SkinBioTherapeutics
Annual Report 2019

Plain-text annual report

256244 SkinBio Therapeutics plc R&A Cover and Spine Spread.qxp 25/11/2019 17:46 Page 1 Annual Report and Financial Statements For the Year Ended 30 June 2019 SkinBioTherapeutics plc Company Registration Number: 09632164 9 1 0 2 e n u J 0 3 d e d n E r a e Y e h t r o F s t n e m e t a t S l SkinBioTherapeutics i i a c n a n F d n a t r o p e R l a u n n A c l p s c i t u e p a r e h T o B n i k S i SkinBioTherapeutics 15 Silk House, Park Green, Macclesfield, SK11 7QJ 256244 SkinBio Therapeutics plc R&A Cover and Spine Spread.qxp 25/11/2019 17:46 Page 2 Contents Statutory and Other Information Chairman’s Statement Strategic and Financial Review Directors’ Report Corporate Governance Report Independent Auditor’s Report to the Members of SkinBioTherapeutics plc Statement of Comprehensive Income Statement of Financial Position Statement of Cash Flows Statement of Changes in Equity Notes to the Financial Statements 1 2 3 8 11 20 23 24 25 26 27 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 1 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 1 Statutory and Other Information Directors Secretary Registered office Auditor Registrars Nominated adviser Broker Bankers Public relations Martin Hunt Stuart Ashman (appointed 18 April 2019) Doug Quinn Dr Cathy Prescott Non-Executive Chairman Chief Executive Officer Chief Financial Officer Non-Executive Director Doug Quinn 15 Silk House Park Green Macclesfield SK11 7QJ Jeffreys Henry LLP Finsgate 5-7 Cranwood Street London EC1V 9EE Share Registrars Limited The Courtyard 17 West Street Farnham GU9 7DR Cairn Financial Advisers LLP Cheyne House, Crown Court 62-63 Cheapside London EC2V 6AX Turner Pope Investments (TPI) Limited 6th Floor, Beckett House 36 Old Jewry London EC2R 8DD SP Angel Corporate Finance LLP Prince Frederick House 35-39 Maddox Street London W1S 2PP Barclays Bank PLC 1 Churchill Place London E14 5HP Instinctif Partners 65 Gresham Street London EC2V 7NQ 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 2 2 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Chairman’s Statement 2019 has been a transitional and exciting year for SkinBioTherapeutics, with the Company moving from a scientific focus – proving the SkinBiotix® technology works in humans - to commencing and, post year end, closing its first commercialisation deal. Overall, the Company has been building value through achieving its business objectives and, identifying and developing the future plans and opportunities for its technology platform. The beginning of the year was dominated by the Company’s first human study, looking at skin irritancy, moisturisation and impact on skin barrier. The positive results demonstrated SkinBiotix’s safety and efficacy, and provided the data required to progress its cosmetic application. Armed with the positive clinical data and as part of the Company’s transition towards commercialisation, the Board took the decision to strengthen the management team with the appointment of Stuart Ashman as Chief Executive in April 2019. This has provided additional bandwidth for Dr Catherine O’Neil to focus on the scientific development of the Company and she transitioned into the non-Board role of Chief Scientific Officer (CSO). The other change has been the Non-Executive Director, Stephen O’Hara. On the back of the positive progress made by the Company since its admission to AIM in 2017 and his increasing commitments at OptiBiotix Health plc, he stepped down from the Board in July 2019. On behalf of the Board, I would like to take the opportunity to thank both Cath and Stephen for their valuable contributions to the Company to date and look forward to Cath’s continuing scientific contribution in her role as CSO. During the year, the Company also announced it had raised a total of £1.5m in gross proceeds through a placing of shares to funds managed by Seneca Partners Limited, an existing shareholder of the Company. Costs have continued to be carefully managed and the Company ended the year with a cash balance of £3.1m (2018: £3.2m), which is line with management’s expectations. Since year end, SkinBioTherapeutics has signed its first commercial deal with global specialist chemicals manufacturer Croda International plc (“Croda”). Details of the deal were announced recently and are included in the operational review section. This deal marks an important milestone for the Company and its proprietary technology, SkinBiotix®. The team is driving other commercialisation opportunities for 2020 and will update shareholders as soon as these are realised. The Company has developed a longer term strategy which will encompass both existing and new technology. The detail is included in the strategic section below, but in summary, the Board and management team has identified five different channels in which the Company intends to develop its focus. Each channel offers the potential for multiple applications or sub-channels. This ties in with the body of science related to the microbiome and its impact on human physiology and diseases which continues to expand and is an area of increasing focus. The ‘science-led’ approach will continue to underpin the Company’s strategic focus and is a key element of the commercialisation strategy. We look forward to another exciting year ahead. Martin Hunt Chairman 25 November 2019 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 3 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 3 Strategic and Financial Review Company background and strategy SkinBioTherapeutics seeks to harness the microbiome for human health. The best understood members of the microbiome are the bacteria that live in the gut and these have led to the rise in ingesting ‘probiotics’ to promote health. However, an increasing area of focus is the microbiome of the skin. SkinBioTherapeutics’ proprietary technology, SkinBiotix®, is designed to promote skin health by harnessing the beneficial properties of probiotic bacteria and the active components derived from them. The approach taken is to use a ‘lysate’ of probiotic bacteria cells as a topical agent. The use of a lysate rather than live bacteria circumvents the possible safety considerations associated with applying live bacteria to the skin and the potential formulation difficulties of keeping bacteria alive in a cream. Following a strategic review by the Board and new management team, upon appointment of Stuart Ashman, the Company has identified five channels in which it intends to develop its focus, encompassing both existing and new technology. Each channel offers the potential for multiple applications or sub-channels. SkinBiotix® This is the Company’s core technology and the primary focus has been on completion of a first human study to generate data and agreeing terms for its commercialisation. The agreement with Croda currently extends to the applicability of the SkinBiotix® technology for use in cosmetic applications in active skincare. Croda, along with their speciality cosmetics division – Sederma, have a portfolio of over 12,000 global cosmetic customers and supply into a market of high growth estimated at $100+bn (Source: Euromonitor passport stats 2016). Opportunities exist for the Company to explore the use of the technology in other areas, for example oral indications, toothpaste, mouthwash etc. to prevent the build-up of bacteria by reinforcing the gum barriers resistance. Work is underway to further explore this area. AxisBiotix An emerging area of science is focussed on the gut-skin axis and its role in various diseases. One such disease that is considered to be influenced by the gut-skin axis is psoriasis. This is a chronic relapsing inflammatory condition of the skin with a prevalence of ~3% in the western world with a market value of $3.9bn with a CAGR of 3.8% (Source Reuters 2019). Current treatments include emollients for relatively mild disease, through to the biologic therapies in severe disease. For the group in the middle, mild to moderate psoriasis, mainstay therapy tends to be steroid based. Steroids cannot be used long term and have side effects. Thus, there is an unmet clinical need for new, safer ways of treating patients in the mild to moderate group. Anecdotal evidence from patients, suggests that many of them have turned to oral probiotics as an ‘alternative’ therapy and report success in control of their disease. However, the effects of probiotics on psoriasis has been investigated in only two studies which did not make the choice of probiotic organisms based on known disease pathways. SkinBioTherapeutics is currently in discussions with a specialist manufacturer of probiotic formulations, in order to design a probiotic blend based on known psoriasis disease pathways and the modifying properties of specific bacteria species on these pathways. Since these are existing approved formulations there will be little in the way of development work and, subject to agreeing the collaboration agreement and initiating the programme, the Company anticipates being able to commence a human study in 2020. 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 4 4 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Strategic and Financial Review (continued) MediBiotix This channel is targeted as the use of technology for medical device applications and currently the Company is focussing on the application of its existing SkinBiotix technology for the indication eczema. The skin of eczema sufferers is commonly infected with Staphylococcus aureus (S. aureus) and there is documented evidence that this infection is the most common cause of eczema flares. On this basis, technologies that can reduce S. aureus load on skin have the potential to reduce the incidence of flares. The market for eczema is reported as $3.9bn with CAGR of 3.8% (Source Pharmapoint Global Data 2014). Initial work in the lab has demonstrated that SkinBiotix® fulfils a ‘physical mode of action’ with regard to S. aureus – it prevents the attachment of S. aureus to the skin. The physical mode of action of SkinBiotix® would allow the Company to progress the eczema programme as a medical device rather than a pharmaceutical treatment. This regulatory pathway is potentially a faster route to market. In recent months the Company has conducted further lab work to demonstrate the physical mode of action and is currently reviewing this data with its regulatory adviser before seeking to engage with the regulatory notified body on the matter. Additionally, the Company is in discussions with a number of global advanced woundcare companies to further explore the potential for the use of probiotic lysates in the treatment of various categories of wounds. CleanBiotix Healthcare acquired infections (HAI) remains an area of critical concern for healthcare providers. The growing resistance of certain infection strains and the lack of new antibiotics is driving the need to discover and develop new methods of controlling bacterial growth, colonisation and infection. The market for HAI is reported at $17.1bn with a CAGR of 6.1% (Source BCC 2015). Opportunities exist in this regard due to the ability of the SkinBiotix® technology preventing the adherence of the pathogen Staphylococcus aureus. The Company is working with a third party seeking to initiate exploratory discussions in regard to both HAI and Domestic Hygiene. PharmaBiotix As an extension to medical device and Axis applications, the Company has the potential to pursue medicinal prescription registration routes for current and future technologies. This is a time consuming and expensive pathway, but subject to positive clinical outcomes, has the potential for significantly higher financial returns. Whilst SkinBioTherapeutics is not currently targeting this channel it is a future potential pathway for both the eczema and psoriasis opportunities and a natural progression from both MediBiotix and AxisBiotix. Financial review Operating expenditure continued to increase during the course of the year, in line with management forecasts. In February 2019, the Company raised £1.5m in gross proceeds through a share placing at 16 pence per share. The Company held £3.1m of cash at year-end (2018: £3.2m). Research and development expenditure was £708k (2018: £416k) comprising development work with the University of Manchester, ongoing manufacture, scale-up and formulation work as well as the costs for the cosmetic human study. All such expenditure was expensed in the period. Ongoing operating costs were £652k (2018: £526k) covering employment, consultancy, PLC support costs and marketing. Overall the Company made a loss before tax of £1,360k (2018: £941k). Operational review Clinical update The human study for the cosmetic application incorporating the SkinBiotix® technology was the primary focus of the Company for 2019, the results of which were detailed in the RNS of 8 April 2019. The study, which commenced in September 2018, was primarily undertaken to show the effects of SkinBiotix® on the barrier of healthy skin. The secondary endpoint was to demonstrate that the technology is safe and well tolerated in a large group of people (129) using it twice a day for an extended period of time (29 days). The SkinBiotix® technology was incorporated within a cream formulation for application by the study subjects. The study design involved three groups: l Group 1 applied the active (cream containing SkinBiotix®) to one leg and nothing to the other l Group 2 applied the vehicle (cream containing no SkinBiotix®) to one leg and nothing to the other l Group 3 applied the vehicle to one leg and active to the other. Measures of the barrier were then performed in all groups at 15 days and 29 days. The primary measures were Corneometry – a measure of how hydrated the skin is, and Transepidermal water loss (“TEWL”) – a measure of water loss from the skin. A change to the barrier might be expected to be reflected in an increase in skin hydration or a reduction in TEWL. Some additional measurements of skin elasticity were also taken. 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 5 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 5 The data showed: 1) None of the 129 volunteers experienced any adverse skin reactions to the active. 2) A statistically significant increase in skin hydration at day 15 with the active, which was better than that produced by the vehicle. This effect was seen in the group under 50 years old. At day 29 there was no difference in skin hydration between any of the groups. 3) A small but statistically significant decrease in TEWL with the active at day 29 in the group over 60 years old. 4) In other age groups and, also, in measures of skin elasticity there was no difference between the vehicle and the active. The results of this independent study demonstrated that SkinBiotix® is safe, well tolerated and has efficacy in certain age groups and time points. The change in skin hydration and water loss are in line with expectations from laboratory studies which have shown that SkinBiotix® increases the levels of proteins within the skin that are crucial for a healthy barrier. The increase in skin hydration in the younger group at day 15 may reflect the ability of younger skin to respond to the SkinBiotix® faster than older skin. First commercialisation agreement signed Having completed the study and generated positive data, the Company progressed discussions with third parties interested in licencing the technology, culminating in an agreement earlier this month with Croda International Plc. With turnover of c.£1.38bn and a market cap of £6.1bn, Croda is a FTSE 100 company using Smart Science to Improve Lives™. Croda delivers innovative, sustainable ingredients across a range of industries: Personal Care, Life Sciences, Performance Technologies and Industrial Chemicals. A world leader in the field of skincare actives for the cosmetic industry, Croda offers a wide range of ingredients for skin and hair care products that are sold to major cosmetic brands across the world. Under the terms of the agreement, SkinBioTherapeutics’ proprietary SkinBiotix® platform will be paired with Croda’s expertise in the development and commercialisation of unique, sustainable, cosmetic ingredients, focusing specifically on the growing skincare actives market. Sederma, part of Croda International, is a specialist manufacturer of bioactive ingredients for the cosmetic industry, and will be responsible for the development and commercialisation of the SkinBiotix® technology. Croda will be establishing a separate manufacturing line for the technology and as design and manufacture of the active ingredient is carried out there will be concurrent testing in focussed ingredient application areas which will be detailed in further, additional agreements. Any licensed products resulting from this agreement will be sold to Croda’s global portfolio of Personal Care customers. SkinBioTherapeutics will be paid tiered royalties based on global sales revenues on any licensed products derived from the partnership which will be covered in individual ingredient application agreements. Recognising the development activity required by Croda, the Company anticipates revenue generation to commence from these additional agreements from 2021. Sales and distribution rights are for the cosmetic sector alone, leaving SkinBioTherapeutics to focus on further applications of its technology in other sectors. A key component of this agreement is access to a reliable supply of material and Croda will supply SkinBiotix™ for the Company to be able to use in sectors outside of those covered by this agreement. Key performance indicators The Board recognises the importance of KPIs and their appropriateness to the stage of development of the business. The Company is focused on the development of its technology programmes all of which are cash consuming. The KPIs are therefore chosen to monitor the progress of the individual programmes, the external market environment and the cash requirements of the Company. Financial The cash position of the Company is monitored on a continual basis with reference to both the ongoing operational costs of the business and more particularly the cash requirements to support its scientific development programmes. The Company maintains a low operating cost base such that the majority of its funding is deployed on its development programmes. Non-financial The Company actively monitors the progress of its development programmes. Timelines exist for each programme with key milestones detailed and these are regularly reviewed and updated accordingly. In addition, the Company monitors the life science market for; competitive products and technologies, licensing deals within the cosmetic industry, scientific research related to the microbiome and regulatory and policy matters in the major markets. Principal risks and uncertainties Ultimate responsibility for the process by which risk in the business is managed rests with the Board. The principal risks and uncertainties facing the Company, as well as mitigating actions, are set out below. While the list is not exhaustive, it is derived from the Company’s detailed risk register. These risks are reviewed by the Audit Committee at least biannually, which reports its findings to the Board. 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 6 6 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Strategic and Financial Review (continued) The Company’s internal risk identification and management process is as follows: l The Executive Team prepares and reviews on a periodic basis, by function, the risk register for the Company. The risk register details specific risks to the Company, the quantification of those risks in terms of probability and impact, and mitigating actions required to manage these risks. l The risk register assigns responsibility for each risk and mitigation plan to one or more members of the Executive Team. l The risk register is circulated to the Board in advance of each board meeting and specific risk items may be discussed at board meetings or otherwise as appropriate. l The risk register is reported to the Audit Committee at least biannually. Stage of operations SkinBioTherapeutics is at an early stage of development, yet to generate revenues and has a limited history to date. The ability of the business to generate revenue depends on the successful completion of the technical and commercial development of its SkinBiotix® platform. The business will incur losses for the immediate future and has not yet demonstrated an ability to obtain regulatory approval or commercialise its SkinBiotix® platform successfully. Clinical development risk The commercialisation of the Company’s intellectual property and the potential applications of its technology platform requires ongoing pre- clinical development, formulation, process development and human consumer/clinical studies that exemplify platform claims. There is a risk that the business’s SkinBiotix® platform does not perform as expected and it fails to perform in the applications identified by the Company. Furthermore, clinical development and human studies can result in unexpected costs. Agreeing study designs, study endpoints and study recruitment timelines without unforeseen delays with regulatory agencies is key. Regulatory body guidelines leading to market authorisation may be subject to alteration and are divergent in different jurisdictions. Product development timelines The Company has identified a number of applications for its SkinBiotix® technology platform. Development programme delays, inconclusive results, identification of safety issues, manufacture and formulation failures or regulatory challenges may require additional follow-up studies that are not currently envisaged with a consequential impact on development timelines and cash resources. Dependence of key personnel The Company’s operates with a small team and success is highly dependent on the expertise and experience of its board, management and employees. Retention and incentivisation of these individuals is critical to the Company. Formulation Whilst the Company has developed a formulation appropriate for the cosmetic human study further work is required to ensure the formulation remains effective for an extended period. There are risks associated with the means and timeline in establishing the long-term stability of the formulation. In addition, the Company will need to develop formulations appropriate for its other indications. It may require a number of iterations before suitable formulations are able to be produced. Human studies SkinBioTherapeutics has invested effort and resources in its SkinBiotix® technology platform and the potential applications of the technology. Success in human studies in part hinges on this continuing development activity. It is however possible that the results of these studies may not be predictive of those obtained in more advanced, later-stage, expensive, time consuming and difficult to design human studies. Intellectual property and proprietary technology SkinBioTherapeutics is focused on maintaining and expanding its intellectual property portfolio. The portfolio includes patent applications, trademarks and know-how. Success of the Company will depend in part on its ability to obtain and maintain effective patent rights. These rights need to be sufficiently broad to protect SkinBioTherapeutics’ technology in its chosen markets. The application process is expensive and time-consuming and SkinBioTherapeutics may not be able to file all its patent applications in all jurisdictions. 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 7 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 7 Some of the Company’s patent applications remain pending and have not been given notice of allowance. National patent offices may raise objections in relation to the on-going patent applications. These may result in revised applications or prevent patent applications from being granted. Competitive risk The Directors believe the skin microbiome to be an innovative area of development and scientific focus. As such this area is subject to significant and rapid technological and consumer change. It is an area of interest to academic institutions, government agencies and private and public companies. Competition from existing companies and new entrants has emerged and maintaining an IP and technology advantage over the competition will require a sustained development focus. The need for safe and supportive skin health and well-being products is acknowledged by consumers and healthcare providers around the globe. Large multinationals have divisions dedicated to the sector and many have established brands or approved products on the market. These brand owners have greater financial and human resources which can be deployed to build and maintain a brand position. Many also have dedicated R&D units and could therefore choose to develop technologies that compete with the Company’s SkinBiotix® technology platform. Regulatory environment The Company operates in a regulated environment that varies dependent upon the jurisdiction. These regulations are subject to change at short notice and differ according to any proposed product claims, intended use or marketing route. While the Company will take every effort to ensure that it and its partners comply with all applicable regulations, there can be no guarantee of this. Failure to comply with applicable regulations could result in the Company being unable to successfully commercialise its technology or any products that incorporates it and/or result in legal action being taken against the Company which could have a material adverse effect. Brexit It is unclear how Brexit will impact the regulatory environment with the relocation of the European Medicines Agency (EMA) and whether the Company will require separate approvals for future trade in Europe. The Company may incur delays and additional costs depending on the outcome of the Brexit negotiations and the transition of regulatory approvals. Outlook Having successfully completed the human safety study and subsequently executed a commercial ingredient and manufacturing agreement with Croda, the Company will focus on its identified five core areas over the course of 2020 as well as seeking further commercialisation opportunities. The successful completion of the human safety study for the SkinBiotix® technology was an important milestone this year. The quality of the scientific data and the readout from the study have proved to be prerequisites to reaching agreement with Croda. The project will commence in early 2020 and supporting its progress will be an important ongoing activity for SkinBioTherapeutics. Next in development will be the progression of the eczema programme as a medical device, following the preliminary regulatory assessment. This will continue to be a significant workstream in 2020 as will the commencement of the psoriasis programme, something the Company expects to be able to announce further progress on early in the new year. The Company will also explore additional application areas in fields that include woundcare, skincare, healthcare acquired infections (HAI) and surface cleaning. Strong progress has been made this year across the business and the Board and management team are optimistic for the outlook in 2020. Stuart J. Ashman Chief Executive Officer 25 November 2019 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 8 8 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Directors’ Report The Directors present their report and the audited financial statements of the Company for the year ended 30 June 2019. Principal activity The principal activity of the Company is that of research and development into the effects of lysates derived from the human microbiome on skin. Directors The directors who served the Company during the year were: Stuart Ashman Dr Catherine O’Neill Doug Quinn Martin Hunt Dr Cathy Prescott Stephen O’Hara (Appointed 18 April 2019) (Resigned 4 July 2019) (Resigned 4 July 2019) The Directors of the Company held the following beneficial interests in the share and share options of SkinBioTherapeutics plc at the date of this report: Dr Catherine O’Neill Martin Hunt Stuart Ashman Doug Quinn Dr Cathy Prescott 5,256,989 466,667 – 444,444 56,112 Issued share capital Ordinary shares of £0.01 each Percentage held Share options Ordinary Options shares of exercise £0.01 each price 3,892,082 £0.09 3,892,082 £0.09 4.1% 0.4% – 3,892,083 £0.18 0.3% 2,594,721 £0.09 0.04% Martin Hunt’s shareholding is held through Invictus Management Limited, a company controlled by Mr Hunt. Of the 466,667 shares held by Invictus Management Limited 11,112 are held in trust for Louise Hunt and 11,111 are held in trust for Oliver Hunt. Substantial shareholdings As at 20 November 2019, the following interests in 3% or more of the issued share capital appear in the register: OptiBiotix Health Plc Seneca Partners Limited University of Manchester Dr Catherine O’Neill Prof Andrew McBain Percentage of issued share capital 35.8% 20.9% 6.2% 4.1% 3.3% 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 9 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 9 Directors remuneration The Directors received the following remuneration during the year: Executive Salaries Dr Catherine O’Neill (resigned 4 July 2019) £41,000 Share based Pension Total Fees payments contributions remuneration – £24,620 £795 £66,415 Doug Quinn £12,079 £75,140 £16,414 £142 £103,775 Stuart Ashman (appointed 18 April 2019) £52,067 – £7,758 £329 £60,154 Non-executive Martin Hunt £6,180 £24,820 £24,620 – £55,620 Dr Cathy Prescott £4,200 £16,800 – – £21,000 Stephen O’Hara (resigned 4 July 2019) £4,200 £16,800 – – £21,000 £119,726 £133,560 £73,412 £1,266 £327,964 Financial instruments The Company’s exposure to financial risk is set out in note 2n of the financial statements. Research and development The Strategic and Financial Review on pages 3-7 gives information of the Company’s research and development activities. Events after the reporting date Refer to note 17 to the financial statements for further details. Going concern The financial statements have been prepared on the assumption that the Company is a going concern. When assessing the foreseeable future, the Directors have considered the budget for the next 12 months from the date of this report and the cash at bank available as at the date of approval of this report and are satisfied that the Company should be able to meet its financial obligations. 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 the going concern basis in preparing the annual report and financial statements. Statement of directors’ responsibilities The Directors are responsible for preparing the Strategic Report and Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to: l select suitable accounting policies and then apply them consistently l make judgements and accounting estimates that are reasonable and prudent l state whether applicable IFRSs have been followed subject to any material departures disclosed and explained in the financial statements l prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 10 10 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Directors’ Report (continued) The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors confirm that: l so far as each director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and l the Directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Auditors Jeffrey’s Henry LLP has expressed their willingness to continue in office and a resolution to re-appoint them will be proposed at the forthcoming Annual General Meeting. This report was approved by the Board of Directors on 25 November 2019 and signed on its behalf by: Stuart J. Ashman Chief Executive Officer 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 11 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 11 Corporate Governance Report As Chairman of SkinBioTherapeutics I have overall responsibility for corporate governance and in promoting high standards throughout the Company. As well as leading and chairing the Board my responsibilities are to ensure; l Committees are properly structured and operate with appropriate terms of reference l The performance of individual directors, the Board and its committees are reviewed on a regular basis l The Company has a coherent strategy and sets objectives against this l There is effective communication between the Company and its shareholders All the directors of SkinBioTherapeutics believe strongly in the importance of good corporate governance for the creation of shareholder value over the medium to long-term and to engender trust and support amongst the Company’s wider stakeholders. The Board adopted the QCA code in September 2018 and considers that it does not depart from any of the principles of the QCA code. The QCA code is constructed around ten broad principles and a set of disclosures. The QCA has stated what it considers to be appropriate arrangements for growing companies and asks companies to provide an explanation about how they are meeting the principles through the prescribed disclosures. The Directors have considered how they apply each principle to the extent the Board judges these to be appropriate in the circumstances and below we provide an explanation of the approach taken in relation to each. There were no key governance related matters that occurred during the year. Martin Hunt, Chairman. Principle Application Establish a strategy and business model which promotes long-term value for shareholders SkinBioTherapeutics seeks to harness the microbiome for human health and has a particular focus on skin. The Company’s proprietary technology is targeted at a number of health indications and the Company is initially focused on a cosmetic application as a route to initial value creation. The Company’s programme of research and development is intended to build long-term shareholder value through a reliance on proven, rigorous science and the Company utilises its public listing as a means to source capital to support its R&D programme. The Company has an ongoing research agreement with the University of Manchester to identify and develop technologies. In doing so the Company intends to avoid a reliance on a single technology and ensure that it has an ongoing pipeline of technologies, all related to the human microbiome, at different stages of development. The Company will seek to licence technologies to large corporates once human proof of principle has been established and intends to generate licence revenue through this route. It operates as a virtual organisation with a small but experienced management team and a low operating cost base. 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 12 12 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Corporate Governance Report (continued) Principle Application Seek to understand and meet shareholder needs and expectations Take into account wider stakeholder and social responsibilities and their implications for long-term success The Board is committed to communicating openly with shareholders to ensure that its strategy and performance are clearly understood. Between the Chairman and the executive directors an open and regular dialogue is maintained with the Company’s major shareholders which comprise; Shareholder Holding 20 November 2019) OptiBiotix Health Plc 35.8% Seneca Partners Limited 20.9% University of Manchester 6.2% Prof Cath O’Neill 4.1% Prof Andrew McBain 3.3% Both the University of Manchester and Andrew McBain sold shares in the Company in the period June 2018 – August 2018. The sales of these shares were actioned in conjunction with the Company’s brokers to maintain an orderly market. OptiBiotix Health Plc sold 1.7m shares in August 2019. More generally the Board communicates with shareholders through the Annual Report and the Interim Statement, trading and other announcement made on  RNS and at the Annual General Meeting where the Board encourages to participate. The Company also maintains a website, investors  www.skinbiotherapeutics.com, which contains information on the Company’s business and corporate information. Following the announcement of the Company’s half year and full year results the Chief Executive & CFO, make presentations to institutional shareholders, private client brokers and investment analysts. Existing and prospective shareholders are able to separately contact the Chairman and Chief Executive via email as detailed on the Company’s website. Periodic meetings are held with existing and prospective institutional and other investors and the Company presents at private investment events during the course of the year. The Company’s brokers also produce periodic research notes on the Company. As a small company engaged in the early stages of technology development the Company has a limited but important number of stakeholders. Robust science is at the core of the Company’s strategy and the Company has a number of key stakeholders, including its employees, involved in the different stages from research, through manufacture, formulation and testing. The Company assesses each of the companies it works with to ensure the requisite standards and values are in place. Ultimately the Company’s technology will be used by consumers and ensuring the appropriate development, manufacture and marketing of products will be key to the long-term success of the Company. Throughout the various stages from initial technology identification to eventual product sales the Company is engaged in a continual process of feedback and improvement with its stakeholders, including eventual end users. The Company’s strategy is not to market its own products and therefore the eventual licencees will be important stakeholders in the interface with consumers and the longer-term success of the Company. 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 13 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 13 Principle Application Embed effective risk management, considering both opportunities the organisation throughout threats, and Ultimate responsibility for the process by which risk in the business is managed rests with the Board. The Company’s internal risk identification and management process is as follows: l The Executive Team prepares and reviews on a periodic basis the risk register for the Company. The risk register details specific risks to the Company, the quantification of those risks in terms of probability and impact, mitigating actions required to manage these risks and the control mechanisms that are in place to monitor the risks. l The risk register assigns responsibility for each risk and the mitigation plan to one or more members of the Executive Team. l The risk register is circulated to the Board in advance of each board meeting and specific risk items may be discussed at board meetings or otherwise as appropriate. l The risk register is reported to the Audit Committee at least biannually. Maintain the Board as a well-functioning, balanced team led by the chair The Board’s primary role is to enhance shareholders’ long-term interests by: l determining the Company’s overall strategy and direction l establishing and maintaining controls, audit processes and risk management policies to ensure they counter identified risks and that the Company operates efficiently l ensuring effective corporate governance l approving budgets and reviewing performance relative to those budgets l approving financial statements l approving material agreements and non-recurring projects, and l approving senior and Board appointments Martin Hunt and Dr Cathy Prescott, both non-executive directors, are considered to be independent of the management and are free to exercise independence of judgement. The Non-Executive Directors are required to commit sufficient time as is necessary, approximately two days per month, to fulfil their obligations. Routine commitments include preparation for and attendance at board and committee meetings. In addition, the Non-Executive Directors engage in ad-hoc dialogues with members or the Executive Team, shareholders and other stakeholders as required. All directors are subject to reappointment by shareholders at the first Annual General Meeting following their appointment and thereafter by rotation. The table on page 19 details the attendance record of each director at board and committee meetings during the course of the year. 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 14 14 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Corporate Governance Report (continued) Principle Application Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities Stephen O’Hara and Dr Cath O’Neill both resigned from the Board 4 July 2019. Dr O’Neill continues to serve the Company through her engagement as Chief Scientific Officer. As at 4 July 2019 the Board comprised an independent non-executive chairman, two executive directors and one independent non-executive director. One director is female and three are male. Martin Hunt, Independent Non-Executive Chairman Appointed as a director & Chairman in October 2016; Chair of the Remuneration Committee and member of the Audit and Insider Committees. Martin has had a long executive career in the medtech and life science sectors including sales and general management roles with large corporations in Europe and the US. He was previously CEO of biomaterials company Tissue Science Laboratories plc taking it from start-up through an AIM listing and eventual sale to Covidien. More recently he has held a number of non-executive roles with both private and public companies. Martin is well versed in the early and growth stages of companies in the life science sector as well as bringing experience of corporate governance and shareholder communications. Martin is the Programme Director of the NIHR translational funding programme Invention for Innovation (i4i) and a member of the NIHR strategy board. Martin is currently Non-Executive Chairman of Videregen Limited. Time commitment of at least two days per month. Stuart Ashman, CEO Appointed as a director in April 2019 and CEO in July 2019. Stuart is an experienced commercial chief executive with considerable experience in the medtech and life science sectors. Prior to joining the Company, Stuart served as CEO of Onbone Oy (“Onbone”), a Finnish private equity-backed medical device company. In this role, he successfully established a global sales force and distribution network and led the growth of a multi-million pound business. Prior to Onbone, Stuart was President/CEO of Andover Healthcare Inc., a US-based wound management manufacturer, and before then, was President/CEO of TI Group, a UK-based medical/engineering company. Stuart also served as Senior VP, Global Sales & Strategic Marketing, BSN Medical (Biersdorf, Smith and Nephew) and was Director of Sales & Marketing at Smith & Nephew Plc, in its Woundcare, Casting & Bandaging division. In these roles, Stuart gained extensive experience of both direct sales management across multiple geographies, and of business to business selling. He has also been involved in M&A transactions and has achieved considerable commercial success in both small and large companies. Stuart is a full-time employee of the Company. 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 15 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 15 Principle Application Doug Quinn, CFO Appointed as a director and CFO in December 2016 and Company Secretary in January 2017; Member of the Audit Committee and Chair of the Insider Committee. Doug has been involved in early stage companies through a combination of investor, executive and non-executive director and CFO roles for over 18 years. He was CFO of Arthro Kinetics Limited, an early stage tissue engineering company and part of the team that floated the Company on AIM in 2006. A chartered management accountant, with a number of years of experience in the life science sector, he brings financial expertise gained through executive roles and corporate finance transactions. Doug is a director and part-time CFO with the life science company Videregen Limited. Time commitment of between 2-3 days per week. Dr Catherine Prescott, Independent Non-Executive Director Appointed as a director in March 2017; Chair of the Audit Committee and member of the Remuneration Committee. Cathy has over two decades of experience in research and management in the biotech, pharmaceutical and venture capital sectors. Cathy is a visiting professor at Kings College London, teaching on the MSc programme ‘Cellular Therapies from bench to market’. Cathy brings a broad range of scientific and strategic sector expertise and experience. Cathy is a non-executive director of Videregen Limited and the International Medical Education Trust. Time commitment of two days per month. The Board has not, at this stage in its development, established a Nominations Committee. The Board as a whole continues to review its structure in order to provide what it considers to be an appropriate balance of executive and non-executive experience and skills. The Board believes that its blend of relevant experience, skills, personal qualities and capabilities is sufficient to enable it to successfully execute its strategy. The Board is additionally cognisant that with the recent changes to the Board and as the Company seeks to commercialise its technology, this may require additions to the Executive Team and wider Board. Directors attend seminars and other trade events to ensure that their knowledge remains current. On the formation of the Board the Directors considered the composition of the Audit Committee. Doug Quinn is an executive director and CFO but a member of the Committee due to his experience in this area. Both independent directors have direct access to the auditors with the exclusion of Doug and vice versa and he is excused from any discussions where there is a potential conflict of interest. From time to time the Board may require third party advice on various matters pertaining to its business, for example in relation to the competitive landscape. Appropriate relationships to source such advice have been established. 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 16 16 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Corporate Governance Report (continued) Principle Application Evaluate board performance based on clear and relevant objectives, seeking continuous improvement Promote a corporate culture that is based on ethical values and behaviours With the changes to the Board during the latter months of the financial year the Board deferred its evaluation process until this current financial year. The performance review will be an internal review managed by the Chairman and is expected to be repeated on an annual basis. It is anticipated that the process will involve each director completing a questionnaire as to the effectiveness of the Board and a self-assessment of their own contributions. These will be returned to the Chairman and will form the basis of individual discussions with each of the directors and a subsequent discussion with the Board as a whole. The Board’s approach to succession planning is based upon identifying the medium to long term objectives of the Company and matching these against the competence of directors and senior managers. The Board will seek to identify potential gaps and recruit to fill these allowing a sufficient lead time. The Board believes that the promotion of a corporate culture based on sound ethical values and behaviours is essential to maximise shareholder value. The Board considers this particularly relevant to the Company in light of the partners with which it works, for example the University of Manchester, and recognising the intended end use of its technology in products to be marketed to and purchased by consumers. The Company operates virtually and aside from its board has only two full-time employees. The Executive team engenders open and positive interactions with a key focus on; scientific rigour, innovation, creative solutions and collective responsibility. As the Company expands its human capability it will look to formalise its culture through an agreed set of values and standards. The Company’s policies set out its zero-tolerance approach towards any form of modern slavery, discrimination or unethical behaviour relating to bribery, corruption or business conduct. Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board Alongside setting the vision and strategy for the Company the Board is responsible to ensure that the business is managed for the long-term benefit of all shareholders whilst having regard for internal and external stakeholders, including employees, customers and suppliers. The Board defines a series of matters reserved for its decision and has approved terms of reference for its Audit, Remuneration and Insiders Committees to which certain responsibilities are delegated. The chair of each committee reports to the Board on the activities of that committee. 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 17 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 17 Principle Application The Audit Committee is responsible for: l reviewing the annual financial statements and interim reports prior to approval l reviewing and considering reports on internal financial controls, including reports from the auditors l considering the appointment of and reviewing the relationship with the auditors, including reviewing and monitoring of independence and objectivity l reviewing the consistency of accounting policies l considering any proposed related party transaction The Audit Committee can call for information from the Executive Team and consults with the external auditors directly when appropriate or when they are required to do so. The Remuneration Committee reviews and determines on behalf of the Board the pay, benefits and other terms of service of the Executive Directors of the Company. In addition, the Committee oversees the creation and implementation of all employee share plans. The Insider Committee is responsible for: l monitoring and ensuring compliance with the Company’s MAR dealing policy l reviewing the classification of employees, directors and key consultants as regards clearance requirements l reviewing and approving or rejecting as appropriate all requests for dealings in shares in the Company Matters reserved for the Board are; l determining the Company’s overall strategy and direction l establishing and maintaining controls, audit processes and risk management policies to ensure they counter identified risks and that the Company operates efficiently l ensuring effective corporate governance l approving budgets and reviewing performance relative to those budgets l approving financial statements l approving material agreements and non-recurring projects, and l approving senior and Board appointments The Chairman has overall responsibility for corporate governance and in promoting high standards throughout the Company. As well as leading and chairing the Board, the Chairman’s responsibilities are to ensure; l committees are properly structured and operate with appropriate terms of reference l the performance of individual directors, the Board and its committees are reviewed on a regular basis 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 18 18 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Corporate Governance Report (continued) Principle Application l the Company has a coherent strategy and sets objectives against this l there is effective communication between the Company and its shareholders The CEO provides coherent leadership and management of the Company, leads the development of objectives, strategies and performance standards as agreed by the Board, ensures that the assets of the Company are maintained and safeguarded, leads on investor relations activities to ensure communications and the Company’s standing with shareholders and financial institutions is maintained. The Non-Executive Directors contribute independent thinking and judgement through the application of their external experience and knowledge, scrutinise the performance of management, provide constructive challenge to the executive directors and ensure that the Company is operating within the governance and risk framework approved by the Board. The Company Secretary is responsible for providing clear and timely information flow to the Board and its committees and supports the Board on matters of corporate governance and risk. This role is currently filled by the Company’s CFO. The Board acknowledges the QCA guidelines on this matter and consider the joint roles appropriate for the Company’s size. The Company Secretary has direct access to the Chairman on matters of corporate governance. In addition to the investor relations activities described above the following committee reports are provided; The Audit Committee, which comprises Dr Cathy Prescott (Chair), Martin Hunt and Doug Quinn, met three times during the course of the year. The Committee met with the external auditors prior to the approval of the annual accounts. Consideration was given to the auditors’ pre and post audit reports and these provided opportunities to review the accounting policies, internal controls and the financial information contained within both the annual and interim reports. The Committee engaged the external auditors for a review of the interim statement prior to its release. The Remuneration Committee comprised Martin Hunt (Chair) and up to 4 July 2019, Stephen O’Hara and met three times during the course of the year. Dr Cathy Prescott will replace Mr O’Hara on the Committee. Remuneration packages for the Executive Directors comprise a basic salary and performance related bonus. There is a compulsory government pension contribution scheme in place for all directors and employees. In addition, Executive Directors and senior employees participate in a share option long term incentive plan. Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 19 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 19 Principle Application The structure of the remuneration packages was established ahead of the Company’s IPO in April 2017 and agreed as remaining appropriate. In setting remuneration, including for the incoming CEO, the Committee took into consideration the compensation packages of comparable AIM listed companies. Share options were granted to Stuart Ashman following his appointment as CEO. The Insiders Committee, comprised of Doug Quinn (Chair) and Martin Hunt, met seven times during the course of the year to review the Company’s insider lists and review and approve requests for dealing in shares in the Company. For information regarding the voting of shareholders at general meetings of the Company please see the Shareholder Information section of the website. Director meeting attendance PLC board meetings Committee meetings Audit Remuneration Insider Eligible to Attended Eligible to Attended Eligible to Attended Eligible to Attended Director attend attend attend attend Martin Hunt 14 14 3 3 3 3 7 7 Stephen O’Hara (resigned 4 July 2019) 14 12 – – 3 3 – – Dr Catherine O’Neill (resigned 4 July 2019) 14 14 – – – – – – Dr Cathy Prescott 14 12 3 3 – – – – Doug Quinn 14 14 3 3 – – 7 7 Stuart Ashman (appointed 18 April 2019) 2 2 – – – – – – 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 20 20 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Independent Auditors’ Report to the Members of SkinBioTherapeutics Plc Opinion We have audited the financial statements of SkinBioTherapeutics Plc for the year ended 30 June 2019 which comprise the statement of comprehensive income, the statement of financial position, the statement of cash flows, the statement of changes in equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. In our opinion: l the financial statements give a true and fair view of the state of the Company’s affairs as at 30 June 2019 and of the Company’s loss for the year then ended; l the financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; l the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to SME listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: l the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or l the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Key audit matter Intangible assets The Company had capitalised intellectual property costs amounting to £287,672 at 01 July 2018. During the year the Company capitalised a further £59,198 (2018: £72,260) relating to intellectual property. These capitalised costs are not yet being amortised as the product is in the development stage. The Directors have assessed whether the costs meet the criteria for capitalisation and whether there are any indicators of impairment. We focused on whether the costs capitalised met the criteria for capitalisation. How our audit addressed the key audit matter We considered whether the nature of the costs met the criteria for the costs to be capitalised. We vouched a sample of the costs capitalised to invoices to confirm that they relate to intellectual property. We considered whether the Directors’ policy for the treatment of such costs was reasonable and assessed whether the costs included in the reconciliation were in line with the Directors’ policy. 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 21 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 21 Our application of materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgment, we determined materiality for the financial statements as a whole as follows: Overall materiality How we determined it Rationale for benchmark applied Financial statements £57,000 (2018: £70,000). Based on an average of 5% of loss before tax and 1.5% of gross assets. We believe that loss before tax and gross assets are the primary measure used by the shareholders in assessing the performance of the Company, whilst gross assets values are a representation of the size of the Company. They are generally accepted auditing benchmarks. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £2,850 (2018: £3,500) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. 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 accounting processes and controls, and the industry in which they operate. Other information The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: l 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 l the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. 256244 SkinBio Therapeutics plc R&A pp01-pp022.qxp 25/11/2019 17:49 Page 22 22 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Independent Auditors’ Report to the Members of SkinBioTherapeutics Plc (continued) Matters on which we are required to report by exception In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in 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: l adequate accounting records have not been kept by the Company; or l the financial statements are not in agreement with the accounting records and returns; or l certain disclosures of Directors’ remuneration specified by law are not made; or l we have not received all the information and explanations we require for our audit. Responsibilities of Directors As explained more fully in the Directors’ responsibilities statement set out on page 9, 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 Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. 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 is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Sanjay Parmar (Senior Statutory Auditor) For and on behalf of Jeffreys Henry LLP, Statutory Auditor Finsgate 5-7 Cranwood Street London EC1V 9EE 25 November 2019 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 23 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 23 Statement of Comprehensive Income For the Year Ended 30 June 2019 Continuing operations Research and development Operating expenses Loss from operations Finance costs Loss before taxation Taxation Loss for the year Other comprehensive income Total comprehensive loss for the year Basic and diluted loss per share (pence) The notes on pages 27 to 39 form part of these financial statements. Notes 2019 £ 2018 £ 3 5 (708,081) (652,400) (1,360,481) – (1,360,481) 212,388 (1,148,093) – (1,148,093) (415,902) (525,549) (941,451) – (941,451) 97,033 (844,418) – (844,418) 14 (0.94) (0.71) 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 24 24 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Statement of Financial Position As at 30 June 2019 ASSETS Non-current assets Property, plant and equipment Intangible assets Total non-current assets Current assets Other receivables Corporation tax receivable Cash and cash equivalents Total current assets Total assets EQUITY AND LIABILITIES Equity Capital and reserves Called up share capital Share premium Other reserves Accumulated deficit Total equity Liabilities Current liabilities Trade and other payables Total current liabilities Total liabilities Total equity and liabilities Notes 2019 £ 2018 £ 6 7 8 5, 8 11 11 13 13 9 6,800 346,870 353,670 242,580 210,351 3,124,864 – 287,672 287,672 93,421 86,272 3,182,898 3,577,795 3,362,591 3,931,465 3,650,263 1,280,835 4,923,890 247,672 (2,642,266) 1,187,085 3,577,640 170,418 (1,494,173) 3,810,131 3,440,970 121,334 121,334 121,334 209,293 209,293 209,293 3,931,465 3,650,263 These financial statements were approved and authorised for issue by the Board of Directors on 25 November 2019 and were signed on its behalf by: Doug Quinn Director Company Registration No. 09632164 The notes on pages 27 to 39 form part of these financial statements. 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 25 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 25 Statement of Cash Flows For the Year Ended 30 June 2019 Cash flows from operating activities Loss before tax for the period Depreciation of property, plant and equipment Share option expenses Changes in working capital (lncrease)/decrease in trade and other receivables lncrease/(decrease) in trade and other payables Cash generated by/(used in) operations Taxation received Net cash used in operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for intangible assets Net cash used in investing activities Cash flows from financing activities Net proceeds from issue of shares Net cash generated by financing activities Net (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period 2019 £ 2018 £ (1,360,481) 3,400 77,254 (1,279,827) (146,159) (90,959) (237,118) 88,309 (941,451) – 71,859 (869,592) 57,768 90,633 148,401 53,446 (1,428,636) (667,745) (10,200) (59,198) (69,398) 1,440,000 1,440,000 (58,034) 3,182,898 – (72,260) (72,260) – – (740,005) 3,922,903 Cash and cash equivalents at the end of the period 3,124,864 3,182,898 The notes on pages 27 to 39 form part of these financial statements. 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 26 26 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Statement of Changes in Equity For the Year Ended 30 June 2019 As at 1 July 2017 Loss for the period Share-based payments As at 30 June 2018 Loss for the period Issue of shares Costs of share issue Share-based payments As at 30 June 2019 Share capital £ Share premium £ Other reserves £ 1,187,085 – – 1,187,085 – 93,750 – – 3,577,640 – – 3,577,640 – 1,406,250 (60,000) – 98,559 – 71,859 170,418 – – – 77,254 Retained earnings £ (649,755) (844,418) – (1,494,173) (1,148,093) – – – Total £ 4,213,529 (844,418) 71,859 3,440,970 (1,148,093) 1,500,000 (60,000) 77,254 1,280,835 4,923,890 247,672 (2,642,266) 3,810,131 Share capital is the amount subscribed for shares at nominal value. Share premium is the amount subscribed for share capital in excess of nominal value. Other reserves arise from the equity element of a convertible loan issued and converted in the period to 30 June 2017, and from share options granted on 5 April 2017 and 18 April 2019. Retained earnings represents accumulated profit or losses to date. The notes on pages 27 to 39 form part of these financial statements. 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 27 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 27 Notes to the Financial Statements For the Year Ended 30 June 2019 General information 1 SkinBioTherapeutics plc is a public limited company incorporated in England under the Companies Act and quoted on the AIM market of the London Stock Exchange (AIM: SBTX). The address of its registered office is given on page 1. The principal activity of the Company is the development of technology to protect, manage and restore skin utilising proteins found in the human microbiota. Significant accounting policies and basis of preparation 2 a) Statement of compliance The Financial statements of SkinBioTherapeutics plc have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union, IFRS Interpretations Committee (IFRIC) and the Companies Act 2006 applicable to companies reporting under IFRS. b) Basis of preparation The financial statements have been prepared under the historical cost convention modified by the revaluation of certain financial instruments. The accounting policies have been applied consistently in all material respects. The financial statements have been presented in Pounds Sterling ('Sterling') as this is the currency of the primary economic environment in which the Company operates. c) Going concern These financial statements have been prepared on a going concern basis. In considering the appropriateness of this assumption, the Board has considered the Company's projections for the twelve months from the date of approval of this financial information, including cash flow forecasts. The Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future and therefore adopt the going concern basis of accounting in preparing these financial statements. d) Estimates and judgements The preparation of financial statements requires the Board to make judgements, estimates and assumptions that may affect the application of accounting policies and reported amounts of assets and liabilities as at each balance sheet date and the reported amounts of revenues and expenses during each reporting period. Any estimates and assumptions are based on experience and any other factors that are believed to be relevant under the circumstances and which the Board considers to be reasonable. Actual outcomes may differ from these estimates. Any revisions to accounting estimates will be recognised in the period in which the estimate is revised if the revision affects only that period. If the revision affects both current and future periods, the change will be recognised over those periods. Certain accounting policies which have a significant bearing on the reported financial condition and results of the Company require subjective or complex judgements. An example of such areas of judgement is the estimation of the lifetime of intangible assets, the capitalisation of development costs and share based payments. 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 28 28 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Notes to the Financial Statements (continued) For the Year Ended 30 June 2019 Significant accounting policies and basis of preparation continued 2 e) Application of new and revised International Financial Reporting Standards (IFRSs) No new standards or interpretations issued by the International Accounting Standards Board ('IASB') or the IFRS Interpretations Committee ('IFRIC') have led to any material changes in the Company's accounting policies or disclosures during each reporting period. New and revised IFRSs in issue but not yet effective The Company has not applied the following new and revised IFRSs that have been issued but are not yet effective: Reference IFRS16 Title Leases Summary Principles for the recognition, measurement, presentation and disclosure of leases Application date of standard (Periods commencing on or after) 1 January 2019 IFRS17 Insurance contracts Principles for the recognition, measurement, presentation and disclosure of insurance contracts 1 January 2021 The adoption of these Standards and Interpretations is not expected to have a material impact on the financial information of the Company in the period of initial application when they come into effect. Foreign currencies f) Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rate ruling at that date. Foreign exchange differences on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at foreign exchange rates ruling at the dates the fair value was determined. g) 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 period during which the Company is expected to benefit. h) 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 Company 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: Plant & machinery 50% 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. 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 29 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 29 Impairment testing of intangible assets Significant accounting policies and basis of preparation continued 2 i) At the end of each reporting period, the Company reviews the carrying amounts of its intangible assets 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 to determine the extent of the impairment loss (if any). Intangible assets with indefinite useful lives are tested for impairment at least annually, and whenever there is an indication that the assets may be impaired. Tax j) Current tax The tax currently payable is based on taxable profit for the period. Taxable profit differs from ‘profit before tax’ as reported in the income statement because of items of income or expense that are taxable or deductible in other periods and items that are never taxable or deductible. The Company’s current tax is calculated using rates that have been enacted during the reporting period. Deferred tax Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only if it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying temporary differences can be deducted. k) Payroll expense and related contributions Wages, salaries, payroll tax, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the period in which the associated services are rendered. Share-based compensation l) The Company issues share based payments to certain directors and others providing similar services. 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. m) Financial instruments Financial assets and financial liabilities are recognised on the statement of financial position when an entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in the income statement. 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 30 30 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Notes to the Financial Statements (continued) For the Year Ended 30 June 2019 Significant accounting policies and basis of preparation continued 2 m) Financial instruments continued Financial assets The Group’s accounting policies for financial assets are set out below. Management determine the classification of its financial assets at initial recognition depending on the purpose for which the financial assets were acquired and, where allowed and appropriate, revaluate this designation at every reporting date. All financial assets are recognised on a trade date when, and only when, the Group becomes a party to the contractual provisions of an instrument. When financial assets are recognised initially, they are measured at fair value plus transaction costs, except for those finance assets classified as at fair value through profit or loss (‘FVPL’), which are initially measured at fair value. Financial assets are classified into the following specified categories: financial assets at FVPL, ‘amortised cost’ or ‘fair value through other comprehensive income’ (‘FVOCI’). The classification depends on the nature and purpose of the financial assets and is determined at the time of recognition. Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually, the Group recognises lifetime expected credit losses (‘ECL’) when there has been a significant increase in credit risk since initial recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month ECL. Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date. On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash flows. Trade receivables Trade receivables are recognised initially at the lower of their original invoiced value and recoverable amount. A provision is made when it is likely that the balance will not be recovered in full. If there is objective evidence that the recoverability of the asset is at risk, appropriate allowances for any estimated irrecoverably amounts are recognised in the income statement. Financial liabilities and equity Financial liabilities and equity are recognised on the Group’s statement of financial position when the Group becomes a party to a contractual provision of an instrument. Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of transaction costs. The Group’s financial liabilities include trade payables and accrued liabilities. 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 31 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 31 Significant accounting policies and basis of preparation continued 2 m) Financial instruments continued Trade payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Terms on accounts payable range from 10 to 90 days. n) Financial risk management Risk management objectives Management identify and evaluate financial risks on an on-going basis. The principal risks to which the Company is exposed are market risk (including interest rate risk, and cash flow risk), credit risk, and liquidity risk. Market risk Market risk is defined as the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. The Company's market risks arise from open positions in (a) interest-bearing assets and liabilities, and (b) foreign currencies; to the extent that these are exposed to general and specific market movements (see details below). Interest rate risk The Company's interest-bearing assets comprise of only cash and cash equivalents. As the Company's interest-bearing assets do not generate significant amounts of interest; changes in market interest rates do not have any significant direct effect on the Company's income. Currency risk The Company is exposed to movement in foreign currency exchange rates arising from normal trading transactions that are denominated in currencies other than the respective functional currencies of the Company. The Company does not have a policy to hedge its exposure to foreign currency exchange risk as currently overseas transactions are only a small percentage of total transactions and fluctuations in foreign currencies are not expected to significantly affect the Company’s total transactions. In future the Company may consider hedging its exposure to foreign currency exchange risk. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. Credit risk arises from cash balances (including bank deposits, cash and cash equivalents) and credit exposures to trade receivables. The Company's maximum exposure to credit risk is represented by the carrying value of cash and cash equivalents and trade receivables. Credit risk is managed by monitoring clients and performing credit checks before accepting any customers. Liquidity risk Liquidity risk is the risk that the Company may encounter difficulty in meeting its obligations associated with financial liabilities that are settled by delivering cash or other financial assets. The Company seeks to manage its liquidity risk by ensuring that sufficient liquidity is available to meet its foreseeable needs. o) Capital management The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders. The Company's overall strategy remained unchanged during the period. The capital structure of the Company consists of cash and cash equivalents, issued capital, the share premium account, the share-based compensation reserve resulting from the grant of equity-settled share options to selected directors and others providing similar services, and retained earnings. The Company is not subject to any externally imposed capital requirements. As part of the Company's management of capital structure, consideration is given to the cost of capital. 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 32 32 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Notes to the Financial Statements (continued) For the Year Ended 30 June 2019 3 Operating loss An analysis of the Company’s operating loss has been arrived at after charging/(crediting): Other income Research and development Directors remuneration (including share-based compensation) Auditors remuneration – audit fees – other services Foreign exchange differences Other operating costs Total operating expenses 2019 £ (42) 708,081 294,412 9,500 1,750 1,745 345,035 1,360,481 2018 £ (84) 415,902 212,541 10,995 1,750 345 300,002 941,451 The Company has one reportable segment, namely the research and development of the SkinBiotix® technology, all within the United Kingdom. Employees and Directors 4 The average monthly number of employees and senior management was: Executive directors Non-executive directors Employees Average total persons employed As at 30 June 2019 the Company had 8 employees (2018 : 6). Staff costs in respect of these employees were: Wages and salaries Social security costs Defined contribution pensions Share-based payments (see note 12) Total remuneration 2019 Number 2018 Number 2 3 2 7 2019 £ 190,613 15,022 2,286 77,254 285,175 2 3 1 6 2018 £ 85,347 1,799 427 71,859 159,432 Some of these staff costs are included within research and development. All the directors above can be considered to be key management and have the responsibility for planning, directing and controlling, directly or indirectly, the activities of the Company. The remuneration of directors and key executives is determined by the remuneration committee having regard to the performance of individuals and market trends. 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 33 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 33 Employees and directors continued 4 The Company operates a defined contribution pension scheme for employees and directors. The assets of the scheme are held separately from those of the Company in independently administered funds. The amounts outstanding at 30 June 2019 are £1,359 (2018: £841). Directors remuneration: Dr Catherine O'Neill Doug Quinn Stuart Ashman Dr Cathy Prescott Martin Hunt Stephen O'Hara Total remuneration The highest paid director received total emoluments of £103,775 during the year. Taxation 5 Income taxes recognised in profit or loss Current tax Current period – UK corporation tax R&D tax credit R&D tax credit - prior year Tax credit for the year 2019 £ 66,415 103,775 60,154 21,000 55,620 21,000 327,964 2019 £ – 210,350 2,038 212,388 The tax charge for each period can be reconciled to the loss per the statement of comprehensive income as follows: Loss on ordinary activities before tax Normal applicable rate of tax Loss on ordinary activities multiplied by normal rate of tax Effects of: Disallowables Capital allowances R&D enhanced deductions R&D tax credit Losses surrendered Unused tax losses carried forward UK tax charge/(credit) (1,360,481) 19.00% (258,491) 14,846 (1,938) (155,793) (212,388) 275,633 125,743 (212,388) 2018 £ 64,763 85,022 – 20,083 54,703 20,084 244,655 2018 £ – 86,272 10,761 97,033 (941,451) 19.00% (178,876) 17,180 – (63,895) (97,033) 113,046 112,545 (97,033) The Company has an unrecognised deferred tax asset of £297,935 at the period end, which has not been recognised in the financial statements due to uncertainty of future profits. The Company has an estimated tax loss of £1,568,077 available to be carried forward against future profits. 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 34 34 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Notes to the Financial Statements (continued) For the Year Ended 30 June 2019 6 Property, plant and equipment Cost At 1 July 2017 Additions At 30 June 2018 Additions At 30 June 2019 Accumulated amortisation At 1 July 2017 Charge for the period At 30 June 2018 Charge for the period At 30 June 2019 Net book value At 1 July 2017 At 30 June 2018 At 30 June 2019 7 Intangible assets Cost At 1 July 2017 Additions At 30 June 2018 Additions At 30 June 2019 Accumulated amortisation At 1 July 2017 Charge for the period At 30 June 2018 Charge for the period At 30 June 2019 Net book value At 1 July 2017 At 30 June 2018 At 30 June 2019 Intellectual property is to be amortised over the expected period that the asset generates income. Plant & Machinery £ – – – 10,200 10,200 – – – 3,400 3,400 – – Total £ – – – 10,200 10,200 – – – 3,400 3,400 – – 6,800 6,800 Intellectual property £ 215,412 72,260 287,672 59,198 Total £ 215,412 72,260 287,672 59,198 346,870 346,870 – – – – – – – – – – 215,412 287,672 215,412 287,672 346,870 346,870 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 35 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 35 8 Trade and other receivables Corporation tax VAT recoverable Other receivables Prepayments 2019 £ 210,351 72,359 3,149 167,072 452,931 2018 £ 86,272 66,086 150 27,185 179,693 The fair values of the Company's trade and other receivables are considered to equate to their carrying amounts. The maximum exposure to credit risk for trade receivables is represented by their carrying amount. There are no financial assets which are past due but not impaired. No financial assets are impaired. 9 Trade and other payables Current Trade creditors Accruals Other taxes Other payables 2019 £ 59,279 45,217 15,479 1,359 121,334 2018 £ 130,534 72,842 1,835 4,082 209,293 Trade and other payables principally consist of amounts outstanding for trade purchases and ongoing costs. They are non-interest bearing and are normally settled on 30-day terms. The directors consider that the carrying value of trade and other payables approximates to their fair value. All trade and other payables are denominated in Sterling. The Company has financial risk management policies in place to ensure that all payables are paid within the credit timeframe and no interest has been charged by any suppliers as a result of late payment of invoices during the period. The fair value of trade and other payables approximates their current book values. 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 36 36 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Notes to the Financial Statements (continued) For the Year Ended 30 June 2019 10 Financial instruments Maturity analysis A summary table with maturity of financial assets and liabilities presented below is used by management to manage liquidity risks. The amounts disclosed in the following tables are the contractual undiscounted cash flows. Undiscounted cash flows in respect of balances due within 12 months generally equal their carrying amounts in the statement of financial position, as the impact of discounting is not material. The maturity analysis of financial instruments at 30 June 2019 is as follows: Assets Cash and cash equivalents Trade and other receivables Liabilities Trade and other payables Borrowings On demand Carrying and less than 3 months amount £ £ 3 to 12 months £ 1 to 2 years £ 2 to 5 years £ 3,124,864 452,931 3,124,864 452,931 3,577,795 3,577,795 121,334 – 121,334 121,334 – 121,334 – – – – – – – – – – – – – – – – – – The maturity analysis of financial instruments at 30 June 2018 is as follows: Assets Cash and cash equivalents Trade and other receivables Liabilities Trade and other payables Borrowings On demand Carrying and less than 3 months amount £ £ 3 to 12 months £ 1 to 2 years £ 2 to 5 years £ 3,182,898 179,693 3,182,898 179,693 3,362,591 3,362,591 209,293 – 209,293 209,293 – 209,293 – – – – – – – – – – – – – – – – – – 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 37 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 37 11 Share capital Issued and fully paid As at 30 June 2017 As at 30 June 2018 Ordinary shares issued at 16p per share Costs related to shares issued As at 30 June 2019 Number Share capital Share premium £ £ 118,708,494 118,708,494 1,187,085 1,187,085 3,577,640 3,577,640 9,375,000 – 93,750 – 1,406,250 (60,000) 128,083,494 1,280,835 4,923,890 On 21st February 2019 the Company issued a further 9,375,000 ordinary shares at 16 pence each by way of a further placing of ordinary shares to raise finance. Share capital is the amount subscribed for shares at nominal value, issued and fully paid. Share premium is the amount subscribed for share capital in excess of nominal value. The issued ordinary shares carry one voting right per share and do not carry any rights to fixed income. 12 Share-based payments Share Options The Company operates share-based payment arrangements to remunerate directors and others providing similar services in the form of a share option scheme. The exercise price of the option is normally equal to the market price of an ordinary share in the Company at the date of grant. 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. The options carry neither rights to dividends nor voting rights. Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: Outstanding at 1 July Granted during the year Forfeited/cancelled during the year Outstanding at 30 June 2019 2018 Weighted average exercise price £ Number of options 0.09 0.18 – 0.11 11,027,565 – – 11,027,565 Weighted average exercise price £ 0.09 – – 0.09 Number of options 11,027,565 3,892,083 – 14,919,648 On 30 June 2018 the exercise date of the 648,680 options in pool 3 was extended to 31 December 2019. The fair value was recalculated based on the original valuation with the new exercise date, and then the additional fair value added due to the extension charged to the statement of comprehensive income over the extended period. On 18 April 2019, 3,892,083 options were granted at an exercise price of £0.18 per share and are exercisable based upon achieving three performance conditions, with a third of the options being granted for each condition. The performance conditions are based on the achievement of an 40p share price for more than a 30-day continuous period, the achievement of an 80p share price for more than a 30-day continuous period, and on the commercial viability of developed products, or the entering into of joint ventures, partnerships, collaborations or agreements for the sale or licensing of products. 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 38 38 | SkinBioTherapeutics plc Annual Report & Accounts 2019 Notes to the Financial Statements (continued) For the Year Ended 30 June 2019 12 Share-based payments continued The fair values of the share options issued in the year were derived using the Black Scholes model. The total charge recognised for the year ended 30 June 2019 for share options is £77,254 (2018: £71,859). The following assumptions were used in the calculations: Deed pool Grant date Exercise price Share price at grant date Risk-free rate Volatility Expected life Fair value Deed pool Grant date Exercise price Share price at grant date Risk-free rate Volatility Expected life Fair value 3b 05/04/17 9p 9p 0.05% 60% 2.75 years 2.30p 3c 05/04/17 9p 9p 0.05% 60% 2.75 years 2.30p 1 05/04/17 9p 9p 0.24% 60% 3.5 years 2.58p 4 18/04/19 18p 18p 0.75% 60% 3.5 years 2.85p 2 05/04/17 9p 9p 0.24% 60% 3.5 years 1.85p 5 18/04/19 18p 18p 0.75% 60% 3.5 years 3.99p 3a 05/04/17 9p 9p 0.05% 60% 2.75 years 2.30p 6 18/04/19 18p 18p 0.75% 60% 3.5 years 3.48p The closing share price per share at 30 June 2019 was 20.00p (2018: 14.50p) Expected volatility is based on a conservative estimate for an AIM listed entity. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. 13 Reserves As at 1 July 2017 Issue of share options Loss for the period As at 30 June 2018 Issue of share options Loss for the period As at 30 June 2019 Other reserves £ 98,559 71,859 – 170,418 77,254 – Retained earnings £ (649,755) – (844,418) (1,494,173) – (1,148,093) Total £ (551,196) 71,859 (844,418) (1,323,755) 77,254 (1,148,093) 247,672 (2,642,266) (2,394,594) Other reserves arise from the equity element of a convertible loan that was both issued and converted in the year ended 30 June 2016, and share-based payments (see note 12). Retained earnings represents accumulated profit or losses to date. 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 39 SkinBioTherapeutics plc Annual Report & Accounts 2019 | 39 14 Loss per share Basic and diluted loss per share Loss after tax (£) Weighted average number of shares Basic and diluted loss per share (pence) 2019 £ 2018 £ (1,148,093) 122,047,535 (0.94) (844,418) 118,708,494 (0.71) As the Company is reporting a loss from continuing operations for the year then, in accordance with IAS 33, the share options are not considered dilutive because the exercise of the share options would have an anti-dilutive effect. The basic and diluted earnings per share as presented on the face of the income statement are therefore identical. 15 Related party transactions During the period ended 30 June 2019, the Company was charged fees of £76,940 by Quinn Corporate Services Ltd, a company in which Doug Quinn, a director of the Company, is also a director. These fees relate to Doug Quinn’s consultancy services to the Company. As at 30 June 2019 £26,764 was outstanding. During the period ended 30 June 2019, the Company was charged fees of £24,820 and travel expenses of £457 by Invictus Management Ltd, a company in which Martin Hunt, a director of the Company, is also a director. These fees relate to Martin Hunt’s consultancy services to the Company. As at 30 June 2019 £2,703 was outstanding. During the period ended 30 June 2019, the Company was charged fees of £16,800 and travel expenses of £626 by Biolatris Ltd, a company in which Dr Cathy Prescott, a director of the Company, is also a director. These fees relate to Dr Cathy Prescott’s consultancy services to the Company. As at 30 June 2019 nil was outstanding. During the period ended 30 June 2019, the Company was charged fees of £16,800 and travel expenses of £107 by Intelligent Biotech Ltd, a company in which Stephen O'Hara, who was a director of the Company at the year end, is also a director. These fees relate to Stephen O'Hara’s consultancy services to the Company. As at 30 June 2019 nil was outstanding. 16 Ultimate controlling party No one shareholder has control of the Company. 17 Events after the reporting date The Company has evaluated all events and transactions that occurred after 30 June 2019 up to the date of signing of the financial statements. No material subsequent events have occurred that would require adjustment to or disclosure in the financial statements. 256244 SkinBio Therapeutics plc R&A pp23-imp.qxp 25/11/2019 17:54 Page 40 Perivan 256244 256244 SkinBio Therapeutics plc R&A Cover and Spine Spread.qxp 25/11/2019 17:46 Page 2 Contents Statutory and Other Information Chairman’s Statement Strategic and Financial Review Directors’ Report Corporate Governance Report Independent Auditor’s Report to the Members of SkinBioTherapeutics plc Statement of Comprehensive Income Statement of Financial Position Statement of Cash Flows Statement of Changes in Equity Notes to the Financial Statements 1 2 3 8 11 20 23 24 25 26 27 256244 SkinBio Therapeutics plc R&A Cover and Spine Spread.qxp 25/11/2019 17:46 Page 1 Annual Report and Financial Statements For the Year Ended 30 June 2019 SkinBioTherapeutics plc Company Registration Number: 09632164 9 1 0 2 e n u J 0 3 d e d n E r a e Y e h t r o F s t n e m e t a t S l SkinBioTherapeutics i i a c n a n F d n a t r o p e R l a u n n A c l p s c i t u e p a r e h T o B n i k S i SkinBioTherapeutics 15 Silk House, Park Green, Macclesfield, SK11 7QJ 

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