InnovaDerma PLC
Annual Report 2016

Plain-text annual report

Company Registration Number 09226823 INNOVADERMA PLC ANNUAL REPORT FOR YEAR ENDED 30 JUNE 2016 INNOVADERMA PLC CONTENTS CONTENTS Corporate directory Strategic report Director’s Report Independent auditor’s report to the members Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Parent company statement of financial position Parent company statement of changes in equity Notes to the financial statements Page 1 2 8 14 16 17 19 20 21 22 23 2 INNOVADERMA PLC CORPORATE DIRECTORY Directors Haris Chaudhry Joseph Bayer Geert Lemair Rodney Turner Clifford Giles Company Secretary Elemental Company Secretary Limited Company registration number 09226823 Registered office Auditor 27 Old Gloucester Street London United Kingdom WC1N 3AX KSI (WA) Level 2 35 Outram Street West Perth WA 6005 Australia Domicile of the company United Kingdom Country of incorporation England and Wales Legal form of entity Public Limited Company London Stock Exchange Code IDP 1 INNOVADERMA PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2016 The directors present their strategic report on InnovaDerma PLC and its controlled entities (hereafter “the Group” or “InnovaDerma”) for the year ended 30 June 2016. Principal activity InnovaDerma specializes in a range of male and female hair loss and anti-ageing treatments, and is aggressively growing its existing markets and expanding into new ones. In addition to a well-established customer base, brand recognition, intellectual property and a robust operating platform, it has the necessary clinical and regulatory approvals, ongoing research and development work and strategic marketing initiatives to provide it with a solid platform for rapid and sustained growth. InnovaDerma PLC was incorporated on 19 September 2014 to become the holding company for InnovaDerma ANZ and the other companies in the InnovaDerma Group, in order to list them on a recognised stock exchange. The previous financial year therefore ran from 19 September 2014 to 30 June 2015 (FY2015). Financial and Operational Highlights  Group revenue grew strongly to AUD$8.4m (FY2015: AUD$1.05m) reflecting underlying organic growth and transformation of the Skinny Tan business, which grew more than 10-fold in revenue since its acquisition in May 2015  Gross profit increased significantly to AUD$4.8m (FY2015: AUD$0.70m)  Profit before tax of AUD$0.47m (FY2015: AUD$ loss of 0.90m)  Expansion of international distribution and retail network is key to growth and financial performance. As at 30 June 2016, the Company had 2,500 retail points (FY2015: 250) in seven countries  Skinny Tan, launched in Superdrug in February 2016, is now stocked in UK stores nationwide and since achieved being the No.1 selling tanning brand by revenue  Secured a distribution agreement with Olive Young, Korea’s largest health and beauty store chain. Skinny Tan is currently sold in Olive Young’s 550 stores nationwide and is distributed through PROS Korea, a distributor for InnovaDerma products for North East Asia  Secured a distribution with Chemist Warehouse for distribution of Skinny Tan across all of its 320 stores in Australia  Skinny Tan brand has grown from 14 to 25 products with a strong emphasis on product development to increase shelf space and cater for multiple international markets  Developed and launched Skinny Tan “Professional Range” of products aimed at beauty and tanning salons and skin rejuvenation clinics in Australia, UK and the US  Direct to consumer marketing through social media channels drove revenue growth and enabled Skinny Tan to grow in popularity Post Period End and Outlook  Strong infrastructure, scalable business and resources now in place to support brand development across whole product range to drive future performance as a result of focus on growing Skinny Tan 2 INNOVADERMA PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2016  As announced today, the Group has successfully entered in the United States and secured retail and e- tailer distribution deals with GNC Holdings, Inc. , Quidsi, Inc., a subsidiary of Amazon.com, Inc. and Jet.com, a subsidiary of Wal-Mart Stores, Inc  Established US subsidiary and appointed Joseph Panetta as Executive Vice President to accelerate growth in the American market, as announced this morning  Further Skinny Tan brand extensions expected to be rolled out soon  Focused on developing new and highly effective products in hair care, hair loss treatment and skin rejuvenation for release in 2017  Continue to focus on expanding distribution and retail network (both physical stores and e-tailers) in new and existing territories  Strategic decision to move production to the UK from Australia to improve supply chain and operating margins, as announced on October 24th  Trading since the period end continues strongly Haris Chaudhry, Executive Chairman said: “This has been a year of transformation growth for the Group with exceptional financial and operational results driven by a highly disciplined and agile approach. Our strategic decision to grow Skinny Tan, a premium self- tanner brand, has enabled us to expand our retail and distribution network and, importantly, provided us with a scalable business and a global supply chain which we can leverage to continue to grow our brands across the Group and drive future business performance. The Group continues to go from strength to strength since the period end and we are delighted to announce this morning that we have successfully entered the US market and secured distribution deals with three blue- chip organisations. New product development remains a key focus for us and we will be rolling out brand extensions, together with new products, for international markets this year and next. We are trading profitably and the Board looks to the future with confidence and optimism.” Chairman’s Review of the business, performance & position Introduction I am pleased to present our maiden final results for year ended 30 June 2016. In September of this year, we were admitted to the Standard Listing segment of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange. This, combined with a year of excellent progress is particularly pleasing as the Group has delivered a strong performance and solid growth on all key performance measures. Financial and Operational Performance Our revenue and profit performance has been consistently strong throughout the year, reflecting the rapid growth of Skinny Tan which the company has transformed and grown more than 10-fold in revenue since its acquisition in May 2015. Skinny Tan is a premium self-tanner brand that combines a natural tanning active, to tan and reduce the visible appearance of cellulite. The business, which we acquired in May 2015, was successfully integrated in Q2 of 2015. Due to the international appeal of the brand and strong performance, 3 INNOVADERMA PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2016 the Board decided to focus on growing Skinny Tan as a premium brand, expanding its retail distribution network globally to accelerate revenue and profit growth. Importantly our strategy to focus on Skinny Tan has enabled us to build a scalable business and a global supply chain from which we can leverage and continue to grow our brands across the Group. This strategy has delivered impressive growth and the Group’s revenue grew by 800% to AUD$8.4m (FY2015 AUD$1.5m) and profit before tax increased to AUD$0.473m, compared to a loss of AUD$0.90m in the previous year. As at 30 June 2016, InnovaDerma had 2,500 retail points in seven countries (FY2015: 250). In the period under review, the Board secured the following key retail distribution agreements: In the period under review, the Board secured the following key retail distribution agreements:  In February 2016, Skinny Tan was launched as a new brand in 220 of Superdrug's stores and by July 2016, it was stocked in all 776 of its stores throughout the UK. In the same month Skinny Tan became the No.1 selling tanning brand in Superdrug by revenue. Post period end, Skinny Tan won Best Breakthrough Brand 2016 at the Superdrug Supplier Conference.  In Asia, the Company secured a distribution agreement with Olive Young, Korea's largest health and beauty store chain. Skinny Tan is currently sold in Olive Young's 550 stores nationwide and is distributed through PROS Korea, a distributor for InnovaDerma products for North East Asia.  InnovaDerma secured a distribution agreement with Chemist Warehouse for distribution of Skinny Tan across all of its 320 stores nationwide in Australia. Chemist Warehouse with annual revenues of more than AUD$2.7bn (£1.5bn) is one of the leading and fastest growing pharmacy chains in Australia. We place strong emphasis on product development and in the period under review, we extended Skinny Tan from 14 to 25 products including the Skinny Tan Professional range of products. By extending the brand and creating complementary products it enables us to capitalise on the complete self-tanning cycle from the initial priming, to tanning as well as maintaining the tan. We also launched Skinny Tan Professional Range of products aimed at beauty and tanning salons and skin rejuvenation clinics in Australia, UK and the US. To complement and extend our brand within the Professional Range, we developed the Skinny Tan Accredited Training Course which provides a manual together with a licensed training certificate upon completion of the Licensed Spray Tanner course. Entry into the American Market As announced earlier today, we have successfully entered the American market which we believe represents significant potential for future growth and proves our ability to enter new and complex geographies. We began marketing trials in the US for Skinny Tan in the spring of 2016 and, owing to their success, we have secured a retail distribution deal with GNC Holdings, Inc., a leading global speciality retailer of health and wellness products listed on the New York Stock Exchange. Skinny Tan will be initially rolled out to 655 of GNC’s 6,000 stores nationwide. Additionally, we have secured the distribution of Skinny Tan with highly 4 INNOVADERMA PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2016 established e-tailers: Soap.com, a retail site owned by Quidsi Inc., its parent company, which is ultimately owned by Amazon.com, Inc, and Jet.com, a subsidiary of Wal-Mart Stores, Inc.To support our growth plans in the American market, we have established Innova Science, Inc., a wholly-owned subsidiary of the Group, and appointed Joseph Panetta as Executive Vice President and President of Skincare to lead the American business. Production move to the UK As announced on 24 October 2016, the Group will be moving a significant part of its production to the UK, from Australia which will significantly improve the Company’s supply chain to its most important growth markets and key customers. We expect a notable improvement in the operating margins of the business because of lower freight and logistics costs and minimised currency exchange exposure. The cost benefits are expected to have a positive impact on the Company’s financial performance from the second half of the financial year 2017. People On behalf of the Board, I would like to welcome Joseph Panetta to InnovaDerma who brings with him extensive experience in consumer brands, and we look forward to working with him to grow the business in the US. This has been a year of transformation for the business and our employees are the key to our success, so, on behalf of the Board, I would like to extend our appreciation and thanks for their commitment and hard work during this period of significant growth for the Group. Strategy and Outlook Our focus on growing Skinny Tan’s revenue through an international retail and distribution network has opened access to a global supply chain for the whole Group. In the year under review we have re-organised the business, increased our resources and established a solid infrastructure to support our growing business. The Board believes there are significant opportunities for future expansion and our strategy is therefore focused on building on and leveraging our achievements to date. We will:  Continue to expand our distribution and e-tailer network in new and existing territories  Extend the Skinny Tan brand to leverage customer and brand loyalty. Further brand extensions are expected to be rolled out soon  Continue to focus on digital direct to consumer strategy which has supported revenue growth and enabled Skinny Tan to grow in popularity  Focus on the growth and product development of the Group’s other brands including haircare, hair loss treatment and skin rejuvenation  Continue to seek value added acquisition targets to integrate into the business Since the period end, the Company continues to trade strongly and is making excellent progress. This, together with our strong brands and positive market trends, means we are confident of the future and of delivering value to our shareholders. 5 INNOVADERMA PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2016 Financial Review Overview The Group achieved excellent results for the year ended 30 June 2016, driven by underlying organic growth and the transformation of the Skinny Tan business which delivered very strong sales growth. Group revenues grew to AUD$8.4m (FY2015: AUD$1.05m) largely as a result of the successful integration and restructuring of the Skinny Tan business acquired in May 2015. Profit before tax was AUD$0.47m (FY2015: loss of AUD $0.90m). Additional other income of AUD$64,671 was recorded as a result of export development grants for the UK brand launch.Net asset value increased to AUD$3.15m as at 30 June 2016, representing a 16.6% increase from 30 June 2015 (AUD$2.69m). Operating results The Group's operating profit, excluding other income, was AUD$0.41m (2015: loss of AUD$0.90m). This reflected the significant investment in people resources and brand marketing to drive the turnaround in the Skinny Tan brand. Further investment was made in the US to create brand awareness and test market the direct to consumer channels. As a result of securing distribution deals in America and to capitalise on the identified retail distribution opportunities, the Group appointed Joseph Panetta as Executive Vice President of Innova Science Inc., a wholly owned subsidiary of InnovaDerma PLC. The Group achieved gross margins of 57% (FY2015: 67%) reflecting the move towards a wider distribution network for Skinny Tan and a significant skew in revenue terms away from the higher margin Leimo (hair care) business. Gross margins are inclusive of delivery costs to our customers and therefore we have been reviewing the high freight cost (excluding Australia) to our growth market in the UK, and in the future, the US. The decision to move manufacturing to the UK will significantly reduce the supply chain timeline and the expensive overseas shipping costs.The focus in the period under review was to grow and commercialise the Skinny Tan brand value whilst still maintaining a steady Leimo performance. Overheads grew to $4.38m, of which marketing was AUD$2.26m and salaries AUD$1.06m. Staff numbers were reduced in the lower cost Philippines service centre and replaced by a smaller number of higher value employees in marketing and supply chain roles in Australia and the UK. Cash and net debt The Group's cash and cash equivalents as at 30 June 2016 were AUD$0.21m (FY2015: $0.21m). The Group has no externally financed borrowing and loans but has related party loans of $1.078m which have been carried forward from prior to listing. The Group has largely self-funded the growth in assets by astute cash management and a strong focus on cost control. The growth in trade receivables and inventory for 2016 over 2015 of AUD$2.62m has been partially funded by the increase in trade payables of AUD$2.01m over the same period with the balance coming from the increase in related party loan of AUD$0.39m and internally generated cash flow. The Group is currently reviewing various funding options to support the planned significant growth in both geographical spread and new product development. It is recognised by the board that whilst we have 6 INNOVADERMA PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2016 successfully internally funded the growth over the last twelve months, the impetus for sustaining and expanding the scope of business operations will require further funding. Taxation The charge for taxation for the full year was AUD$0.13m with the Group carrying a deferred tax asset of AUD$0.18m. The Group has utilised carried forward tax losses where possible. All corporate tax liabilities across the various geographical regimes have been accounted for. Dividends The board has elected not to declare a dividend at this time. Principal Risks and Uncertainties The principal risks the company faces relate to a) the regulatory requirements in each country to which it exports and b) cash flow. If those regulations change, the company will need to quickly adapt its strategy to ensure compliance and facilitate continuing sales. At this stage, because Australia operates very stringent policies on all products, the company does not view this as very likely to occur, but have nonetheless recognised the potential risk. Cashflow is another principal risk as, while the company is in its growth phase, working capital is under demand to fund the purchase and manufacture of stock in concert with trading terms to retail buyers. However, the company has support from its shareholders for funding and is anticipating continued sales growth in the coming twelve months to drive the business forward. Employees In line with Companies Act 2006 requirements, we present the following breakdown of our employee structure: Role Directors Senior Managers Other Employees Number of Men Number of Women 5 1 4 - 1 10 In conjunction with our aforementioned plans to expand into the USA, it is expected that our staff will expand in the coming calendar year as revenues grow, that the Group will be better able to service our customers and partners. By order of the board Haris Chaudhry Executive Chairman 31 October 2016 7 INNOVADERMA PLC DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 The Directors present their report and financial statements of the Group for the year ended 30 June 2016. Directors The Directors who served the Group during the period are as follows: Mr Haris Chaudhry Mr Joseph Bayer Mr Rodney Turner Mr Geert Lemair Mr Clifford Giles (appointed 16 June 2015) Unless otherwise disclosed, all directors were appointed at the time the company was incorporated on 19 September 2014 and have remained on the board since that time. Company Secretary The following served as Company Secretary during the period: Mr Nick Lindsay, Elemental Company Secretary Limited, London. Meetings of the Directors During the year to 30 June 2016, the directors attended the following meetings of the board of directors: Haris Chaudhry Geert Lemair Joseph Bayer Rodney Turner Clifford Giles Meetings eligible to attend Meetings attended 8 8 8 8 8 8 8 8 8 8 Review of the Business Please refer to the Strategic Report for information on the Group, its strategic direction, this year’s results, and plans for the future. Business Model The Group’s business model is to expand its market share by providing innovative products to its customers that meet their needs and wants, while continuing to break into new geographical locations and thus making InnovaDerma a truly global brand. 8 INNOVADERMA PLC DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 Branches outside the UK The Group’s main operations are headquartered in Melbourne, Australia. Two offices are maintained in Australia, and one each in New Zealand, the USA, and the Philippines. Environmental matters There are no environmental issues arising from the Group’s business that might affect the future strategic direction or results of our group. Carbon Emissions The Group’s operations are the manufacture and sale of health and beauty products, in which carbon emissions are estimated to be negligible. The Directors do not consider it practicable to obtain this information at this time. Social, Community & Human Rights issues The Board are constantly monitoring the Group’s social & community impact, both for its own staff and the wider community of end-users for its products. The Board are mindful of Human Rights issues in the jurisdictions its operates in, and aims to maintain the highest standards of care and conduct in all its relations to ensure InnovaDerma exceeds any required standard in this area. Research and Development The Group undertakes a variety of research activities into potential new products and new technologies that could form part of their future offerings to customers. The Group classifies all such spending as research and expenses the costs accordingly. It is the view of the directors at this stage that the Group is unable to confirm the potential flow of benefits from new products until they arrive to market. Given that, it is not possible to capitalise these expenditures as development. Financial Instruments Information regarding the Group’s financial risk management objectives and policies, including exposure to market, credit and liquidity risks, are presented in Note 26 to these financial statements. Capital Structure At 30 June 2016, the ordinary share capital of InnovaDerma PLC consisted of 10,318,535 shares, valued at EUR 0.10 each. There are no restrictions on the transfer of securities in the Company, and no restrictions on voting rights. 9 INNOVADERMA PLC DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 Post Balance Sheet Events On 7 September, InnovaDerma PLC was admitted to the Official List and to trading on the Main Market of the London Stock Exchange. Trading on the Marche Libre Paris segment of Euronext was suspended on the same date. On 20 September, 27,000 ordinary shares of EUR 0.10 were allotted. Aside from the above items, the directors are not aware of any significant events since the end of the reporting period. Indemnification of Officers No indemnities have been given, during or since the end of the financial period, for any person who is or has been an officer or auditor of the consolidated group. InnovaDerma PLC has paid for professional indemnity insurance for the directors of the Company. The policies cover the year to 30 June 2016, and subsequent. Proceedings on Behalf of the Group No person has applied for leave of court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of those proceedings. The Group was not a party to any such proceedings during the period. Director’s Interests At the period end date, the directors of the company had the following interests in the shares of the company, through both direct and indirect holdings: Director Shares held on Shares acquired Shares disposed Shares held on 1 July 2015 during the period during the period 30 June 2016 Haris Chaudhry 5,858,790 Geert Lemair Joseph Bayer Rodney Turner Clifford Giles 46,667 93,333 46,667 25,000 - 5,070 20,180 4,430 - - - - - - 5,858,790 51,737 113,513 51,097 25,000 10 INNOVADERMA PLC DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 Remuneration Report (audited) Policy & Practice The Group operates on a strictly ‘capital efficient’ approach and therefore director’s remuneration has been based on conservative market matching rates in order to act in the best interest of the company during the company’s growth phase. At this time, outside of existing shareholdings, there are no performance components included in directors’ remuneration. A remuneration committee has been formed to oversee this aspect of the Group’s operations. Contracts Directors’ remuneration in its various forms was agreed by the Executive Chairman and relevant contracts have been executed prior to the appointment. Mr Chaudhry’s contract is for a fixed term of four years, and may be terminated with sixteen weeks’ notice, given in writing. All other director’s contracts are for a fixed term of three years, and may be terminated with four weeks’ notice, given in writing. Amount of emoluments & compensation Year to 30 June 2016 Salary Superannuation Consultancy Total Haris Chaudhry Geert Lemair 1 Joseph Bayer Rodney Turner (9.5% of salary) Fees 150,000 15,995 96,002 27,150 14,250 1,505 10,078 2,850 Nil 17,500 Nil Nil 164,250 35,000 106,080 30,000 Clifford Giles 1 Mr Lemair was remunerated via payroll until 31 December 2015, after which time he invoiced for his services Nil - - - Period 19 September 2014 Salary Superannuation Consultancy Total – 30 June 2015 (9.5% of salary) Fees 47,475 Haris Chaudhry Geert Lemair 1 Joseph Bayer 1 Rodney Turner 1 Clifford Giles 1 1 These directors have agreed to forego any remuneration for this period. 4,510 - - - - - - - - Nil Nil Nil Nil Nil 51,985 - - - - 11 INNOVADERMA PLC DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 End of audited section. Directors’ responsibilities The Directors are responsible for preparing the Strategic Report and the Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year or period. Under that law the Directors have elected to prepare the financial statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards (“IFRS”) as adopted by the European Union. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to:  select suitable accounting policies and then apply them consistently;  make judgements and accounting estimates that are reasonable and prudent;  state whether the financial statements have been prepared in accordance with IFRS as adopted by the European Union;  prepare the financial statements on the going concern basis unless it is inappropriate to presume the Group will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions. Directors’ statement as to disclosure of information to the auditor The Directors at the date of approval of this report confirm that:  to the best of their knowledge and belief, there is no relevant audit information of which the 12 INNOVADERMA PLC DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 Group’s auditor is unaware; and  the Directors have taken all the steps that that might reasonably be expected to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group’s auditor is aware of that information. On behalf of the Board Haris Chaudhry Executive Chairman 31 October 2016 13 INNOVADERMA PLC INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS FOR THE YEAR ENDED 30 JUNE 2016 We have audited these financial statements of InnovaDerma PLC for the year ended 30 June 2016 which comprise the Consolidated Statement of Profit or Loss and Other Comprehensive Income, the Consolidated and Parent Company Statements of Financial Position, the Consolidated Statement of Cash Flow, the Consolidated and Parent Company Statements of Changes in Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the directors and auditors As explained more fully in the Director’s Responsibilities Statement in the Directors’ Report, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all financial and non-financial information in the Directors’ Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion:    the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 30 June 2016 and of the group’s profit for the year then ended; the group’s financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and the parent company’s financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and 14 INNOVADERMA PLC INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS FOR THE YEAR ENDED 30 JUNE 2016  the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Remuneration Report We have audited the remuneration report, shown within the Directors’ Report, for the year ended 30 June 2016. The directors of the Group are responsible for the preparation and presentation of the Remuneration Report in accordance with section 421 of the Companies Act 2006. Our responsibility is to express an opinion on the Remuneration Report, based on our audit, in accordance with section 497 of the Companies Act 2006. Opinion on Remuneration Report In our opinion, the Remuneration Report complies with the requirements of section 421 of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors’ Report for the financial period for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:  adequate accounting records have not been kept by the parent company, or returns adequate  for our audit have not been received from branches not visited by us; or the parent company’s financial statements are not in agreement with the accounting records and returns; or  certain disclosures of directors’ remuneration specified by law are not made; or  we have not received all the information and explanations we require for our audit. Nicholas Hollens – Senior Statutory Auditor For and on behalf of KSI (WA) – Statutory Auditors 35 Outram Street West Perth WA 6005 Australia 31 October 2016 15 INNOVADERMA PLC CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2016 Note 7 Year ended 30 June 2016 $ Period from 19 September 2014 to 30 June 2015 $ 8,412,696 (3,580,405) 4,832,291 1,047,651 (345,733) 701,918 64,671 - (2,257,847) (1,044,259) (1,056,315) (65,914) 472,627 (849,347) (431,862) (184,947) (136,056) (900,294) Revenue Cost of sales Gross profit Other income Marketing expenses Administrative expenses Wages and salaries Listing expenses Operating profit/(loss) Profit/(loss) before tax 472,627 (900,294) Tax expense 6 (125,248) - Net profit/(loss) for the period 347,379 (900,294) Other comprehensive income/(loss) Total comprehensive income/ (loss) for the period Attributable to: Owners of the parent Non-controlling interests 24,744 (7,707) 372,123 (908,001) 246,434 125,689 372,123 (908,001) - (908,001) Basic & diluted profit/(loss) per share 28 0.04 (0.12) 16 INNOVADERMA PLC CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016 Note 30 June 2016 $ 30 June 2015 $ Current assets Cash and cash equivalents Trade and other receivables Inventory Prepayments and other assets Total current assets Non-current assets Property, Plant and Equipment Intangible assets Other assets Deferred tax asset Total non-current assets Total assets Current liabilities 8 9 10 11 12 13 Trade and other payables 14 Total current liabilities Non-current liabilities Borrowings Deferred tax liability Total non-current liabilities Total liabilities Net assets Equity Shares Share premium Merger reserve 15 16 17 18 Foreign exchange reserve Accumulated losses 19 Non-controlling interests Total equity and reserves 207,682 1,970,619 1,107,635 75,006 3,360,942 14,362 3,480,804 - 176,782 3,671,948 7,032,890 2,799,695 2,799,695 1,078,912 7,264 1,086,176 3,885,871 3,147,019 2,496,023 2,553,149 (1,308,057) 17,037 (736,822) 125,689 3,147,019 212,618 112,142 341,794 69,411 735,965 16,509 3,418,479 3,298 - 3,438,286 4,174,251 788,322 788,322 688,063 - 688,063 1,476,385 2,697,866 2,479,468 2,492,674 (1,308,057) (7,707) (958,512) - 2,697,866 17 INNOVADERMA PLC CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016 These financial statements were approved and authorised for release by the Directors on 31 October 2016 and are signed on its behalf by: Haris Chaudhry Executive Chairman Company Number: 09226823 18 INNOVADERMA PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR 1 JULY 2015 TO 30 JUNE 2016 Balance as at 1 July 2015 2,479,468 2,492,674 (1,308,057) (7,707) (958,512) - 2,697,866 Ordinary Share Capital $ Share Premium Merger Reserve $ $ Foreign Exchange Reserve $ Accumulated Losses $ Non- controlling interests $ Total Equity $ Comprehensive income Profit/ (loss) for the period Other comprehensive income Total comprehensive income for the period - - - - - - Transactions with owners, owners in their capacity as Shares issued Cost of shares issued Total transactions with owners, in their capacity as owners 16,555 60,475 - - 16,555 60,475 - - - - - - - 221,690 125,689 - - 347,379 24,744 221,690 125,689 372,123 - - - - - - 77,030 - 77,030 24,744 24,744 - - - Balance at 30 June 2016 2,496,023 2,553,149 (1,308,057) 17,037 (736,822) 125,689 3,147,019 19 INNOVADERMA PLC CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD 1 JULY 2015 TO 30 JUNE 2016 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received EMDG Grants received Payments for corporate listing (non-repeating) Net cash used by operating activities Cash flows from investing activities Purchase of property, plant and equipment Payments for product development Net cash received on acquisition of subsidiaries Purchase of Skinny Tan Pty Ltd Net cash used by investing activities Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Proceeds from convertible notes Proceeds from shares issued Transaction costs for shares issued Net cash from financing activities Year ended 30 June 2016 Note $ Period from 19 September 2014 to 30 June 2015 $ 6,554,219 1,000,968 (7,040,706) (1,708,565) 128 64,543 - - - (136,056) 25 (421,816) (843,653) - (18,343) (62,325) (31,922) - - (62,325) 32,771 (50,000) (67,494) 390,849 22,838 - - (106,527) 127,510 63,612 1,391,162 17 - (311,218) 454,461 1,123,765 Increase/(decrease)in cash and cash equivalents (29,680) 212,618 Cash and cash equivalents at the beginning of the period Effect of movement in foreign exchange rates 212,618 24,744 - - Cash and cash equivalents at the end of the period 8 207,682 212,618 20 INNOVADERMA PLC PARENT COMPANY STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016 Non-current assets Intercompany receivable Investment in subsidiaries Goodwill Total non-current assets Total assets Current liabilities Trade and other payables Total current liabilities Non-current liabilities Convertible notes Total non-current liabilities Total liabilities Net assets Equity Shares Share premium Retained earnings Total equity and reserves Note 30 June 2016 30 June 2015 $ 20 12 14 3,568,627 1,157,379 45,180 1,399,424 5,013,231 5,013,231 50,175 3,892,098 5,099,652 5,099,652 36,680 36,680 14,363 14,363 127,510 127,510 164,190 127,510 127,510 141,873 4,849,041 4,957,779 2,496,023 2,553,149 (200,131) 4,849,041 2,479,468 2,492,674 (14,363) 4,957,779 In accordance with section 408 of the UK Companies Act 2006, the company is availing itself of the exemption from presenting its individual statement of profit or loss and other comprehensive income. The company’s loss for the financial period as determined in accordance with IFRS’s is $185,768. The company had no cashflow in the period, and therefore no cashflow statement has been prepared. 21 INNOVADERMA PLC PARENT COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2016 Ordinary Share Capital $ Share Premium $ Retained Earnings $ Total Equity $ Balance brought forward from 30 June 2015 2,479,468 2,492,674 (14,363) 4,957,779 Comprehensive income Loss for the period Total comprehensive income for the period - - - - (185,768) (185,768) (185,768) (185,768) Transactions with owners, in their capacity as owners Issue of shares Total transactions with owners, in their capacity as owners 16,555 16,555 60,475 60,475 - - 77,030 77,030 Balance as at 30 June 2016 2,496,023 2,553,149 (200,131) 4,849,041 22 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 1. Accounting Policies 1.1 Basis of Preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements are drawn up under the historical cost convention, except for the revaluation of financial assets. IFRS, issued by the International Accounting Standards Board (IASB) set out accounting policies that the IASB has concluded would result in financial statements containing relevant and reliable information about transactions, events and conditions. Material accounting policies adopted in the preparation of the consolidated financial statements are presented below and have been consistently applied unless otherwise stated. 1.2 Going Concern This report has been prepared on the going concern basis, which contemplates the continuation of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business. 1.3 Principles of Consolidation The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by InnovaDerma PLC at 30 June 2016. A controlled entity is any entity over which InnovaDerma PLC has the power to govern the financial and operating policies so as to obtain benefits from its activities. In preparing the consolidated financial statements, all intragroup balances and transactions between entities in the consolidated group have been eliminated in full on consolidation. Pooling of Interests on Incorporation of Parent Entity On 28 November 2014, InnovaDerma PLC acquired 100% of the shares of InnovaDerma AUS & NZ Pty Ltd, InnovaDerma International Limited, InnovaDerma NZ Limited, and ID Philippines, Inc. As all parties were under common control before and after the transaction, the acquisitions were scoped out of IFRS 3, and thus accounted for using the pooling of interests method. Under this method the assets and liabilities of the acquiree are recorded at book value and intangible assets are only recognised if they were previously recognised by the acquiree. No goodwill is recorded and expenses of the combination are written off immediately in profit or loss. The difference between the consideration paid/transferred and the nominal value of the share capital in the acquired companies has been reflected as a Merger Reserve within equity. After the acquisition, the consolidation is processed as normal, on a line by line basis for revenue, expenses, assets and liabilities. Subsequent Business Combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for 23 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exceptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured in each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to business combinations are expensed to the statement of comprehensive income. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. Goodwill Goodwill is carried at cost less any accumulated impairment losses. Goodwill is calculated as the excess of the sum of: (i) (ii) (iii) the consideration transferred; any non-controlling interest (determined under either the full goodwill or proportionate interest method); and the acquisition date fair value of any previously held equity interest; over the acquisition date fair value of net identifiable assets acquired. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is tested for impairment annually and is allocated to the Parent Company’s cash-generating units or groups of cash-generating units, representing the lowest level at which goodwill is monitored being not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity disposed of. Changes in the ownership interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions and do not affect the carrying amounts of goodwill. Non-controlling interests The interest of non-controlling shareholders in subsidiary companies (holdings of greater than 0%, but less than 50%), are initially recognised at fair value. Subsequent results of the subsidiary are apportioned to the non-controlling interests in proportion to their shareholding. 1.4 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods supplied, stated net of discounts, returns and value added taxes. The group recognises revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the group’s activities, as described below. The group bases its estimate of return on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. 24 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 Sales of goods – retail The group manufactures and sells a range of health and beauty products for sale to the retail market. Sales of goods are recognised when an order is executed and stock is segregated from the Group’s inventory, ready for collection in accordance with that customer’s terms of trade. The life science products are often sold with volume discounts; customers have a right to return faulty products in the wholesale market. Sales are recorded based on the price specified in the sales contracts, net of the estimated volume discounts and returns at the time of sale. Accumulated experience is used to estimate and provide for the discounts and returns. The volume discounts are assessed based on anticipated annual purchases. Internet revenue Revenue from the provision of the sale of goods on the internet is recognised as at the date that payment is received, because that is the point the buyer accepts legal responsibility for the good being sold. Transactions are settled by credit or payment card. 1.5 Finance income Interest income is recognised on a time proportionate basis that takes into account the effective yield on the financial asset. 1.6 Intangible Assets Brands Externally acquired brands, where identifiable, are capitalised as assets of the group. Brands are initially capitalised at historical cost, or attributable value, when acquired as part of a business combination. Brands have a limited legal life, however the Group monitors global expiry dates and renews registrations where required. Brands recorded in the financial statements are not currently associated with products which are likely to become commercially or technically obsolete. Accordingly, the Directors are of the view that brands have an indefinite life. Brands are tested annually for impairment and carried at cost less accumulated impairment charges. 1.7 Impairment At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another Standard. Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other Standard. 1.8 Research and Development Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project is expected to deliver future economic benefits and these benefits can be measured reliably. 25 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 Capitalised development costs have a finite useful life and are amortised on a systematic basis based on the future economic benefits over the useful life of the project. At this stage, the useful life of the project has not been determined as development is incomplete, hence amortization has not commenced. 1.9 Cash & Cash Equivalents In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. In the consolidated balance sheet, bank overdrafts are shown within borrowings in current liabilities. 1.10 Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Costs of inventories include the transfer from equity of any gains/losses on qualifying cash flow hedges for purchases of raw materials. 1.11 Trade Receivables Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non- current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. 1.12 Trade Payables Trade and other payables are recognised when the Group becomes obliged to make future payments resulting from the purchase of goods and services. They are initially recognised at fair value and subsequently at amortised cost using the effective interest rate method. Current liabilities represent those amounts falling due within one year. 1.13 Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). Receivables and payables are stated inclusive of the amount of GST receivable and payable. The net amount of GST recoverable from, or payable to, the ATO is included with the receivables or payables in the statement of financial position. 26 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 1.14 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates. 1.15 Income Tax Income tax expense or benefit represents the sum of current corporation tax payable and provision for deferred income taxes. Current income tax payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Group’s liability for current corporation tax is calculated using tax rates and laws that have been enacted or substantively enacted at the period-end date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the date of the statement of financial position where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more tax, with the following exceptions: Deferred tax assets are recognised only to the extent that the Directors consider that it is probable that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the period-end date. 1.16 Post Retirement Benefits For salaries paid (all by the Australian subsidiary): A defined contribution plan is a pension plan under which the group pays fixed contributions into a separate entity. Superannuation – the Australian defined contribution pension scheme – is mandated by Australian law and presently set at 9.5% of gross salary payable to an employee. The group pays contributions to publicly or privately administered pension insurance plans on a mandatory basis. The group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. 27 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 1.17 Foreign Currencies Functional and presentation currency Items included in the consolidated financial statements of the Group are measured using the currency of the primary economic environment in which the Group operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is the Group’s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the dates of the transactions. Foreign currency monetary assets and liabilities at the reporting date are translated at the exchange rate existing at the reporting date. Exchange differences are recognised in the statement of comprehensive income in the period in which they arise. 1.18 Contributed Equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. If the Company reacquires its own equity instruments, e.g. as the result of a share buy-back, those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the profit or loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity. 1.19 Segment Reporting The operating segment was reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segment, has been identified as the board of directors, which has overall control for strategic decisions. 1.20 Estimates and Judgements The directors evaluate estimates and judgements incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation or future events and are based on current trends and economic data, obtained both externally and within the Group. 28 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 Estimation of useful lives of assets The Group determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where useful lives are less than previously estimated lives, or technically obsolete or non- strategic assets that have been abandoned or sold will be written off or written down. Goodwill and other indefinite life intangible assets The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policies described in Note 1.6 and Note 1.7. The recoverable amounts of cash- generating units (required to determine fair value less costs to sell) have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. 1.21 New accounting standards for application in future periods (a) New and amended standards adopted by the group There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial period beginning on 1 July 2015 that would be expected to have a material impact on the group. (b) New standards and interpretations not yet adopted A number of new standards and amendments to standards and interpretations are effective for annual periods beginning on or after 1 July 2015, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the financial statements of the group, except the following set out below: IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in July 2014. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: 1) those measured as at fair value and 2) those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The group is yet to assess IFRS 9’s full impact. The group will also consider the impact of the remaining phases of IFRS 9 when completed by the Board. 29 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 2. Parent Information Guarantees InnovaDerma PLC has not entered into any guarantees, in the financial period, in relation of the debts of its subsidiary. Contingent Liabilities At 30 June 2016, InnovaDerma PLC did not have any contingent liabilities. Contractual Commitments At 30 June 2016, InnovaDerma PLC had not entered into any contractual commitments. Consolidation of subsidiaries In the prior year, following the incorporation of InnovaDerma PLC, the following subsidiaries: InnovaDerma AUS and NZ Pty Ltd, InnovaDerma International Limited, InnovaDerma NZ Limited, and ID Philippines, Inc were acquired through a share for share exchange. The subsidiaries have been consolidated using the pooling of interest method on the basis that the entities being combined were ultimately controlled by the same party, both before and after the combination. Under this method the assets and liabilities of the acquiree are recorded at book values and intangible assets and contingent liabilities are only recognised if they were previously recognised by the acquiree. No goodwill is recorded and expenses of the combination are immediately written off in the profit or loss. The carrying value of the subsidiaries’ net assets at the date of combination were as follows: InnovaDerma AUS & NZ Pty Ltd InnovaDerma International Limited InnovaDerma NZ Limited ID Philippines Inc Net Assets Acquired $ (58,118) - - - The shares in InnovaDerma AUS & NZ Pty Ltd, InnovaDerma International Limited, InnovaDerma NZ Limited, and ID Philippines, Inc were exchanged for 8,969,960 Ordinary Euro 0.10 shares in InnovaDerma PLC. 30 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 3. Operating segments Operating segments must be identified on the basis of internal reports about components of the consolidated entity that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. As a new group, currently in its growth phase, the Board (the group’s chief operating decision maker) believe that, at 30 June 2016, there was only one business segment, the hair and beauty division. The revenue and results of this segment are those of the consolidated entity as a whole and are set out in the statement of profit or loss and other comprehensive income. The segment assets and liabilities of this segment are those of the consolidated entity and are set out in the statement of financial position. 4. Operating profit/(loss) The following items have been included in arriving at the operating profit/(loss): Year ended 30 June 2016 $ Period from 19 September to 30 June 2015 $ Gains on foreign exchange - - Expenses: Directors’ remuneration Depreciation Auditor’s remuneration - - As auditors (for parent company and consolidation) Taxation compliance (for parent company and subsidiaries) 321,498 3,180 30,000 10,000 47,475 1,834 16,000 5,000 All remuneration payable to the auditors has been disclosed above. No other non-audit services have been provided. No benefits in kind are payable to the auditors. Contributions to superannuation (money purchase pension schemes) are made on behalf of four directors of the group. 31 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 5. Employees Staff costs for the Group during the period: Wages and salaries Social security costs Pension costs (including superannuation) Year ended 30 June 2016 $ Period from 19 September to 30 June 2015 993,766 168,902 - 62,549 1,056,315 - 16,045 184,947 The average monthly number of staff (including executive Directors) employed by the Group during the period amounted to: Management staff Other employees 6. Taxation Year ended 30 June 2016 Period from 19 September to 30 June 2015 4 14 18 4 21 25 Year ended 30 June 2016 $ Period from 19 September to 30 June 2015 $ Current Tax Current tax on profits in the period Deferred tax expense Income Tax Expense 294,766 (169,518) 125,248 - - 32 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 Factors affecting current tax charge The effective rate of tax for the period is higher than the standard rate of corporation tax in the UK of 20% due to tax on subsidiaries located in higher tax jurisdictions. The differences are explained below: Profit/(Loss) before taxation 472,627 (900,294) Year ended 30 June 2016 $ Period from 19 September 2014 to 30 June 2015 $ Profit on ordinary activities multiplied by the standard rate of tax in the UK of 20% Differences in tax rates in subsidiary jurisdictions Excluded (gain)/loss from foreign jurisdictions Losses carried forward Permanent differences Total current tax 7. Revenue Haircare Products Skin & Beauty Products 8. Cash and cash equivalents 94,525 82,005 (51,316) - 34 125,248 (180,059) 177,186 2,873 - - Year ended 30 June 2016 $ Period from 19 September 2014 to 30 June 2015 $ 951,624 7,461,072 922,113 125,538 8,412,696 1,047,651 30 June 2016 $ 30 June 2015 $ Cash at bank 207,682 212,618 Cash at bank is included as cash and cash equivalents in connection with the statement of cash flows. When in overdraft, this balance is included in trade and other payables. 33 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 9. Trade and other receivables Trade Receivables 10. Inventory Finished goods (Leimo) Finished goods (Stop and Pose) Finished goods (Skinny Tan) 30 June 2016 $ 30 June 2015 $ 1,970,619 112,142 30 June 2016 $ 30 June 2015 $ 310,219 - 797,416 1,107,635 248,532 10,886 82,376 341,794 The costs of inventories recognised as an expense and included in cost of sales amounted to $2,539,817 for the year. 11. Prepayments and Sundry Assets Deposits held Prepayments Input tax Sundry assets 30 June 2016 $ 30 June 2015 $ 9,690 35,844 29,472 - 75,006 24,570 - 29,472 15,369 69,411 34 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 12. Intangible Assets Group: Brands (Skinny Tan) Brands (Leimo) Brands (Stop & Pose) Development Costs Movement in capitalised development costs: Balance brought forward Development expenditure during the year/period Parent Company Goodwill Brands (Leimo) 30 June 2016 $ 30 June 2015 $ 444,202 444,202 2,794,024 2,794,024 148,331 94,247 148,331 31,922 3,480,804 3,418,479 30 June 2016 $ 30 June 2015 $ 31,922 62,325 94,247 - 31,922 31,922 30 June 2016 $ 30 June 2015 $ 1,399,424 1,399,424 - 2,492,674 3,892,098 3,892,098 In the prior period, the Parent Company acquired the Leimo brand by issuing shares to the seller. During this financial year, the brand was transferred to the subsidiary trading in those products – InnovaDerma AUS & NZ Pty Ltd. 35 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 13. Deferred tax asset Deferred tax items recognised in income statement: - Other timing differences - Income tax losses 14. Trade and other payables Trade payables Other payables Current tax payable 15. Borrowings General Borrowings Convertible Notes Convertibles 30 June 2016 $ 30 June 2015 $ 37,292 139,490 176,782 - - - 30 June 2016 $ 30 June 2015 $ 1,814,709 690,711 294,482 2,799,695 687,608 100,714 - 788,322 30 June 2016 $ 30 June 2015 $ 951,402 127,510 1,078,912 560,553 127,510 688,063 During the period to 30 June 2015, the Group issued convertible notes worth a total of $127,510. The bonds mature two years from the issue date (29 May 2015) at their nominal value, or can be converted into shares at the holder’s option at any point between the date of the group’s public listing and the maturity date. If exercised, the number of shares issued will be calculated based on the group’s share price at the exercise date. Given the number of shares issued is variable, depending on the share price at that time, governing accounting standards categorise the entire convertible note as a liability, with no equity component. Upon conversion, the borrowings balance will be cleared and a corresponding balance of the same value will be created in equity. 36 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 16. Deferred tax liability Deferred tax items recognised in income statement: - Prepayments 17. Contributed equity Opening balance as at 1 July 2015 Shares issued during the year Balance as at 30 June 2016 Shares issued on incorporation Share for share exchange to acquire subsidiaries 1 Shares issued to complete brand acquisition Share split (original incorporation shares) Shares issued on exercise of convertible notes Share issue costs Balance as at 30 June 2015 30 June 2016 $ 30 June 2015 $ 7,264 7,264 - - - 30 June 2016 No. of shares 30 June 2016 $ 10,209,920 108,615 10,318,535 2,479,468 16,555 2,496,023 30 June 2015 No. of shares 30 June 2015 $ 4 8,969,960 626,400 36 613,520 - 10,209,920 5 1,308,157 91,362 - 1,391,162 (311,218) 2,479,468 1 The subsidiaries acquired were InnovaDerma AUS & NZ Pty Ltd, InnovaDerma International Limited, InnovaDerma NZ Limited, and ID Philippines Inc. The holder of the ordinary shares is entitled to one vote per share at any meeting of the Company whether in person or by proxy. The holder is entitled to receive dividends declared from available profits and to the surplus of assets on a winding up. 37 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 18. Merger reserve InnovaDerma PLC acquired 100% of the share capital of InnovaDerma AUS & NZ Pty Ltd, InnovaDerma International Limited, InnovaDerma NZ Limited, and ID Philippines, Inc, on 28 November 2014. These transactions are noted as being completed under common control – all companies involved in the deal were controlled by Mr Haris Chaudhry before and after the transaction was processed. This condition falls under a scope exemption for IFRS 3. Per IAS 8.12, the company may, in this circumstance, utilise pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards. As a UK company, the directors decided to apply UK Generally Accepted Accounting Principles, which make provision for Pooling of Interests in a common control situation, also commonly referred to as Merger Accounting. In this circumstance, the difference between the consideration transferred and the nominal value of share capital acquired is taken to equity, creating a Merger Reserve. 28 November 2014 Acquisitions: Consideration transferred (8,969,960 shares) Value of share capital acquired Value of Merger Reserve $ 1,308,157 (100) 1,308,057 19. Accumulated losses Balance brought forward Acquisition of subsidiaries (pooling of interests) Profit/(loss) for the period Balance carried forward 30 June 2016 $ 30 June 2015 $ (958,512) - 221,690 (736,822) - (58,218) (900,294) (958,512) 38 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 20. Intercompany loan – parent company Balance brought forward Leimo brand transfer (see Note 12) Movement in funds Balance carried forward 30 June 2016 $ 30 June 2015 $ 1,157,379 2,492,674 (81,426) 3,568,627 - - 1,157,379 1,157,379 21. Investment in subsidiaries During the year, the Company held interests in the following subsidiaries: Company Name Date of Acquisition Percentage Holding InnovaDerma AUS & NZ Pty Ltd 1 InnovaDerma International Limited 1 InnovaDerma NZ Limited 1 ID Philippines Inc 1 Bach Health Pty Ltd InnovaScience Inc Skinny Tan Pty Ltd Skinny Tan UK Limited 28 November 2014 28 November 2014 28 November 2014 28 November 2014 23 January 2015 31 March 2015 28 May 2015 28 May 2015 30 June 2016 100% 100% 100% 100% 100% 100% 80% 80% Percentage Holding 30 June 2015 100% 100% 100% 100% 100% 100% 100% 100% 1 Please see notes 1.3 and 16 for further detail on the method of accounting applied for the acquisitions. The results of these subsidiaries have been consolidated on a line by line basis into the consolidated financial statements. 39 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 22. Business Combination In the prior year, the Group acquired 100% of the share capital of Skinny Tan Pty Ltd, in exchange for cash consideration of $50,075. The acquisition expands the range of products the Group can offer in the hair and beauty sector and is anticipated to facilitate scalability in the Group’s offerings for the coming financial year, as expansion continues into new markets. The following table shows the allocation of consideration paid for Skinny Tan Pty Ltd, the fair value of assets acquired, liabilities assumed, and the non-controlling interest at the acquisition date. Consideration Cash Consideration Total Consideration Recognised fair value of assets acquired and liabilities assumed Accounts receivable Inventory Other assets Brand Intellectual property Trade and other payables Borrowings Total fair value of assets acquired and liabilities assumed 50,075 50,075 5,444 72,023 16,299 431,515 12,687 (240,373) (247,520) 50,075 23. Related party transactions Name Transaction Amount received from / (paid to) in year Amount due from/(to) related party 2016 $ 2015 $ 2016 $ 2015 $ 151,495 (151,495) (151,495) Farris Marketing Concepts Pty Ltd Farris Marketing Concepts Pty Ltd Loan payable1 Acquisition of Stop & Pose Brand - - (200,000) Cyngenta Capital & Advisory Provision of services2 (27,237) - - - - - Zaymar Investments Pty Ltd Loan payable1 736,007 60,000 (796,007) (796,007) Mr Haris Chaudhry Loan payable1 (173,757) 173,757 - (173,757) 1 These loans are interest free and unsecured. 2 These expenses were settled via the issue of equity instruments in InnovaDerma PLC. 40 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 Common control acquisition of subsidiaries As more fully discussed in Note 18, InnovaDerma PLC acquired several subsidiaries via a share for share exchange. These subsidiaries were majority controlled by Mr Haris Chaudhry, a director of InnovaDerma PLC; hence, the majority of shares issued for the acquisition were issued to Mr Chaudhry. Nature of related parties Farris Marketing Concepts Pty Ltd and Zaymar Investments are related parties of Mr Haris Chaudhry, the Executive Chairman. Key Management Personnel All transactions with key management personnel (the directors) during the year ended 30 June 2016 are disclosed below: Salary Superannuation Consultancy Total Total 2015 Haris Chaudhry Geert Lemair Joseph Bayer Rodney Turner Clifford Giles 150,000 15,995 96,002 27,150 - Fees 14,250 1,505 10,078 2,850 - Nil 164,250 51,985 17,500 Nil Nil - 35,000 106,080 30,000 - - - - - 289,147 28,683 17,500 335,330 51,985 During the period, there were no advances, credits or guarantees subsisting on behalf of the directors. Ultimate Controlling Party As at the year-end date, the Group was controlled by Mr Haris Chaudhry, who is the majority shareholder of InnovaDerma PLC. 24. Commitments and contingencies At 30 June 2016 the Group did not have any contingencies. At 30 June 2016, the Group had an obligation to pay $71,000 in rent for the forthcoming 12 months, under a non-cancellable operating lease. 41 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 25. Reconciliation of operating profit to net cash outflow from operations Profit after income tax Depreciation Expenses settled in shares Year ended 30 June 2016 Period from 19 September to 30 June 2015 $ 347,379 (900,294) 2,147 13,418 1,834 - (Increase) in trade and other receivables (1,860,774) (117,765) (Increase) in inventory (765,841) (203,891) Increase in trade and other payables 1,716,891 376,463 Increase in taxes payable 124,964 - Net cash outflow from operations (421,816) (843,653) 26. Financial risk management The Group’s financial instruments consist mainly of deposits with banks, accounts receivable and payable & loans from related parties. The Group’s financial instruments at 30 June 2016 were classified as follows: Note 30 June 2016 30 June 2015 $ Financial assets Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Trade and other payables Borrowings 8 9 14 15 207,682 1,970,619 2,178,301 2,799,695 1,078,912 3,878,607 212,618 112,412 325,030 788,322 688,063 1,476,385 Fair value versus carrying amounts All items shown in the preceding table as either financial assets or financial liabilities are short term instruments whose carrying value is equivalent to the fair value. There is not considered to be a material difference between the fair value and the carrying value. 42 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 Specific Financial Risk Exposures and Management The Group’s activities expose it to a number of financial risks that include market risk, credit risk and liquidity risk. (a) Market Risk i) Foreign exchange risk The Group does not hold any material financial assets denominated in a foreign currency at the period end, hence it is not exposed to foreign exchange risk. Interest rate risk ii) The Group had interest-bearing liabilities during the period, but is not exposed to interest rate risk because the interest rates on their liabilities are set by private agreement, not by reference to market rates. The group does not have any liabilities to financial institutions as at 30 June 2016. As such, sensitivity analysis with regard to movements in interest rates would not be meaningful. (b) Credit risk Exposure to credit risk relating to financial assets arises from the potential non-performance of counter- parties of contract obligations that could lead to financial losses to the group. Credit risk exposures The Group had no significant concentrations of credit risk. (c) Liquidity risk Liquidity risk arises from the possibility that the group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The group manages this risk through careful cash management policies. In order to meet its short term obligations, the group has the suppor t of several key shareholders who are willing to provide funds to the group on an as-needed basis. For loans receivable and payable, please refer to Note 9 – Trade and Other Receivables, Note 14 – Trade and Other Payables & Note 15 - Borrowings. Loans are unsecured and have no fixed repayment date. 27. Share Based Payments No share options have been granted to employees or directors. 28. Earnings per share Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period. The following reflects earnings and share data used in the earnings per share calculation. Year ended 30 June 2016 Period from 19 September to 30 June 2015 $ Profit/(loss) for the year 347,379 (900,294) 43 INNOVADERMA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 Weighted average number of shares 10,301,983 7,449,281 29. Subsequent Events On 7 September, InnovaDerma PLC was admitted to the Official List and to trading on the Main Market of the London Stock Exchange. Trading on the Marche Libre Paris segment of Euronext was suspended on the same date. On 20 September, 27,000 ordinary shares of EUR 0.10 were allotted. Aside from the above items, the directors are not aware of any significant events since the end of the reporting period. 30. Company Details The registered office of InnovaDerma PLC is: 27 Old Gloucester Street London United Kingdom WC1N 3AX The principal place of business is: Level 17, 31 Queen Street Melbourne VIC 3000 Australia 44 

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