OptiBiotix Health Plc Annual Report 2020

Plain-text annual report

optibiotix.com ANNUAL REPORT AND ACCOUNTS FOR THE PERIOD ENDED 31 DECEMBER 2020 Contents Company Information Chairman’s Report Chief Executive’s Report Strategic Report Directors’ Report Report of the Independent Auditors Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Statements of Cash Flows 2 3 5 11 16 19 25 26 27 28 29 Company Statement of Financial Position Company Statement of Changes in Equity Company Statement of Cash Flows Notes to the Company Statements of Cash Flows Notes to the Financial Statements Notice of Annual General Meeting 30 31 32 33 34 57 1 OptiBiotix Health Plc Company Information Directors: S P O’Hara R Davidson M Christie C Brinsmead S Hammond S Kolyda Secretary: International Registrars Limited Registered number: 05880755 (England & Wales) Registered office: Innovation Centre Innovation Way York YO10 5DG Auditors: Jeﬀreys Henry LLP Finsgate 5-7 Cranwood Street London EC1V 9EE Nominated adviser: Cairn Financial Advisers LLP Cheyne House Crown Court 62-63 Cheapside London EC2V 6AX Brokers: Cenkos Securities plc 6-7-8 Tokenhouse Yard London EC2R 7AS Website Address: www.optibiotix.com Annual Report and Accounts 2020 2 Chairman’s Report For the year ended 31 December 2020 I am pleased to report a further year of solid strategic, commercial and financial progress. The Group has achieved strong sales growth while reducing its already low-cost base, enabling both its Probiotic and Functional Fibre divisions to achieve as planned. The profitability successful commercialisation of our first-generation products with a range of internationally recognised partners confirms the effectiveness and scalability of our innovative, low risk business model, while our pipeline of exciting second-generation products gives us a strong base to deliver continuing growth in shareholder value. Results Group sales for the 12 months ended 31 December 2020 (prior period: 13 months ended 31 December 2019) grew by 104% to £1,523,247 (2019: £744,883) while other administrative expenses reduced by 27% to £1,616,069 (2019: £2,204,217). Despite the challenges presented by the global COVID-19 pandemic, both the Functional Fibres and Probiotic divisions achieved proﬁtability at the EBITDA level, after losses in the prior 13 month period. The Company received an additional £746,751 during the year from the partial disposal of its holding in SkinBioTherapeutics plc (‘SBTX’), which is not included in the Group revenue ﬁgures. As a result of the change in the Company’s shareholding in SBTX, it is now treated as an investment rather than an associate and the change in the value in the Company’s shareholding during the ﬁnancial year will in future be reﬂected in the Group accounts. The increase in the value of the SBTX holding of £7,120,962 during the year results in a Group net proﬁt for the year of £5,801,867 (2019: net loss £2,368,362). The Group’s ﬁnancial position remains strong, with total cash on the balance sheet at the year-end increasing by 90% to £864,680 (2019: £455,608). Post period, the Company sold £900,936 SBTX shares in March 2021 to further strengthen its balance sheet. Strategy is a Optibiotix Health life sciences business founded on the development of prebiotic and probiotic compounds to tackle obesity, cardiovascular disease and diabetes: all conditions that are aﬀecting growing numbers of people in all parts of the world. Our proven, low risk growth strategy is to secure deals with multiple partners – manufacturers, formulators and distributors – in multiple territories around the world, ensuring that we retain control of the complete value chain for all the compounds we develop, and can extract value for our shareholders at each stage. We have now established the scientiﬁc, clinical and commercial viability of our ﬁrst-generation products (LPLDL® and SlimBiome® / WellBiome®) achieving strong sales growth with internationally recognised retail and pharmaceutical partners. As we anticipated, this growth in volumes has enabled us to renegotiate contracts with our partners so as to reduce the cost of goods and deliver improved divisional margins, as noted in the ﬁnancial report. The next stage of our strategy will focus on the development and commercialisation of our second-generation platforms, which include SweetBiotix®, microbiome modulators to tackle a range of human health conditions, and drug biotherapeutics. All of these oﬀer signiﬁcant potential for long term growth. Business development Among the many positive developments during the year, which the Chief Executive discusses more fully in his report, I would particularly like to highlight: • • • Our agreement in August 2020 with Optipharm and product launch in October 2020 for the exclusive use of our OptiBiome® weight management ingredient in over 20 countries in its ﬂagship Optislim brand, the leading weight management brand in Australia. The agreement with a US partner for the large-scale manufacture and commercialisation of a number of SweetBiotix® products announced on 15 September 2020. The USA FDA authorisation in October 2020 of an Investigational New Drug (‘IND’) trial by our partner Seed Health of a probiotic containing LPLDL®. Since the year-end, we have also achieved an important extension of our product range with Holland & Barrett, which has increased from three to eight the number of lines in its own SlimExpert range containing SlimBiome® as announced on 17 March 2021. 333 OptiBiotix Health Plc Chairman’s Report (continued) The Board Outlook We continue to evolve the Board to ensure that we have the right mix of skills to lead the Group through the next stage of its strategic development, and to this end we have announced the appointment of two non-executive directors since the beginning of the new ﬁnancial year. Christopher Brinsmead CBE joined the Board as a non-executive director on 1 January 2021, bringing to us more than 30 years of experience in the pharmaceutical and healthcare sectors as a senior executive and adviser, FTSE 350 company director and chairman. Stephen Hammond MP joined the Board as a non-executive director on 2 March 2021, further complementing our skillset through his experience during a successful career in fund management and investment banking prior to entering Parliament in 2005, and his subsequent senior roles in government. Peter Wennström retired as a non-executive director on 1 January 2021, with our thanks for his contribution to the development of the Company and particularly for his valuable advice on brand strategy and the positioning of our ﬁrst-generation products in international markets; I am pleased that his expertise remains available to us as an adviser. René Kamminga joined as Chief Executive Oﬃcer (“CEO”) of OptiBiotix Ltd, a wholly owned subsidiary of OptiBiotix Health plc, on 6 April 2021. We are conﬁdent that his experience and track record of growing sales, and his network of new industry contacts within the pharmaceutical and nutraceutical industries, will help OptiBiotix in its next phase of development as we look to extend the range of applications for our award-winning SlimBiome® and LPLDL® to commercialise our second generation SweetBiotix®, microbiome modulating, and LPLDL® drug products. ingredients, and Following René’s appointment, Dr Fred Narbel has moved to a more strategic role within the business as a non-executive director of OptiBiotix Ltd. We are grateful to Fred for his contribution over the previous two years in building the sales of our ﬁrst-generation products, expanding our network of production partners around the world, securing commercial launches of products containing SlimBiome® with retailers in numerous countries, and in setting up the Functional Fibres division’s quality system, and we look forward to his continued support in his new role. We have also strengthened our senior executive team below the main Board, as the Chief Executive reports below. We have made a strong start to the current year, continuing to expand sales of our proven ﬁrst-generation products whilst building the scientiﬁc and clinical evidence base needed to de-risk our highly innovative second-generation products and maximise their commercial potential in the future. Our new products open up signiﬁcantly larger market opportunities, which we are well placed to exploit through an established, low overhead, sustainable business model that has demonstrated its ability to deliver a rapid increase in scale. Already this year we have been able to report agreements and product launches that secure increased SlimBiome® sales in the UK, USA, Africa, India and wider Asia; the extension to two new territories in our agreement with Actial Farmaceutical for the distribution of CholBiome® and CholBiome®x3; and success in long term stability studies that assure the shelf life of SlimBiome® Medical, CholBiome® and CholBiome®x3, which will allow OptiBiotix and its partners to place larger orders for these products, so reducing the cost of goods and increasing margins. Our manufacturing partner is making strong progress with the ﬁrst industrial scale production of SweetBiotix®, and we have begun to explore the full potential of LPLDL® as a drug biotherapeutic. Although the COVID-19 pandemic has presented some signiﬁcant challenges over the last year in diverting commercial, medical and governmental attention away from the markets we address and delaying decision-making by some partners, we are conﬁdent that the issues of obesity, high cholesterol and diabetes will remain key areas of concern worldwide in the years ahead, and that the pandemic experience will drive increased interest in science-based products to address these challenges. The strengthening of our Board and senior management since the beginning of the year give me conﬁdence in our ability to continue to grow the business, and to deliver growing value for our shareholders in the longer term. N Davidson Chairman 16 June 2021 Annual Report and Accounts 2019 4 Chief Executive’s Report For the year ended 31 December 2020 of OptiBiotix offers investors a unique opportunity to participate in the growth potential afforded by one the most progressive and exciting areas of biotechnological research: the modulation human microbiome. The Company develops products innovative unique, protected by an extensive and growing international portfolio of patents and trademarks. Our two- stage strategy and low-cost business model are designed to maximise the earning potential of each of our products while limiting our investors’ risk, achieving global access to fast-growing markets by working with a range of local partners who are recognised and respected as leaders in their fields. the STRATEGIC DEVELOPMENT We are successfully progressing a two-stage strategy that is delivering as planned, with our ﬁrst-generation products, LPLDL® and SlimBiome®, generating rapid revenue growth against a low and decreasing cost base enabling us to achieve proﬁtability in our two principal Probiotic and Functional Fibre divisions. This was a substantive change from divisional losses of £467,704 for ProBiotix and £451,572 for the functional ﬁbres division reported in 2019. The second stage of our strategy is delivering on the huge potential of our second-generation products: the SweetBiotix® family of functional ﬁbres that act as low calorie, and drug prebiotic biotherapeutics. These products carry higher development risks than our ﬁrst-generation products but address much larger market opportunities, aﬀording very substantial potential for future growth in revenues and proﬁts and shareholder value. sweeteners; microbiome modulators; During 2020 we reached a turning point with our ﬁrst-generation products gaining a commercial position and brand recognition in over 120 countries. These products were designed with a low development risk with the aim of establishing the Company’s industry credibility, and testing our business model in the market. This has been achieved with the conclusion of multiple deals with large retail and pharmaceutical partners including Alfasigma, Agropur, Holland & Barret, and Optipharm, with OptiBiotix increasingly being identiﬁed as a key player in the microbiome space in industry reports. Holland and Barrett and AlfaSigma launched products in the ﬁrst quarter of 2020 and Optipharm in the last quarter. Whilst retail agreements typically have lower margins, they enhance the credibility and consumer awareness of our products, and with it, conﬁdence in our brand. The fact that our products are now increasingly becoming associated with internationally recognised retail and pharmaceutical partners and 555 OptiBiotix Health Plc established brands creates a virtuous circle of further interest from other potential partners and markets. FINANCIAL RESULTS As the Chairman has noted, Group sales for the 12 months ended 31 December 2020 (prior period: 13 months ended 31 December 2019) more than doubled to £1,523,247 (2019: £744,883). This 104% increase in revenues would have placed OptiBiotix Health among the top ten growth companies in the UK during 2020 (The UK’s Top Ten Fastest Growing Companies Revealed, Forbes August 2020). Both our principal divisions contributed to this strong sales performance and transitioned to proﬁtability during the year. The Functional Fibres division (SlimBiome®, OptiBiome® and WellBiome®) grew sales by 151% to £557,539 (2019: £222,235) despite the challenging trading environment created by COVID-19, which limited our partners’ ability to innovate, formulate and launch new products during the year. The division delivered positive EBITDA of £67,271, compared with an EBITDA loss of £451,572 in the previous period. The Probiotic division, our wholly owned subsidiary Probiotix Health Ltd (LPLDL®), increased sales by 107% to £821,126 (2019: £397,831), despite a number of customers postponing product launches or temporarily shifting their focus to immune health products in response to the Coronavirus pandemic. The division generated positive EBITDA of £88,762, compared with an EBITDA loss of £467,704 in 2019. Our smaller Consumer Health division, operating our own online store, grew sales by 17% to £137,024 (2019: £117,560 ) This business continues to serve as a valuable shop window for testing new products with consumers, and has helped us to achieve successful product launches with partners including Holland & Barrett and Alfa Sigma. Group administrative expenses, excluding non-cash items such as share- based payments and amortisation, reduced by 27% to £1,616,069 (2019: £2,204,217) as increased sales volumes enabled us to renegotiate contract terms with our commercial partners to deliver improved margins. As the Chairman has noted, the Group’s net proﬁt includes the beneﬁt of a substantial increase in the value of our holding in SkinBio Therapeutics plc (‘SBTX”) during the year. SBTX is making strong progress towards commercialising its products and we believe that it will prove to an appreciating asset for our shareholders in the future. It is worth noting that our initial investment of approximately £700,000 in this business in 2016 has delivered an investment asset now worth circa £25m as at 1 June 2021. We are pleased that our strategy of developing divisions as separate legal entities with the potential for a trade sale or separate public listing has helped create such a valuable asset to OptiBiotix shareholders. Chief Executive’s Report (continued) We will continue to consider other opportunities which capitalise on growing investor interest investment in the microbiome space in both the UK and international markets where they provide scope for enhancing shareholder value. COMMERCIAL UPDATE We signed a total of 27 new commercial agreements during the year ended 31 December 2020: 18 for SlimBiome® and related products in the Functional Fibres division, and 9 for LPLDL® in ProBiotix Health. Of note were deals with Holland and Barrett, Optipharm, and US partners that open up retail opportunities in the UK, Australia, parts of Asia, the Middle East, and North America. Announcing such deals increases industry awareness of OptiBiotix’s brands within the industry, and changes the nature of partner discussions as the commercial beneﬁts are established in more territories. Growing brand awareness increases the value of a product, and ultimately shareholder value, and is particularly important and valued by large corporates. This is in line with our strategic aim of growing the awareness of our ingredient and ﬁnished product brands around the world. Deals with Genuine Health (Canada/USA), Granja Pocha (Dairy: Uruguay) and Ayalla (Brazil), and at the end of the year, UITC (Singapore) support this approach and open up markets of strategic importance in the USA, South America, and Asia. Having products and brand presence in multiple territories is really important for corporate partners or potential corporate acquirers as it shows our products have international reach and appeal to customers around the world, and are not restricted to national markets. This is a major value enhancer as not all products are able to cross international boundaries. LPLDL® Sales of LPLDL® as an ingredient or ﬁnal product grew by 107% during the year. We have developed the science, carried out human studies to conﬁrm product safety and eﬃcacy, protected our commercial interests with a broad IP portfolio comprising some 30 patents, and built a supply chain of licensed partners to manufacture, formulate, and distribute this product around the world. We now have partners commercialising LPLDL® in over 60 countries including the world’s largest probiotic market (USA: Seed Health) and second largest (Italy: AlfaSigma). The next stage of our strategy is to grow sales with existing partners, extend territories and applications, and continue to sign up new partners. In addition to growing sales, the Company is renegotiating contracts as volumes increase to reduce the cost of goods. The renegotiation of our contract with Sacco Srl from a proﬁt sharing to a manufacture supply agreement where we buy from Sacco and then sell product to partners ourselves has signiﬁcantly improved margins. Particularly noteworthy developments during the year were the successful launch of AlfaSigma’s Ezimega 3 product and the commercial growth of Seed Health’s Daily Synbiotic. These achieved strong early growth despite the emerging COVID-19 pandemic which impacted on sales in the second half of the year. The signing of an agreement with Actial Farmaceutica Srl for the distribution of CholBiome® products was a signiﬁcant commercial achievement and brought further credibility to the LPLDL® brand. Actial is the developer of one of the world’s best- known probiotic brands - VSL#3® - and their products have a reputation for their strong science and clinical studies amongst hospital clinicians, GPs and pharmacists. The Company has now published six studies on LPLDL® in peer reviewed journals or as abstracts at international scientiﬁc conferences. These cover the safety and performance of LPLDL® in human studies, the three mechanisms of action by which LPLDL® reduces blood lipids, and LPLDL®’s antimicrobial activity against a wide range of clinically important human and/or animal pathogens including Campylobacter, Shigella, Salmonella, E.coli O157, and Clostridium diﬃcile. The results of two published independent human studies in diﬀerent countries show signiﬁcant reductions in both blood pressure and cholesterol and the product to be safe and well tolerated. Publications and presentations help to diﬀerentiate LPLDL® from products which are sold solely on marketing and reduce the risk of commoditisation and price erosion. LPLDL® has been determined as Generally Recognized As Safe (“GRAS”) by the US Food and Drug Administration (FDA) and has pharmaceutical GMP manufacture designation. This, together with the presence of a scientiﬁc and clinical evidence base, gives it major points of diﬀerentiation from other probiotics. These designations increase the market attractiveness of LPLDL® to pharmaceutical partners either used by itself, or as combination treatment to help lower the dose and potential side eﬀects of statins. This extends its potential beyond the traditional supplement market into broader therapeutic opportunities within pharmaceutical consumer health businesses or as a drug biotherapeutic with pharmaceutical partners. SlimBiome® Sales of SlimBiome® as an ingredient or ﬁnal product grew by 151% during the year. This was largely driven by partners in the UK, Australia and the USA launching new retail products, or building stock levels for the launch of products. Of particular note is the extension of SlimBiome® into everyday foods like muesli and porridge and the development of healthy snacks like fruit and ﬁbre gummies under the SnackSmart® brand. The launch of WellBiome® during the year reﬂects the growing interest from partners in a science backed Health and Wellbeing microbiome product which taps into a global trend for Health & Wellness, a market estimated to be worth US$4.2 trillion in 2019 with the digestive health segment accounting for US$60 billion. Annual Report and Accounts 2019 6 Chief Executive’s Report (continued) SweetBiotix® SweetBiotix® is a family of products based on the concept of creating a low calorie sweet ﬁbre that has a low glycaemic index, which enhances the microbiome. The concept uses new science, new manufacturing processes, and represents a step change from existing products on the market or known to be under development. Our aim is to build a broad range of products suitable for a wide range of application areas which can meet the needs of multiple partners on applications as diverse as dairy, cereals, and hot and cold beverages. Each of these has to be assessed in terms of ﬂavour optimisation, stability, dosage, safety, tolerance, health beneﬁts, and the ﬁnal product cost proﬁle. The agreement signed with a US partner in the second half of 2020 represented a signiﬁcant milestone in the commercialisation of SweetBiotix® products. The agreement, for one part of the SweetBiotix® portfolio, grants an exclusive licence in return for our partner making a signiﬁcant investment to cover all the manufacturing, marketing and commercialisation costs. In return, we will receive upfront, annual and product launch royalties from our US partner, plus royalties on all future product sales. We have also negotiated enhanced royalty payments on sales of SweetBiotix® products by our partner to 11 application / innovation partners. INTELLECTUAL PROPERTY There has been a rapid increase in the number of patents ﬁled in the microbiome space in the last 10 years, and OptiBiotix and Probiotix Health have together ﬁled numerous patents to protect their commercial interests and create ﬁrst mover advantage in this evolving ﬁeld. This is being supported by a large investment – typically of over £250,000 per year - in patents and trademarks to broaden protection in international markets Our Intellectual Property (‘IP’) strategy has been based on building a portfolio of overlapping patents to protect our commercial interests and reduce the risk of any particular patents failing to grant or being opposed by a competitor. This means that we have multiple composition, application, and process patents to protect each area of our business. Whilst this approach is more costly, it reduces our future commercial risk. As patents are granted in key territories (typically the US, Europe, Canada, Japan, Australia, India) the Group has been able to reﬁne its patent portfolio to reduce IP costs whilst continuing to protect its commercial interests. Our strategy and investment have enabled the Group to build an extensive and valuable intellectual property portfolio of some 70 patents worldwide. In addition to these patents, we have registered over 68 trademarks to provide what is called ‘double IP’ – a combination of patents and supporting trademarks which allows OptiBiotix to build its trademarked brands supported by its patents. This approach further reduces risk and in combination creates a valuable IP portfolio in the microbiome ﬁeld. KEY ACHIEVEMENTS During the period to date we have signed new agreements, launched new products, extended our agreements with existing partners and completed successful human studies on the eﬀectiveness of our products, and the highlights of the year were as follows: New agreements • • • • • • • • • Concluding an agreement with Optipharm, whose ﬂagship brand Optislim is Australia’s leading weight management brand, for the exclusive use of our OptiBiome® weight management ingredient in over 20 countries including Australia, parts of Asia, New Zealand, Middle East, Gulf States and North America Signing a three-year distribution agreement with a subsidiary of Pierce Group Asia granting it exclusive rights to import and commercialise OptiBiotix’s SlimBiome® and LPLDL® and to manufacture, develop, and sell a wide range of ﬁnished products to China and Hong Kong Granting MAXCARE Inc exclusive rights to commercialise OptiBiotix’s SlimBiome® proprietary weight management technology in Taiwan The signature of a licensing agreement with Granja Pocha S.A. for the inclusion of ProBiotix’s patented probiotic strain LPLDL® into a functional yogurt product in Uruguay, South America Conclusion of a new licensing agreement with Velinoﬀ Pharma Ltd for the distribution of ProBiotix’s products CholBiome® and CholBiome®X3, which contain OptiBiotix’s patented probiotic strain LPLDL®, in Bulgaria Reaching a one year exclusive distribution agreement with Prosperous Pharma, based in Lebanon, to distribute and commercialise OptiBiotix’s SlimBiome® Medical to the Gulf Cooperation Council States and the Levant region A non-exclusive distribution agreement with Actial Farmaceutica Srl for the distribution of CholBiome® and CholBiome®X3 in Australia, New Zealand, Indonesia and Thailand, under the VSL#3® range An exclusive agreement with a US company for the large-scale manufacture and commercialisation of a number of SweetBiotix® products in return for upfront, milestone, launch and royalty payments An exclusive distribution agreement granting United Italian Trading Corporation (Pte) Ltd exclusive rights to distribute SlimBiome® Medical, CholBiome® and CholBiome®X3 in Singapore 7 OptiBiotix Health Plc Chief Executive’s Report (continued) • The grant of a non-exclusive LPLDL® license to Genuine Health Inc for a cardiovascular health product in Canada and the USA Product launches • • • • • • The launch of a branded SlimBiome® product range with Holland & Barrett, the ﬁrst agreement with a major retailer to market our proprietary weight management technology The launch in Italy by ALFASIGMA S.p.A. of a food supplement containing our proprietary cholesterol reducing LPLDL® probiotic strain, providing an entry into the largest and fastest growing probiotic market in Europe The launch of SlimBiome® in the North American market by Agropur, following our grant to them in 2019 of an exclusive licence to manufacture, supply and distribute our SlimBiome® weight management technology in the USA, Canada and Mexico The launch of SlimBiome® containing products in Walmart and Costco in the USA and Canada through US partners Smart For Life and Evolution 18 The launch of WellBiome®, a patented supplement to improve gut health; this is a proprietary blend of prebiotic functional ﬁbres, functional dietary ﬁbres and minerals optimised to promote the diversity of the gut microbiome, and is an evolution of our proven SlimBiome® functional ingredient formulated to support weight loss and weight management The launch of a range of meal replacement shakes and bars containing our OptiBiome® proprietary weight management technology under the Optislim® brand with Woolworths, ChemistWarehouse and on OptiPharm Pty Ltd’s online store in Australia and New Zealand in October 2020 Extensions of product range or territories with existing partners • • • Signing a new global manufacturing and supply agreement for LPLDL® with Sacco S.r.l., extending our existing agreement with them until 2023 and changing our original proﬁt-sharing terms to allow us to beneﬁt from lower prices for LPLDL® as sales increase Extension of the existing terms and territories for our partners CTC Group and Cambridge Commodities for the distribution of SlimBiome®, SlimBiome® Medical and GoFigure® Extension of the territories with Extensor to distribute our GoFigure® consumer weight management products in Ukraine, Estonia, Lithuania, Latvia, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Turkmenistan, Armenia, Azerbaijan, Georgia, Belarus, Moldova and Russia • • • Extension of our existing terms to include WellBiome® with Draco Ingredients GmbH in Germany; Agropur MSI LLC in the USA, Canada and Mexico; Maxum Foods in Australia and New Zealand; and CTC Holdings BV in the Philippines, Vietnam, Indonesia, Colombia, the Dominican Republic and Guatemala Extension of the terms, territories, and products covered by our existing distribution with CTC Holding BV for the sale of CholBiomeX3 to include LPLDL® as a bulk ingredient and three additional products: CholBiome, CholBiomeBP and CholBiomeVH,, and to extend coverage from the Philippines to include non- exclusive distribution rights for Vietnam, Indonesia, Colombia, the Dominican Republic and Guatemala Extending the terms of our original exclusive licence agreement for OptiBiome® with OptiPharm Pty Ltd. (“OptiPharm”) to include Europe in addition to Australia, parts of Asia, New Zealand, Middle East, Gulf States and North America New human studies • Completion of a successful human study by ProBiotix Health, in partnership with Nutrilinea S.r.l., demonstrating that a new food supplement formulation containing LPLDL® can reduce high blood pressure (hypertension) New drug trial authorisation • USA FDA authorisation of an Investigational New Drug (‘IND’) trial by our partner Seed Health of a probiotic containing LPLDL®, to investigate the role of the gut microbiome in patients with Irritable Bowel Syndrome MANAGEMENT There were no changes to the Group Board during the year, though as the Chairman has reported we have made a number of important new executive and non-executive appointments since the beginning of the new ﬁnancial year. We have also made a number of senior appointments below the level of the main Board. In January 2021 Aneta Zlotokowska joined us from Tesco as Head of Quality & Operations, with a remit to ensure that we meet the quality and regulatory requirements of our growing network of corporate and retail partners around the world. Dr Taru Jain joined us in March 2021 to focus on business development and sales growth in the strategically important Indian and Asian markets, and Christopher Nother joined us in January 2021 on a 6 month part-time consultancy basis to explore the potential for LPLDL®, in pharmaceutical markets as a live biotherapeutic or consumer health product. The Company now has more opportunities, with an increasing number of larger partners, than it is able to meet within its existing capacity and will continue to evolve Annual Report and Accounts 2020 8 Chief Executive’s Report (continued) the team to fully exploit the opportunity within the window of opportunity. As noted in the interim report, Steve Prescott left his position as CEO of ProBiotix Health Ltd by mutual agreement at the end of May 2020, since when I have acted as CEO of the division with the support of Mikkel Hvid-Hansen in the expanded role of Commercial Director. OUTLOOK Our two-stage strategy is delivering as planned, with our ﬁrst-generation products, LPLDL® and SlimBiome®, generating revenue growth and proﬁtability in our two principal divisions. The company is now in the strongest position it has ever been in with an exciting technology pipeline, broad intellectual property portfolio in the microbiome, a number of clinical studies showing product safety and eﬃcacy, growing international brand presence, strong sales, forward orders, and balance sheet. This provides the base of a sustainable business on which to grow the business. The second stage of our strategy is delivering on the huge potential of our second-generation products: the SweetBiotix® family of functional ﬁbres that act as low calorie, prebiotic sweeteners; microbiome modulators; and drug biotherapeutics. We have continued to make strong progress since the beginning of the current ﬁnancial year with strong sales growth and with larger order sizes as existing partners extend their product range. Signiﬁcant developments in the year to date include: • • • • • The extension of Holland & Barrett (“H&B”)’s range of their own brand SlimExpert products containing SlimBiome® from three to eight, including meal replacement and porridge lines, as direct result of H&B tasting and testing our own ﬁnished product applications sold through our online store The launch of SlimBiome® and OptiBiome® products in Asia, through partners in Thailand, Taiwan and Singapore expected to contribute revenues in the current ﬁnancial year and act as a stepping stone to the larger China market ProBiotix Health Ltd, entered a deal for LPLDL® with Compson Biotechnology Inc. in Taiwan, one of the largest distribution platforms in South East Asia The signing of a new agreements with Dipromed for the sale of SlimBiome® Medical and CholBiome® products in Morocco and Algeria Expansion of SlimBiome® sales in India through extension of Anthem Biosciences’ Metalite Pro product range and the launch of the ZeoSlim range of meal replacements by Zeon Lifesciences. This is a country of strategic importance to our growth plans and we anticipate reporting further news in this region • • • • The launch of Dietworks Appetite control gummies containing SlimBiome® in the USA through online and retail channels across the USA opening up another point of access to the large US market Extension of territories with Actial Farmaceutica Srl to distribute CholBiome® and CholBiome®X3 under the VSL#Cardio® range to France and Malaysia in addition to their existing territories of Australia, New Zealand, Indonesia and Thailand, with further territory extensions and product launches expected in the course of the current year Good progress by our SweetBiotix® manufacturing partner in the production of products on an industrial scale, paralleled by the release of a number of independent peer-reviewed publications Exploration of the potential to use LPLDL® in the pharmaceutical sector as either an ‘over the counter’ product or a drug biotherapeutic in markets outside the USA. We hope to be shortly publishing placebo-controlled human studies which demonstrate show that LPLDL® can achieve similar reductions in total cholesterol and LDL (bad cholesterol) to statins, without any side eﬀects Investor and consumer interest in the human microbiome continues to grow, presenting us with a market opportunity that is large and expanding. OptiBiotix is ideally placed to exploit this opportunity, with the Company having ﬁrst generation products which have won multiple awards, published studies in peer reviewed journals, granted patents, doubling sales, and a number of partners increasing both their product range and territorial reach. We are seeing a growing number of deals in Asia as we build brand awareness and product reputation in countries like Taiwan and Singapore to help open up opportunities for the larger Asia markets. We believe that each of these ﬁrst generation products have the potential for £10-20m sales per annum which on a 10X multiple would value each of these businesses at £100m to £200m each. Our exciting second-generation SweetBiotix® products oﬀer huge potential as healthy alternatives to sugar and sweeteners whilst our microbiome modulators create the potential to precision engineer the microbiome to positively impact speciﬁc human health conditions. We are pleased to see our SweetBiotix® manufacturing partner making strong progress scaling up these exciting products to industrial scale. Our partner agreed to make a six-ﬁgure payment on signing the agreement and at 12 monthly intervals until product launch when they will pay royalties on sales. This is unusual in the food and beverage industry and highlights the value our partner places on this product. We are also pleased to note that Seed Health, has received FDA Investigational New Drug (IND) approval to undertake a human clinical trial with its multi-species probiotic product containing OptiBiotix’s LPLDL in patients with irritable bowel syndrome. This has the potential to be a signiﬁcant value enhancing step if this study is successful and the product is approved as a drug. OptiBiotix has also made signiﬁcant 9 OptiBiotix Health Plc Chief Executive’s Report (continued) progress with its microbiome modulators with early data suggesting we have an approach which allows us to manufacture these at scale. If conﬁrmed, this is a major step forward in the commercialisation process and when reported should enhance the commercial appeal of these products to corporate partners. The strong growth in our revenues, the achievement of divisional proﬁtability, the continuing ﬂow of new agreements and product launches, the strength of our development pipeline, and the strengthening of our Board and senior executive team allow me to look forward with conﬁdence to the further progress of the Company in the current year and beyond. Stephen O’Hara Chief Executive 16 June 2021 Annual Report and Accounts 2020 10 Strategic Report For the year ended 31 December 2020 Review Of Business Financial And Capital Risk Management The directors constantly monitor the ﬁnancial risks and uncertainties facing the Group with particular reference to the exposure of credit risk and liquidity risk. They are conﬁdent that suitable policies are in place and that all material ﬁnancial risks have been considered. The ﬁnancial risk management objectives and policies can be found within note 24 of the ﬁnancial statements. The Board’s objective is to maintain a balance sheet that is both eﬃcient and delivers long term shareholder value. The Group had cash balances of £864,680 as at 31 December 2020 and had no short-term borrowings. The Board continues to monitor the balance sheet to ensure it has an adequate capital structure. A review of the business of the Group, together with comments on future developments is given in the Chairman’s and Chief Executive’s Statements on pages 3 to 10. Principal Risks And Uncertainties Facing The Group Technology and products The Group is involved in the discovery and development of microbiome modulation products. The development and commercialisation of its intellectual property and future products will require human nutritional studies and there is a risk that products may not perform as expected. This for human consumption. to all new products developed is common risk Technologies used within the food, beverage and healthcare marketplace are constantly evolving and improving. There is a risk that the Group’s products may become outdated or their commercial value decrease as improvements in technology are made and competitors launch competing products. To mitigate this risk the Group is working with industry key opinion leaders, will attend international conferences and intends to develop a research and development department which will keep up with the latest developments in the industry. Intellectual Property The Group is focused on protecting its IP and seeking to avoid infringing on third parties’ IP. To protect its products, the Group is building and securing patents to protect its key products. However, there remains the risk that the Group may face opposition from third parties to patents that it seeks to have granted and that the outstanding patent applications are not granted. The Group engages legal advisers to mitigate the risk of patent infringement and to assist with the protection of the Group’s IP. 11 OptiBiotix Health Plc Strategic Report (continued) Principal Risks And Uncertainties Market Risks Impact Mitigation Brexit New regulations could add complexity and delays to operations. The current consensus is that Brexit will not aﬀect the regulations that are relevant to our business. Currency ﬂuctuations could increase costs and aﬀect proﬁtability. Currency ﬂuctuations will impact both sales and costs. Our initial product oﬀering is not price-sensitive. Substantial cost increases will be passed on. COVID-19 The global implications of the economic impact of COVID-19 could aﬀect sales and proﬁtability. Although COVID-19 has aﬀected some parts of the consumer business. The majority of sales are in the business to business sector across many countries so the impact is very limited. Technology The Group’s platform is currently unique. Rapid technological advances could see competitor products being launched. The Group has product development plans in place for improved technology as well as for a wider product portfolio that includes additional innovative solutions for the targeted consumer groups. Operational Risks Impact Mitigation Loss of key personnel Material adverse impact on the Group’s ﬁnancial condition and prospects. Competitive remuneration packages, nil cost options to reduce market volatility. Technology The Group is launching products that are not already available in the consumer market. The Group has responded to consumer demand. Commercialisation The Group is making the transition from a research-based organisation to a full commercial organisation. Manufacturing set-up and learning curve could delay sales or could impact our rate of growth. The Group recruited experienced management and consultants to manage the process and negotiate contracts. Cyber attacks Cyber-attacks could delay or impair operations as which would have ﬁnancial implications. Training, anti-virus software, all users have multifactor authorisation for accounts, weekly review of attempts. Financial Risks Impact Mitigation Future funding requirements Our current funding covers current requirements. Potential as yet unidentiﬁed opportunities may not be pursued with the existing funding. Management will analyse major opportunities and present them in additional business cases when warranted. Legal Risks Intellectual Property litigation Impact Mitigation Any claim brought against us would detract the Company from its business. The Group engages with IP specialists to ensure we have a strong position. To our knowledge we do not infringe on any patents. Annual Report and Accounts 2020 12 Strategic Report (continued) Key Performance Indicators Financial Year to 31 December 2020 £’000 Restated Period to 30 November 2019 £’000 Financial Revenue Operating Loss Profit/(Loss) for the period Cash as at 31 December 2020 1,523 745 (1,111) (2,167) 5,802 (2,368) 456 865 During the period to 31 December 2020 the company has achieved a number of key objectives to build shareholder value, these are laid out in the CEO report on pages 5 to 10. Non-financial The Board recognises the importance of KPI’s in driving appropriate behaviour and enabling of Group performance. For the year to 31 December 2020 the primary KPI’s were the completion of commercial agreements and the expansion of the Optibiotic® platform. The Group intends to review the following non-ﬁnancial KPI’s going forward: 1. Customer relationships 2. IP and trademark registrations 3. Service quality and brand awareness Corporate Responsibility The Board takes regular account of the signiﬁcance of social, environmental and ethical matters aﬀecting the Group wherever it operates. It has developed a speciﬁc set of policies on corporate social responsibility, which seek to protect the interests of all of its stakeholders through ethical and transparent actions and include an anti-corruption policy and code of conduct. Corporate Governance: The Group is committed to high standards of corporate governance and seeks to continually evaluate its policies, procedures and structures to ensure that they are ﬁt for purpose. In order to protect the interests of its shareholders and other stakeholders the Board has chosen to adopt the Quoted Companies Alliance (QCA) Corporate Governance Code for Small and mid-size Quoted Companies (the “QCA Code”), and the Directors are always prepared, where practicable, to enter into dialogue with all such parties to promote a mutual understanding of objectives. By complying with this code the Company ensured compliance with the new AIM Rules regarding Corporate Governance introduced April 2018. Full details of the Company's policy on Corporate Governance can be found on the website under: https://www.optibiotix-ir.com/content/investors/corporate-governance 4. Attraction, motivation and retention of employees Composition of the Board of Directors The Board of Directors is currently comprised of the Chairman, Chief Executive Oﬃcer, the Managing Director Prebiotix division, the Research and development Director, CEO Probiotix Health Limited an and the three Non-Executive Directors. Role of the Board: The role of the Board is to agree the Group’s long-term strategy and direction and to monitor achievement of its business objectives. The Board meets several times per annum, either by teleconference or in person. Furthermore, it holds additional meetings as are necessary to transact ongoing business. Dividends No dividends can be distributed for the year to 31 December 2020. Future Developments The Chairman’s and Chief Executive Statement on pages 3 to 10 gives information on the future outlook of the Group. Corporate Governance Executive Management: The Group’s current executive team comprises: S O’Hara Executive Director and CEO; with overall responsibility for all Group activities. Dr S Kolyda Executive Director – Research and Development Director M Havid-Hansen Executive Director – Probiotix Health Limited 13 OptiBiotix Health Plc Strategic Report (continued) Board Committees: Remuneration Committee The Remuneration Committee is made up of Chris Brinsmead, as Chairman with Neil Davidson and Sean Christie and has access to external expertise should that be required. This committee is responsible for the scale and structure of the remuneration of the Chief Executive, the Executive Directors and reports to the Chief Executive. The recommendations of the committee must be approved by the Board of Directors. No director or manager shall be involved in decisions relating to his/her own remuneration. AIM Rules Compliance Committee The AIM Rules Compliance Committee is chaired by Neil Davidson. This committee is charged with ensuring that the Group has suﬃcient procedures, resources and controls in place to ensure compliance with the AIM rules for companies. Among other things, the committee shall ensure that an Executive Director is at all times able to respond to requests for information from the Nominated Adviser and that all Directors and employees are aware of their obligations with regards to the disclosure of any trading in the Group’s shares. Audit Committee The Audit Committee, is chaired by Sean Christie with Neil Davidson and Chris Brinsmead. This committee is required to monitor the integrity of the ﬁnancial statements of the Group, including the interim and annual reports. The committee also reviews ﬁnancial returns to regulators and any ﬁnancial information contained in announcements of a price sensitive nature. The committee shall also consider and make recommendations to the Board regarding resolutions to be put to shareholders for approval at the Annual General Meeting, with respect to the appointment or re-appointment of the Group’s external auditors. The Audit Committee, together with the external auditors, are responsible for determining the scope of the annual audit. Nomination Committee The Company does not currently have a nomination committee as the Board does not consider it appropriate to establish such a committee at this stage of the Company's development. Decisions which would usually be taken by the nomination committee will be taken by the Board as a whole. Employees The Group engages its employees in all aspects of the business and seeks to remunerate them fairly. The Group gives full and fair consideration to applications for employment regardless of age, gender, colour, ethnicity, disability, nationality, religious beliefs or sexual orientation. The Board takes employees’ interest into account when making decisions. Any suggestions from employees aimed at improving the Group’s performance are welcomed. Suppliers and Contractors The Group recognises that the goodwill of its contractors, consultants and suppliers is crucial to the success of its business, and seeks to build and maintain this goodwill through fair and transparent business practices. The Group aims to settle genuine liabilities in accordance with contractual obligations. Health and Safety The Board recognises that it has a responsibility to provide strategic leadership and direction in the development and maintenance of the Group’s health and safety strategy, in order to protect all of its stakeholders. Section 172 Statement Under s172 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. Key decisions made by the Board during 2020 were related primarily to establishing the Groups ﬁrst generation products commercially around the world as well as ensuring the Group had suﬃcient cash runway to meet any slowdown associated with the pandemic. At the year end the Group is now selling products in 120 countries and have established several agreements with large retail and pharmaceutical companies as outlined in the CEO’s report. During the year, the Group augmented the cash balance by raising £746,751 via the partial disposal of it’s holdings in SkinBioTherapeutics plc. Employee engagement As a very small company in terms of staﬀ, Board members have multiple points of contact with staﬀ; through Board meeting feedback, participation in regular management meetings involving all staﬀ, and ad hoc interactions in relation to speciﬁc matters. These forums provide staﬀ with an opportunity to give their views which can then be taken into account in making decisions likely to aﬀect their interests. Speciﬁc matters of concern to them as employees are dealt with in management meetings and by email. Corporate developments and Company performance are discussed in regular management meetings. All staﬀ are eligible for the Group’s share option scheme and this encourages involvement in the Company’s performance. Annual Report and Accounts 2020 14 Strategic Report (continued) Stakeholder Engagement The Group has a small number of major suppliers and distributors that support its delivery of strategy and corporate goals. The selection of, relationships with, and execution of, contracted work by these parties is considered regularly by the Executive Directors and at each Board meeting by all Directors. Shareholder Engagement Due to the COVID-19 pandemic, face-to-face engagement with shareholders during the year was strictly limited. However, the Directors continued to engage with shareholders via regular regulatory news announcements as well as interactive investor meetings in order to keep them up to date on progress. Environmental and Community Impact There was no adverse impact on the community or environment from the decisions made by the Board during the year. On Behalf Of The Board S P O’Hara 16 June 2021 15 OptiBiotix Health Plc Directors’ Report For the year ended 31 December 2020 The Directors present their report and the audited ﬁnancial statements of the group for the year to 31 December 2020. Principal Activity The principal activity of the group is that of identifying and developing microbial strains, compounds and formulations for use in food ingredients, supplements and active compounds that can impact on human physiology, deriving potential health beneﬁts. Directors The directors who served the company during the year and up to the date of this report were as follows: Non-executive Directors P Wennstrom (Resigned 1 January 2021) R Davidson (Independent Director) M Christie(Independent Director) C Brinsmead (Independent Director, Appointed 1 January 2021) S Hammond (Independent Director, Appointed 2 March 2021) Directors’ Remuneration The directors are entitled to receive relevant fees, as detailed in the directors’ remuneration in Note 4. Directors and their interests The directors of the Group held the following beneﬁcial interests in the shares and share options of Optibiotix at the date of this report: Executive Directors S P O’Hara S Kolyda F Narbel (Resigned 26 May 2021) Issued Share Capital Share Warrants Share Options Ordinary shares of £0.02 each 10,103,031 503,000 150,000 – – – – Percentage Held Ordinary shares of £0.02 each Warrant exercise price Ordinary shares of £0.02 each Option exercise price 11.61% 0.54% 0.14% – – – – – – – – – – – – – – – – – – 6,099,135 385,000 100,000 165,000 358,722 – – £0.08 £0.73 £0.95 £0.73 £0.20 – – S P O’Hara R Davidson M Christie S Kolyda S Kolyda C Brinsmead S Hammond The share options held by S P O’Hara were granted on 17 September 2016 and are exercisable at £0.08 at any time up 16 September 2024, subject to vesting conditions. The share options held by R Davidson were granted on 13 July 2018 and are exercisable at £0.73 at any time up 13 July 2024, subject to vesting conditions. The share options held by M Christie were granted on 21 September 2018 and are exercisable at £0.95 at any time up 21 September 2028, subject to vesting conditions. The 358,772 share options held by S Kolyda were granted on 10 March 2015 and are exercisable at £0.20 at any time up 10 March 2025, subject to vesting conditions. The 165,000 share options held by S Kolyda were granted on 13 September 2018 and are exercisable at £0.73 at any time up 13 September 2019, subject to vesting conditions. Annual Report and Accounts 2020 16 Directors’ Report (continued) Substantial Shareholdings Substantial shareholdings include directors as at 11 June 2021 were as follows: After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing the annual report and ﬁnancial statements. Statement Of Directors’ Responsibilities The Directors are responsible for preparing the Directors’ Report and the ﬁnancial statements in accordance with applicable laws and regulations. Company law requires the directors to prepare ﬁnancial statements for each ﬁnancial period. Under that law the directors have, as required by the AIM Rules for Companies of the London Stock Exchange, elected to prepare ﬁnancial statements in accordance with International Financial Reporting Standards (IFRS) as adopted for use in 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 them consistently. accounting policies and then apply • make judgements and estimates that are reasonable and prudent. • state whether the Group and parent company ﬁnancial statements have been prepared in accordance with IFRS as adopted by the European Union, subject to any material departures disclosed and explained in the ﬁnancial statements; and • prepare the ﬁnancial statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business. The Directors conﬁrm that the ﬁnancial statements comply with the above requirements. 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 Company and enable them to ensure that the ﬁnancial statements comply with the Companies Act 2006. 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. Stephen O’Hara Finance Yorkshire Seedcorn LP % of shares issued 11.6% 10.7% The share price per share at 31/12/2020 was £0.58 (31/12/2019: £0.66) Financial Instruments The Group’s exposure to ﬁnancial risk is set out in note 24 to the ﬁnancial statements. Research And Development The Chairman’s and Chief Executive Statement on pages 3-11 gives information on the Group’s research and development activities. Events After The Reporting Period Refer to Note 25 to the ﬁnancial statements for further details. Publication Of Accounts On Group Website Financial statements are published on the Group’s website. The maintenance and integrity of the website is the responsibility of the Directors. The Directors’ responsibilities also extend to the ﬁnancial statements contained therein. Going Concern The ﬁnancial statements have been prepared on the assumption that the Group is a going concern. When assessing the foreseeable future, the Directors have looked at the budget for the next 12 months from the date of this report, the cash at bank available as at the date of approval of this report and are satisﬁed that the Group should be able to cover its quoted maintenance cost, other administrative expenses, as well as its ongoing research and development expenditure. Management have considered its forecast of the group’s cash requirements reﬂecting contracted and anticipated future revenue and the resulting net cash outﬂows. Management have not seen a material disruption to the business as a result of the COVID-19 outbreak, however events are being kept under constant review, and remedial action will be taken if the situation demands it. 17 17 OptiBiotix Health Plc OptiBiotix Health Plc Directors’ Report (continued) Statement As To Disclosure Of Information To Auditors So far as the Directors are aware, there is no relevant audit information (as deﬁned by Section 418 of the Companies Act 2006) of which the Group’s auditor is unaware, and each Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Group’s auditor is aware of the information. Auditor Jeﬀreys Henry LLP will be proposed for re-appointment as auditors at the forthcoming Annual General Meeting. Strategic Report In accordance with section 414C(11) of the Companies Act 2006 the Group chooses to report the future outlook and the risks and uncertainties faced by the Group in the Strategic Report on page 11. On Behalf Of The Board S P O’Hara 16 June 2021 Annual Report and Accounts 2020 18 Independent Auditor’s Report to the Members of OptiBiotix Health Plc For the year ended 31 December 2020 Opinion We have audited the ﬁnancial statements of OptiBiotix Health Plc (the ‘parent company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2020 which comprise the consolidated statement of comprehensive income, consolidated statement of ﬁnancial position, consolidated statement of changes in equity, consolidated statement of cash ﬂows, company statement of ﬁnancial position, company statement of changes in equity, company statement of cash ﬂows and notes to the ﬁnancial statements, including a summary of signiﬁcant accounting policies. The ﬁnancial reporting framework that has been applied in the preparation of the Group ﬁnancial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The ﬁnancial reporting framework that has been applied in the preparation of the parent company ﬁnancial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union as applied in accordance with the provision of the Companies Act 2006. In our opinion: • the ﬁnancial statements give a true and fair view of the state of the Group’s and of the parent company’s aﬀairs as at 31 December 2020 and of the Group’s proﬁt for the year then ended; • the Group ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the parent company ﬁnancial statements have been properly prepared in accordance with IFRS’s as adopted by the European Union as applied in accordance with the provisions of the Companies Act 2006; and • the ﬁnancial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the ﬁnancial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the ﬁnancial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulﬁlled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is suﬃcient and appropriate to provide a basis for our opinion. Conclusions relating to going concern In auditing the ﬁnancial statements, we have concluded that the director's use of the going concern basis of accounting in the preparation of the ﬁnancial statements is appropriate. Our evaluation of the directors’ assessment of the entity’s ability to continue to adopt the going concern basis of accounting included reviews of expected cash ﬂows for a period of 12 months, to determine expected cash burn, which was compared to the liquid assets held in the entity. Based on the work we have performed, we have not identiﬁed any material uncertainties relating to events or conditions that, individually or collectively, may cast signiﬁcant doubt on the group's ability to continue as a going concern for a period of at least twelve months from when the ﬁnancial statements are authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Our approach to the audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the ﬁnancial statements. In particular, we looked at where the directors made subjective judgments, for example in respect of signiﬁcant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the ﬁnancial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. The Group ﬁnancial statements are a consolidation of 4 reporting units, comprising the Group’s operating businesses and holding companies. We performed audits of the complete ﬁnancial information of OptiBiotix Health plc, OptiBiotix Limited, Probiotix Health Limited, and The Healthy Weight Loss Company Limited reporting units, which were individually ﬁnancially signiﬁcant and accounted for 100% of the Group’s revenue and 100% of the Group’s absolute proﬁt before tax (i.e. the sum of the numerical values without regard to whether they were proﬁts or losses for the relevant reporting units). The Group engagement team performed all audit procedures. 19 OptiBiotix Health Plc Independent Auditor’s Report to the Members of OptiBiotix Health Plc (continued) Key audit matters Key audit matters are those matters that, in our professional judgment, were of most signiﬁcance in our audit of the ﬁnancial statements of the current period and include the most signiﬁcant assessed risks of material misstatement (whether or not due to fraud) we identiﬁed, including those which had the greatest eﬀect on: the overall audit strategy, the allocation of resources in the audit; and directing the eﬀorts of the engagement team. These matters were addressed in the context of our audit of the ﬁnancial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identiﬁed by our audit. Key audit matter How our audit addressed the key audit matter Carrying value of investments and recoverability of group receivables – Company Risk The amount owed to the Company at the period end by the subsidiary OptiBiotix Limited was written oﬀ in the year (£6.30m). The amount owed by Probiotix Health Limited was £329,057. The carrying values of investments in group companies was as follows: OptiBiotix Limited : £2,000,000 ProBiotix Health Limited : £235,438 The Healthy Weight Loss Company Limited : £50,000 Carrying value of investments – Group Risk At the period end the group had investments of £8.96m made up of the investment in SkinBiotherapeutics plc. There is a risk that the investment in Skinbiotherapeutics PLC requires impairment. Carrying value of intangible assets and capitalisation of development costs The Group had intangible assets of £2.74m at the period ended 31 December 2020, of which £350,346 were development costs capitalised in the period. Intangible assets comprise of development costs and fair value of patents acquired on the acquisition of OptiBiotix Limited. The patents are amortised in a straight line over 20 years, the period in which the directors believe the assets will generate revenue. The development costs are amortised in a straight line over 10 years, a period the directors believe to be in line with industry standard. We carried out a review of the investments held in the subsidiaries. Management’s underlying assumptions audited. impairment workings were reviewed and the We reviewed management’s basis for impairment across the Company and agree with their approach. As part of the review of management’s forecasts, consideration was given to the capability of the subsidiary to repay the amount within a 12-month period. The estimation of the residual value held in The Healthy Weight Loss Company Limited has been assessed. Following derecognition as an associate the investment was revalued to market value. This was agreed to open market information. Intangible assets in the accounts have been allocated useful lives and therefore an annual impairment test is not required. However, as OptiBiotix Limited is loss making we considered if there were indicators of impairment and reviewed the discounted cash ﬂow forecasts. The development costs capitalised in the period were evaluated against the recognition criteria of IAS38. The estimated useful economic life assigned to the costs was reviewed. Annual Report and Accounts 2020 20 Independent Auditor’s Report to the Members of OptiBiotix Health Plc (continued) Key audit matter Going Concern Management judgement is required in assessing whether the group is a going concern as it has historically incurred losses and does not have borrowing facilities. The Directors have considered the cash requirements of the business for the following 12 months. As part of this process, they have taken into account existing liabilities, along with detailed operating cashﬂow requirements. The projections prepared include ongoing running costs of the group and committed expenditure at the date of approving the ﬁnancial statements. The key assumptions that impact the conclusions are the levels of future revenue, and the ability to control the operating costs. There are therefore inherent risks that the forecasts may overstate future revenue due to the timing of closure of future contracts, or understate future costs, and that the group will not be able to operate within its cash resources and continue to operate as a going concern. Revenue recognition The Group has multiple revenue streams comprising sales of goods, licensing agreements and royalty arrangements, including ongoing and milestone payments. The recognition of revenue of these items is determined by the terms of agreement with customers and as such is widely varied. We identiﬁed a risk of inaccurate or incomplete recognition of revenue due to the incorrect allocation of milestones to service contracts, and an inappropriate recognition of revenue on sales of goods for which revenue is recognised over time. The assumptions and judgements made in estimating the percentage of completion require a signiﬁcant degree of management judgement and are susceptible to management override and represent a fraud risk. 21 OptiBiotix Health Plc How our audit addressed the key audit matter We have performed the following audit procedures: • obtained management’s forecasts and cash ﬂow analysis, and their going concern assessment; • assessed the reliability of forecasts to date by agreeing historical actuals to budgets, and challenging the current forecasts; • tested the clerical accuracy of management’s forecast; • challenged management’s including reviewing the forecast revenue and corroborated the assumptions; and forecast assumptions, • considered the appropriateness of the group’s disclosures in relation to going concern in the ﬁnancial statements. As detailed above, we note that there are inherent risks over the group’s forecasts and the potential timing of the conversion of the group’s contract pipeline. We further note that the group has historically been loss making given the level of research and development expenditure. Based on the audit work performed we are satisﬁed that although there are inherent uncertainties associated with the forecast, the group appears to have suﬃcient funds for at least 12 months following the signing of this audit report. We are also satisﬁed that all necessary disclosures have been made in the consolidated ﬁnancial statements. We have performed the following audit procedures: • assessed the appropriateness of the Group’s revenue recognition accounting policies; • reviewed key contracts with customers and tested that the Group has correctly accounted for the revenue arising from these contracts in accordance with the accounting policies; • performed detailed testing on individually signiﬁcant contracts, including substantiating a sample of transactions with underlying documents; • evaluated whether revenue has been appropriately presented and disclosed in the ﬁnancial statements. Based on the audit work performed, we are satisﬁed that management have appropriately accounted for revenue in line with their accounting policy and in accordance with the requirements of IFRS 15. We are also satisﬁed that all necessary disclosure have been made in the consolidated ﬁnancial statements. Independent Auditor’s Report to the Members of OptiBiotix Health Plc (continued) Our Application Of Materiality The scope of our audit was inﬂuenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual ﬁnancial statement line items and disclosures and in evaluating the eﬀect of misstatements, both individually and in aggregate on the ﬁnancial statements as a whole. Based on our professional judgment, we determined materiality for the ﬁnancial statements as a whole as follows: Group financial statements Company financial statements Overall materiality £206,000 (2019: £109,000) £120,000 (2019: £109,000) How we determined it 1.5% of gross assets (2019: 1.5% gross assets) 1% of gross assets (2019: 1% gross assets) Rationale for benchmark applied We believe that gross assets is a primary measure the used by performance of the Group, whilst the subsidiaries are in varied states of development and trading. in assessing shareholders shareholders We believe that gross assets is a primary measure the used by performance of the Company, given that it is largely a holding company for the trading subsidiaries. in assessing For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £18,000 and £120,000. We agreed with the Audit Committee that we would report to them misstatements identiﬁed during our audit above £10,300 for the Group (2019: £5,450) and £6,000 for the Parent (2019: £5,450) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the ﬁnancial statements and our auditor’s report thereon. Our opinion on the ﬁnancial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. 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 such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in 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 in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and the directors’ report for the ﬁnancial year for which the ﬁnancial statements are prepared is consistent with the ﬁnancial statements; and • the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Annual Report and Accounts 2020 22 Independent Auditor’s Report to the Members of OptiBiotix Health Plc (continued) Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and parent company and its environment obtained in the course of the audit, we have not identiﬁed material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company ﬁnancial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration speciﬁed by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of Directors As explained more fully in the directors’ responsibilities statement set out on page 17, the directors are responsible for the preparation of the ﬁnancial statements and for being satisﬁed that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of ﬁnancial statements that are free from material misstatement, whether due to fraud or error. In preparing the ﬁnancial statements, the directors are responsible for assessing the group’s and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. The extent to which the audit was considered capable of detecting irregularities including fraud Our approach to identifying and assessing the risks of material including fraud and misstatement non-compliance with laws and regulations, was as follows: in respect of irregularities, • the senior statutory auditor ensured the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations; • we focused on speciﬁc laws and regulations which we considered may have a direct material eﬀect on the ﬁnancial statements or the operations of the company. • we assessed the extent of compliance with the laws and regulations identiﬁed above through making enquiries of management and inspecting legal correspondence; and • identiﬁed laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit. We assessed the susceptibility of the company’s ﬁnancial statements to material misstatement, including obtaining an understanding of how fraud might occur, by: • making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud; • considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations. Auditor’s responsibilities for the audit of the ﬁnancial statements To address the risk of fraud through management bias and override of controls, we: Our objectives are to obtain reasonable assurance about whether the ﬁnancial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inﬂuence the economic decisions of users taken on the basis of these ﬁnancial statements. 23 OptiBiotix Health Plc • performed analytical procedures to identify any unusual or unexpected relationships; • tested journal entries to identify unusual transactions; • assessed whether in determining the accounting estimates set out in Note 1 were indicative of potential bias; judgements and assumptions made • investigated the rationale behind signiﬁcant or unusual transactions. Independent Auditor’s Report to the Members of OptiBiotix Health Plc (continued) In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to: • agreeing ﬁnancial statement disclosures to underlying supporting documentation; • reading the minutes of meetings of those charged with governance; • enquiring of management as to actual and potential litigation and claims; • Obtaining conﬁrmation of compliance from the company’s legal advisors. There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from ﬁnancial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any. Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion. A further description of our responsibilities for the audit of the ﬁnancial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Other matters which we are required to address We were reappointed as auditors by the company at the Annual General Meeting on 9 July 2020 to audit the ﬁnancial statements for the period ending 31 December 2020. Our total uninterrupted period of engagement is 7 years, covering the periods ending 30 November 2014 to 31 December 2020. The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we remain independent of the group and the parent company in conducting our audit. In addition to the audit, the ﬁrm provides tax compliance services to OptiBiotix Health Plc and its subsidiaries. Our audit opinion is consistent with the additional report to the audit committee. Use of this report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Sachin Ramaiya (Senior Statutory Auditor) For and on behalf of Jeffreys Henry LLP, Statutory Auditor Finsgate 5-7 Cranwood Street London EC1V 9EE 16 June 2021 Annual Report and Accounts 2020 24 Consolidated Statement of Comprehensive Income For the year ended 31 December 2020 Notes Year ended 31 December 2020 £ Restated Period ended 31 December 2019 £* 1,523,247 744,883 (643,428) (352,080) 879,819 392,803 (127,248) (137,320) (247,895) (217,904) (1,616,069) (2,204,217) (1,991,212) (2,559,441) (1,111,393) (2,116,638) (44,954) (44,467) 110 98 (44,856) (44,357) (303,448) (546,316) 4,165,223 – 2,955,739 – 265,481 48,967 5,710,232 (2,491,830) 123,468 91,635 5,801,867 (2,368,362) – – 5,801,867 (2,368,362) 5,801,867 (2,367,247) (1,115) – 5,801,866 (2,368,362) 6.65p (2.78)p 6.07p (2.78)p 6 5 5 12 12 12 12 8 9 Revenue from contracts with customers Cost of sales Gross Profit Share based payments Depreciation and amortisation Other administrative costs Total administrative expenses Operating loss Finance cost Finance income Share of loss from associate Gain on disposal of an associate Gain on investments Profit on disposal of investments Profit/(Loss) before tax Corporation tax Profit/(Loss)for the period Other comprehensive income Total comprehensive income for the period Total comprehensive income attributable to: Owners of the company Non-controlling interests Earnings per share from continued operations Basic profit/(loss) per share – pence Diluted profit/(loss) per share – pence * The prior years figures have been restated, refer to notes 7 and 12 All activities relate to continuing operations The notes on pages 34 to 56 form part of these financial statements 25 OptiBiotix Health Plc Consolidated Statement of Financial Position As at 31 December 2020 ASSETS Non-current assets Intangibles Property, plant & equipment Investments CURRENT ASSETS Inventories Trade and other receivables Current tax asset Cash and cash equivalents TOTAL ASSETS EQUITY Shareholders’ Equity Called up share capital Share premium Share based payment reserve Merger relief reserve Convertible debt – reserve Retained Earnings Non-controlling interest Total Equity LIABILITIES Current liabilities Trade and other payables Non-current liabilities Deferred tax liability Convertible loan notes TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES Notes As at 31 December 2020 £ Restated As at 31 December 2019 £* 10 11 12 13 14 8 15 16 17 17 17 17 17 17 18 19 20 2,735,621 – 8,962,564 11,698,185 184,236 645,823 310,435 864,680 2,005,174 13,703,359 1,758,812 2,537,501 867,307 1,500,000 92,712 5,058,968 35,782 11,851,082 518,995 518,995 561,523 771,759 1,333,282 1,852,277 13,703,359 2,632,778 393 2,842,834 5,476,005 62,761 607,308 190,435 455,608 1,316,112 6,792,117 1,708,811 1,646,873 740,059 1,500,000 92,712 (742,899) 35,782 4,981,338 561,624 561,624 522,350 726,805 1,249,155 1,810,779 6,792,117 The prior years figures have been restated, refer to notes 7 and 12 * These financial statements were approved and authorised for issue by the Board of Directors on 16 June 2021 and were signed on its behalf by: S P O’Hara Director Company Registration no. 05880755 The notes on pages 34 to 56 form part of these financial statement Annual Report and Accounts 2020 26 Consolidated Statement of Changes in Equity For the period ended 31 December 2020 Share- Non- Convertible Merger based Called up Retained Share Controlling Debt Relief Payment Share capital Earnings Premium interest Reserve Reserve reserve £ £ £ £ £ £ £ Balance at 30 November 2018 1,694,488 1,624,348 1,603,904 36,897 – 1,500,000 602,739 Loss for the period (restated*) – (2,367,247) – (1,115) – – – Issues of shares during the period 14,323 – 42,969 – – – – Share options and warrants – – – – – – 137,320 – – – – 92,712 – – Restated Balance at 31 December 2019 1,708,811 (742,899) 1,646,873 35,782 92,712 1,500,000 740,059 Profit for the year – 5,801,867 – – – – – Issues of shares during the year 50,001 – 950,003 – – – – Share issue costs – – (59,375) – – – – Share options and warrants – – – – – – 127,248 Total equity £ 7,062,376 (2,368,362) 57,292 137,320 92,712 4,981,338 5,801,867 1,000,004 (59,375) 127,248 Balance at 31 December 2020 1,758,812 5,058,968 2,537,501 35,782 92,712 1,500,000 867,307 11,851,082 * The prior year’s figures have been restated, refer to notes 7 and 12 The notes on pages 34 to 56 form part of these financial statements 27 OptiBiotix Health Plc Consolidated Statement of Cash Flows For the year ended 31 December 2020 Notes 1 Cash flows from operating activities Cash utilised by operations Tax received Interest paid Interest received Net cash outflow from operating activities Cash flows from investing activities Purchase of intangible assets Net cash outflow from investing activities Cash flows from financing activities Share issues Issue of loan notes Disposal of investments Net cash inflow from financing activities Increase/(decrease) in cash and equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 15 The notes on pages 34 to 56 form part of these financial statements Year ended 31 December 2020 £ Period ended 31 December 2019 £ (928,061) – – 98 (927,963) (350,345) (350,345) 940,629 – 746,751 1,687,380 409,072 455,608 864,680 (2,036,532) 313,173 (54) 168 (1,723,248) (594,923) (594,923) 57,292 775,050 617,130 1,449,472 (868,699) 1,324,307 455,608 Annual Report and Accounts 2020 28 Notes to the Consolidated Statement of Cash Flows For the year ended 31 December 2020 1. Reconciliation of loss before income tax to cash outflow from operations Year ended 31 December 2020 £ Period ended 31 December 2019 £ Operating loss (1,111,393) (Increase) in inventories (121,475) (Increase) in trade and other receivables (37,190) (Decrease)/Increase in trade and other payables (42,630) Depreciation charge 393 Share Option expense 127,248 Amortisation of patents and development costs 247,502 Net fx differences 9,484 Net cash outflow from operations (928,061) (2,166,638) (32,328) (233,504) 40,634 2,750 137,320 215,234 – (2,036,532) 2. Cash and Cash Equivalents Cash and cash equivalents The notes on pages 34 to 56 form part of these financial statements Year ended 31 December 2020 £ Period ended 31 December 2019 £ 864,680 455,608 29 OptiBiotix Health Plc Company Statement of Financial Position As at 31 December 2020 ASSETS Non-current assets Investments Other receivables CURRENT ASSETS Trade and other receivables Cash and cash equivalents TOTAL ASSETS EQUITY Shareholders’ Equity Called up share capital Share premium Merger relief reserve Share based payment reserve Accumulated profit Total Equity LIABILITIES CURRENT LIABILITIES Trade and other payables TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES As at 31 December 2020 £ As at 31 December 2019 £ Notes 12 14 14 15 16 17 17 17 17 18 11,043,469 329,057 11,372,526 89,420 532,769 622,189 6,212,556 5,941,360 12,153,916 24,707 139,243 163,950 11,994,715 12,317,866 1,758,812 2,537,501 1,500,000 867,307 5,268,171 1,708,811 1,646,873 1,500,000 740,059 6,436,938 11,931,791 12,032,681 62,924 62,924 285,185 285,185 11,994,715 12,317,866 The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the parent Company income statement account. The loss for the parent Company for the year was £1,168,767 (2019: Profit £113,804). These financial statements were approved and authorised for issue by the Board of Directors on 16 June 2021 and were signed on its behalf by: S P O’Hara Director Company Registration no. 05880755 The notes on pages 34 to 56 form part of these financial statements Annual Report and Accounts 2020 30 Company Statement of Changes in Equity For the year ended 31 December 2020 Called up Share capital £ Retained Earnings £ Share Premium £ Merger Share-based Payment reserve £ Relief Reserve £ Total equity £ Balance at 30 November 2018 1,694,488 6,323,134 1,603,904 1,500,000 602,739 11,724,265 Profit for the period Issues of shares during the period Share options and warrants – 113,804 14,323 – – – – 42,969 – – – – – – 113,804 57,292 137,320 137,320 Balance at 31 December 2019 1,708,811 6,436,938 1,646,873 1,500,000 740,059 12,032,681 Loss for the year Issues of shares during the year Financing Costs Share options and warrants – (1,168,767) – 50,001 – – – – – 950,003 (59,375) – – – – – – (1,168,767) – – 1,000,004 (59,375) 127,248 127,248 Balance at 31 December 2020 1,758,812 5,268,171 2,537,501 1,500,000 867,307 11,931,791 The notes on pages 34 to 56 form part of these financial statements 31 OptiBiotix Health Plc Company Statement of Cash Flows For the year ended 31 December 2020 Notes 1 Cash flows from operating activities Cash utilised by operations Interest received Net cash outflow from operating activities Cash flows from financing activities Net amounts to subsidiaries Share issues Proceeds from disposal of investments Net cash inflow from financing activities Increase/(decrease) in cash and equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 15 The notes on pages 34 to 56 form part of these financial statements Year ended 31 December 2020 £ Period ended 31 December 2019 £ (369,036) 46 (368,990) (924,864) 940,629 746,751 762,516 393,526 139,243 532,769 (1,702,719) 104 (1,702,615) – 57,292 617,129 674,421 (1,028,194) 1,167,437 139,243 Annual Report and Accounts 2020 32 Notes to the Company Statement of Cash Flows For the year ended 31 December 2020 1. Reconciliation of loss before income tax to cash generated from operations Operating loss (Decrease) in trade and other receivables Loan Write off Increase in trade and other payables Share Option expense Net cash outflow from operations 2. Cash and Cash Equivalents Cash and cash equivalents The notes on pages 34 to 56 form part of these financial statements Year ended 31 December 2020 £ Period ended 31 December 2019 £ (6,760,976) (457,816) (64,713) (1,438,409) 6,301,667 – 27,738 56,186 127,248 (369,036) 137,320 (1,702,719) As at 31 December 2020 £ 532,769 As at 31 December 2019 £ 139,243 33 OptiBiotix Health Plc Notes to the Financial Statements For the year ended 31 December 2020 1. General Information OptiBiotix Health plc is a Public Limited Company incorporated and domiciled in England and Wales. Details of the registered oﬃce, the oﬃcers and advisers to the Company are presented on the company information page at the start of this report. The Company’s oﬃces are at Innovation centre, Innovation Way, Heslington, York. The Company is listed on the AIM market of the London Stock Exchange (ticker: OPTI). The principal activity is that of identifying and developing microbial strains, compounds, and formulations for use in food ingredients, supplements and active compounds that can impact on human physiology, deriving potential health beneﬁts. 2. Accounting Policies Statement of compliance The consolidated ﬁnancial statements of OptiBiotix Health plc have been prepared in accordance with International Financial Reporting Standards (IFRS), International Accounting Standards (IASs) and International Financial Reporting Interpretations Committee (IFRIC) interpretations (collectively ‘IFRS’) as adopted for use in the European Union and as issued by the International Accounting Standards Board and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Basis of preparation The ﬁnancial statements have been prepared under the historical cost convention. The functional currency is GBP. The principal accounting policies are summarised below. They have all been applied consistently throughout the period under review. Going concern The ﬁnancial statements have been prepared on the assumption that the Group is a going concern. When assessing the foreseeable future, the Directors have looked at the budget for the next 12 months from the date of this report, the cash at bank available as at the date of approval of these ﬁnancial statements and are satisﬁed that the group should be able to cover its quoted maintenance costs, other administrative expenses and its ongoing research and development expenditure. Management have considered its forecast of the group’s cash requirements reﬂecting contracted and anticipated future revenue and the resulting net cash outﬂows. Management have not yet seen a material disruption to the business as a result of the COVID-19 outbreak. It is diﬃcult to assess reliably whether there will be any material disruption in the future which could adversely impact the group’s forecast. Subsequent to the year end, the Group successfully sold 2,000,000 Skinbiotherapeutics PLC shares which raised £900,936 to fund the growth of the business and delivery of existing commercial plans. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing the annual report and ﬁnancial statements New and amended standards adopted by the group There are no IFRS or IFRIC interpretations that are eﬀective for the ﬁrst time in this ﬁnancial period that would be expected to have a material impact on the Group. The following new standards, amendments to standards, and interpretations have been issued, but are not eﬀective for the ﬁnancial period beginning 1 January 2020 and have not been early adopted: Annual Report and Accounts 2020 34 Notes to the Financial Statements (continued) 2. Accounting Policies (continued) New Standards, amendments and interpretations issued but not effective The following new standards, amendments to standards and interpretations have been issued, but are not eﬀective for the ﬁnancial period beginning 1 January 2020 and have not been early adopted: Amendment to IFRS 16 COVID-19 related rent concessions 1 June 2020 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 1 January 2021 Amendments to IAS 1, Presentation of ﬁnancial statements’ on classiﬁcation of liabilities 1 January 2022 A number of narrow-scope amendments to IFRS 3, IAS 16, IAS 17 and some annual improvements 1 January 2022 on IFRS 1, IFRS 9, IAS 41 and IFRS 16 The Directors anticipate that the adoption of these standard and the interpretations in future period will have no material impact on the ﬁnancial statements of the company. Basis of consolidation The consolidated ﬁnancial statements incorporate the ﬁnancial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the ﬁnancial and operating policies of an investee entity so as to obtain beneﬁts from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the eﬀective date of acquisition or up to the eﬀective date of disposal, as appropriate. Where necessary, adjustments are made to the ﬁnancial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reﬂect the changes in their relative interests in the subsidiaries. Any diﬀerence between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, the proﬁt or loss on disposal is calculated as the diﬀerence between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Where certain assets of the subsidiary are measured at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Company had directly disposed of the related assets (i.e. reclassiﬁed to proﬁt or loss or transferred directly to retained earnings). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IFRS 9 governance “Financial Instruments: Recognition and Measurement” or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity. Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the group to the former owners of the acquiree and the equity interests issued by the group in exchange for control of the acquiree. Acquisition-related costs are recognised in proﬁt or loss as incurred. 35 OptiBiotix Health Plc Notes to the Financial Statements (continued) 2. Accounting Policies (continued) At the acquisition date, the identiﬁable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that: – – – deferred tax assets or liabilities and liabilities or assets related to employee beneﬁt arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Beneﬁts respectively; liabilities or equity instruments related to share-based payment transactions of the acquiree or the replacement of an acquiree’s share-based payment transactions with share-based payment transactions of the group are measured in accordance with IFRS 2 Share-based Payment at the acquisition date; and assets (or disposal groups) that are classiﬁed as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identiﬁable assets acquired and the liabilities assumed. If, after assessment, the net of the acquisition-date amounts of the identiﬁable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in proﬁt or loss as a bargain purchase gain. Revenue recognition Revenue is measured at the fair value of sales of goods and services less returns and sales taxes. The Group has analysed its business activities and applied the ﬁve-step model prescribed by IFRS 15 to each material line of business, as outlined below: Sale of products The contract to provide a product is established when the customer places a purchase order. The performance obligation is to provide the product requested by an agreed date, and the transaction price is the value of the product as stated in our order acknowledgement. The performance obligation is typically met when the product is dispatched and so revenue is primarily recognised for each product when dispatching takes place. In some limited situations when the product is complete but the customer is unable to take delivery the performance obligation is met when the customer formally accepts transfer of risk and control even though the product has not been dispatched. License arrangements Revenue is recognised when the customer obtains control of the rights to use the IP. The performance obligations are considered to be distinct from any ongoing distribution arrangements which are treated in line with sales of products. Milestone payments Where the transaction price includes consideration that is contingent upon a future event or circumstance, the contingent amount is allocated entirely to that performance obligation if certain criteria are met. Revenue is recognised at the point of time of the performance obligation being satisﬁed. Investments in associates Associates are those entities in which the Group has signiﬁcant inﬂuence, but not control or joint control over the ﬁnancial and operating policies. Signiﬁcant inﬂuence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity. Investments in associates are accounted for under the equity method and are recognised initially at cost. The cost of the investment includes transaction costs. Annual Report and Accounts 2020 36 Notes to the Financial Statements (continued) 2. Accounting Policies (continued) The consolidated ﬁnancial statements include the Group’s share of proﬁt or loss and other comprehensive income of equity-accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that signiﬁcant inﬂuence commences until the date that signiﬁcant inﬂuence ceases. When the Group’s share of losses exceeds its interest in an equity-accounted investee, the carrying amount of the investment, including any long-term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. Investments at fair value Equity investments are held at fair value at the balance sheet date with any proﬁt or loss for the year being taken to the Income statement . The value of listed investments being calculated at the closing price on the balance sheet date. Employee Benefits The Group operates a deﬁned contribution pension scheme. Contributions payable by the Group’s pension scheme are charged to the income statement in the period in which they relate. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. (i) Current tax Current taxes are based on the results shown in the ﬁnancial statements and are calculated according to local tax rules using tax rates enacted or substantially enacted by the statement of ﬁnancial position date. Income tax is recognised in the income statement or in equity if it relates to items that are recognised in the same or a diﬀerent period, directly in equity. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. (ii) Deferred tax Deferred tax is provided, using the liability method, on temporary diﬀerences at the statement of ﬁnancial position date between the tax base of assets and liabilities and their carrying amounts for ﬁnancial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary diﬀerences. Deferred tax assets are recognised for all deductible temporary diﬀerences, carry forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable proﬁt will be available against which the deductible temporary diﬀerenced and the carrying forward or unused tax assets and unused tax losses can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that suﬃcient taxable proﬁt will be available to allow all or part of the deferred tax assets to be utilised. Conversely, previously unrecognised deferred tax assets are recognised to the extent that it is probable that suﬃcient taxable proﬁt that suﬃcient taxable proﬁt will be available to allow all or part of the deferred tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on the tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. 37 OptiBiotix Health Plc Notes to the Financial Statements (continued) 2. Accounting Policies (continued) Financial instruments and Risk Management Financial assets and ﬁnancial liabilities are recognised when the group becomes a party to the contractual provisions of the instrument. Loans and receivables are initially measured at fair value and are subsequently measured at amortised cost, plus accrued interest, and are reduced by appropriate provisions for estimated irrecoverable amounts. Such provisions are recognised in the statement of income. Equity investments comprise investments which do have a ﬁxed maturity and are classiﬁed as non current assets if they are intended to be held for the medium to long term. They are measured at fair value through proﬁt or loss. Trade receivables are initially measured at fair value and are subsequently measured at amortised cost less appropriate provisions for estimated irrecoverable amounts. Such provisions are recognised in the statement of income. Cash and cash equivalents comprise cash in hand and demand deposits and other short-term highly liquid investments with maturities of three months or less at inception that are readily convertible to a known amount of cash and are subject to an insigniﬁcant risk of changes in value. Trade payables are not interest-bearing and are initially valued at their fair value and are subsequently measured at amortised cost. Equity instruments are recorded at fair value, being the proceeds received, net of direct issue costs. Share Capital – 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 taxation, from the proceeds. Financial instruments require classiﬁcation of fair value as determined by reference to the source of inputs used to derive the fair value. This classiﬁcation uses the following three-level hierarchy: Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). Inventory Inventories are stated at the lower of cost and net realisable value. Cost is determined using the ﬁrst-in, ﬁrst-out (FIFO) method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Impairment of non-financial assets At each statement of ﬁnancial position date, the Group reviews the carrying amounts of its investments to determine whether there is any indication that those assets have suﬀered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash ﬂows that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indeﬁnite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash ﬂows are discounted to their present value using a pre-tax discount rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to the asset for which the estimates of future cash ﬂows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease. Annual Report and Accounts 2020 38 Notes to the Financial Statements (continued) 2. Accounting Policies (continued) Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Capital management Capital is made up of stated capital, premium, other reserves and retained earnings. The objective of the Group’s capital management is to ensure that it maintains strong credit ratings and capital ratios. This will ensure that the business is correctly supported and shareholder value is maximised. The Group manages its capital structure through adjustments that are dependent on economic conditions. In order to maintain or adjust the capital structure, the Company may choose to change or amend dividend payments to shareholders or issue new share capital to shareholders. There were no changes to the objectives, policies or processes during the period ended 31 December 2020. Convertible Loans Compound ﬁnancial instruments issued by the Group comprise convertible notes that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value. The liability component of a compound ﬁnancial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the diﬀerence between the fair value of the compound ﬁnancial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amount. Convertible debt reserve The convertible debt reserve is the equity component of the convertible loan notes that have been issued. Share-based compensation The fair value of the employee and suppliers services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting year is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, proﬁtability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each statement of ﬁnancial position date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. The fair value of share-based payments recognised in the income statement is measured by use of the Black Scholes model, which takes into account conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted; based on management’s best estimate, for the eﬀects of non-transferability, exercise restrictions and behavioural considerations. The share price volatility percentage factor used in the calculation is based on management’s best estimate of future share price behaviour and is selected based on past experience, future expectations and benchmarked against peer companies in the industry. 39 OptiBiotix Health Plc Notes to the Financial Statements (continued) 2. Accounting Policies (continued) Property, plant and equipment Property, plant and equipment are stated at historical cost less subsequent accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic beneﬁts associated with the item will ﬂow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to proﬁt or loss during the ﬁnancial period in which they are incurred. Depreciation on property, plant and equipment is calculated using the straight-line method to write oﬀ their cost over their estimated useful lives at the following annual rates: Computer equipment 30% Useful lives and depreciation method are reviewed and adjusted if appropriate, at the end of each reporting period. An item of property, plant and equipment is derecognised upon disposal or when no future economic beneﬁts are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the diﬀerence between the sales proceeds and the carrying amount of the relevant asset and is recognised in proﬁt or loss in the year in which the asset is derecognised. Intangibles – Patents Separately acquired patents are shown at historical cost. Patents have a ﬁnite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method to allocate the cost of the patents over their estimated useful life of twenty years once the patents have been granted. Research and Development Research expenditure is written oﬀ to the statement of comprehensive income in the year in which it is incurred. Development expenditure is written oﬀ in the same way unless the Directors are satisﬁed as to the technical, commercial and ﬁnancial viability of individual projects. In this situation, the expenditure is deferred and amortised over the 10 years during which the Company is expected to beneﬁt. Merger relief reserve The merger relief reserve arises from the 100% acquisition of OptiBiotix Limited whereby the excess of the fair value of the issued ordinary share capital issued over the nominal value of these shares is transferred to this reserve in accordance with section 612 of the Companies Act 2006. Critical accounting judgments and key sources of estimation uncertainty The preparation of the ﬁnancial statements requires management to make estimates and assumptions concerning the future that aﬀect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the ﬁnancial statements and the reported amounts of revenues and expenses during the reporting periods. The resulting accounting estimates will, by deﬁnition, diﬀer from the related actual results. • Share based payments The fair value of share based payments recognised in the income statement is measured by use of the Black Scholes model, which takes into account conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted; based on management’s best estimate, for the eﬀects of non-transferability, exercise restrictions and behavioural considerations. The share price volatility percentage factor used in the calculation is based on management’s best estimate of future share price behaviour and is selected based on past experience, future expectations and benchmarked against peer companies in the industry. Annual Report and Accounts 2020 40 Notes to the Financial Statements (continued) 2. Accounting Policies (continued) • • • Amortisation Management have estimated that the useful life of the fair value of the patents acquired on the acquisition to be 20 years. Research and developments that have been capitalised in line with the recognition criteria of IAS38 have been estimated to have a useful economic life of 10 years. These estimates will be reviewed annually and revised if the useful life is deemed to be lower based on the trading business or any changes to patent law. Impairment reviews IFRS requires management to undertake an annual test for impairment of indeﬁnite lived assets and, for ﬁnite lived assets to test for impairment if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by the net present value of future cash ﬂows derived from such assets using cash ﬂow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash ﬂows, certain assumptions are required to be made in respect of highly uncertain matters. Derecognition of an associate Management have reviewed the existing relationship with Skinbiotherapeutics Plc in light of changes in the Group’s power to participate in the ﬁnancial and operating decisions of the entity, in line with the requirements of IAS28. Following a signiﬁcant dilution in shareholding and a change to the board structure of the entity, it was determined that the signiﬁcant inﬂuence had been lost and the associate would be de-recognised. 3. Segmental Reporting In the opinion of the directors, the Group has one class of business, in three geographical areas being that of identifying and developing microbial strains, compounds and formulations for use in the nutraceutical industry. The Group sells into three highly interconnected markets, all costs assets and liabilities are derived from the UK location. Revenue analysed by market Probiotics Functional Fibres* *Includes Consumer Health Revenue analysed by geographical market UK US International Year ended 31 December 2020 £ Period ended 31 December 2019 £ 821,126 702,121 1,523,247 397,831 347,052 744,883 Year ended 31 December 2020 £ Period ended 31 December 2019 £ 369,892 654,524 498,831 1,523,247 197,969 172,352 374,562 744,883 During the reporting period one customer represented £497,416 (32.6%) of Group revenues. (2019: one customer generated £172,351 representing 23.1% of Group revenues) 41 OptiBiotix Health Plc Notes to the Financial Statements (continued) 4. Employees and Directors Wages and salaries Directors’ remuneration* Directors’ fees* Social security costs Pension costs Year ended 31 December 2020 £ Period ended 31 December 2019 £ 82,448 404,500 406,399 52,231 33,518 979,096 53,037 647,421 310,832 74,396 28,618 1,114,257 *Total Directors’ remuneration £810,899 (2019: £958,253) see Directors’ remuneration note below The average monthly number of employees during the period was as follows: Directors Research and development Directors’ remuneration* Directors’ share based payments Bonus* Pension Total emoluments Emoluments paid to the highest paid director *Total Directors’ remuneration £810,899 see Directors’ remuneration note below Year ended 31 December 2020 No. Period ended 31 December 2019 No. 6 2 8 8 2 10 Year ended 31 December 2020 £ Period ended 31 December 2019 £ 763,399 102,533 47,500 33,518 946,950 218,000 873,253 123,362 85,000 28,618 1,110,233 248,000 Included in total emoluments paid to Directors are capitalised wages of £187,241 (2019: £248,707) Annual Report and Accounts 2020 42 Notes to the Financial Statements (continued) 4. Employees and Directors (continued) Directors’ remuneration Details of emoluments received by Directors of the Group for the period ended 31 December 2020 are as follows: Remuneration Share based Pension and fees payments Costs £ £ £ A Reynolds* 24,996 – – S P O’Hara 218,000 – 10,650 F Narbel 175,762 44,720 8,370 S Christie 25,000 11,394 – R Davidson 55,000 32,212 – S Kolyda 106,500 14,207 5,325 P Wenstromm* 18,000 – – S Prescott* 99,695 – 4,985 M Hvid-Hansen 87,946 – 4,188 Total 810,899 102,533 33,518 Total £ 24,996 228,650 228,852 36,394 87,212 126,032 18,000 104,680 92,134 946,950 *For disclosure in relation to directors’ fees please refer to Note 21. 5. Net Finance Income/(Costs) Year ended 31 December 2020 £ Period ended 31 December 2019 £ 98 110 (44,954) (44,467) (44,856) (44,357) Finance Income: Bank Interest Finance Cost : Loan note interest Net Finance Income/(Costs) 43 OptiBiotix Health Plc Notes to the Financial Statements (continued) 6. Expenses – analysis by nature Year ended 31 December 2020 £ Period ended 31 December 2019 £ Research and development Regulatory Costs Directors’ fees & remuneration (Note 4)* Auditor remuneration – audit fees (Consolidated accounts £18,250, (2019:£17,500) Auditor remuneration – non audit fees (tax compliance) Brokers & Advisors Advertising & marketing Share based payments charge Depreciation on property, plant and equipment Amortisation of patents and development costs Patent and IP costs Consultancy fees Legal and professional fees Public Relations costs Travel costs Other expenses 85,703 – 623,658 42,720 11,400 123,531 86,673 127,248 393 247,502 136,762 76,704 42,625 82,394 31,434 272,465 167,869 185,447 709,546 42,220 6,200 113,036 66,556 137,320 2,750 215,235 55,483 223,016 24,399 101,795 171,448 337,121 Total administrative expenses 1,991,212 2,559,441 *£623,658 is net of £187,241 capitalised in the year, total remuneration £810,899 as per note 4. 7. Prior period adjustment During the 2020 ﬁnancial year, the group discovered that there were prior period errors relating to the areas listed below in 7.1 and 7.2. As a consequence, these amounts have been misstated in the prior year annual ﬁnancial report. The errors have been corrected by restating each of the ﬁnancial statement line items for the prior periods. The following tables summarise the impacts on the Group’s and Company’s ﬁnancial statements. The prior period correction has resulted from an error in the accounting treatment of the investment held in Skinbiotherapeutics PLC in the prior period. Having reviewed the ownership of Skinbiotherapeutics Plc, it was decided that the threshold for de-recognition as an associate was not achieved in the prior year. As a result, the share of loss for the associate for the period between 4 July 2019 and 31 December 2019 should be recognised within the Group. See note 12 for details of the disposal which has been recognised in the current year. Annual Report and Accounts 2020 44 Notes to the Financial Statements (continued) 7. Prior period adjustment (continued) 7.1 Consolidated statement of consolidated income Impact of correction of error Share of loss from associate Loss before tax Total Comprehensive Loss As previously reported 2019 £ (296,344) (2,241,858) (2,118,390) Adjustments 2019 £ (249,972) (249,972) (249,972) As restated 2019 £ (546,316) (2,491,830) (2,368,362) Loss per share (pence), basic and diluted (2.49)p (0.29)p (2.78)p 7.2 Consolidated statement of financial position Impact of correction of error As previously reported 2019 £ 2,633,171 3,092,806 5,725,977 (492,927) 5,724,237 5,231,310 Adjustments 2019 £ As restated 2019 £ – (249,972) (249,972) (249,972) – (249,972) 2,633,171 2,842,834 5,476,005 (742,899) 5,724,237 4,981,338 Year ended 31 December 2020 £ Period ended 31 December 2019 £ (120,000) – 28,185 180 (91,635) (190,435) (9,221) 76,188 – (123,468) Assets Other assets Investments Equity Retained earnings Other equity Total Equity 8. Corporation Tax Corporation tax credit Under provision prior year Deferred tax movement Overseas tax suffered Total taxation 45 OptiBiotix Health Plc Notes to the Financial Statements (continued) 8. Corporation Tax (continued) Analysis of tax expense No liability to UK corporation tax arose on ordinary activities for the year ended 31 December 2020 nor for the period ended 31 December 2019. Profit/(loss) on ordinary activities before income tax 5,710,232 (2,491,830) Year ended 31 December 2020 £ Period ended 31 December 2019 £ Loss on ordinary activities multiplied by the standard rate of corporation tax in UK of 19% (2019 – 19%) Effects of: Disallowables Income not taxable Accelerated depreciation R&D enhanced deductions R&D tax credit claimed Amortisation Revenue items capitalised Other timing differences Overseas tax suffered Unused tax losses carried forward Tax credit 1.084,944 (473,447) 89,931 (1,362,287) 75 – (120,000) 27,851 (66,566) 28,185 180 226,052 (91,635) 104,311 (50,441) 523 (141,042) (199,656) 40,895 (65,072) 76,188 – 584,303 (123,468) The Group has estimated losses of £4,704,000 (2019: £3,253,189) and estimated excess management expenses of £2,591,000 (2019: £2,248,357). The tax losses have resulted in a deferred tax asset at 19% of approximately £1,386,050 (2019: £1,045,294) which has not been recognized as it is uncertain whether future taxable proﬁts will be suﬃcient to utilise the losses. Current tax asset – Group Balance brought forward Received during the year Prior year adjustment Research & development tax credit claimed 2020 £ 190,435 – – 120,000 310,435 2019 £ 303,952 (313,170) 9,218 190,435 190,435 Annual Report and Accounts 2020 46 Notes to the Financial Statements (continued) 9. Earnings per share Basic earnings per share is calculated by dividing the earnings attributable shareholders by the weighted average number of ordinary shares outstanding during the period. 2020 Basic and diluted EPS Basic EPS Diluted EPS Earnings £ 5,801,867 5,801,867 Weighted average Number of shares No. 87,207,703 95,569,946 Profit per-share Pence 6.65 6.07 2019 Restated Basic EPS Diluted EPS Earnings £ (2,368,362) (2,368,362) Weighted average Number of shares £ 85,262,488 85,262,488 2019 Previously Basic EPS Diluted EPS Earnings £ (2,118,390) (2,118,390) Weighted average Number of shares £ 85,262,488 85,262,488 Loss per-share Pence (2.78) (2.78) Loss per-share Pence (2.49) (2.49) As at 31 December 2020 there were 8,032,907 (2019: 7,765,907) outstanding share options and 323,969 (2019: 324,019) outstanding share warrants. 47 OptiBiotix Health Plc Notes to the Financial Statements (continued) 10. Intangible assets Group Cost At 30 November 2018 Additions Disposals At 31 December 2019 Additions Disposals At 31 December 2020 Amortisation At 30 November 2018 Amortisation charge for the period At 31 December 2019 Amortisation charge for the period At 31 December 2020 Carrying amount At 31 December 2020 At 31 December 2019 The company had no intangible assets Development Costs and Patents £ 2,727,006 594,924 – 3,321,930 350,345 – 3,672,275 473,917 215,235 689,152 247,502 936,654 2,735,621 2,632,778 Annual Report and Accounts 2020 48 Notes to the Financial Statements (continued) 11. Property, plant and equipment Cost At 30 November 2018 Additions Disposals At 31 December 2019 Additions Disposals At 31 December 2020 Depreciation At 30 November 2018 Charge for the year At 31 December 2019 Charge for the period At 31 December 2020 Carrying amount At 31 December 2020 At 31 December 2019 Group £ 8,461 – – 8,461 – – 8,461 5,318 2,750 8,068 393 8,461 – 393 The company had no property plant and equipment. 12. Investments Group Investments Set out below is the investment in Skinbiotherapeutics PLC which is material to the Group. The investment treated as an associate of the group until 2 November 2020, after which time the shareholding dropped to 24.65% and has been recalculated as an equity investment. The entity listed below have share capital consisting solely of ordinary shares, which are held by the Group. The country of incorporation is also the principal place of business and the proportion of ownership interest is the same as the proportion of voting rights held. 49 OptiBiotix Health Plc Notes to the Financial Statements (continued) 12. Investments (continued) Available for sale investments At the beginning of the period Additions Revaluations Disposals Share of loss Disposal of shares during period Prior year adjustment At 31 December Company Investments Available for sale investments At the beginning of the period Additions Revaluations Disposal of shares during period Investments in subsidiary undertakings At the beginning of the period Addition: Equity element of convertible loan notes At 31 December 2020 £ 2019 £ 2,842,834 3,740,799 7,120,962 (303,448) (697,784) – 8,962,564 2020 £ – (296,344) (351,649) (249,972) 2,842,834 2019 £ 4,131,651 4,483,300 5,528,696 (697,783) 8,962,564 2,080,905 – 2,080,905 11,043,469 – (351,649) 4,131,651 2,051,000 29,905 2,080,905 6,212,556 As at 31 December 2020 the Company directly held the following subsidiaries: Country of incorporation Name of company Principal activities and place of business Proportion of equity interest 2018 OptiBiotix Limited Research & Development United Kingdom 100% of ordinary shares The Healthy Weight Loss Health foods United Kingdom Company Limited 68% of ordinary shares ProBiotix Health Ltd Health foods United Kingdom 100% of ordinary shares Annual Report and Accounts 2020 50 Notes to the Financial Statements (continued) 13. Inventories Group Company 2020 2019 2020 £ £ £ Finished goods 184,236 62,761 – 2019 £ – During the period £643,428 (2019: £352,080) has been expensed to the income statement. 14. Trade and other Receivables Group Company 2020 2019 2020 £ £ £ 2019 £ Non-current Amounts owed by group undertakings – – 329,057 – – 329,057 Current Accounts receivable 512,437 511,833 – Other receivables 110,634 59,346 71,278 Prepayments and accrued income 22,752 36,129 18,142 645,823 607,308 89,420 5,941,360 5,941,360 – 19,857 4,850 24,707 15. Cash and Cash Equivalents Group Company 2020 2019 2020 £ £ £ Cash and bank balances 864,680 455,608 532,769 2019 £ 139,243 16. Called Up Share Capital Issued share capital comprises: Ordinary shares of 2p each – 87,940,601 (2019: 85,440,551) 2020 £ 1,758,812 1,758,812 2019 £ 1,708,811 1,708,811 51 OptiBiotix Health Plc Notes to the Financial Statements (continued) 16. Called Up Share Capital (continued) During the period the Company issued the ordinary shares of £0.02 each listed below, exercised at a price of £0.08 per share in the capital of the Company following the exercise of warrants: Total warrants exercised in the period 17. Reserves Date issued 03/06/2020 Number 50 50 Share capital is the amount subscribed for shares at nominal value. Share premium represents amounts subscribed for share capital in excess of nominal value, net of expenses. The convertible debt reserve is the equity component of the convertible loan notes that have been issued. Merger relief reserve arises from the 100% acquisition of OptiBiotix Limited on 5 August 2014 whereby the excess of the fair value of the issued ordinary share capital issued over the nominal value of these shares is transferred to this reserve in accordance with section 612 of the Companies Act 2006. Retained earnings represents the cumulative proﬁts and losses of the group attributable to the owners of the company. Share based payment reserve represents the cumulative amounts charged in respect of unsettled warrants and options issued. 18. Trade and other payables Current: Group Company 2020 2019 2020 £ £ £ Accounts Payable 359,321 347,822 40,174 Accrued expenses 157,039 186,329 22,750 Amount due to director – 189 – Other payables 2,635 27,284 – Amounts due to group undertakings – – – Total trade and other payables 518,995 561,624 62,924 2019 £ 2,685 32,500 – – 250,000 285,185 19. Deferred Tax Deferred tax is provided, using the liability method, on temporary diﬀerences at the statement of ﬁnancial position date between the tax base of assets and liabilities and their carrying amounts for ﬁnancial reporting purposes. Deferred tax is calculated in full on temporary diﬀerences under the liability method using a tax rate of 19% (2019: 19%). Annual Report and Accounts 2020 52 Notes to the Financial Statements (continued) 19. Deferred Tax (continued) The movement on the deferred tax account is as shown below: At 31 December 2019 Movement in the period At 31 December 2020 2020 £ 522,350 39,173 561,523 2019 £ 446,162 76,188 522,350 Deferred tax assets have not been recognised in respect of tax losses and other temporary diﬀerences giving rise to deferred tax assets as the directors believe there is uncertainty whether the assets are recoverable. 20. Convertible Loan Notes ProBiotix Health Limited issued 1,025,000 ﬂoating rate convertible loan notes (CLN) for £1,025,000 on 11 December 2018. The notes are convertible into ordinary shares of the Company and converted into shares immediately prior to the occurrence of a listing of the company, or repayable on December 2023. The conversion rate is 1 share for each note held at an amount which is equal to 50% of the listing price. OptiBiotix Health Plc has subscribed 250,000 of the CLN for £250,000 The convertible notes are presented in the Group balance sheet as follows: Balance brought forward Additions Equity element Liability component Interest charged at effective interest rate Non-current liability 2020 £ 726,805 – – 726,805 44,954 771,759 2019 £ - 775,050 (92,712) 682,338 44,467 726,805 Interest expense is calculated by applying the eﬀective interest rate of 6% to the liability component. 21. Related Party Disclosures During the year to 31 December 2020 £18,000 (2019: £19,548) was paid to P Wennstrom in respect of Director’s services provided. During the year to 31 December 2020 £184,132 (2019: £139,105) was paid to F Narbel in respect of Director’s services provided. During the year to 31 December 2020 £104,680 (2019: £116,966) was paid to Stephen Prescott in respect of Director’s services provided. During the year to 31 December 2020 £24,996 (2019: £29,165) was paid to Reyco Limited for the services of Adam Reynolds as Director of ProBiotix Health Limited. During the year to 31 December 2020 the Group was charged £42,000 (2019: £45,500) for services provided by Morrison Kingsley Consultants Limited, a company controlled by Mark Collingbourne, Chief Financial Oﬃcer. During the year Optibiotix Health PLC loaned Probiotix limited £125,000. The balance owing at the 31 December 2020 was £80,119 (2019, £NIL). There was no interest charged during the year. At the year end Probiotix Health limited owed Optibiotix Health Plc £248,938 (2019, £234,438) for convertible loan notes issued on 11 December 2018 (see note 20). Interest at 6% was charged during the year. 53 OptiBiotix Health Plc Notes to the Financial Statements (continued) 21. Related Party Disclosures (continued) During the year Optibiotix Health PLC loaned Optibiotix Limited £1,003,905, of which £159,161 was repaid. The balance at the year end of £6,301,666 (2019, £5,456,922 was cancelled. This does not impact on the consolidated Group accounts. 22. Ultimate Controlling Party No one shareholder has control of the company. 23. Share Based payment Transactions (i) Share options The Company had introduced a share option programme to grant share options as an incentive for employees of the former subsidiaries. Each share option converts into one ordinary share of the Company on exercise. No amounts are paid or payable by the recipient on receipt of the option and the Company has no legal obligation to repurchase or settle the options in cash. The options carry neither rights to dividends nor voting rights prior to the date on which the options are exercised. Options may be exercised at any time from the date of vesting to the date of expiry. Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: Number of options Average exercise price 2020 2019 2020 No. No. £ 2019 £ Outstanding at the beginning of the period 7,765,907 8,272,907 0.20 Granted during the period 300,000 500,000 0.57 Forfeited/cancelled during the year (33,000) (1,007,000) 0.695 Exercised during the period – Outstanding at the end of the period 8,032,907 7,765,907 0.21 0.23 0.78 0.70 0.20 For the share options issued in 2014 vesting conditions dictate that half will vest if the middle market quotation of an existing Ordinary share is 16p or more on each day during any period. of at least 30 consecutive Dealing days and half will vest when a commercial contract is signed. The two conditions are not dependent on each other and will vest separately. For the share options issued in 2015 year vesting conditions dictate that some of the options will vest if the middle market quotation of an existing Ordinary share is 40p or more on each day during any period of at least 30 consecutive Dealing days and some will vest if certain revenue targets are met or if certain scientiﬁc studies are completed. The conditions are not dependent on each other and will vest separately. For the share options issues in 2017 vesting conditions dictate that the options will vest if certain revenue conditions are met. For the share options issues in 2018 vesting conditions dictate that the options will vest if certain revenue conditions are met. For the share options issues in 2019 vesting conditions dictate that the options will vest if certain revenue conditions are met. For the share options issues in 2020 vesting conditions dictate that the options will vest if certain revenue conditions are met. The share options outstanding at the period end had a weighted average remaining contractual life of 1,639 days (2019: 1,977 days) and the maximum term is 10 years. The share price per share at 31/12/20 was £0.55 (31/12/2019: £0.66) Annual Report and Accounts 2020 54 Notes to the Financial Statements (continued) 23. Share Based payment Transactions (continued) (i) Share options Expected volatility is based on a best estimate for an AIM listed entity. The expected life used in the model has been adjusted, based on management’s best estimate, for the eﬀects of non-transferability, exercise restrictions and behavioural considerations. The fair values of the share options issued in the year were derived using the Black Scholes model. The following assumptions were used in the calculations: Grant date Exercise price Share price at grant date Risk-free rate Volatility Expected life Fair value (ii) Warrants 02/06/2020 57p 57p 0.25% 35% 10 years 24p On 20 February 2014, an open oﬀer was made to the potential investors to subscribe for 203,380,942 new ordinary shares of £0.0001 each at £0.0001 each. On a 1:1 basis, warrants attach to any shares issued under the open oﬀer convertible at any time to 30 November 2018 at £0.0004 per shares. On 4 August 2014, the warrants in issue were consolidated in the ratio of 200:1 as part of the share reorganisation. At a meeting of warrant holders on 24 January 2017 it was agreed to extend the exercise period for all remaining warrants to 28 January 2022 and 19 February 2022 Movements in the number of share warrants outstanding and their related weighted average exercise prices are as follows: Number of warrants Average exercise price 2020 2019 2020 No. No. £ 2019 £ Outstanding at the beginning of the period 329,386 1,045,524 0.08 Exercised during the period (50) (716,138) 0.08 Outstanding at the end of the period 329,336 329,386 0.08 0.08 0.08 0.08 A charge of £127,248 (2019: £137,320) has been recognised during the year for the share based payments over the vesting period. 24. Financial Risk Management Objectives and Policies The Group’s ﬁnancial instruments comprise cash balances and receivables and payables that arise directly from its operations. The main risks the Group faces are liquidity risk and capital risk. The Board regularly reviews and agrees policies for managing each of these risks. The Group’s policies for managing these risks are summarised below and have been applied throughout the period. The numerical disclosures exclude short-term debtors and their carrying amount is considered to be a reasonable approximation of their fair value. Interest risk The Group is not exposed to signiﬁcant interest rate risk as it has limited interest bearing liabilities at the year end. 55 OptiBiotix Health Plc Notes to the Financial Statements (continued) 24. Financial Risk Management Objectives and Policies (continued) Credit risk The Group is not exposed to signiﬁcant credit risk as it did not make any credit sales during the year. Liquidity risk Liquidity risk is the risk that Group will encounter diﬃculty in meeting these obligations associated with ﬁnancial liabilities. The responsibility for liquidity risks management rest with the Board of Directors, which has established appropriate liquidity risk management framework for the management of the Group’s short term and long-term funding risks management requirements. During the period under review, the Group has not utilised any borrowing facilities. The Group manages liquidity risks by maintaining adequate reserves and reserve borrowing facilities by continuously monitoring forecast and actual cash ﬂows, and by matching the maturity proﬁles of ﬁnancial assets and liabilities. Capital risk The Group’s objectives when managing capital are to safeguard the ability to continue as a going concern in order to provide returns for shareholders and beneﬁts to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. 25. Post Balance Sheet Events On 16 March 2021 the company sold 1,300,000 shares in Skinbiotherapeutics plc at a price of 44.91 pence per share. On 17 March 2021 the company sold 700,000 shares in Skinbiotherapeutics plc at a price of 45.43 pence per share. On 15 April 2021 Mr Stephen Hammond, a recently appointed Non-Executive Director of the Company (RNS 2nd February 2021), acquired 25,000 ordinary shares in the Company, representing 0.03% of the Company’s issued share capital, at an average price of 51.8 pence per share. On 20 April 2021, Stephen O’Hara (Director and CEO of OptiBiotix Health plc) acquired 47,857 shares at an average price of 53 pence per share. Following this purchase Stephen Ohara owns 10,165,129 shares representing 11.61% of the issued share capital. On 20 April 2021, René Kamminga (PDMR and CEO of OptiBiotix Limited) acquired 35,000 ordinary shares in the company representing 0.04% of the company’s issued share capital at an average price of 52.4 pence per share. Annual Report and Accounts 2020 56 Notice of Annual General Meeting OPTIBIOTIX HEALTH PLC Dear Shareholder, Optibiotix Health plc (AIM: OPTI), is pleased to announce that the Company's Annual General Meeting (“AGM”) will be held at the oﬃces of Walbrook PR Ltd, 4 Lombard Street, London, EC3V 9HD on 09 July 2021 at 10:30 am. The formal notice of the Annual General Meeting is appended to this letter. The Board takes its responsibility to safeguard the health of its shareholders, stakeholders and employees seriously. As a result of the current measures implemented by the UK Government therefore, attendance at its AGM will be limited to two persons. Shareholders may not attend in person. If the UK Government changes the measures before the date of the AGM, the Company will provide a further update. Shareholders wishing to vote on matters of business are urged to do so via the completion of a proxy form. In line with corporate governance best practice, and in order that any proxy votes of those shareholders who are not allowed to attend, and to vote in person, are fully reﬂected in the voting on the resolutions, the Chairman of the meeting will direct that voting on all resolutions set out in the notice of meeting will take place by way of a poll. The ﬁnal poll vote on each resolution will be published after the AGM on the Company's website. The Company will accept electronic copies or photographs of the form of proxy by email to voting@shareregistrars.uk.com. As shareholders will not be able to attend this year's AGM, the Company is proposing to allow shareholders the opportunity to raise any questions arising from the business proposed, to be conducted at the meeting. Appropriate questions must be submitted via the “Contact” page of the Company website http://optibiotix.com/contact before 10:30am on 7 July 2021. The company will aim to post responses on the Company's website on the day of the AGM. Notice is hereby given that the Annual General Meeting of OptiBiotix Health PLC (the “Company”) will be held at the oﬃces of Walbrook PR Ltd, 4 Lombard Street, London, EC3V 9HD on 09 July 2021 at 10:30 am for the following purposes: 1. 2. 3. 4. 5. 6. To receive the Company’s Report and Accounts for the year ended 31 December 2020. To re-elect Sean Christie, who retires by rotation, as a Director. To re-elect Soﬁa Kolyda, who retires by rotation, as a Director To re-elect Christopher Brinsmead who retires by rotation as a Director To re-elect Stephen Hammond who retires by rotation as a Director To re-appoint Jeﬀrey’s Henry LLP as auditors of the Company and to authorise the Directors to determine their remuneration. Special Business To consider and, if thought ﬁt, to pass the following resolutions as to the resolution numbered 7 as an Ordinary Resolution and as to the resolutions numbered 8 as Special Resolutions: 7. THAT the Directors be and they are hereby authorised generally and unconditionally for the purposes of Section 551 of the Companies Act 2006 (the “Act”) to exercise all powers of the Company to allot shares in the Company or to grant rights to subscribe for, or to convert any security into, shares in the Company (such shares and/or rights being “Relevant Securities”) up to an aggregate nominal amount of £586,270.67 being one third of the current issued share capital, provided that this authority shall, unless renewed, varied or revoked by the Company, expire on the date being the earlier of the date 15 months after the passing of this Resolution and the conclusion of the Annual General Meeting of the Company to be held in 2022, save that the Company may, before such expiry, make oﬀers or agreements which would or might require Relevant Securities to be allotted and the Directors may allot Relevant Securities in pursuance of such oﬀer or agreement notwithstanding that the authority conferred by this Resolution has expired. This authority shall be in substitution for and shall replace any existing authority pursuant to Section 551 of the Act to the extent not utilised at the date this resolution is passed. 57 OptiBiotix Health Plc Notice of Annual General Meeting (continued) 8. THAT, subject to and conditional upon the passing of resolution 7, the Directors be and they are hereby generally empowered pursuant to Section 570 of the Act to allot equity securities (as deﬁned in Section 560 of the Act) for cash pursuant to the authority conferred under Resolution 7 above as if sub-section 561(1) of the Act did not apply to such allotment, provided that this power shall be limited to:- (a) (b) the allotment of equity securities in connection with a rights issue or any pre-emptive oﬀer in favour of holders of ordinary shares in the Company where the equity securities attributable to the respective interests of such holders are proportionate (as nearly as maybe) to the respective numbers of ordinary shares held by them on the record date for such allotment subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with fractional entitlements or any legal or practical diﬃculties under the laws of, or the requirements of, any regulatory body or stock exchange of any overseas territory or otherwise; the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal value of £527,643.60 being 30% of the current issued share capital; and shall expire on the date being the earlier of the date 15 months after the passing of this Resolution and the conclusion of the Annual General Meeting of the Company to be held in 2022, provided that the Company may before such expiry make an oﬀer or agreement which would require equity securities to be allotted in pursuance of such oﬀer or agreement as if the power conferred hereby had not expired and provided further that this authority shall be in substitution for and supersede and revoke any earlier power given to directors. By Order of the Board Stephen O’Hara 16 June 2021 Registered Oﬃce: Innovation Centre Innovation Way Heslington York YO10 5DG Annual Report and Accounts 2020 58 Explanatory Notes to the Notice of Annual General Meeting Notes: 1. 2. 3. 4. A member of the Company is entitled to appoint a proxy or proxies to attend, speak and vote at the meeting in his stead. A member may appoint more than one proxy provided each proxy is appointed to exercise rights attached to diﬀerent shares. A member may not appoint more than one proxy to exercise rights attached to any one share. A proxy does not need to be a member of the Company. Given the current Coronavirus (COVID-19) situation, and to ensure adherence to current Government requirements, attendance in person at the meeting will not be possible this year. Shareholders are requested to appoint the Chairman of the meeting as his or her proxy as any other person so appointed will not be permitted to attend the meeting. The below notes are to be read subject to this COVID-19 related proviso. To be eﬀective Forms of Proxy must be duly completed and returned so as to reach the Share Registrars Ltd, The Courtyard, 17 West Street, Farnham, Surrey, GU9 7DR no later than 10:30am on 7 July 2021 To change your proxy instructions simply submit a new proxy appointment using the methods set out above and in the notes to the Form of Proxy. Note that the cut-oﬀ times for receipt of proxy appointments (see above) also apply in relation to amended instructions; any amended proxy appointment received after the relevant cut-oﬀ time will be disregarded. To be entitled to vote at the meeting (and for the purpose of the determination by Company of the number of votes they may cast), members must be entered in the Register of members at 10:30am on 7 July 2021 (“the speciﬁed time”). If the meeting is adjourned to a time not more than 48 hours after the speciﬁed time applicable to the original meeting, that time will also apply for the purpose of determining the entitlement of members to attend and vote (and for the purpose of determining the number of votes they may cast) at the adjourned meeting. If however the meeting is adjourned for a longer period then, to be so entitled, members must be entered on the Company’s Register of Members at the time which is not less than 48 hours before the time ﬁxed for the adjourned meeting or, if the Company gives notice of the adjourned meeting, at the time speciﬁed in that notice. Resolution 1 The Directors are required by law to present to the meeting the Audited Accounts and Directors’ Report for the period ended 31 December 2020. Resolutions 2-3 Each of the Company’s Directors listed in this resolution oﬀer themselves up for re-appointment under the terms of the Company’s articles of association which state that each director must oﬀer himself or herself up for re-appointment every three years. Resolutions 4-5 Each of the Company’s Directors listed in this resolution was appointed by the Board after the last Annual General Meeting of the Company. Under the terms of the Company’s articles of association any Director appointed as an additional director after the last Annual General Meeting must resign at the next Annual General Meeting and may oﬀer himself or herself for re-appointment. Each of the Directors of the Company listed in these resolutions is oﬀering himself for re-appointment. Resolution 6 The Auditors are required to be re-appointed at each Annual General Meeting at which the Company’s Audited Accounts are presented. 59 OptiBiotix Health Plc Explanatory Notes to the Notice of Annual General Meeting (continued) Resolution 7 Under the Act, the Directors may only allot shares if authorised to do so. Whilst the current authority has not yet expired, it is customary to grant a new authority at each Annual General Meeting. Accordingly, this resolution will be proposed as an ordinary resolution to grant a new authority to allot or grant rights over up to £586,270.67 in nominal value of the Company’s unissued share capital. If given, this authority will expire at the Company’s next annual general meeting following the date of the resolution. Although the Directors currently have no present intention of exercising this authority, passing this resolution will allow the Directors ﬂexibility to act in the best interests of the Company’s shareholders when opportunities arise. Resolution 8 The Directors require additional authority from the Company’s shareholders to allot shares where they propose to do so for cash and otherwise than to the Company’s shareholders pro rata to their holdings. This resolution will give the Directors power to issue new ordinary shares for cash other than to the Company’s shareholders on a pro rata basis (i) (ii) by way of a rights or similar issue or with a nominal value of up to £527,643.60. This resolution will be proposed as a special resolution. Annual Report and Accounts 2020 60 optibiotix.com To find out more please contact OptiBiotix on: info@optibiotix.com OptiBiotix Health Plc | Innovation Centre, Innovation Way, Heslington, York, YO10 5DG, UK. OptiBiotix Health Plc © 2018 OptiBiotix Health Plc. All rights reserved.

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