OptiBiotix Health Plc
Annual Report 2023

Plain-text annual report

optibiotix.com ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2023 Company Number: 05880755 Company Number: 05880755 Contents Company Information Chairman’s Report Chief Executive’s Report Strategic Report Directors’ Report Independent Auditor’s Report 2 3 4 10 15 18 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity 23 24 25 Consolidated Statement of Cash Flows 26 Notes to the Consolidated Statement of Cash Flows 27 Company Statement of Financial Position 28 Company Statement of Changes in Equity 29 Company Statement of Cash Flows 30 Notes to the Company Statement of Cash Flows Notes to the Financial Statements 31 32 1 OptiBiotix Health Plc Company Information Directors: S P O’Hara R Davidson M Christie S Kolyda G Myers Secretary: Mark Collingbourne Registered number: 05880755 (England & Wales) Registered office: Innovation Centre Innovation Way York YO10 5DG Auditors: Gerald Edelman LLP 73 Cornhill London EC3V 3QQ Nominated adviser: Cairn Financial Advisers LLP 9th Floor 107 Cheapside London EC2V 6DN Brokers: Peterhouse Capital Limited 80 Cheapside London EC2V 6DZ Website Address: www.optibiotix.com Annual Report and Accounts 2023 2 Chairman’s Report For the year ended 31 December 2023 This year has seen the Group successfully returned to sales growth under the renewed leadership of its founder Stephen O’Hara, who returned to the role of CEO of OptiBiotix Limited in March 2023. In that time we have secured a number of new corporate partners to help develop sales of our first-generation products in key strategic markets like the USA and Asia, increased direct to consumers sales through ecommerce channels and reduced operating costs. Our second-generation products are now approaching commercialisation, offering potential additional future growth for the Company. The positive trajectory re-established during the year has continued into 2024. With new corporate partners in new territories, strong ecommerce growth, reduced SlimBiome® ingredient stock levels held by Maxum and Cambridge Commodities, a strong balance sheet (circa £9.4m at 31 December 2023) and a successful fundraise in 2024, the financial strength of the Group provides shareholders with a robust platform for growth going forward. Strategy and business development From the outset, the business has had a clear strategic focus on developing unique products with functional benefits in high growth markets around the world, and balancing risk and reward by building sales of first-generation products while developing more innovative second-generation products with greater potential. The CEO reports in detail below on the actions we have taken during the year to restore the Group to sales growth through more active management of existing key accounts, increasing the number of partners in key strategic markets, and investing to increase direct sales to customers through ecommerce channels in the UK and subsequently internationally. Results The results show that after a very poor start to 2023 management changes in spring led to a 41% increase in sales and a 30% decrease in costs in 2023, despite one off termination costs of £153k. With improved sales and tighter financial control operating losses for 2023 reduced by 33% from £2.4m to £1.6m. The Board As noted in the last annual report Rene Kamminga, who was appointed CEO of OptiBiotix Ltd in March 2021, and joined the Board of the Group in July 2022, left the business in February 2023 when Stephen O’Hara resumed the role of CEO at OptiBiotix Ltd. As outlined in the CEO report the Company took the opportunity to streamline its board and reduce advisor costs to move the business towards profitability. To support the management team Graham Myers joined the Board on 1 December 2023 as Finance Director, a part-time role in which he works closely with the OptiBiotix team to focus on driving each business unit to profitability. Outlook The recovery of sales established in 2023 have continued into the current year with the agreement with Morepen in India, encouraging discussion with a number of US corporates, and strong e-commerce growth, any of which having the potential to transform the business in 2024 and beyond. As the Chief Executive reports in more detail below, we have secured additional agreements to grow sales of our first- generation products in a number of key strategic markets (e.g. USA, Asia), successfully broadened our product portfolio, and reached an exciting stage in the commercialisation of our second-generation sugar replacement SweetBiotix® and MicroBiome Modulators. The actions we took during 2023 have put the Group back on a firm growth path and the Company looks forward to reporting further progress in the year ahead. We also look forward to realising the substantial potential value of our second-generation SweetBiotix® family of products and microbiome modulators as these achieve commercialisation. N Davidson Chairman 28 June 2024 333 OptiBiotix Health Plc Chief Executive’s Report For the year ended 31 December 2023 Since the restructuring of our senior management team in Spring 2023, the Group has focused on restoring sales growth and working towards profitability through the more active management of existing accounts, broadening its partner base, and investing in ecommerce channels, while reducing costs. This is all part of a plan to take multiple products in the microbiome space to a global marketplace. Our first-generation products now enjoy widespread acceptance in international markets, helping us to reach new agreements with a number of well- known corporate partners and to launch new products in more territories expanding our customer base. Our online sales are growing strongly, particularly in China and we are looking to replicate this approach in other high growth territories such as India in 2024. We have also reached an exciting stage in the commercialisation of our second-generation products SweetBiotix® as a bulk sugar replacement and in finished products and seeing growing interest in our microbiome modulators. The Group remains financially robust with a strong balance sheet (circa £9.4m at 31 December 2023) and no debt. We believe that the Group is now at a strategic inflection point having made strong progress in 2023 and early 2024 on its stated aims of establishing sales in major international markets like the USA, China, and India. As partner and ecommerce sales in these territories grow, we launch new products like WellBiome® with existing partners, add new partners in the USA and India, and bring our second generation products to market, we have a number of opportunities, any one of which would be transformational for the Company and shareholders alike, and collectively change the future of the business. Strategic overview OptiBiotix Health PLC (OPTI) is a life sciences business founded on the development of prebiotic and probiotic compounds to tackle obesity, cardiovascular disease, diabetes and skincare: all markets offering strong growth potential in every part of the world. The Company has built an extensive portfolio of microbiome assets in this field including prebiotic products like SlimBiome®, WellBiome®, SweetBiotix® and Microbiome modulators within through SkinBioTherapeutics PLC (SBTX) and probiotics through ProBiotix Health plc (PBX). These are both separately listed companies in which OptiBiotix has a shareholding. These create a diverse portfolio of opportunities in an emerging area of healthcare which is of growing interest to consumer markets around the world. core business, skincare its Our strategic approach has been to target global markets with highly differentiated, clinically proven and patented products. Whilst ambitious, more costly and time consuming than commercialising in local markets it recognises the potential scale of the opportunity. The strategy has been designed to reduce risk and maximise opportunities for investors by recognising the challenges inherent in bringing new technologies and products to a naturally conservative global food market, where consistency and risk avoidance are key, and the acceptance of new products is notoriously slow. In addition to founding and developing three distinct companies, we have layered our development portfolio by creating both first- generation products (SlimBiome® and WellBiome® in prebiotics and LPLDL® in probiotics) and second-generation products (SweetBiotix® and Microbiome modulators). This has allowed us initially to build sales and awareness of the Company and its functional ingredients through its first-generation products while developing the riskier and more innovative second-generation products that offer potentially greater upside for investors. The development of three distinct companies (OPTI, SBTX and PBX) with similar fundamental science but different applications and markets provides investors with multiple plays in the emerging microbiome market, both reducing their risk and providing significant potential gains if one or more new products is successfully brought to market. Placing these companies separately on public markets creates tangible assets which can potentially be disposed of to pay shareholders an ad hoc dividend, as with the £10.25m dividend issue to OPTI shareholders on the listing of PBX in March 2022, or the £5.4m of share sales in SBTX by OPTI since its listing in 2017, which has reduced the need to fundraise for the continued development of OPTI and avoided dilution for our own shareholders. As a result, OPTI today has a strong balance sheet (circa £9.4m at 31 December 2023) with no debt, and multiple plays providing scope for profitable development in different areas of the emerging microbiome space. The annual accounts for 2020 and 2021 showed that each of OPTI’s businesses was profitable at the EBITDA level, with the Group as a whole attaining profitability by virtue of the increased value of its SBTX asset. In 2022 we faced a most challenging year in the wake of the COVID-19 pandemic and the global economic uncertainty that followed the Russian invasion of Ukraine, and increased costs and reduced sales following the appointment of a new CEO. We took decisive action to address this through the departure of the CEO of the prebiotic business under OptiBiotix Ltd in Spring 2023 and a series of measures to reduce Board, management and advisory costs. Since implementing these measures and under the renewed leadership of Stephen O’Hara as CEO, we have enjoyed three quarters of increased sales. This growth has continued into 2024. Action has also been taken to reduce commercial risk in the business by increasing the number of large partners in key strategic markets, particularly the USA and Asia Pacific, with new relationships with Brenntag, Tata, Iovate/Muscletech, and in 2024 an agreement with Morepen. Annual Report and Accounts 2023 4 Annual Report and Accounts 2022 Chief Executive’s Report (continued) Equally importantly, we have made significant investments in our ecommerce business to drive our direct-to-consumer sales, reducing reliance on retail partners and increase our profit margins. While sales through retail partners offer potential benefits in generating volume, and increase the awareness and credibility of OPTI products, margins are lower and the uniqueness of our formulations and their functional benefits are often lost to retail staff and consumers among the many competing brands on offer. With our first generation products gaining traction in the USA, China, and India and the upcoming launch of our second-generation products, OPTI is well placed to become a major player in the expanding microbiome market. Commercial and scientific overview During the year we have focused on driving sales growth through the more active management of existing key accounts; increasing the number of partners in key strategic markets, particularly the USA, China, and India; and investing to increase direct sales to customers through ecommerce channels in the UK and subsequently internationally. Key developments during the financial year included: Active management of existing key accounts: • An increase in sales of LeanBiome® to The Hut Group for inclusion in its Myprotein range. An increase in sales to Holland & Barrett health and wellbeing retail and online business in the UK, albeit from a very low base in 2022. An increase in sales of SlimBiome® to Paradise Fruits, a German company producing gummies for Walmart and for sale online in China. Increased sales of our OptiBiome® prebiotic fibre (an alternative trademark to SlimBiome®) to Optipharm in Australia following the launch online of their Optislim and Optiman ready meal ranges incorporating a ready meal OptiBiome sprinkle and a significant new investment in marketing. • • • • • • Increasing the number of new partners, particularly in the USA and India: • Recruiting four new partners for SlimBiome® in Asia through our partnership with Nutraconnect Pte, all of which placed initial orders before the end of 2023 and which we expect to contribute revenues of £125,000 to £150,000 in 2024. • • • • Securing a license agreement with Tata Chemicals – part of the $300bn turnover Tata Group – to incorporate its proprietary Fossence® into our SlimBiome® and WellBiome® products for the Indian market. This brings the assurance and familiarity of a branded ingredient from a well-known and trusted local source to the attention of Indian consumers Reaching a new distribution agreement for SlimBiome® in Australia and New Zealand with Ravenswood Ingredients, part of the Brenntag group which is a global leader in specialised food ingredients. One of our partners, Optipharm, securing an international listing for products containing SlimBiome® with CostCo, the fifth largest retailer in the world. Ongoing discussions with a leading US corporate on a global launch of SlimBiome® in 2025 in multiple territories. Investing in ecommerce channels: • investments The Company has made significant in new ecommerce channels, including Amazon in the UK, Walmart in the USA, and Tmall.com in China, to increase the proportion of our sales made direct to consumers. This has generated strong growth in turnover, with total ecommerce sales up approximately threefold in 2023 from 2022 and continued growth in Q1 2024 which we hope will continue as more channels come on line. Successfully launching new products including our reformulated gut and digestive health WellBiome® functional fibre and mineral blend, which has been selling strongly through both our own website and Amazon UK. An increase in the number of Apollo pharmacies in India and Nahdi pharmacies in Saudi Arabia selling GoFigure® products. A reduction in SlimBiome® stock held by partners: there was 13.9 metric tonnes of SlimBiome® taken from stock held by two partners (Maxum and Cambridge Commodities) in 2023 compared to 2022 (up 39%) representing a value of approximately £417K based on retail price of £30 per kg. The Company has commenced manufacture of replacement stock for Cambridge Commodities as it anticipates most of this stock will be used for existing orders planned for delivery in the first half of 2024. Other developments: • A shift in our commercial focus to selling SlimBiome® Medical sachets in Europe and SlimBiome® shots in India and the Gulf states. These have been developed to help users manage their weight by reducing hunger and food cravings. This is a highly differentiated product which leverages growing market interest in anti-obesity GLP-agonist drugs like Semaglutide which work by reducing appetite. SlimBiome® compares favourably with these drugs and offers a healthy, natural and safe approach to weight management, with no observed side effects in multiple human studies. GLP-agonists have a number of reported common adverse 5 OptiBiotix Health Plc Chief Executive’s Report (continued) effects and potentially serious side effects in some groups. SlimBiome® can be used with any weight management or calorie restriction plan and so complements rather than competes in a crowded marketplace. The product enjoys high margins and became a top-selling line within its market segment on Amazon UK in 2023. Roehampton University submitting the results of a third human study on SlimBiome® for publication, which demonstrated statistically significant benefits to appetite and hunger regulation with no safety, compliance or tolerance issues reported by the participating volunteers. This study underlined the effectiveness of a single dose of SlimBiome® in delivering hunger-free weight loss by non-invasive means, and was timely in view of the growing consumer, media and pharmaceutical interest in this field. Securing a grant from the Biotechnology and Biological Science Research Council to fund a research project by the University of Leeds into the impact of WellBiome® on the gut microbiome throughout the digestive tract. This is expected to provide further substantiation of existing health claims for WellBiome® in international markets. Hull University securing NHS Ethics approval as part of a large programme grant (£2.7 million) amongst which is the proposal to explore WellBiome® impact post-surgery. This is a project independent of OptiBiotix in which Hull University have purchased WellBiome® to explore its impact on post-surgical recovery times. • • • North America We have a strong sales pipeline in North America and the USA made up of small, medium size, and a number of large US corporates (including a £9bn Multi-Level Marketing company -MLM) that offer opportunities for sales growth in 2024 and beyond. The Company was pleased to receive a first order of £116k from Muscletech in 2023, a leading weight management and sports nutrition brand in the USA. This is a major sports nutrition brand who are making a significant investment in LeanBiome® as a key differentiator in the protein market and, if successful on launch could have a material impact on future revenues. The Company reported at the start of 2024 the launch of LeanBiome® in MuscleTech’s Nitro Tech Ripped range, a premium protein powder designed to support athletes who want to lose fat and build lean muscle. LeanBiome® is now included in two leading sports nutrition brands, Myprotein and MuscleTech, across the world, a market worth $45.2bn in 2023, and expected to grow at a CAGR of 7.5% pa to 2030, (Grand View Research, 2023). The Company sees the sports nutrition market as an area of growing interest and opportunity for its LeanBiome® brand with the scientific evidence increasingly showing that optimising an athletes gut microbiome could improve an athletes’ stamina, lower inflammation, and support physical fitness (Frontiers | Editorial: Nutrition to support gut health and the microbiome in athletes (frontiersin.org). Having two major global sports nutrition brands making a significant investment in LeanBiome® highlighting it as a key science based differentiator should provide investors a good indication to the potential opportunity developing within the sports nutrition market. If successful, this could have a material impact on future revenues and open up further opportunities in sports nutrition around the world. The Company continued to advance projects and expand the pipeline of opportunities with large North American companies and exhibited its SlimBiome®, LeanBiome®, and Wellbiome® products at Supply Side West, USA, in November 2023. Our focus is on companies committed to science and strong storytelling, especially in weight management, wellness, and sports nutrition with a special emphasis on e-commerce, direct selling, and retail brands. The Company is hopeful that further announcements with corporate partners in the USA and Canada in 2024 will be made in due course. OptiBiotix Health India OptiBiotix Health India (OHI) was formed in November 2021 as a mid- to long-term strategic investment in the world’s most populous nation of 1.4bn consumers, forecast to have a middle-class population of 475 million by 2030 and the world’s largest cohort of medium to high level income customers by 2035. With obesity prevalence currently measured at 40.3%, India represents a huge area of opportunity for weight management products. The formation of OHI has helped OPTI to avoid high import taxes and to control the purchase and sale of both ingredients (SlimBiome®) and finished product (GoFigure®, Morepen) manufactured and sold in India. After a slow start following the launch of products with Apollo Pharmacies in September 2022, momentum built during the year resulting in GoFigure® products being sold through approximately 1,000 stores by the year-end. Apollo’s own consumer survey showed an 87% customer return rate among purchasers of GoFigure® products and 23% of new customers visiting their pharmacies who just bought GoFigure® products. This feedback is consistent with that from THG, who gained 40% new customers with the introduction of LeanBiome® to their Myprotein range. Such results create a positive platform for commercial discussions with potential new partners, demonstrating the consumer appeal of our products and their ability to attract both new and returning customers. The licence agreement we secured with Tata Chemicals in October 2023 to incorporate its proprietary Fossence® into our SlimBiome® and WellBiome® products for the Indian market which is anticipated to increase their appeal to Indian consumers. In Q1 2024 we announced a major new partnership agreement to sell products containing SlimBiome® under the well-known and trusted Dr Morepen brand. This is an established, well known, and trusted brand in the Indian market Annual Report and Accounts 2023 6 Chief Executive’s Report (continued) and represents a material step forward for our products in the Indian market. OptiBiotix will receive revenue for both the ingredient and BTB product sales with first orders placed for launch in Q3 2024. Based on Morepens current forecasts this agreement could contribute in the region of £6-7 million revenue per annum to OptiBiotix in the next four to five years (see announcement March 2024). Thanks to the work of the Department of Business and Trade and our Business Development Director, Dr Taru Jain, we have high industry awareness of OptiBiotix and its products throughput India. This has created a strong pipeline of opportunities with emerging and leading players in weight management and sports nutrition in India, where we expect to build a substantial business in the years ahead. Consumer Health and Ecommerce The Consumer Health division grew rapidly during the year, with our total Ecommerce sales increasing threefold in 2023 compared to 2022. This was driven by strong growth in the sale of gummies in China and large increases in Amazon Prime subscriptions. Gummy sales in China during the year varied widely per month, increasing rapidly in October and November with the aid of local key opinion leader influencers and new sales through the TikTok platform. Marketing on TikTok can increase sales rapidly but at a high cost and tend to be impulse buys with lower repeat purchases. Our TikTok account is managed by a Chinese agency with sales reconciled against costs some time after revenue is received. They are only then included in our accounts. We see TikTok as a means of increasing product and brand awareness providing early sales growth with Tmall (Alibaba) a more appropriate platform for sustainable growth. In the UK we significantly increased our Amazon customer base by successfully moving to the Fulfilment by Amazon (FBA) model that allowed customers to receive faster deliveries through Prime accounts. SlimBiome® is consistently among Amazon’s top sellers for appetite suppressants, and achieved record sales during Prime month in July 2023 and was awarded Amazon choice in Q1 2024. We are extending our customer reach through new Amazon channels in Germany, the UAE and the Kingdom of Saudia Arabia, with Amazon India to follow in H2 2024. We have also broadened our offer to consumers with the launch of new products such as soups and indulgence bars, initially through our own website with Amazon to follow. Such additions to our range help to increase our average order value online and to compensate for the usual seasonal peaks and troughs in the weight management cycle. heavy reliance on promotion through influencers and social media. In adopting a similar approach, we believe we can demonstrate competitive advantage on both price and product efficacy, including on-pack health claims, and build similar sales and value. Competitor analysis of WellBiome® also indicated value in a change in positioning from healthy ageing to boosting gut and digestive health which should allow us to attract more customers through more easily understood messaging and benefits for the consumer. We have targeted competitors with keywords/ads and successfully listed with Amazon UK FBA. The Consumer Health division has the advantage of receiving online sales income immediately and allows more control of our brands and messaging, while reducing our reliance on distributors to grow our brands. Results The Group’s results for 2023 reflect its new structure following the listing of ProBiotix Health (PBX) on the AQSE Growth Market on 31 March 2022. When making comparisons with 2022, it should be noted that the prior year accounts included revenues and costs for the combined Group (OPTI and PBX) up to the end of March 2022. Revenue for the year of £644,000 showed a pleasing 41% increase over 2022’s £457,000, with the move forward close to 50% once 2022’s first quarter PBX sales are adjusted for. The change of CEO in March 2023 resulted in a significant improvement in revenue impetus following only £16K of sales in the first two months of the year. Orders from our wholesale business customers increased significantly year-on-year, although delays setting up logistics with new partners meant that some deliveries were delayed into 2024 with sales reportable in 2024. Our investment in online direct to consumer business began to pay dividends as sales exceed £100,000 for the first time, a three fold increase on 2022. Administrative expenses (excluding non-cash items such as share-based payments and amortisation) were reduced by almost 30% to £1,778K (2022: £2,498K), reflecting cost saving measures, the removal of PBX’s costs after March 2022 and recovery of some of the doubtful debt provided in the 2022 accounts. Actions to reduce 2023’s costs included the removal of Cavendish as joint broker, announced in December 2022, the departure of Rene Kamminga as CEO in March 2023, a 20% reduction in all directors’ remuneration from January 2023 and the retirement of two non-executive directors in July 2023. The former CEO’s termination agreement saw us incur a one-off cost of £153K. Competitor analysis of our WellBiome® range indicated a need to increase awareness of the product through social channels. Competitors such as Symprove have annual sales of around £20-£25m and are exploring a £250m sale later this year (see Gut health supplement maker Symprove plots £250m sale | Business News | Sky News). They have a With gross margins in percentage terms remaining steady year on year, the combination of improved sales and good control of administrative expenses saw operating losses reduce to £1,664K from £2,489K. Overall the Group recorded a loss before tax for the year of £2.08m, compared with a profit of £2.59m in 2022. The prior year benefitted from a 7 OptiBiotix Health Plc Chief Executive’s Report (continued) significant gain on its investment in PBX offset by a loss on revaluation of its shareholding in SBTX, whilst the current year’s results suffered from the inclusion of a very disappointing £323K share of the total loss for the year of PBX. On the plus side we netted a £487K accounting gain from the disposal of further shares in SBTX that realised £1.1m in cash in 2023. The Company retains a relatively healthy balance sheet with gross assets of £9.4m (2022: £11.6m) and cash at the year-end of £0.6m (2022: £1.1m). Since the year end a share placing and further sales of SBTX shares have raised over £1.4m of additional funding to support the Group going forward. The Board, senior management and advisers We took decisive action in December 2022 and the first half of 2023 to reduce Board, management and advisory costs in order to move the Group to operational profitability as soon as possible. As noted in the last annual report Rene Kamminga, who was appointed CEO of OptiBiotix Ltd in March 2021, left the business on 28 February 2023 when Stephen O’Hara resumed the role of CEO of OptiBiotix Health Limited. All directors voluntarily accepted a 20% reduction in their salaries from 1 January 2023 and, with non-executive directors now outnumbering executive directors by two to one, Stephen Hammond and Chris Brinsmead agreed to step down as non-executive directors at our AGM in July 2023, with our thanks for their contribution to the business. Graham Myers joined the Board on 1 December 2023 as Finance Director, a part-time role in which he will work closely with the OptiBiotix team to focus on driving each business unit to profitability. Graham brings to us extensive experience in optimising financial controls, managing budgets, building profitable businesses and delivering mergers and acquisitions, all gained in a career of almost 30 years with Croda International Plc; he remains Chair of Croda Pension Trustees Limited. On 28 December 2022 we served three months’ notice to terminate the joint brokership of Cavendish Securities plc, with Peterhouse Capital continuing as the Company’s sole broker. During the year we also secured a 50% reduction in the fees charged by our corporate PR adviser. Outlook The Company set out a strategy of developing first generation products using existing technology and highly innovative step change second generation products in parallel and commercialising these in global markets. Whist ambitious, costly and more time consuming, this strategy gave shareholders exposure to multiple opportunities within the emerging global human microbiome space and the potential for multiple upside. This strategy is now coming to fruition. Whilst this strategy has taken longer to deliver than anticipated the Company is now at a tipping point with first generation products gaining widespread international acceptance with growing sales in multiple territories and the upcoming launch of our second generation products generating industry interest. This creates a range of opportunities to support future sales growth and value creation. SlimBiome®/OptiBiome®/LeanBiome® The Company has four human studies on SlimBiome which consistently demonstrate it reduces hunger and cravings leading to changes in the amount of food and type of food people eat and sustainable weight loss. The studies have allowed the Company to gain on pack health claims in major markets (Europe, Australia, USA, and Asia) leading to agreements with major international and national companies like Iovate (Muscletech), TheHutGroup (Myprotein), Apollo, and Morepen. The partnership with Morepen and first order of over £175K plus ingredient sales of £27K in H1 2024 is the first step in an agreement in a major market and based on Morepen’s forecast could contribute in the region of £6-7 million revenue per annum in the next four to five years. We believe these agreements, plus other deals in the pipeline, and our focus on selling finished products via e-commerce in multiple channels have the potential to achieve sales of £30m+ in the future. WellBiome® WellBiome® is a patented food supplement, designed to support gut health for wellbeing with health claims for improving gut health, brain and cognitive health, and improve immune function. Research studies have shown that a combination of fibres like WellBiome® can increase gut microbiome diversity more than single fibres. The Company has a number of human studies ongoing with WellBiome® including exploring its impact on post surgical recovery times with Hull University and a study on the impact on stress, anxiety, and sleep with Southampton University. Gut Health is a large and growing area in consumer health with companies like Symprove with single products reporting annual sales of around £20-£25m and a valuation of approximately £250m (see Gut health supplement maker Symprove plots £250m sale | Business News | Sky News). We believe WellBiome® has a number of significant advantages over Symprove including cost, shelf life, user convenience (sachet rather than bottle), and health claims and see this as an area of high future growth with the potential for similar sales and value. Second generation products (SweetBiotix and MicroBiome Modulators/Synbiotics) As with any step change innovation this has been a long and difficult path with significant challenges, particularly on scale up, and during the two years of COVID when development stopped. These challenges have Annual Report and Accounts 2023 8 Chief Executive’s Report (continued) now been overcome and we have been pleased that the scale of the opportunity and uniqueness of our patented approach has attracted the interest of major global partners both in the manufacture (e.g DSM- Firmenich) and application of these products (e.g Coca Cola, Nestle, Arla etc). These partners bring scale and global networks albeit time consuming and with stringent confidentiality conditions. We have been pleased with the progress made by DSM-Firmenich and its preliminary forecast for SweetBiotix® of >100,000 metric tonne per annum, demonstrating its intent and potential scale of the opportunity. If this forecast materialises at an expected price of £30 per kg this would represent substantial sales revenue. Experience tells us that partner forecasts tend to be optimistic, increases in volume often take longer, and over time the sales price is likely to be eroded to £18-£20 per kg, however this gives an indication of the potential scale of the opportunity. We are currently working with a manufacturer who supplies products to major corporates and uses 10,000 metric tonnes of sugar per annum. We are progressing incrementally and have included SweetBiotix® in a finished product for a large global partner with a view for an upcoming launch. The Company is also working on including SweetBiotix® in our own products and launching a bulk sugar replacement product with the aim of seeing SweetBiotix® in an increasing number of products in 2024 and beyond. Whilst SweetBiotix® has captured investors interest, the Company has another group of products which it believes create comparable opportunities for revenue growth and value creation. OptiBiotix has developed a number of unique, patented technologies, which allow it to create dietary ingredients and/or therapeutic products to precision engineer the microbiome. This is achieved by technologies which allow us to examine a microbe’s genome to identify its ability to utilise specific substrates. With this information protein synthesis techniques can be used for large-scale production of unique substrates specific for the optimum growth of that microbe. This allows the creation of substrates which boost the growth of specific genera or species of microbes that have been connected with cancer, improving drug treatments, the development of chronic diseases, or even the ageing process Healthy longevity: The role of the gut microbiome (medicalnewstoday.com). This ability to identify and create products which selectively enhance the growth and activity of specific microbes is a new concept but has the potential to revolutionise microbiome-based products and therapies. Microbiome modulating approaches are a largely unexplored area of opportunity for both the food and pharmaceutical industry but have the potential to transform healthcare. If the microbiome is the future of healthcare, having an approach to precision engineer the microbiome to enhance those microbes that deliver health benefits is the pathway to achieving that aim. As would be expected the Company has a high level of corporate interest in its second-generation products. The Company is in discussion with a wide range of industry partners over product application and launch timescales, some already announced and some with new 9 OptiBiotix Health Plc potential partners, across a wide range of areas and will make announcements once these have been concluded. Given previous experience with some investors contacting partners pretending to be employed or representing OptiBiotix and damaging relationships, the Company wishes to maintain confidentiality in this area to protect the best interests of shareholders. The focus for 2023 has been on recovering sales and moving the business to profitability by a reduction in costs, a focus on existing partners returning to forecast, bringing in new partners particularly in the USA and Asia, and expanding ecommerce channels to increase margins and reduce partner dependency. Good progress has been made in each of these areas which has led to a recovery of growth in 2023 which has carried forward into 2024 with sales orders in H1 approaching FY 2023. In the last year and into 2024 we have been particularly pleased with the pipeline of high-quality partners like Iovate, Dr Morepen, TheHutGroup, the high conversion rate of interest to new accounts, and the progress we are making with online sales, particularly in China. These all have the potential to bring in significant future revenues. The fundamentals of our marketplace remain very exciting, with appetite suppression, gut health, sugar alternatives, and modulation of the human microbiome attracting ever-increasing interest as the potential solution to a wide and growing range of lifestyle-related health challenges. OptiBiotix has patented products with clinical studies in many of these areas. Our unique, innovative products are based on strong science, proven in clinical studies, comprehensively protected by our global portfolio of patents and trademarks, and are achieving growing international recognition through both industry awards and positive customer reviews and growing sales. We look to the future with a high degree of confidence in our products, a growing online presence in international markets and the excitement of bringing our industry changing second-generation products to market. We have achieved with minimal shareholder dilution, no debt, a strong balance sheet, and significant exposure to the considerable growth potential of the microbiome through our shareholdings in PBX and SBTX. We would like to thank shareholders for their patience and support and look forward to growing the business and shareholder value in the years ahead. Stephen O’Hara Chief Executive 28 June 2024 Strategic Report For the year ended 31 December 2023 REVIEW OF BUSINESS A review of the business of the Group, together with comments on future developments is given in the Chairman and Chief Executive’s reports – pages 3- 9. 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 risk is common to all new products developed for human consumption. 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, attends international conferences and has developed 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. 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 22 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 £635k as at 31 December 2023 and had no short-term borrowings. The Board continues to monitor the balance sheet to ensure it has an adequate capital structure. 10 Annual Report and Accounts 2023 10 Strategic Report (continued) Principal Risks And Uncertainties Market Risks Impact Mitigation Brexit New regulations, such as the Windsor protocol, could add complexity and delays to operations. The current consensus is that the new regulations will not affect the regulations that are relevant to our business. Economic uncertainty caused by war in Ukraine Technology Currency fluctuations could affect profitability. increase costs and Currency fluctuations will impact both sales and costs. Our initial product offering is not price-sensitive. Substantial cost increases will be passed on. Ongoing economic uncertainty, recession or an escalation of the war in Ukraine may impact market confidence, demand and prices. The group is not directly affected by the war in Ukraine but the Board monitor the general economic environment and consider economic forecasts when taking key decisions. 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. 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. The Company is able to sell its listed investments and raise further equity and debt finance. Legal Risks Impact Mitigation Intellectual Property litigation Any claim brought against us would detract the Company from its business and incur potentially significant costs in defending its IP. The Group engages with IP specialists to ensure we have a strong position. To our knowledge we do not infringe on any patents. Operational Risks Impact Mitigation Loss of key personnel Technology Material adverse impact on the Group’s financial condition and prospects. Competitive remuneration packages, nil cost options to reduce market volatility. The remuneration committee oversees the level of remuneration to ensure it remains competitive. The Group is commercialising its technology to launch new products in the consumer market. The Group has consumer demand. identified a need and responded to Commercialisation The Group continues to grow to a full commercial organisation. Manufacturing set-up and learning curve could delay sales or could impact our rate of growth. recruited experienced management and The Group consultants to manage the process and negotiate contracts. The manufacturing is outsourced. Working capital The Group has encouraged customers to build up material stocks of ingredients to meet user demand from end user customers. Flexible payment terms have been given to customers to pay for stock. If stocks are not used, would they become unusable. Ingredients have a five-year shelf life risk of non-usability is reduced. As end user requirements become formalised and production time frames for ingredients come down it will be possible for Group customers to hold less stock of ingredients which will in turn reduce the debtor balances outstanding at period end. 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. 11 OptiBiotix Health Plc Strategic Report (continued) KEY PERFORMANCE INDICATORS Financial Year to 31 December 2023 £’000 Year to 31 December 2022 £’000 Revenue Operating Loss Profit/(Loss) for the period Cash as at 31 December 644 457 (1,695) (2,489) (2,039) 2,587 1,052 635 During the year to 31 December 2023 the company has achieved a number of key objectives to build shareholder value, these are laid out in the Chairman and Chief Executive’s reports – pages 3-9. 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 2023 the primary KPI’s were the completion of commercial agreements and the recovery of turnover to pre COVID levels. The Group intends to review the following non-financial KPI’s going forward: 1. 2. 3. Number of Customers Number of IP and trademark registrations Rate of staff turnover DIVIDENDS No dividends can be distributed for the year to 31 December 2023. FUTURE DEVELOPMENTS The Chairman and Chief Executive’s reports – pages 3-9 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 G Myers Executive Director – Finance Director 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 September 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 Composition of the Board of Directors The Board of Directors is currently comprised of the Chairman, Chief Executive Officer, the Research and development Director, the Finance Director and one Non-Executive Director. 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. Annual Report and Accounts 2023 12 Strategic Report (continued) Board Committees: Remuneration Committee The Remuneration Committee is made up of Sean Christie , as Chairman with Neil Davidson as a member and Stephen O’Hara and Graham Myers attending by invitation 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 the other member . 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 2023 were related primarily to: • • • Active Management of existing accounts; Increasing the number of partners particularly in the USA and India; and Investing in ecommerce channels 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. 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. 13 OptiBiotix Health Plc Strategic Report (continued) Shareholder Engagement The Company, through its corporate broker, Peterhouse Capital Limited, has regular contact with its institutional shareholders. The Board supports the principle that the Annual General Meeting be used to communicate with private shareholders and encourages them to participate. The Annual General Meeting is attended by Directors. Greenhouse Gas Emissions The Company has no physical assets (other than a small amount of stock held by third parties), operations or premises. Consequently, it consumed less than 40,000 kWh of energy during the year so a detailed report on greenhouse gas emissions is not presented. Social, Community and Human Rights Issues 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 28 June 2024 Annual Report and Accounts 2023 14 Directors’ Report For the year ended 31 December 2023 The Directors present their report and the audited financial statements of the group for the year to 31 December 2023. 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. Non-executive Directors R Davidson M Christie C Brinsmead (resigned 26th July 2023) S Hammond (resigned 26th July 2023) Directors’ Remuneration The directors are entitled to receive relevant fees, as detailed in the directors’ remuneration in Note 4. DIRECTORS Directors and their interests The directors who served the company during the year and up to the date of this report were as follows: The directors of the Company 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 G Myers (appointed 4th December 2023) Issued Share Capital Share Warrants Share Options Ordinary shares of £0.02 each 10,212,986 503,000 150,000 – – 125,000 Percentage Held Ordinary shares of £0.02 each Warrant exercise price Ordinary shares of £0.02 each Option exercise price 10.43% 0.51% 0.15% – – 0.13% – – – – – – – – – – – – 6,099,135 192,500 50,000 82,500 358,722 – £0.08 £0.02 £0.02 £0.02 £0.20 – S P O’Hara R Davidson M Christie S Kolyda S Kolyda G Myers 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 07 January 2022 and are exercisable at £0.02 at any time up 6 January 2032, subject to vesting conditions. On the same day R Davison surrendered 385,000 options at £0.73 and was granted options at £0.02. The share options held by M Christie were granted on 07 January 2022 and are exercisable at £0.02 at any time up 6 January 2032, subject to vesting conditions. On the same day M Christie surrendered 50,000 options at £0.95 and was granted options at £0.02. 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 share options held by S Kolyda were granted on 07 January 2022 and are exercisable at £0.02 at any time up 6 January 2032, subject to vesting conditions. On the same day S Kolyda surrendered 82,500 options at £0.73 and was granted options at £0.02. 15 OptiBiotix Health Plc Directors’ Report (continued) SUBSTANTIAL SHAREHOLDINGS Substantial shareholdings include directors as at 28 June 2024 were as follows: % of shares issued Stephen O’Hara 10.43% Finance Yorkshire Seedcorn LP 5.83% The share price per share at 31/12/2023 was £0.27 (31/12/2022: £0.13) FINANCIAL INSTRUMENTS The Group’s exposure to financial risk is set out in Note 23 to the financial statements. RESEARCH AND DEVELOPMENT The Chairman and Chief Executive’s reports – pages 3-9 gives information on the Group’s research and development activities. DIRECTORS INDEMNITY INSURANCE The Group hold a Directors and Officers policy managed by CFC Underwrting Limited on behalf of Lloyds Syndicates with a limit of liability in the aggregate of £1,000,000. EVENTS AFTER THE REPORTING PERIOD Refer to Note 23 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 forecast maintenance cost, other administrative expenses, as well as its ongoing research and development expenditure. As part of the Group going concern assessment the Directors have also reviewed a range of scenarios including those reflecting conditions less favourable than the base case scenario. In such scenarios the Directors have had regard to cash generation and preservation options including further cost mitigation, further sale of the Group's investment assets and share issues where market conditions allow. Through one or a combination of these measures, the Board are satisfied that the Group can continue as a going concern in base case and downside scenarios. 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 in accordance with UK adopted prepare financial statements international accounting standards (IFRS). 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: • • • • suitable accounting policies and select them consistently. 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 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. Annual Report and Accounts 2023 16 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 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 10. ON BEHALF OF THE BOARD S P O’Hara 28 June 2024 indicated that Gerald Edleman LLP has is willing to seek re-appointment as the Company’s auditor at the Annual General Meeting. A resolution to appoint Gerald Edelman as the Company’s auditor will be proposed at the Annual General Meeting. it 17 OptiBiotix Health Plc Independent Auditor’s Report to the Members of OptiBiotix Health Plc For the year ended 31 December 2023 Opinion Independence We have audited the financial statements of Optibiotix Health PLC (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 December 2023 which comprise the consolidated statement of comprehensive income, consolidated and company statements of financial position, consolidated and company statements of changes in equity, consolidated and company statement of cash flows, and notes to the consolidated and company 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 UK adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Adopted International Accounting Standards. 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 2023 and of the group’s loss for the year then ended; the group financial statements have been properly prepared in accordance with International Accounting Standards; the parent company financial statements have been properly prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006; the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We remain independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit of 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. Conclusions relating to going concern In auditing the financial statements, we have concluded that the director’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group and parent company’s ability to continue to adopt the going concern basis of accounting included reviews of cash reserves and critical review of forecasts for a period of 12 months from when the financial statements are authorised for issue. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s ability to continue as a going concern for a period of at least 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. Overview Key audit matters 1. Capitalisation and impairment of intangible Basis for opinion Materiality 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. assets (development cost and patents) 2. Recovery of parent company’s investments Group financial statements as a whole $94,200 based on 1% of gross assets. Company financial statements as a whole £70,700 based on 75% of Group materiality. Annual Report and Accounts 2023 18 Independent Auditor’s Report to the Members of OptiBiotix Health Plc (continued) An overview of the scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgments, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. The Company and OptiBiotix Limited are significant components and were subject to full scope audit procedures by the Group audit team. Our scope on the non-significant components were the performance of analytical review procedures by the Group audit team. We also performed specified audit procedures over certain account balances and transaction classes that we regarded as material to the Group. Key audit matters Key audit matters are those matters that, in our professional judgement, 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. In addition to the matter described in the Material Uncertainty related to going concern section, we have determined the matters described to be the key audit matter to be communicated in our report. Key audit matter How our audit addressed the key audit matter Capitalisation and (Development cost and patents) impairment of intangible assets We have performed the following audit procedures: The group is focused on product development in relation to its IP Portfolio of products. Consequent to this, one of the Group’s most significant asset on the consolidated statement of financial position is its intangible asset. There is a risk that the intangible cost are not capitalised appropriately under IFRS. As explained in Note 2 to the consolidated financial statements, the indicators of impairment assessment in relation to the intangible require the exercise of significant judgement by Management and the Directors. Management and the Directors are required to assess whether there are any potential impairment triggers which would indicate that the carrying value of the assets may not be recoverable for each cash generating unit. Management and the Directors did not identify any indicators of impairment. Given the significance of the assets to the Group’s consolidated statement of financial position and the significant management judgements and estimates involved in this area, we considered this a key audit matter. 19 OptiBiotix Health Plc • We evaluated the Directors’ and Management’s impairment review for the intangible assets. • We challenged if the capitalisation of the intangible asset is in line with the relevant accounting standard and agreed a sample of transactions to supporting invoices. • We critically challenged the considerations made regarding indicators of impairment in accordance with the relevant accounting standards by performing the following procedures: o We assessed the Directors’ and Management’s impairment indicator review to establish whether it was performed in accordance with the requirements of the relevant accounting standards. o We obtained and inspected third party documents relating to the patent status and to check legal title of the patents. • We challenged management on their judgements of the valuation of the intangible balances as at 31 December 2023. The intangible balances are not considered impaired when assessed against the underlying entities forecasted cashflow. • We assessed the adequacy and reasonableness of disclosures in the financial statement in this regard. Key observations: Based on the audit work performed, we are satisfied with the carrying valuation of investments as at year ended 31 December 2023. Independent Auditor’s Report to the Members of OptiBiotix Health Plc (continued) Key audit matter How our audit addressed the key audit matter Recovery of the Parent Company’s investment We have performed the following procedures: Directors are responsible to assess whether or not investments in subsidiaries require impairment. As the only investments held in the year relate to trading entities or support entities for the group, this is crucial for investors’ understanding of the group. As with intangibles, there is a level of inherent uncertainty involved in forecasting and discounting future cashflows. Given the significant of the Parents statement of financial position and significant management judgements and estimates involved in this area, we consider this a key audit matter. • We evaluated the Directors’ and Management’s impairment review for the investments. • Conducted a review of Board minutes to see if any information has come to light which might indicate the need for impairment; • We challenged management on their judgements of the valuation of the investments balances as at 31 December 2023. The investments are fairly stated when assessed against the underlying entities forecasted cashflow. Key observations: Based on the audit work performed, we are satisfied with the carrying valuation of investments as at year ended 31 December 2023. Our application of materiality Materiality is assessed as the magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Materiality provides a basis for determining the nature and extent of our audit procedures. 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 £94,200 £70,000 How we determined it 1% of gross assets Representing 75% of the Group financial statements materiality Rationale for benchmark applied We believe that gross assets is a primary measure used by the shareholders performance of the group in assessing We believe that gross assets is a primary measure used by shareholders in performance of the Company as the holding company within the Group Performance materiality £56,500 £42,400 Basis for determining performance materiality 60% of materiality. In reaching our conclusion on the level of performance materiality to be applied we considered a number of factors including the expected total value of known and likely misstatements (based on past experience), our knowledge of the Group’s control environment and management’s attitude towards proposed adjustments. 60% of materiality. In reaching our conclusion on the level of performance materiality to be applied we considered a number of factors including the expected total value of known and likely misstatements (based on past experience), our knowledge of the Group’s control environment and management’s attitude towards proposed adjustments. Annual Report and Accounts 2023 20 Independent Auditor’s Report to the Members of OptiBiotix Health Plc (continued) Component materiality For each component in the scope of our Group audit, we allocated a materiality that is equal to or less than our overall Group materiality. The range of materiality allocated across components is ranged from £70,700 to £75,300. We set materiality for each significant component of the Group based on a percentage of between 75% and 80% of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component. In the audit of each component, we further applied performance materiality levels of 60% of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated. Reporting threshold We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £4,710 for the Group and £3,536 for the Company audit 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 • • the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the strategic report and the directors' report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and 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 Group and Company, or returns adequate for our audit have not been received from branches not visited by us; or the Group and 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 Statement of Directors' responsibilities statement set out on page 16, 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 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 Company or to cease operations, or have no realistic alternative but to do so. Auditor's responsibilities for the audit of the financial statements The objectives of our audit, in respect to fraud are; to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatements due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management. 21 OptiBiotix Health Plc Independent Auditor’s Report to the Members of OptiBiotix Health Plc (continued) Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non- compliance with laws and regulations, was as follows: In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to: • • • • • 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 in the United Kingdom; we identified the laws and regulations applicable to the company through discussions with directors and other management, and from our knowledge and experience of the entity's activities. 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, including Companies Act 2006, taxation legislation, data protection, employment and health and safety legislation. we assessed the extent of compliance with the laws and regulations identified above through making enquiries of management and reviewing legal expenditure; 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; and considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations. To address the risk of fraud through management bias and override of controls, we: • • • • performed analytical procedures to identify any unusual or unexpected relationships; tested journal entries to identify unusual transactions; judgements and assumptions made in assessed whether determining the accounting estimates were indicative of potential bias. Key judgements and assumptions are comprised in the impairment assessment of the carrying value of intangible assets, investments and going concern as assessed within our Key Audit Matters above; and investigated the rationale behind significant or unusual transactions. • • • agreeing financial statement disclosures to underlying supporting documentation which included our evaluation of Management’s assessment on the impact of climate change on the Group and Company and related disclosures; reading the minutes of meetings of those charged with governance; and enquiring of management as to actual and potential litigation and claims. 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 noncompliance 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. Use of this report This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Hemen Doshi For and on behalf of Gerald Edelman LLP, Charted Accountants Statutory Auditor 73 Cornhill London United Kingdom EC3V 3QQ 28 June 2024 Annual Report and Accounts 2023 22 Consolidated Statement of Comprehensive Income For the year ended 31 December 2023 Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 Notes 644 324 320 (6) (205) (1,804) (2,015) (1,695) – 1 1 (323) (513) 487 – – (2,043) 4 (2,039) (2,039) (2,039) (2.24)p (2.08)p 457 (213) 244 (11) (224) (2,498) (2,733) (2,489) – – – (83) (8,620) 16 21,647 (8,030) 2,441 146 2,587 2,587 2,587 2.93p 2.78p 6 5 5 11 11 11 11 11 7 8 8 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 (Loss)/Gain on investments Profit on disposal of investments Profit on disposal of subsidiary Provision against associate valuation Profit/(Loss) before tax Taxation Total comprehensive income for the period Total comprehensive income attributable to: Owners of the company Earnings per share from continued operations Basic profit/(loss) per share Diluted profit/(loss) per share All activities relate to continuing operations The notes on pages 32 to 55 form part of these financial statements 23 OptiBiotix Health Plc Consolidated Statement of Financial Position As at 31 December 2023 ASSETS Non-current assets Intangibles Investments Investment in associate 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 Retained Earnings Total Equity LIABILITIES Current liabilities Trade and other payables Non-current liabilities Deferred tax liability TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES As at 31 December 2023 £’000 As at 31 December 2022 £’000 Notes 9 11 11 12 13 7 14 15 16 16 16 16 17 18 1,331 3,887 2,806 8,024 188 460 97 635 1,380 9,404 1,824 2,958 772 1,500 1,818 8,872 180 136 352 352 532 1,540 5,022 3,129 9,691 178 521 106 1,052 1,857 11,548 1,824 2,958 939 1,500 3,684 10,905 278 278 365 365 643 9,404 11,548 These financial statements were approved and authorised for issue by the Board of Directors on 28 June 2024 and were signed on its behalf by: S P O’Hara Director Company Registration no. 05880755 The notes on pages 32 to 55 form part of these financial statement Annual Report and Accounts 2023 24 Consolidated Statement of Changes in Equity For the year ended 31 December 2023 Share- based Convertible Merger Non- Called up Retained Share Payment Debt Relief Controlling Share capital Earnings Premium reserve Reserve Reserve Interest £’000 £’000 £’000 £’000 £’000 £’000 £’000 Balance at 31 December 2021 1,759 11,320 2,537 928 93 1,500 35 Profit for the year – 2,587 – – – – – Dividends – (10,258) – – – – – Transfer on loss of control – – – – (93) – – Transfer within reserves – 35 – – – – (35) Issue of shares during the year 65 – 445 – – – – Fundraising commission – – (24) – – – – Share options and warrants – – – 11 – – – Balance at 31 December 2022 1,824 3,684 2,958 939 – 1,500 – Loss for the year – (2,039) – – – – – Movement on reserves – 173 – (173) – – – Share options and warrants – – – 6 – – – Total equity £’000 18,172 2,587 (10,258) (93) – 510 (24) 11 10,905 (2,039) – 6 Balance at 31 December 2023 1,824 1,818 2,958 772 – 1,500 – 8,872 The notes on pages 32 to 55 form part of these financial statements 25 OptiBiotix Health Plc Notes to the Consolidated Statement of Cash Flows For the year ended 31 December 2023 Opening Cash Operating activities Operating loss Amortisation Impairment of patents Share based payments Movement on inventory Decrease/(increase) on receivables (Decrease)/increase on payables Tax received Net Proceeds for operating activities Investing activities Additions to intangibles Cash disposed on loss of subsidiary Proceeds on disposal of investments Net Financing activities Net proceeds on Share issues Net cash inflow from financing activities Total movement Cash and cash equivalents at end of period 1 The notes on pages 32 to 55 form part of these financial statements Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 Notes 1,052 2,007 (1,695) 205 5 6 (10) 61 (98) – (1,527) – – 1,110 1,110 – – (417) 635 (2,489) 224 – 11 (76) 1,116 (19) 124 (1,109) (168) (188) 25 (331) 485 485 (955) 1,052 Annual Report and Accounts 2023 26 Notes to the Consolidated Statement of Cash Flows For the year ended 31 December 2023 1. Cash and Cash Equivalents Cash and cash equivalents The notes on pages 32 to 55 form part of these financial statements Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 635 1,052 27 OptiBiotix Health Plc Company Statement of Financial Position As at 31 December 2023 ASSETS Non-current assets Investments Investment in associate 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 2023 £’000 As at 31 December 2022 £’000 Notes 11 11 13 14 15 16 16 16 16 17 5,858 3,212 9,070 32 434 466 9,536 1,824 2,958 1,500 772 2,400 9,454 82 82 9,536 7,008 3,212 10,220 25 865 890 11,110 1,824 2,958 1,500 939 3,806 11,027 83 83 11,110 The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the Company income statement. The loss for the Company for the year was £1.579m (2022, profit: £3.008m). These financial statements were approved and authorised for issue by the Board of Directors on 28 June 2024 and were signed on its behalf by: S P O’Hara Director Company Registration no. 05880755 The notes on pages 32 to 55 form part of these financial statements Annual Report and Accounts 2023 28 Company Statement of Changes in Equity For the year ended 31 December 2023 Called up Share capital £’000 Share Premium £’000 Merger Share-based Payment reserve £’000 Relief Reserve £’000 Retained Earnings £’000 Total equity £’000 Balance at 31 December 2021 1,759 2,537 1,500 928 11,056 17,780 Profit for the year Dividends Share options and warrants Fundraising Commission Issue of shares during the year Balance at 31 December 2022 Loss for the year Movement on reserves Share options and warrants – – – – 65 1,824 – – – – – – (24) 445 – – – – – 2,958 1,500 – – – – – – Balance at 31 December 2023 1,824 2,958 1,500 The notes on pages 32 to 55 form part of these financial statements – – 11 – – 939 – (173) 6 772 3,008 3,008 (10,258) (10,258) – – – 11 (24) 510 3,806 11,027 (1,579) (1,579) 173 – – 6 2,400 9,454 29 OptiBiotix Health Plc Company Statement of Cash Flows For the year ended 31 December 2023 Opening Cash Operating activities Operating loss Share based payments Loan conversion to management change Decrease/(increase) on receivables Impairment of investment in subsidiary (Decrease)/increase on payables Release of loan to subsidiary Net Proceeds for operating activities Investing activities Net cash advances to subsidiary Proceeds on disposal of investments Net Financing activities Net proceeds on Share issues Interest income Net cash inflow from financing activities Total movement Cash and cash equivalents at end of period 1 The notes on pages 32 to 55 form part of these financial statements Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 Notes 865 1,705 (1,535) – 14 (7) – – 901 (627) (915) 1,110 195 – 1 1 (431) 434 (1,482) 11 – 416 50 42 756 (207) (1,143) 25 (1,118) 485 – 485 (840) 865 Annual Report and Accounts 2023 30 Notes to the Company Statement of Cash Flows For the year ended 31 December 2023 1. Cash and Cash Equivalents Cash and cash equivalents The notes on page 32 to 55 form part of these financial statements As at 31 December 2023 £’000 As at 31 December 2022 £’000 434 865 31 OptiBiotix Health Plc Notes to the Financial Statements For the year ended 31 December 2023 1. General Information OptiBiotix Health plc is a Public Limited Company limited by shares, 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, YO10 5DG. 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. These financial statements present the results and balances of the Company and its subsidiaries (together, the ‘Group’) for the year ended 31 December 2023. 2. Accounting Policies Statement of compliance The consolidated and parent company financial statements of Optibiotix Health Plc have been prepared in accordance with UK adopted international accounting standards (IFRSs), IFRIC interpretations and 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. The results are rounded to the nearest thousand. 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 forecast maintenance costs, other administrative expenses and its ongoing research and development expenditure. As part of the Group going concern assessment the Directors have also reviewed a range of scenarios including those reflecting conditions less favourable than the base case scenario. In such scenarios the Directors have had regard to cash generation and preservation options including further cost mitigation, further sale of the Group's investment assets and share issues where market conditions allow. Through one or a combination of these measures, the Board are satisfied that the Group can continue as a going concern in base case and downside. 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 current political crises in Eastern Europe. Management will keep events under constant review, and remedial action will be taken if the situation demands it. 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. Annual Report and Accounts 2023 32 Notes to the Financial Statements (continued) 2. Accounting Policies (continued) Standards, amendments and interpretations effective and adopted in 2023 The accounting policies adopted are consistent with those of the previous financial year. In addition, the Group has adopted the new, and amendments to, standards listed below. These amendments were either not applicable or not material to the Group or Parent Company. International Accounting Standards (IAS/IFRS) Initial Application of IFRS 17 and IFRS 9—Comparative Information Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) Definition of Accounting Estimates (Amendments to IAS 8) Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12) International Tax Reform - Pillar Two Model Rules (Amendments to IAS 12) Effective date 1 January 2023 1 January 2023 1 January 2023 1 January 2023 1 January 2023 New standards and interpretations not yet adopted The International Accounting Standards Board (IASB) has issued the following standards, amendments and interpretations with an effective date after the date of these consolidated financial statements. These are effective for annual reporting periods beginning on or after the date indicated: International Accounting Standards (IAS/IFRS) Classification of liabilities as current or non-current and non-current liabilities with Covenants - Amendments to IAS 1 Lease Liability in a Sale and Leaseback - Amendments to IFRS 16 Supplier Finance Arrangements - Amendments to IAS 7 and IFRS 7 Lack of exchangeability - Amendments to IAS 21 Effective date 1 January 2024 1 January 2024 1 January 2024 1 January 2025 The Group is assessing the impact of these new standards and the Group’s financial reporting will be presented in accordance with these standards from the effective date. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group. The Directors anticipate that the adoption of these standards and the interpretations in future period will have no material impact on the financial statements of the company. 2.1 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. The group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. 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. 33 OptiBiotix Health Plc Notes to the Financial Statements (continued) 2. Accounting Policies (continued) 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 “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. 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. Annual Report and Accounts 2023 34 Notes to the Financial Statements (continued) 2. Accounting Policies (continued) 2.2 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: 2.2.1 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. 2.2.2 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. 2.2.3 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. 2.3 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. 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. 2.4 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. 2.5 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. 35 OptiBiotix Health Plc Notes to the Financial Statements (continued) 2. Accounting Policies (continued) 2.6 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. 2.7 Financial instruments 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 using the effective 2.8 interest rate method. Equity investments comprise investments which do have a fixed maturity and are classified as non current assets if they are 2.9 intended to be held for the medium to long term. They are measured at fair value through profit or loss. 2.10 Trade receivables are initially measured at fair value and are subsequently measured at amortised cost less appropriate provisions for credit losses. Such provisions are recognised in the income statement. 2.11 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. 2.12 Trade payables are not interest-bearing and are initially valued at their fair value and are subsequently measured at amortised cost. 2.13 Equity instruments are recorded at fair value, being the proceeds received, net of direct issue costs. Annual Report and Accounts 2023 36 Notes to the Financial Statements (continued) 2. Accounting Policies (continued) Share Capital – Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or 2.14 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 2.15 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). 2.16 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. 2.17 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. 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. 2.18 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 2023. 37 OptiBiotix Health Plc Notes to the Financial Statements (continued) 2. Accounting Policies (continued) 2.19 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. 2.20 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. 2.21 Intangibles – Patents and trademarks Patents acquired by way of the fair value uplift by way of the reverse merger in 2014 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 these acquired patents over their estimated useful life of twenty years once the patents have been granted. Development costs for new patents and trademarks since 2014 that have been capitalized in line with the recognition criteria of IAS38 have been estimated to have a useful economic life of 10 years. 2.22 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. Annual Report and Accounts 2023 38 Notes to the Financial Statements (continued) 2. Accounting Policies (continued) 2.23 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. 2.24 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. Useful life of intangible assets Management have estimated that the useful life of the fair value uplift of the patents acquired by way of the reverse merger in 2014 to be 20 years. Development costs of patents and trademarks since 2014 that have been capitalized 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. The net book value of intangible assets at the year-end was £1.331m (£1.540m). 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. The board looked at the current order book going forward, the ongoing discussions with current customers and the recent new customers and concluded that an impairment of the intangible assets was not applicable for the year to 31 December 2023. Recognition and measurement of the investment in Probiotix Health plc Management have reviewed the nature of the relationship with Probiotix Health plc in line of the Group's interest moving from 100% to 44% by 31 March 2022. Management have had regard to the requirements of IFRS 10 to consider the facts and circumstances of the relationship between Optibiotix and Probiotix and not just the shareholding interest. In taking account of a range of factors, including Optibiotix's minority representation on the Probiotix board and the terms of a relationship agreement entered into between the parties, management have concluded that Optibiotix have significant influence over Probiotix but not control. This remains under continuing review as facts and circumstances change. As a result of the recognition of the Group's remaining 44% interest at 31 March 2022 at fair value the Group and Company balance sheet report material investment holdings in Probiotix Health plc. The Directors have had regard to potential impairment of this asset. The Directors believe there are no indicators which point to a potential adverse impact on the asset. 39 OptiBiotix Health Plc Notes to the Financial Statements (continued) 3. Segmental Reporting In the opinion of the directors, the Group has one class of business, in four geographical areas being that of identifying and developing microbial strains, compounds and formulations for use in the nutraceutical industry. The Group sells into to four highly interconnected markets, all costs assets and liabilities are derived from the UK location. Revenue analysed by geographical market UK US India China Rest of world Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 221 202 – 75 146 644 136 100 61 – 160 457 During the reporting period one customer represented £104k (14.9%) of Group revenues. (2022: one customer generated £100k representing 21.9% of Group revenues) 4. Employees and Directors Wages and salaries Directors’ remuneration Social security costs Pension costs Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 375 272 54 19 720 522 354 66 35 977 Within salaries and wages there is a charge of £153k (2022:NIL) for termination payments made to R Kamminga. In addition to the costs disclosed above a further £177k of employee costs have been recharged to Probiotix Health Plc under a shared services agreement. Annual Report and Accounts 2023 40 Notes to the Financial Statements (continued) 4. Employees and Directors (continued) The average monthly number of employees during the period was as follows: Group Directors Selling, General & Administration Company Directors Directors' remuneration was as follows: Directors’ remuneration Directors’ share based payments Benefits in kind Bonus Pension Total emoluments Emoluments paid to the highest paid director Remuneration for qualifying services Company pension contributions to defined 41 OptiBiotix Health Plc Year ended 31 December 2023 No. Year ended 31 December 2022 No. 5 5 10 5 5 6 5 11 6 6 Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 272 – 5 – 7 284 138 5 143 354 12 5 – 10 381 143 4 147 Notes to the Financial Statements (continued) 4. Employees and Directors (continued) Directors’ remuneration Details of emoluments received by Directors and key management of the Company for the year ended 31 December 2023 are as follows: Directors Remuneration Share based Pension and fees payments Costs £’000 £’000 £’000 Benefits in Kind Total £’000 £’000 S P O’Hara 138 – 5 S Christie 20 – – R Davidson 44 – – S Kolyda 44 – 2 C Brinsmead 11 – – S Hammond 11 – – G Myers 4 – – Total 272 – 7 4 147 – 20 – 44 1 47 – 11 – 11 – 4 5 284 Total 2022 £’000 151 25 55 88 31 31 – 381 Benefits in kind relate to medical insurance. 5. Net Finance Income/(Costs) Finance Income: Bank Interest Net Finance Income/(Costs) Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 1 1 – – Annual Report and Accounts 2023 42 Notes to the Financial Statements (continued) 6. Expenses – analysis by nature Research and development Directors’ fees & remuneration (Note 4) Salaries, pension and social security Auditor remuneration – Group and Company audit fees Auditor remuneration-Audit of subsidiaries Auditor remuneration – non audit fees:tax compliance Auditor remuneration – non audit fees: other assurance Brokers & Advisors Advertising & marketing Share based payments charge Bad debt provision Amortisation of patents and development costs Patent and IP costs Consultancy fees Legal and professional fees Public Relations costs Travel costs Other expenses Total administrative expenses 7. Corporation Tax Corporation Tax Corporation tax credit Deferred tax movement Total taxation 43 OptiBiotix Health Plc Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 40 272 447 58 – – – 94 114 6 (104) 205 183 314 9 55 93 229 68 354 623 25 15 8 2 122 84 12 458 224 88 378 12 80 102 78 2,015 2,733 Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 17 (13) 4 (38) (108) (146) Notes to the Financial Statements (continued) 7. Corporation Tax (continued) Analysis of tax expense No liability to UK corporation tax arose on ordinary activities for the year ended 31 December 2023 nor for the year ended 31 December 2022. Profit (Loss) on ordinary activities before income tax Loss on ordinary activities multiplied by the effective rate of corporation tax in UK of 23.5% (2022 – 19%) Effects of: Disallowables Income not taxable Accelerated depreciation R&D tax credit claimed Amortisation Revenue items capitalised Other timing differences Unused tax losses carried forward Tax credit Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000 (2,043) (480) 171 (63) – – 31 – – 358 17 2,442 466 166 (1,068) – (38) 28 – – 408 (38) The group has estimated losses of £7.6m (2022: £6.1m) in respect of which a deferred tax asset of £1.9m (2022: £1.5m) has not been recognised due to the uncertainty of future taxable profits. The unrecognised deferred tax asset has been assessed by reference to a rate of 25% which is the UK headline corporation tax rate from 1 April 2023. The Group submits claims for R&D tax credits in respect of its research and development activities in respect of microbiome modulators and similar products relating to the exploitation of its patent portfolio and potential new patents arising from scientific research performed by group employees and its partners. Whilst the Board are confident of recovery of the estimated R&D tax credit, there is no certainty that the receivable will be recoverable until HMRC have approved the claim and the enquiry window is closed. However, based on the group's history of successful claims over a number of years, the Board are satisfied that the tax receivable is recoverable and appropriately recorded. Annual Report and Accounts 2023 44 Notes to the Financial Statements (continued) 8. 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. Reconciliations are set out below: 2023 Basic and diluted EPS Basic EPS Diluted EPS Earnings £’000 (2,038) (2,038) Weighted average Number of shares No. 90,190,661 98,273,568 2022 Basic EPS Diluted EPS Earnings £’000 2,587 2,587 Weighted average Number of shares £ 88,279,952 93,213,179 Profit per-share Pence (2.24)p (2.08)p Profit per-share Pence 2.93 2.78 As at 31 December 2023 there were 7,082,907 (2022: 7,182,907) outstanding share options and NIL (2022: NIL) outstanding share warrants. 9. Intangible assets Group Cost At 31 December 2021 Additions Disposals At 31 December 2022 Additions Disposals At 31 December 2023 45 OptiBiotix Health Plc Development Costs and Patents £’000 3,865 46 (1,370) 2,541 – (4) 2,537 Notes to the Financial Statements (continued) 9. Intangible assets (continued) Group Cost At 31 December 2021 Additions Disposals At 31 December 2022 Additions Disposals Impairment At 31 December 2023 Amortisation At 31 December 2021 Amortisation charge for the year Disposals At 31 December 2022 Amortisation charge for the year Disposals Amortisation eliminated on impairment At 31 December 2023 Carrying amount At 31 December 2023 At 31 December 2022 Development Costs and Patents £’000 3,865 46 (1,370) 2,541 – – (4) 2,537 1,225 224 (448) 1,001 206 – (1) 1,206 1,331 1,540 The company had no intangible assets during the reporting period. Development costs and patents represent cost capitalised in respect of the Group’s intellectual property portfolio and includes the costs of registering and maintaining patents as well as capitalised development costs. All intangible assets relate to the Group’s principal activities. Disposals in the year 31 December 2022 relate to two patent families relating to probiotic patents owned by Probiotix Limited and therefore which were derecognised upon the group's loss of control of Probiotix Health plc. This disposal has formed part of the gain on loss on disposal reported in the income statement. Annual Report and Accounts 2023 46 Notes to the Financial Statements (continued) 10. Property, plant and equipment Group Cost At 31 December 2021 Additions Disposals At 31 December 2022 Additions Disposals At 31 December 2023 Group Depreciation At 31 December 2021 Charge for the year At 31 December 2022 Charge for the year At 31 December 2023 Carrying amount At 31 December 2023 At 31 December 2022 £ 8,461 – – 8,461 – – 8,461 £’000 8 8 8 – – The company had no fixed assets during the reporting period. 11. Investments Group Set out below is the investment in Skinbiotherapeutics PLC. The investment was treated as an associate of the group until 2 November 2020, after which time the shareholding dropped to 24.65% and recalculated as an equity investment. The Group records its investment in Skinbiotheraputics plc at fair value and is remeasured by reference to its closing price on AIM at each reporting date. The share price at 31 December 2023 was 15.25p. During the year, 6,911,567 were disposed to generate gross proceeds of £1.1m with original cost of £622k. At 31 December 2023 the holding stood at 13.39% Investments At the beginning of the period Revaluations (Loss)/gain on investments Disposal of shares during year At 31 December 47 OptiBiotix Health Plc 2023 £’000 5,022 – (513) (622) 3,887 2022 £’000 13,651 (8,620) – (9) 5,022 Notes to the Financial Statements (continued) 11. Investments (continued) Investment in Associate On 31 March 2022, ProBiotix Health Plc ( “PBX”) the parent company of ProBiotix Limited listed on the AQSE Growth Market. The listing of PBX on AQSE, together with the issue of a dividend in specie and issue of new shares, means that PBX is now considered an associate for accounting purposes with its revenues and costs removed post listing and only OptiBiotix’s (44%) proportion of its profit and loss included in the Group’s accounts under the equity method of accounting. The step-down from being a subsidiary to an associate resulted in the revaluation of the remaining interest held in PBX at the listing price and a gain on disposal of a subsidiary recognised in the income statement. A gain of £21.647m was recorded in the income statement. An assessment was undertaken to assess whether the Company had defacto control over PBX during the period considering Board representation, financing arrangements , the Relationship agreement and the other shareholdings in PBX. Based on the assessment it was concluded that the Company only had significant influence and that PBX was an associate in the period. The Relationship agreement sets out costs that are being incurred by the Group that are being recharged to PBX. At 31 March 2022 the Group held 53,533,333 shares in Probiotix Health plc, valued at the IPO price of 21p resulting in a deemed cost of investment in associate of £11.24m. As an associate, the Group's investment is equity accounted and the Group's 44% share of loss was deducted from this carrying value. Investment in Associate Investments At the beginning of the period Additions Deemed cost on reclassification from subsidiary Impairment in the period Share of result for the period (see below) At 31 December 2023 £’000 3,129 – – (323) 2,806 PBX is registered in United Kingdom and is in the Health food sector. Set out below is financial information on PBX set out in its IFRS financial statements for the year to 31 December 2023. Revenue Loss from continuing operations Total comprehensive loss Current assets Current Liabilities Non-current liabilities 44% share of total comprehensive loss 2023 £’000 1,673 (729) (735) 1,871 (566) (97) (323) 2022 £’000 – 11,242 (8,030) (83) 3,129 2022 £’000 1,308 (237) (189) 2,311 (307) (89) (83) Annual Report and Accounts 2023 48 Notes to the Financial Statements (continued) 11. Investments (continued) Company Investments Listed Investments At the beginning of the period Additions Revaluations Disposal of shares during year Investment in subsidiaries At the beginning of the period Additions Impairment Disposals At 31 December Company Investment in Associate At the beginning of the period Reclassification to associate Provision against value of associate At 31 December 2023 £’000 5,022 (513) (622) 3,887 1,986 – (15) – 1,970 5,858 2023 £’000 3,212 3,212 2022 £’000 13,651 – (8,620) (9) 5,022 2,081 16 (50) (61) 1,986 7,008 2022 £’000 60 11,182 (8,030) 3,212 The Company holds listed investments at fair value, and investments in subsidiaries and associates at cost less impairment. The fair value of the Company's investment in Probiotix Health plc upon losing control was set as deemed cost. The Directors have had regard to potential impairment of this group's investment in Probiotix. The Directors believe there are no indicators which point to a potential adverse impact on the asset. During the year to 31 December 2022 an impairment charge of £8.03m was recorded in the income statement as a separate line item. The impairment assessment was made by reference to fair values using Level 1 inputs on the Fair Value Hierarchy, being observable traded prices on the AQSE Growth exchange. During the year to 31 December 2022 an impairment of £50,000 was raised against the Company's investment in The Healthy Weight Loss Company Limited as the board intend to wind up this company which has minimal assets and no trading activity. 49 OptiBiotix Health Plc Notes to the Financial Statements (continued) 11. Investments (continued) The entities 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. As at 31 December 2023 the Company directly held the following subsidiaries: Name and Country of Registered office address Active/ incorporation of company Nature of Business Dormant and place of business Proportion of equity interest OptiBiotix Limited Research & Development Active United Kingdom Innovation Centre Innovation Way, Heslington, York, YO10 5DG 100% of ordinary shares Optibiotix Health India Health foods Active India Private Limited House NO.243, Mcd Colony, Vivekanand Puri Sarai, Rohilla City, Delhi CITY, DELHI, North Delhi, Delhi, India, 110007 The Healthy Weight Loss Company Limited was dissolved on 19 December 2023. 12. Inventories 100% of ordinary shares Group Company 2023 £’000 2023 £’000 2022 £’000 Finished goods 188 178 – During the period £334k (2022: £213k) has been expensed to the income statement. 13. Trade and other Receivables Group Company 2023 Current £’000 2023 £’000 2022 £’000 Accounts receivable 345 Other receivables 97 Prepayments and accrued income 18 460 379 131 11 521 18 12 2 32 2022 £’000 – 2022 £’000 – 17 8 25 During the year Optibiotix Health PLC recharged Probiotix Health PLC £15,000 for Directors’ fees which was repaid after the year end. During the year Optibiotix Health PLC loaned Optibiotix Limited £1,223,340 to finance working capital costs. Optibiotix Limited recharged Optibiotix Health PLC £327,927 , (2022: £373,426) for salary costs. The balance at the year end of £895,381 (2022: £846,574) was cancelled. There was no interest charged during the year. This does not impact on the consolidated Group accounts. Annual Report and Accounts 2023 50 Notes to the Financial Statements (continued) 13. Trade and other Receivables (continued) During the year Optibiotix Limited recharged Probiotix Health PLC £44,799(2022: £23,139) for directors’ fees. The balance at the yearend was £NIL. There was no interest charged during the year. During the year Optibiotix Limited transactions with Probiotix Limited were as follows: - • • • £490,786 (2022:£440,663) for salaries and administration costs; £67,700 (2022: £60,676 income received on behalf of Probiotix limited; and £425,639 repayments received. There was no interest charged during the year. The remaining balance of £27,617 was received after the year end. 14. Cash and Cash Equivalents Group Company 2023 £’000 2023 £’000 2022 £’000 Cash and bank balances 635 1,052 434 All cash is held in demand deposits with large UK banks. 15. Called Up Share Capital Issued share capital comprises: Ordinary shares of 2p each –91,190,661 (2022: 91,190,661) No new shares were issued during the year. 16. Reserves 2023 £’000 1,824 1,824 2022 £’000 865 2022 £’000 1,824 1,824 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. 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 net of distributions paid. Share based payment reserve represents the cumulative amounts charged in respect of unsettled warrants and options issued. 51 OptiBiotix Health Plc Notes to the Financial Statements (continued) 17. Trade and other payables Group Company 2023 Current £’000 2023 £’000 2022 £’000 Accounts Payable 56 Accrued expenses 75 Other payables 49 Total trade and other payables 180 191 70 17 278 7 67 8 82 2022 £’000 34 39 10 83 18. 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 25% (2022: 25%). The movement on the deferred tax account is as shown below: At 31 December Movement in the period At 31 December 2023 £’000 365 (13) 352 2022 £’000 552 (187) 365 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 over the timing of future taxable profits. Further details of available losses are set out in note 7. 19. Related Party Disclosures Transactions and balances with Probiotix Health Plc are set out in note 13. Key Management Personnel (KMP) disclosures have been made under note 4. 20. Ultimate Controlling Party The Board consider that there is no overall controlling party. Annual Report and Accounts 2023 52 Notes to the Financial Statements (continued) 21. 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 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 2023 2022 2023 No. No. £ 2022 £ Outstanding at the beginning of the period 7,182,907 7,632,907 0.092 Granted during the period – 500,000 – Forfeited/cancelled during the year (325,000) (950,000) 0.52 Exercised during the period – – – Outstanding at the end of the period 6,857,907 7,182,907 0.08 0.18 0.02 0.70 – 0.092 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 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 2020 vesting conditions dictate that the options will vest if certain revenue conditions are met. For share options issued in 2022 The Company agreed with a number of option holders to surrender their existing options in return for Nominal Value Options over half the number of shares of their existing options, which are subject to a combination of performance and time-based vesting criteria. This ensures a continued focus on commercial revenues and shareholder value creation. New options will be granted on a similar basis going forward. Options granted to non-executive directors will be subject to time-based vesting. The share options outstanding at the period end had a weighted average remaining contractual life of 475 days (2022: 830 days) and the maximum term is 10 years. The share price per share at 31/12/23 was £0.27 (31/12/2022: £0.13) Where share options were cancelled and replaced with share options with revised terms, the Board have considered this set of transactions as a modification of share based payment arrangements and have therefore considered whether any incremental value arises as a result of the grant of modified awards. Having performed an assessment the Board have concluded that no incremental value fair is required and therefore no charge has been recognised. In respect of replacement options which include market based vesting conditions in respect of revenue targets, the Board have determined that the value of this proportion of shares have immaterial value in light of the Group's results for the 2022 accounting period in which they were granted. 53 OptiBiotix Health Plc Notes to the Financial Statements (continued) 21. Share Based payment Transactions (continued) (ii) Warrants 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 2023 2022 2023 No. No. £ 2022 £ Outstanding at the beginning of the period – 329,336 – Exercised – (125,060) – Cancelled – (204,276) – Outstanding at the end of the period – – – 0.08 0.08 – 0.08 There were no warrants in issue at 31 December 2023. A charge of £NIL (2022: £Nil) has been recognised during the year for the share based payments over the vesting period. 22. 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 in respect of its financial statements are liquidity risk and credit 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. Interest risk The Group is not exposed to significant interest rate risk as it has limited interest bearing liabilities at the year end. The group's financial assets do not bear interest. Credit Risk The Group try to limit the credit risk by dealing with larger companies and also asking new smaller customers to provide a deposit with the purchase order. Management have regard to credit exposures when entering into new contracts and seek to agree settlement terms on all contracts. Credit exposure is regularly monitored by management and any overdue debts are followed up as part of the group's credit control procedures. Where a debt becomes significantly overdue, management have regard to credit loss provisions to reflect the existence of expected credit losses, taking account of forward looking information as well as the pattern of cash collections for that category of customer. The Board consider a default to have occurred when a receivable passes 60 days beyond agreed credit terms, at which point regard is had to the specific characteristics of the debtor in assessing exposure to material credit risk and therefore the requirement to create a loss provision. Annual Report and Accounts 2023 54 Notes to the Financial Statements (continued) 22. Financial Risk Management Objectives and Policies (continued) 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 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. 23. Post Balance Sheet Events On 25 March 2023 the company issued and allotted 6,627,500 shares of 2 pence per share exercised at a price of 20 pence per share in the capital of the company. On 25 March 2023 Mr Graham Myers, recently appointed Director of the company acquired 125,000 shares in the company representing 0.13% of the Company’s issued share capital at a price of 20 pence per share. 55 OptiBiotix Health Plc Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of OptiBiotix Health PLC (the “Company”) will be held at the offices of Peterhouse Capital Limited, 3rd Floor, 80 Cheapside, London, EC2V 6EE on 8 August 2024 at 12:00 noon for the following purposes: 1. 2. 3. 4. 5. To receive the Company’s Report and Accounts for the year ended 31 December 2023. To re-elect Stephen O’Hara, who retires by rotation, as a Director. To re-elect Neil Davidson, who retires by rotation, as a Director To re-elect Graham Myers, who retires by rotation, as a Director To re-appoint Gerald Edelman 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 6 as an Ordinary Resolution and as to the resolutions numbered 7 as Special Resolutions: 6. 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 £652,954.24 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 2025, 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. THAT, subject to and conditional upon the passing of resolution 6, 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 5 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) 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; (b) the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal value of £587,658.82 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 2025, 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 28 June 2024 Registered Office: Innovation Centre Innovation Way Heslington York YO10 5DG Annual Report and Accounts 2023 56 Explanatory Notes to the Notice of Annual General Meeting Notes: 1. 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. 2. To be effective Forms of Proxy can be registered as follows:- • by visiting www.shareregistrars.uk.com, clicking on the “Proxy Vote” button and then following the on-screen instructions; • by post or by hand to Share Registrars Limited, 3 The Millennium Centre, Crosby Way, Farnham, Surrey GU9 7XX using the proxy form accompanying this notice; • in the case of CREST members, by utilising the CREST electronic proxy appointment service in accordance with the procedures set out in note 5 below. 3. 4. 5. In order for a proxy appointment to be valid the proxy must be received by Share Registrars Limited by 12:00 noon on 6 August 2024 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 12:00 noon on 06 August 2024 (“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. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the General Meeting and any adjournment(s) thereof by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s) should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with CRESTCO Limited’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it relates to the appointment of a proxy or to an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent 7RA36 by the latest time(s) for receipt of proxy appointments specified above. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting service providers should note that CRESTCo Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his or her CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of CREST by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 57 OptiBiotix Health Plc Explanatory Notes to the Notice of Annual General Meeting (continued) 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 2023. 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. Resolution 4 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 at the first AGM after their appointment. Resolution 5 The Auditors are required to be re-appointed at each Annual General Meeting at which the Company’s Audited Accounts are presented. Resolution 6 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 £652,954.24 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 7 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 £587,658.82. This resolution will be proposed as a special resolution. Annual Report and Accounts 2023 58 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. 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