit or loss over the term of the lease. A corresponding liability is recognised as borrowings in the statement of financial position and lease payments deducted from the liability. The difference between remaining lease payments and the liability is treated as a finance cost and taken to profit or loss in the appropriate accounting period. Impairment of non-financial assets For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. All individual assets or cash-generating units are tested whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use. Value in use is based on estimated future cash flows from each cash-generating unit or individual asset, discounted at a suitable rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures is directly linked to the Company’s latest approved budgets, adjusted as necessary to exclude any restructuring to which the Company is not yet committed. Discount rates are determined individually for each cash-generating unit or individual asset and reflect their respective risk profiles as assessed by the directors. Impairment losses for cash-generating units are charged pro rata to the assets in the cash-generating unit. Cash generating units and individual assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Impairment charges are included in administrative expenses in the Statement of Comprehensive Income. An impairment charge that has been recognised is reversed if the recoverable amount of the cash-generating unit or individual asset exceeds the carrying amount. Current tax and deferred tax The tax expense for the year comprises current and deferred tax. Tax is recognised in the statement of comprehensive income, except to the extent that it relates to items recognised directly in equity. The current tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the UK, where the Company operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred tax is recognised on temporary differences arising between the carrying amounts of assets and liabilities and their tax bases. Deferred tax is determined using tax rates (and laws) that have been enacted, or substantively enacted, by the reporting date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred 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 tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities. 53 Annual Report and AccountsFor the year ended 31 March 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2022 2 Significant accounting policies continued Share based employee compensation The Company operates equity-settled share-based compensation plans for remuneration of its directors and employees. All employee services received in exchange for the grant of any share-based compensation are measured at their fair values. The fair value is appraised at the grant date and excludes the impact of any non-market vesting conditions (e.g. profitability and remaining an employee of the Company over a specified time period). Share based compensation is recognised as an expense in the Statement of Comprehensive Income with a corresponding credit to equity. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. The proceeds received net of any directly attributable transaction costs are credited to share capital and share premium when the options are exercised. Financial assets Classification The Company classifies its financial assets in the following measurement categories: Those to be measured at amortised costs; and Those to be measured subsequently at fair value (either through Other Comprehensive Income or through profit and loss). The classification depends on the Company’s business model for managing the financial assets and the contractual terms of the cash flows. The Company reclassifies its financial assets when and only when its business model for managing those assets changes. Recognition and measurement At initial recognition, the Company measures a financial assets at its fair value plus transaction costs that are directly attributable to the acquisition of the financial asset. Subsequent measurement of financial assets depends on the Company’s business model for managing those financial assets and the cash flow characteristics of those financial assets. The Company only has financial assets classified at amortised cost. Cash and cash equivalents represent monies held in bank current accounts and bank deposits. These assets are those held for contractual collection of cash flows, where those cash flows represent solely payments of principal and interest and are held at amortised cost. Any gains or losses arising on derecognition is recognised directly in profit or loss. Impairment losses are presented as a separate line in the profit and loss account. Impairment The Company assesses on a forward-looking basis, the expected credit losses associated with its debt instruments carried at amortised cost. For trade receivables the Company applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from the initial recognition of the receivables. For other receivables the Company applies the three stage model to determine expected credit losses. 54 Fusion Antibodies plc 2 Significant accounting policies continued Inventories Inventories comprise consumables. Consumables inventory is stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. Cost represents the amounts payable on the acquisition of materials. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in selling and distribution. Financial liabilities Financial liabilities comprise Trade and other payables and borrowings due within one year and after one year, which are recognised initially at fair value and subsequently carried at amortised cost using the effective interest method. The Company does not use derivative financial instruments or hedge account for any transactions. Trade payables represent obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year. If not, they are presented as non-current liabilities. Provisions A provision is recognised in the Statement of Financial Position when the Company has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability. The increase in the provision due to the passage of time is recognised as a finance cost. Provisions for dilapidation charges that will crystallise at the end of the period of occupancy are provided for in full. Employee benefits – Defined contribution plan The Company operates a defined contribution pension scheme which is open to all employees and directors. The assets of the schemes are held by investment managers separately from those of the Company. The contributions payable to these schemes are recorded in the Statement of Comprehensive Income in the accounting year to which they relate. Foreign currency translation The Company’s functional currency is the pound sterling. Transactions in foreign currencies are translated at the exchange rate ruling at the date of transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the reporting date. Exchange differences arising on the settlement or on translating monetary items at rates different from those at which they were initially recorded are recognised in administrative expenses in the Statement of Comprehensive Income in the year in which they arise. Equity Equity comprises the following; Called up share capital Share capital represents the nominal value of equity shares. Share premium Share premium represents the excess over nominal value of the fair value of consideration received of equity shares, net of expenses of the share issue. Accumulated losses Accumulated losses represent retained profits and losses. 55 Annual Report and AccountsFor the year ended 31 March 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2022 3 Critical accounting estimates and judgements Many of the amounts included in the financial statements involve the use of judgement and/or estimates. These judgements and estimates are based on management’s best knowledge of the relevant facts and circumstances, having regard to prior experience, but actual results may differ from the amounts included in the financial statements. Information about such judgements and estimation is contained in the accounting policy and/or the notes to the financial statements and the key areas are summarised below: Critical judgements in applying accounting policies Revenue recognition. Revenue recognition. The Company typically enters into a contract comprising one or more stages for each customer project. In the application of IFRS 15 “Revenue from Contracts with Customers” and the accounting policy set out in Note 2 to these accounts, significant judgement is required to identify the individual performance obligations contained within each contract, particularly when a set-up charge is made relating to the initial collaboration with the customer to formulate a programme of development work, or when the pattern of sales invoices does not align with those stages explicit in the contract. Many customer contracts contain a non-refundable set up charge of up to 30% of contract value which becomes payable upon commencement of the project. This represents the value of the transfer of knowledge involved in design, planning and preparation for the work to be done, and for the time and consumables committed to commence work on the project. As this work is distinct and of benefit to the customer independent of later stages within the contract, it is therefore judged to be a separate performance obligation within the meaning of IFRS 15 and is recognised as revenue in line with the accounting policy. The remaining performance obligations are based on the stages with defined deliverables which are explicitly outlined in the customer contracts. During the process of delivering the contract, where delivery is part way through a stage at the reporting date, an estimate is made of the amount of revenue to recognise for that stage to reflect the work performed up to that date. This amount is estimated on a percentage completion basis. Critical accounting estimates and assumptions Deferred Taxation. The Company has accumulated tax losses of £10,000,000 (2021: £9,042,000). In principle these losses would support a deferred tax asset of approximately £2,000,000 (2021:£2,000,000). IAS 12 requires that a deferred tax asset relating to unused tax losses is carried forward to the extent that future taxable profits will be available. The company is in an investment phase, expecting to have increased expenditure on R&D and business development over the next two years which will increase the tax losses. After the investment period the Board expects the Company to generate healthy profits but it is difficult at this stage to reliably estimate the period over which profits may arise in the future. The Board has therefore determined to not recognise the asset at the reporting date. This approach does not affect the future availability of the tax losses for offset against future profits. 56 Fusion Antibodies plc 4 Revenue All of the activities of the Company fall within one business segment, that of research, development and manufacture of recombinant proteins and antibodies. Geographic analysis UK Rest of Europe North America Rest of World 2022 £’000 724 1,394 2,000 681 4,799 2021 £’000 711 1,125 1,714 615 4,165 In the year there was one customer (2021: none) to whom sales exceeded 10% of revenues, that customer accounted for £693,000 or 14.4% of revenues. 5 Operating loss is stated after charging/(crediting): Employee benefit costs - wages and salaries - social security costs - other pension costs - share based payments Depreciation of property, plant and equipment Other operating expenses Rates, utilities and property maintenance IT costs Fees payable to the Company’s auditors - for the audit of the financial statements Raw materials and consumables used Increase in inventories Patent costs Marketing costs (Loss)/profit on foreign exchange Other expenses Total cost of sales and administrative expenses 2022 £’000 2,126 205 103 21 2,455 749 100 16 40 1,276 (105) 84 115 (23) 1,447 6,154 2021 £’000 2,005 194 113 19 2,331 712 66 23 30 1,245 (140) 2 143 64 1,132 5,608 Included in the costs above is expenditure on research and development totalling £699,000 (2021: £613,000). 57 Annual Report and AccountsFor the year ended 31 March 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2022 6 Average staff numbers Employed in UK (including executive directors) Non-executive directors 2022 No. 53 5 58 7 Remuneration of directors and key senior management Directors Emoluments Pension contributions Highest paid director The highest paid director received the following emoluments: Emoluments Compensation for loss of office Pension contributions 2022 £’000 518 22 540 2022 £’000 153 - 9 162 The highest paid director did not exercise any share option in the year. Key senior management Key senior management is considered to comprise the directors of the Company with total remuneration for the year of £540,000 (2021: £585,000). Share based payments for the year attributable to key senior management totalled £15,000 (2021: £5,000). 8 Finance income and expense Income Bank interest receivable Expense Interest expense on other borrowings 2022 £’000 1 2022 £’000 9 2021 No. 49 5 54 2021 £’000 562 23 585 2021 £’000 151 30 9 190 2021 £’000 3 2021 £’000 18 58 Fusion Antibodies plc 9 Share based payments At the reporting date the Company had three share based reward schemes: two schemes under which options were previously granted and are now closed to future grants and a third scheme in place in which grants were made in the current year: A United Kingdom tax authority approved scheme for executive directors and senior staff; An unapproved scheme for awards to those, such as non-executive directors, not qualifying for the approved scheme; and A United Kingdom tax authority approved scheme for executive directors and senior staff which incorporates unapproved options for grants to be made following listing of the Company shares, “2017 EMI and Unapproved Employee Share Option Scheme”. Options awarded during the year under the 2017 EMI and Unapproved Employee Share Option Scheme have no performance conditions other than the continued employment within the Company. Options vest one, two and three years from the date of grant, which may accelerate for a change of control. Options lapse if not exercised within ten years of grant, or if the individual leaves the Company, except under certain circumstances such as leaving by reason of redundancy. The total share-based remuneration recognised in the Statement of Comprehensive Income was £21,000 (2021: £19,000). The most recent options granted in the year were valued using the Black-Scholes method. The share price on grant used the share price of open market value, expected volatility of 24.0% and a compound risk free rate assumed of 0.62%. 2022 Weighted average exercise price £ 0.421 1.275 0.288 1.107 0.478 2021 Weighted average exercise price £ 0.400 - 0.510 0.103 0.421 2022 Number 1,266,666 250,000 (404,587) (324,996) 787,083 2021 Number 1,685,417 - (185,834) (232,917) 1,266,666 Outstanding at beginning of the year Granted during the year Exercised during the year Lapsed during the year Outstanding at the end of the year The options outstanding at the end of each year were as follows: Expiry May 2027 December 2028 Total Nominal share value £0.04 £0.04 Exercise price £ 0.040 0.545 2022 Number 103,750 683,333 787,083 2021 Number 310,000 956,666 1,266,666 Of the total number outstanding 787,083 (2021: 939,996) had vested at the reporting date. 59 Annual Report and AccountsFor the year ended 31 March 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2022 10 Income tax (credit)/charge Current tax – UK corporation tax Deferred tax asset derecognised Income tax (credit)/charge 2022 £’000 (133) - (133) 2021 £’000 (129) 1,764 1,635 The difference between loss before tax multiplied by the standard rate of 19% (2021: 19%) and the income tax (credit)/charge is explained in the reconciliation below: Factors affecting the tax (credit)/charge for the year Loss before tax Loss before tax multiplied by standard rate of UK corporation tax of 19% (2021: 19%) Deferred tax not recognised on current year losses Deferred tax not recognised on prior year losses RDEC/R&D tax credit RDEC/R&D tax credit – adjustment relating to prior year Total income tax (credit)/charge 11 Loss per share Loss for the financial year Loss per share Basic 2022 £’000 2021 £’000 (1,333) (1,264) (253) 253 - (131) (2) (133) 2022 £’000 (1,200) pence (4.6) (240) 240 1,764 (99) (30) 1,635 2021 £’000 (2,899) pence (11.4) Issued ordinary shares at the end of the year Weighted average number of shares in issue during the year Number 26,014,946 Number 25,610,359 25,945,780 25,458,761 Basic earnings per share is calculated by dividing the basic earnings for the year by the weighted average number of shares in issue during the year. 60 Fusion Antibodies plc 12 Intangible assets Cost At 1 April At 31 March Accumulated amortisation At 1 April Amortisation charged in the year At 31 March Net book value At 31 March At 1 April 13 Property, plant and equipment 2022 Software £’000 2021 Software £’000 8 8 6 2 8 - 2 8 8 4 2 6 2 4 Total £’000 3,452 259 3,711 2,329 749 3,078 Right of use assets £’000 Leasehold improvements £’000 Plant & machinery £’000 Fixtures, fittings & equipment £’000 Cost At 1 April 2021 Additions At 31 March 2022 Accumulated depreciation At 1 April 2021 Depreciation charged in the year At 31 March 2022 Net book value At 31 March 2022 At 31 March 2021 240 - 240 139 71 210 30 101 784 30 814 583 169 752 62 201 2,181 175 2,356 1,446 445 1,891 465 735 247 54 301 161 64 225 76 86 633 1,123 61 Annual Report and AccountsFor the year ended 31 March 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2022 13 Property, plant and equipment continued Right of use assets £’000 Leasehold Improvements £’000 Plant & machinery £’000 Fixtures, fittings & equipment £’000 Cost At 1 April 2020 Additions At 31 March 2021 Accumulated depreciation At 1 April 2020 Depreciation charged in the year At 31 March 2021 Net book value At 31 March 2021 At 31 March 2020 226 14 240 68 71 139 101 158 725 59 784 425 158 583 201 300 1,916 265 2,181 1,015 431 1,446 735 901 Total £’000 3,087 365 3,452 1,617 712 2,329 220 27 247 109 52 161 86 111 1,123 1,470 Plant & machinery with a net book value of £85,000 is held under hire purchase agreements or finance leases (2021: £216,000). The carrying value of right of use assets at the reporting date comprises leasehold property of £22,000 and fixtures, fittings and equipment of £8,000. The depreciation expense is included in administrative expenses in the statement of comprehensive income in each of the financial years shown. 14 Investment in subsidiary The Company has the following investment in a subsidiary: Fusion Contract Services Limited 100% subsidiary Dormant company Marlborough House, 30 Victoria Street, Belfast BT1 3GG 2022 £ 1 2021 £ 1 Group financial statements are not prepared on the basis that the subsidiary company is dormant and not material to the financial statements. 62 Fusion Antibodies plc 15 Deferred tax assets At 1 April Charged to the statement of comprehensive income in the year At 31 March 2022 £’000 - - - 2021 £’000 1,764 (1,764) - The movement in deferred tax assets and liabilities during the financial year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: Deferred tax assets and liabilities At 1 April 2020 Credited/(charged) to Statement of Comprehensive Income At 31 March 2021 Credited/(charged) to Statement of Comprehensive Income At 31 March 2022 16 Inventories Raw materials and consumables Accelerated tax depreciation £’000 (6) Tax losses £’000 1,614 Share based payments £’000 140 RDEC tax credit £’000 16 6 - - - (1,614) - (140) - - - - - (16) - - - 2022 £’000 585 Total £’000 1,764 (1,764) - - - 2021 £’000 480 The cost of inventories recognised as an expense for the year was £1,171,000 (2021: £1,105,000). 17 Trade and other receivables Trade receivables Loss allowance Trade receivables – net Other receivables Prepayments and accrued income 2022 £’000 900 (124) 776 117 624 1,517 2021 £’000 673 (81) 592 90 758 1,440 The fair value of trade and other receivables approximates to their carrying value. 63 Annual Report and AccountsFor the year ended 31 March 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2022 17 Trade and other receivables continued At the reporting date trade receivables loss allowance/impairment as follows: Individually impaired Expected credit loss allowance 2022 £’000 71 53 124 2021 £’000 71 10 81 The carrying amount of trade and other receivables are denominated in the following currencies: UK pound Euros US dollar 2022 £’000 664 1 235 900 The expected credit loss allowance has been calculated as follows: Expected loss rate Gross carrying amount (£’000) Loss allowance (£’000) More than 30 days past due 1.1% 133 1 More than 60 days past due 1.4% 19 - More than 90 days past due 2.5% - - More than 120 days past due 13.8% 373 49 Current 1% 304 3 Movements on trade receivables loss allowance is as follows: At 1 April 2021/2020 Movement in loss allowance At 31 March 2022/2021 £’000 10 43 53 2021 £’000 409 - 264 673 Total 829 53 £’000 1 9 10 The creation and release of the loss allowance for trade receivables has been included in administrative expenses in the Statement of Comprehensive Income. Other receivables are considered to have low credit risk and the loss allowance recognised during the year was therefore limited to trade receivables. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. The Company does not hold any collateral as security. 64 Fusion Antibodies plc 18 Trade and other payables Trade payables Social security and other taxes Other payables Accruals and deferred income 2022 £’000 466 68 47 561 1,142 2021 £’000 344 71 45 373 833 The fair value of trade and other payables approximates to their carrying value. Invest Northern Ireland hold a mortgage dated 9 December 2009 for securing all monies due or to become due from the Company on any account. At the reporting date a balance of £nil (2021: £23,000) was due to Invest Northern Ireland. 19 Borrowings At 1 April 2021 Interest charged in year Repayments At 31 March 2022 Amounts due in less than 1 year Amounts due after more than 1 year At 1 April 2020 Additions in year Interest charged in year Repayments At 31 March 2021 Amounts due in less than 1 year Amounts due after more than 1 year Lease liabilities £’000 Hire Purchase Contracts £’000 100 4 (77) 27 24 3 27 130 5 (93) 42 42 - 42 Lease liabilities £’000 Hire Purchase Contracts £’000 155 14 8 (77) 100 75 25 100 225 - 10 (105) 130 88 42 130 Total £’000 230 9 (170) 69 66 3 69 Total £’000 380 14 18 (182) 230 163 67 230 All borrowings are denominated in UK pounds. Using a discount rate of 5.5% per annum the fair value of borrowings at the reporting date is £65,000 (2021: £219,000 discounted at 5.5%). Borrowings are secured by a fixed and floating charge over the whole undertaking of the Company, its property, assets and rights in favour of Northern Bank Ltd trading as Danske Bank. 65 Annual Report and AccountsFor the year ended 31 March 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2022 20 Provisions for other liabilities and charges Due after more than 1 year 2022 £’000 20 2021 £’000 20 Leasehold dilapidations relate to the estimated cost of returning a leasehold property to its original state at the end of the lease in accordance with the lease terms. The Company’s premises are held under a lease expiring 31 July 2022 and which is expected to be renewed. The costs of dilapidations would be incurred on vacating the premises. 21 Financial instruments The Company is exposed to risks that arise from its use of financial instruments. This note describes the Company’s objectives, policies and processes for managing those risks and methods used to measure them. There have been no substantive changes in the Company’s exposure to financial instrument risks and the methods used to measure them from previous years unless otherwise stated in this note. The principal financial instruments used by the Company, from which the financial instrument risk arises, are trade receivables, cash and cash equivalents and trade and other payables. The fair values of all the Company’s financial instruments are the same as their carrying values. Financial instruments by category Financial instruments categories are as follows: Amortised cost £’000 776 117 397 2,049 3,339 Amortised cost £’000 592 90 504 2,686 3,872 Other financial liabilities at amortised cost £’000 466 115 279 69 929 As at 31 March 2022 Trade receivables Other receivables Accrued income Cash and cash equivalents Total As at 31 March 2021 Trade receivables Other receivables Accrued income Cash and cash equivalents Total As at 31 March 2022 Trade payables Other payables Accruals Borrowings Total 66 Fusion Antibodies plc 21 Financial instruments continued As at 31 March 2021 Trade payables Other payables Accruals Borrowings Total Capital management Other financial liabilities at amortised cost £’000 344 116 252 230 942 The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may issue new shares or sell assets to provide working capital. Consistent with others in the industry at this stage of development, the Company has relied on issuing new shares and cash generated from operations. General objectives, policies and processes – risk management The Company is exposed through its operations to the following financial instrument risks: credit risk; liquidity risk and foreign currency risk. The policy for managing these risks is set by the Board following recommendations from the Chief Financial Officer. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Company’s competitiveness and flexibility. The policy for each of the above risks is described in more detail below. Credit risk Credit risk arises from the Company’s trade and other receivables, and from cash at bank. It is the risk that the counterparty fails to discharge their obligation in respect of the instrument. The Company is mainly exposed to credit risk from credit sales. It is Company policy to assess the credit risk of new customers before entering contracts. Also, for certain new customers the Company will seek payment at each stage of a project to reduce the amount of the receivable the Company has outstanding for that customer. At the year end the Company’s bank balances were all held with Northern Bank Ltd trading as Danske Bank (Moody’s rating P-1). Liquidity risk Liquidity risk arises from the Company’s management of working capital, and is the risk that the Company will encounter difficulty in meeting its financial obligations as they fall due. At each Board meeting, and at the reporting date, the cash flow projections are considered by the Board to confirm that the Company has sufficient funds and available funding facilities to meet its obligations as they fall due. Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company seeks to transact the majority of its business in its reporting currency (£Sterling). However, many customers and suppliers are outside the UK and a proportion of these transact with the Company in US Dollars and Euros. For that reason, the Company operates current bank accounts in US Dollars and Euros as well as in its reporting currency. To the maximum extent possible receipts and payments in a particular currency are made through the bank account in that currency to reduce the amount of funds translated to or from the reporting currency. Cash flow projections are used to plan for those occasions when funds will need to be translated into different currencies so that exchange rate risk is minimised. If the exchange rate between Sterling and the Dollar or Euro had been 10% higher/lower at the reporting date the effect on profit and equity would have been approximately £32,000 (2021: £34,000) higher/lower and £5,000 (2021: £4,000) higher/lower respectively. 67 Annual Report and AccountsFor the year ended 31 March 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2022 22 Called up share capital Allotted, called up and fully paid - 25,610,359 Ordinary shares of £0.04 - 26,014,946 Ordinary shares of £0.04 2022 £’000 1,040 2021 £’000 1,024 During the year the Company issued and allotted 404,587 ordinary shares for gross proceeds of £116,000. 23 Capital commitments At 31 March 2022 the Company had contracted for but not incurred capital expenditure of £17,000 (2021: £nil). 24 Retirement benefits obligations The Company operates a defined contribution scheme, the assets of which are managed separately from the Company. During the year the Company charged £103,000 to the Statement of Comprehensive Income (2021: £113,000) in respect of Company contributions to the scheme. At the reporting date there was £18,000 (2021: £20,000) payable to the scheme and included in other payables. 25 Transactions with related parties The Company had the following transactions with related parties during the year: Invest Northern Ireland (“Invest NI”) is a shareholder in the Company. The Company received invoices for rent and estate services amounting to £78,000 (2021: £78,000). A balance of £nil (2021: £23,000) was due and payable to Invest NI at the reporting date. 26 Ultimate controlling party There is no ultimate controlling party. 27 Reconciliation of loss to EBITDA Loss before tax Finance income Finance expense Depreciation and amortisation EBITDA 2022 £’000 (1,333) (1) 9 751 (574) 2021 £’000 (1,264) (3) 18 714 (535) 68 Fusion Antibodies plc COMPANY INFORMATION Directors Dr Simon Douglas (Non-Executive Chairman) Dr Richard Buick (Chief Scientific Officer) Mr James Fair (Chief Financial Officer) Ms Sonya Ferguson (Non-Executive Director) Dr Matthew Baker (Non-Executive Director) Mr Colin Walsh MBE (Non-Executive Director) Mr Timothy Watts (Non-Executive Director) Company secretary Mr James Fair Registered office c/o Tughans Solicitors Marlborough House 30 Victoria Street Belfast BT1 3GG Website www.fusionantibodies.com Nominated adviser and broker Allenby Capital Limited 5 St Helen’s Place London EC3A 6AB Independent auditors PricewaterhouseCoopers LLP Merchant Square 20-26 Wellington Place Belfast BT1 6GE Bankers Danske Bank Donegall Square West Belfast BT1 6JS Solicitors Tughans Solicitors Marlborough House 30 Victoria Street Belfast BT1 3GG Business address 1 Springbank Road Springbank Industrial Estate Dunmurry Belfast BT17 0QL Public relations advisor Walbrook PR 4 Lombard Street EC3V 9HD Registrar Link Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU DLA Piper UK LLP 1 St Paul’s Place Sheffield S1 2JX Registered in Northern Ireland, number NI039740 69 Annual Report and AccountsFor the year ended 31 March 2022 Printed by Perivan ANNUAL REPORT & ACCOUNTS For the year ended 31 March 2022 fusionantibodies.com