i i S k n B o T h e r a p e u t i c s p c A n n u a l l R e p o r t i & F n a n c a i l S t a t e m e n t s 2 0 2 3 ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 The Core, Bath Lane Newcastle Helix Newcastle upon Tyne NE4 5TF SkinBioTherapeutics plc COMPANY REGISTRATION NUMBER: 09632164 SkinBioTherapeutics plc ANNUAL REPORT AND FINANCIAL STATEMENTS 2023 STRATEGIC REPORT 1 2 3 4 About us Our Vision and Strategy Chairman’s Statement Strategic and Financial Review GOVERNANCE 12 Directors’ Report 15 Corporate Governance Report 23 Independent Auditor’s Report to the Members of SkinBioTherapeutics Plc FINANCIAL STATEMENTS 31 Consolidated Statement of Comprehensive Income 32 Consolidated Statement of Financial Position 33 Consolidated Statement of Cash Flows 34 Consolidated Statement of Changes in Equity 35 Company Statement of Financial Position 36 Company Statement of Cash Flows 37 Company Statement of Changes in Equity 38 Notes to the Financial Statements 57 Statutory and Other Information HARNESSING THE POWER OF THE MICROBIOME I S T R A T E G C R E P O R T G O V E R N A N C E I F I N A N C A L S T A T E M E N T S REVENUE £132k +76% 2022: £75K GROSS MARGIN £85k +64% 2022: £45K +60% OPERATING EXPENDITURE £2,073k -2% 2022: £2,122K PROFIT BEFORE TAX £(3,008k) +1% 2022: £(2,992K) 1 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS OUR VISION AND STRATEGY OUR VISION To harness the power of the Microbiome to improve how skin looks, how it feels and more importantly, how it repairs itself from injury. OUR STRATEGY The deployment of Microbiome-driven technology into five clear and specific market sectors covering everything from cosmetics through to pharmaceuticals. 5 SPECIFIC Healthcare Sectors Cosmetics – Enhancing the skins natural barrier to make skin look and feel younger. Using the application of proprietary lysate technology to reduce trans-epidermal water loss (TEWL) and closing tight junctions, we strive to hydrate and tighten the skin. Food Supplements – Exploiting the gut- skin axis to deliver probiotic formulations to the surface of the skin to reduce symptoms associated with irritable skin conditions like psoriasis, acne and eczema. Medical Devices – A further application of our proprietary lysate technology to enhance the skins natural barrier around an open wound to prevent the further spread of infection. Applicable in venous leg ulcers, diabetic foot ulcers and other related hard to heal wounds. Hospital and Domestic Surface Hygiene – The provision of a lysate barrier onto inert surfaces to block the latching of staphylococcus aureus and the introduction of good bacteria into areas where bad bacteria has become prevalent. Pharmaceuticals – The RX/regulated application of our food supplements. 2 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 CHAIRMAN’S STATEMENT Dear Shareholders, 2023 saw another year of progress within the Group, with key highlights being the continued growth of AxisBiotix-Ps™ and, after the year end, the further roll-out of the product into Spain and Italy, with France following suit. Revenues grew 77% in FY23 and came in at £132k (2022: £75k). Monthly subscriber retention rates continued at 80%+; we believe these high levels reflect the strong loyalty to the product from our customers due to the impact AxisBiotix-Ps™ has on their symptoms. In the SkinBiotix pillar, Sederma At a more granular level, this study would lead to the launch requested an extension to the management has been looking of an acne food supplement in 2024, development agreement of the active at combating skin conditions thus providing further validation of our ingredient to their customers in order to carry out further clinical studies of potential additional benefits of the from the inside-out (through food supplements) as well as outside-in (through topicals). We believe that SkinBiotix® technology, which were both in-house formulation and identified during the scale-up process. ongoing research as well as our M&A We firmly believe that this extension to strategy will allow us to achieve this. allow clinical measurement is for all the right reasons and the eventual launch will be more beneficial to both Sederma and SkinBioTherapeutics in the long run. The operating loss of the Group was £2,999k (2022: £2,982k), with the increase Board & Governance The Board continues to recognise the importance of maintaining the highest standards of corporate governance and is fully aware that the Group is in the transition period from R&D to science and technology. The recent announcement of the extension of the Sederma contract is an important milestone, and the clinical study that is being undertaken on SkinBiotix will be crucial to the future success of our Group. The positive comments from Dr Damian Kelly, Vice President Innovation & Technology Development at Croda Europe Ltd, have underlined the importance of this project to Sederma and Croda as in loss attributable to the additions in commercialisation of our technologies. well, which is very encouraging. headcount for FY22 which took full effect in FY23, offset by increasing revenues. Cash at bank at 30 June 2023 was £1.3m (2022: £1.8m) after receiving £2.6m of gross proceeds in January 2023 from the successful placing and open offer, and maintaining a tight control on expenditure. Strategy Since 2019, we have implemented a strategy focused around our five pillars, and we believe this pathway is the optimal for the Group, with activity on-going in SkinBiotix and AxisBiotix, and continued discussions with potential global partners in MediBiotix. Following the appointments of Manprit Randhawa (CFO) and Danielle Bekker (Non-Executive Director) in 2022, there have been no further changes to the Board in 2023. People Following the successful placing and open offer in November 2023, we raised £3.3m of gross proceeds which will allow the Group to continue its R&D into the oral and inflammation programmes which have significant potential. In addition, the funds will The Group continues to maintain an support the continued rollout of efficient level of staff, ensuring that AxisBiotix-Ps into Europe and the acne we are working within our budgets. study that is underway. Headcount during FY23 has remained stable from FY22, albeit the cost of headcount in FY23 was higher due to the full year effect of staff joining during the course of FY22. Outlook On behalf of the Board, I would like to take the opportunity to thank everyone at SkinBioTherapeutics for the considerable progress achieved by the Group over the course of the year, and we look forward to executing Running in parallel to the internal pillar The new financial year has started on our strategy in 2024. strategy, the Board has identified an well with AxisBiotix-Ps continuing to M&A strategy to accelerate revenue, show month-on-month growth in earnings and technology adoption. sales. We are particularly excited As of the date of this report, the Group to see the impact of the European MARTIN HUNT Chairman remains in final stage diligence with launches in 2024. The upcoming acne 30 November 2023 two potential targets, with a pipeline of study presents another skin health further potential targets for 2024. opportunity, and potential success of 3 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS STRATEGIC AND FINANCIAL REVIEW COMPANY BACKGROUND AND STRATEGY SkinBioTherapeutics is a life sciences business focused on harnessing the microbiome, the bacteria that live on and in our bodies, for human health. The Group has two core areas of of science that is focused on was soft launched in October 2021 technology that form five strategic the gut-skin axis and how via an ecommerce platform which pillars addressing opportunities the constitution of the gut has provided considerable real-world in cosmetics, food supplements, microbiome plays a role in various insight. medical devices and longer term, the diseases, such as psoriasis. potential for therapeutics. SkinBioTherapeutics has been • SkinBiotix®, the Group’s proprietary technology, is designed to promote skin health by harnessing the beneficial properties of probiotic bacteria and the active components derived from them. SkinBioTherapeutics’ approach is to use a ‘lysate’ of probiotic bacteria cells as a topical agent. The use of a lysate rather than live bacteria circumvents the exploring the relationship between the gut and the skin and the potential to introduce probiotic bacteria into the gut and effect a direct improvement on human skin. AxisBiotix-Ps™ is the first product developed by the Group that leverages the gut-skin relationship and is designed to alleviate the symptoms associated with psoriasis. The Group is also implementing an M&A strategy to complement its five pillar strategy, with the aim of providing very specific strategic pathways to launch pilot products (e.g AxisBiotix) which will provide both profitable revenue and demonstrate the pick up of products through well established sales channels. Additionally, accretive acquisitions provide a stronger balance sheet which the board believes in turn support negotiations with possible technical considerations SkinBioTherapeutics is primarily a multi-nationals. Each of the acquisition associated with applying live B2B business focused on skin health, targets represent opportunities in bacteria to the skin and the with the aim to license its technology specific sales channels. Furthermore, potential formulation difficulties to industry partners. However, in some of the targets bring either of keeping bacteria alive in a response to market pressures caused formulation specialisation or cream. This form also stabilises by COVID-19, the Group repositioned manufacturing expertise. The the desirable properties of the one of its five pillars, AxisBiotix, into acquisition of these targets would bacteria, making it easier to a consumer-led business for the require additional funding, either handle and store. sale of a probiotic food supplement through debt, equity or convertible • AxisBiotix™ technology is based on the rapidly emerging area symptoms associated with psoriasis, called AxisBiotix-Ps™. The product development to alleviate the loan notes. 4 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 OPERATIONAL REVIEW SkinBiotix® Pillar (skincare/ cosmetics) In November 2019, AxisBiotix™ (Psoriasis) activities. Partnering discussions can Management has continued to grow take time and difficult to predict. the sales of the AxisBiotix-Ps™ food Management will provide further SkinBioTherapeutics signed a supplement designed to alleviate the information as and when they are commercial and manufacturing symptoms associated with irritable able to. agreement with Croda’s Consumer skin conditions like psoriasis in the UK Care division, Sederma, which is a and Europe. AxisBiotix for Acne The original consumer study with specialist in bioactive ingredients for the cosmetic industry. Croda has a global portfolio of personal care customers which comprise many of the major international cosmetics and FMCG brands. During this financial year, Sederma has been focused on developing quality formulations with their customers, which has seen scaling-up manufacture of SkinBiotix™ from 600 litres through 2,000 litres to the 20,000 litre vessel required to meet the global market demand. 4 pilot batches have been manufactured so far which identified significant, unexpected technical benefits which Sederma believes may lead to a justifiable increase in price based on clinical evidence. To this end, the company extended its development agreement The primary focus has been growing AxisBiotix-Ps™ involved participants the UK market, whilst keeping a strong who had a mix of symptoms from control on costs, which has led to a psoriasis, rosacea, and acne. The reduction in marketing expenditure theory behind the use of a probiotic with the completion of the influencer supplement is to calm and therefore programme. The response from reduce the inflammatory pathways customers continues to be extremely associated with irritable skin positive with the retention rates of conditions. The data showed that AxisBioTix-Ps™ in the UK staying at as well as alleviating symptoms of 80% or above, which is encouraging. psoriasis, the product had an impact The retention rate is measured as the on other skin conditions; customer number of subscribers who remain testimonials made reference to its a subscriber at the end of each positive effect on eczema, dandruff monthly period, compared to the and acne. As a result of this, same cohort that were in existence management has chosen acne as at the start of a month period. This is the next market to address with an an important statistic for the product, adapted form of AxisBiotix™. along with the increasing number of positive testimonials from customers describing the impact that this product has had on their lives. with Croda plc to allow a clinical trial This year was marked by the to be carried out to evidence the additional activity. This study is fully funded by Sederma/Croda and is expansion into Europe, initially in Spain in February 2023. Spain was management’s first country target expected to be completed early 2024. since the market for psoriasis is Post year end, in November, Sederma extended its contract with SkinBioTherapeutics for a further 12 months to conduct these studies which are due to run from late 2023 into early 2024. AxisBiotix™ Pillar (gut/skin axis) similar to the UK with incidence rates of psoriasis of between 1%-3% of the population. Post period end, the Italy and France. Work continues with Winclove, our formulation partner, to investigate other delivery vehicles for SkinBiotix, The AxisBiotix pillar has challenged for example capsules, tablets etc management time in the year, as which we hope to announce in 2024. efforts to grow the UK market and These will bring with them economic expanding sales and distribution benefits to the Group. channels into Europe, as well as driving the Acne programme forward. Discussions with potential multinational partners are on-going and are supported by our current During the year, the team has been working on a stabilised bacterial blend from which to choose final formulations for a consumer study in acne. The benefit of undertaking another consumer study is the relatively short time and cost compared to a clinical study and the classification as a food supplement rather than a heavily regulated medical device. announced that two separate blends, formulated by Winclove Probiotics BV, had been finalised to be studied side-by-side. A consumer volunteer study is commencing to determine which has better efficacy. The aim is to supply participants with the blends in powder form, just like AxisBiotix-PS™. The study involves 300 UK-based participants with acne-prone skin, 150 randomly selected participants will receive product 1, the other half of 5 Company opened new markets in In October 2023, SkinBioTherapeutics SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS STRATEGIC AND FINANCIAL REVIEW Continued the group will receive product 2. Online SkinBiotix as an anti-infection agent recruitment of participants will start via is an exciting opportunity, but, again, a pre-qualification questionnaire form. management believes it would require The products will be mailed to participants who are expected to record their experience of using the taking forward only as part of a wider outlicensed programme with a bigger organisation. product in a weekly questionnaire Other Research Programmes The Group has continued with its two research programmes with the University of Manchester; an oral programme and an inflammation study. “Management continues to have conversations with global players in this sector. “ balance the body’s response to over eight weeks, over which they are expected to take the product daily. A follow-up questionnaire will be provided one month after the participants stop taking their allocated product. The study is expected to be completed and results reported by the end of Q1 2024. MediBiotix™ Pillar (MedTech applications e.g. woundcare) Management is looking at using Skinbiotix™ technology in medical device applications, such as woundcare since early data showed that it encourages wound healing. In a similar way to the AxisBiotix-Ps™ supplement, management is exploring how SkinBiotix could be The advanced woundcare sector is significant but extremely complex and heavily regulated, therefore, management believes the optimal strategy is to seek a partner with an extensive product portfolio and significant experience in the space to develop this pillar further. Management continues to have advanced conversations with global players in this sector. CleanBiotix™ Pillar (anti-infection) In early studies of SkinBiotix™, data also suggested that the lysate prevented the most common skin pathogen, Staphylococcus aureus, from sticking to and growing on skin surfaces. Increased use of antibiotics has led to resistance to this infection (MRSA) and incidences are growing more common in hospital settings. Development of 6 In August 2022, the first phase of the inflammation specifically related to oral programme was completed harmful UVR (sunlight) light. Several and results strongly supported first-in-class findings have been the use of probiotic strains or made on the effects of bacterially lysates in the prevention of gum derived components and their ability (periodontal) disease. By mixing to regulate the cytokine mediated bacteria and lysates together with inflammatory response associated oral cells, data suggested that with exposure to UVR. These results the cells were protected from the strongly support the use of bacterial pathogens connected with gum actives in protecting the skin from disease and reduced inflammation. sun exposure and a breakout By changing the type and mix of patent filing has been made by the bacteria to lysate created different company on a lead active. optimise the mix. The research and development programme with the University of Manchester continues to uncover novel mechanism by which bacterially derived actives are protective in oral care applications. Three different actives, and a number of components have been investigated with differentiated activities that offer a route to oral care products with different protective actions on the hard and soft tissues of The company continues to work with the University of Manchester in further validating these and other findings and in advancing the technology toward human trials. The programme has delivered very encouraging results and has been expanded and extended to allow for the actives identified to be validated in propriety human skin models. The programme will run until June 2025. FINANCIAL REVIEW the oral cavity. This current phase of In the year to 30 June 2023, the the programme ends in January 2024 Group reported sales of £132k (2022: and the company will work with the £75k), reflecting gradual uptake in University to publish relevant findings AxisBiotix-Ps™, as marketing efforts in H1 2024, and the remainder of the began to take effect. Cost of sales details of the next phase programme were £46k (2022: £29k), and gross through to commercialisation. This profits were £85k (2022: £45k), lysate is different to that of SkinBiotix. reflecting an increase in gross The inflammation study is still underway. It is looking at how the microbiome can influence and margins to 65% (2022: 61%) due to fewer introductory offers than in the first year of sales. developed to alleviate the symptoms levels and elements of protection, of eczema via the gut-skin axis. therefore, further study is required to SkinBioTherapeutics plc Annual Report & Financial Statements 2023 Overall expenses were £3,085k conditions to NHS hospitals, operational costs of the business (2022: £3,027k). This included research dispensing practices and national and more particularly the cash and development expenditure of pharmacy chains. The proposed requirements to support its scientific £931k (2022: £861k), which covered targets are profitable and the Group development programmes and IPR the oral and inflammation research sees a number of synergies to strategy. Net cash used in operating programmes. Operating expenses improve this. However, there is no activities was £2,645k (2022: £2,673k). were £2,073k (2022: £2,122k) reflecting certainty of timing or execution as a stable level of expenses following the Company would need to agree a significant increase from 2022 as additional funding using debt and/or the business adopted a sales and equity and any acquisition would be marketing strategy for the distribution conditional on satisfactory diligence. of AxisBiotix-Ps™, as well as increasing headcount at Board level. In addition, the Group has a pipeline Non-financial The Group actively monitors the progress of its development programmes. Timelines exist for each programme with key milestones detailed and these are regularly of further acquisitions where active reviewed and updated accordingly. In addition, the Group 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. The operating loss was in line with discussions are taking place. Any prior year at £2,999k (2022: £2,982k). targets which the Group is interested in purchasing will be accretive from a revenue and earnings perspective, and thus reduce the operating cash burn, with the goal of the Group in the next 12-18 months to becoming a cash generating entity. Key performance indicators The Board recognises the importance of KPIs and their appropriateness to the stage of development of the business. The Group 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 Group. Financial The cash position of the Group is monitored on a continual basis with reference to both the ongoing The cash balance as at 30 June 2023 was £1.3m (2022: £1.8m) following a successful fundraise of £2.6m in January 2023. Current trading and outlook: Revenues of AxisBiotix-Ps™ have continued to increase following the year end, with an increase in the monthly run rate hitting £20k+, with revenues on course to double to c£250k for the year ending 30 June 2024. Retention rates for subscribers continue to be at least 80% with retention rates being measured as the number of subscribers who are remaining as a subscriber at the end of each month, compared to the same cohort that were in existence at the start of the previous month. The Group also successfully completed a fundraise in November 2023, raising gross proceeds of £3.3m which will allow it to continue its R&D programmes, continue marketing of AxisBiotix-PS in the UK and Europe, and fund operating expenditure. Acquisition strategy The Group is in advanced discussions to acquire two private companies that either manufacture or sell a variety of branded topical products for common dermatological 7 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS STRATEGIC AND FINANCIAL REVIEW Continued 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 Group, as well as mitigating actions, are set out below. While the list is not exhaustive, it is Stage of operations different jurisdictions. In addition, derived from the Group’s detailed SkinBioTherapeutics is still at an early the need to manufacture clinical risk register. These risks are reviewed stage of development in several grade materials for medical device by the Audit Committee at least pillars, however is generating growing products may result in further biannually, which reports its findings revenues in the AxisBiotix pillar unexpected costs. to the Board. through sales of its food supplement AxisBiotix-PS™. The extent to which it can generate material revenue in the near term will be dependent on the market penetration of AxisBiotix-Ps™ and the successful completion of the technical and commercial development of its SkinBiotix® platform. In addition, the Group is exploring potential licensing opportunities in the MediBiotix pillar. The business will incur losses for the immediate future. Product development timelines 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 Clinical development risk The Group 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 Group. Formulation The Group has developed formulations for its initial indications and will need to repeat this process for other indications. There are risks associated with the means and timeline in developing formulations and establishing their long-term stability. It may require a number of iterations before suitable formulations are able to be produced. The commercialisation of the Group’s intellectual property and the potential applications of its technologies requires ongoing preclinical development, formulation, process development and human consumer/clinical studies that exemplify platform claims. There is a risk that one or more of the business’s technologies does not perform as expected and fails to perform in the applications identified by the Group. 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 The Group’s internal risk identification and management process is as follows: • The Executive Team prepares and reviews on a periodic basis, by function, the risk register for the Group. The risk register details specific risks to the Group, the quantification of those risks in terms of probability and impact, and mitigating actions required to manage these risks. • The risk register assigns responsibility for each risk and mitigation plan to one or more members of the Executive Team. • The risk register is circulated to the Board in advance of each board meeting and specific risk items are discussed at board meetings or otherwise as appropriate. • The risk register is reported to the Audit Committee at least biannually. As at the date of this report, the Board is satisfied that the risk management and internal control systems in place are adequate for this stage of the Group’s development. The Board does not consider it to be necessary to establish a financial internal audit function, but this is kept under review by the Audit Committee. 8 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 Human studies SkinBioTherapeutics has invested effort and resources in the development of its technologies. 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 Group 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. Some of the Group’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. “The need for safe and supportive skin health and well-being products is acknowledged by consumers and healthcare providers around the globe.“ Competitive risk Regulatory environment The Directors believe the skin The Group operates in a regulated microbiome to be an innovative environment that varies dependent area of development and scientific upon the jurisdiction and technology. focus. As such this area is subject to These regulations are subject to significant and rapid technological change at short notice and differ and consumer change. It is an area according to any proposed product of interest to academic institutions, claims, intended use or marketing government agencies and private route. While the Group will take and public companies. Competition every effort to ensure that it and its from existing companies and partners comply with all applicable new entrants has emerged and regulations, there can be no maintaining an IP and technology guarantee of this. Failure to comply advantage over the competition will with applicable regulations could require a sustained development result in the Group being unable to successfully commercialise its technology or any products that incorporates it and/or result in legal action being taken against the Group which could have a material adverse effect. 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 those of the Group. 9 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS STRATEGIC AND FINANCIAL REVIEW Continued S172 STATEMENT The Directors acknowledge their duty under s.172 of the Companies Act 2006 and consider that they have, both individually and together, acted in the way that, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole. In doing so, they have had regard (amongst other matters) to: The desirability of the Company maintaining a reputation for high standards of business conduct Our intention is to behave in a responsible manner, operating with a high standard of business conduct and corporate governance, We see their wish to extend the collaboration for a further 12 months as positive overall; it may delay near-term revenue generation, but the potential enhanced commercial opportunities could be considerable. as detailed in the Corporate Next year should also see the early The likely consequences of any decision in the long term The Group’s strategic objectives and the progress made against these during the year, together with the principal risks, are detailed in the Strategic and Financial Review on pages 4-10. The interests of the Group’s employees SkinBioTherapeutics is a very small company in terms of its number of employees and recognises these employees are key to its business success. Members of the Board maintain frequent contact with employees and the executive team Governance Report. The need to act fairly as between members of the Company The Board is fully committed to open and transparent dialogues with all shareholders. A supportive base of investors interested in a long-term holding in the Company provides the stability to allow us to execute engage with employees with regards our strategy and deliver long term current performance and future plans and ambitions for the Group. The need to foster the Group’s business relationships with suppliers, customers and others A consideration of the relationship with wider stakeholders and their impact on our long-term strategic objectives is disclosed in Principle 3 of the Corporate Governance Report on pages 15-22. The impact of the Company’s operations on the community and the environment value for all shareholders. We strive to engage with our investor base with meetings and updates to institutional and retail investors through a variety of channels. Outlook In 2023, the majority of the Company’s focus has been on growing sales of AxisBiotix-PS™ in the UK and starting to push into new European territories, beginning with Spain. Launching a disruptive product into any market always takes time to establish, and given our limited resources, we are The Group is committed to operating pleased with the loyalty and the very with a high level of corporate social positive testimonials we are receiving. responsibility and environmental The launch into new European sustainability. Principle 8 of the markets is very exciting and marks a Corporate Governance Report new chapter. provides further disclosure on how we promote a corporate culture that is based on ethical values and behaviour. We continue to enjoy a positive relationship with the Croda/Sederma teams and they have provided very supportive commentary on their views of the SkinBiotix™ technology. 10 results from other studies, including the consumer study around an acne product, as well as results from our oral and inflammation programmes with Manchester University. The acne programme is especially exciting. We saw initial positive responses to AxisBiotix-Ps in participants of the psoriasis study who had other skin conditions, and this has resulted in this new development programme which could have a significant impact on a much wider population. We were very pleased to complete and announce our recent fundraise of £3.3m of gross proceeds in November 2023, which allow the Group to continue to progress its R&D programmes, namely the oral and inflammation programmes. Talks with potential strategic partners continue around our other pillars. We are also pushing ahead with our inorganic acquisition programme, looking for opportunities that are synergistic and complement our current programmes. We have strict criteria for these opportunities; we will not overpay and they must be accretive from day one. STUART J. ASHMAN Chief Executive Officer 30 November 2023 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 GOVERNANCE IN THIS SECTION 12 Directors’ Report 15 23 Corporate Governance Report Independent Auditor’s Report to the Members of SkinBioTherapeutics Plc AN ONGOING COMMITMENT TO PROMOTE A CULTURE OF EXCELLENT CORPORATE GOVERNANCE. SkinBioTherapeutics plc Annual Report & Financial Statements 2023 11 11 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 DIRECTORS’ REPORT The Directors present their report and the audited financial statements of the Group for the year ended 30 June 2023. Principal activity The principal activity of the Group is that of research and development focused on harnessing the microbiome for human health. DIRECTORS The directors who served the Company during the year were: Stuart J. Ashman Manprit Randhawa Martin Hunt Dr Cathy Prescott Danielle Bekker 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: Martin Hunt Stuart J. Ashman Manprit Randhawa Dr Cathy Prescott Danielle Bekker ISSUED SHARE CAPITAL SHARE OPTIONS Ordinary shares of £0.01 each Percentage held Ordinary shares of £0.01 each 560,417 276,804 153,165 181,112 43,750 0.29% 0.15% 0.08% 0.10% 0.02% 3,892,082 5,189,444 - - - Options exercise price £0.09 £0.09 & £0.18 - - - Martin Hunt’s shareholding is held through Invictus Management Limited, a company controlled by Mr Hunt. Of the 560,417 shares held by Invictus Management Limited 11,112 are held on behalf of Louise Hunt and 11,111 are held on behalf of Oliver Hunt. SUBSTANTIAL SHAREHOLDINGS As at 30 November 2023, the following interests in 3% or more of the issued share capital appear in the register: Percentage of issued share capital 13.52% 7.65% 7.26% 4.20% 4.15% OptiBiotix Health Plc Seneca Partners Limited Tyndall Investment Management University of Manchester Unicorn Asset Management 12 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 DIRECTORS REMUNERATION The Directors received the following remuneration during the year: EXECUTIVE Stuart J. Ashman Manprit Randhawa NON-EXECUTIVE Martin Hunt Dr Cathy Prescott Danielle Bekker Remuneration Fees Share-based payments* Pension contributions Total remuneration 2023 £363,866 £256,712 £13,230 £6,615 £25,000 £665,423 - - £55,440 £34,396 - £89,836 £11,375 - - - - £7,237 £4,768 £382,478 £261,480 £68,670 £41,011 £25,000 £11,375 £12,005 £778,639 *Share-based Payments – represents non-cash remuneration related to the issue of share options in prior years FINANCIAL INSTRUMENTS The Group’s exposure to financial risk is set out in note 2r) of the financial statements. RESEARCH AND DEVELOPMENT The Strategic and Financial Review on pages 4-10 gives information of the Group’s research and development activities. EVENTS AFTER THE REPORTING DATE Refer to note 23 to the financial statements for further details. GOING CONCERN The financial statements have been prepared on the assumption that the Group is a going concern. When assessing the foreseeable future, the Directors have 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 Group 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. Please refer to note 2d) on page 38 for further details. 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 UK-adopted International Accounting Standards (IFRSs). 13 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS DIRECTORS’ REPORT Continued 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 Group for that period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently. • make judgements and accounting estimates that are reasonable and prudent. • • state whether the Group and Parent Company financial statements have been prepared in accordance with applicable IFRSs subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors confirm that: • • so far as each director is aware, there is no relevant audit information of which the Group’s auditor is unaware; and 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 Group’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 Gravita Audit Limited 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 30 November 2023 and signed on its behalf by STUART J. ASHMAN Chief Executive Officer 14 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 CORPORATE GOVERNANCE REPORT As Chairman of SkinBioTherapeutics I have overall responsibility for corporate governance and in promoting high standards throughout the Group. As well as leading and chairing the Board my responsibilities are to ensure; • Committees are properly structured and operate with appropriate terms of reference • • • The performance of individual directors, the Board and its committees are reviewed on a regular basis The Company has a coherent strategy and sets objectives against this 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 Establish a strategy and business model which promotes long-term value for shareholders Application SkinBioTherapeutics seeks to harness the microbiome for human health and has a particular focus on skin. The Group’s proprietary technologies are targeted at a number of health indications and the Company is progressing applications of both its SkinBiotix® and AxisBiotix™ technologies as a route to initial value creation. The Group’s programme of research and development is intended to build long-term shareholder value through a reliance on proven, rigorous science and the Group utilises its public listing as a means to source capital to support its R&D programme. The Group has an ongoing research agreement with the University of Manchester to identify and develop technologies. The Group has also leased laboratory space at the Biosphere in Newcastle upon Tyne to develop its own in-house scientific capability. In doing so the Group 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 Group will seek to licence technologies to large corporates once proof of principle in humans has been established and intends to generate licence revenue through this route. Where it considers it appropriate, the Group will also look to develop and market products. This is the case with AxisBiotix-Ps where the Directors believe the market opportunities in the UK, US and Europe are best developed by selling to consumers directly. Further information on the Group’s strategy and business is set out in the annual accounts. 15 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CORPORATE GOVERNANCE REPORT Continued Principle Seek to understand and meet shareholder needs and expectations Application 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 OptiBiotix Health Plc Seneca Partners Limited Tyndall Investment Management University of Manchester Unicorn Asset Management Holding 30 November 2023 13.52% 7.65% 7.26% 4.20% 4.15% More generally the Board communicates with shareholders through the Annual Report and the Interim Statement, trading and other announcements made on RNS and at the Annual General Meeting where the Board encourages investors to participate. The Company also maintains a website, www.skinbiotherapeutics.com, which contains information on the Group’s business and corporate information. Following the announcement of the Group’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 investor investment events during the course of the year. The Company’s broker also produces periodic research notes on the Group. Principle Take into account wider stakeholder and social responsibilities and their implications for long- term success Application As a small company engaged in the early stages of technology development the Group has a limited but important number of stakeholders. Robust science is at the core of the Group’s strategy and the Group has a number of key stakeholders, including its employees, involved in the different stages from research, through manufacture, formulation and testing. The Group assesses each of the companies it works with to ensure the requisite standards and values are in place. Ultimately the Group’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 Group. Throughout the various stages from initial technology identification to eventual product sales the Group is engaged in a continual process of feedback and improvement with its stakeholders, including eventual end users. In addition, the eventual licensees of aspects of its technology will be important stakeholders in the interface with consumers and the longer-term success of the Group. 16 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 Principle Embed effective risk management, considering both opportunities and threats, throughout the organisation Application Ultimate responsibility for the process by which risk in the business is managed rests with the Board. The Group’s internal risk identification and management process is as follows: • • • • The Executive Team prepares and reviews on a periodic basis the risk register for the Company. The risk register details specific risks to the Group, 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. The risk register assigns responsibility for each risk and the mitigation plan to one or more members of the Executive Team. 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. The risk register is reported to the Audit Committee at least biannually. Principle Maintain the Board as a well-functioning, balanced team led by the chair Application The Board’s primary role is to enhance shareholders’ long-term interests by: • • • • • • • determining the Group’s overall strategy and direction establishing and maintaining controls, audit processes and risk management policies to ensure they counter identified risks and that the Group operates efficiently ensuring effective corporate governance approving budgets and reviewing performance relative to those budgets approving financial statements approving material agreements and non-recurring projects approving senior and board appointments Martin Hunt, Dr Cathy Prescott and Danielle Bekker, all 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 of 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 at each AGM thereafter. The table on page 22 details the attendance record of each director at board and committee meetings during the course of the year. 17 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CORPORATE GOVERNANCE REPORT Continued Principle Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities Application As at 30 September 2023 the board comprised an independent non-executive chairman, two executive directors and two independent non-executive directors. Two directors are female and three are male. MARTIN HUNT Independent Non-Executive Chairman STUART J. ASHMAN CEO MANPRIT RANDHAWA CFO Appointed as a director & Chairman in October 2016 Appointed as a director in April 2019 and CEO in July 2019 Appointed as company secretary, director and CFO in June 2022 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 currently Non-Executive Chairman of Videregen Limited Non-Executive Chairman of MediMusic Limited. Time commitment of at least two days per month. Member of the Remuneration Committee Member of the audit committee and Chair of the insider committees Manprit has been involved in early-stage companies as CFO for over 10 years. Manprit joined Skinbiotherapeutics plc from PE-backed SaaS business Juniper Education where he was CFO and instrumental in executing a successful buy-and-build strategy as well as refinancing. Prior to this Manprit was CFO of Finnish med-tech growth stage business Onbone Oy, helping to scale and lead significant international growth of the business. Manprit was Group Financial Controller of AIM-listed technology business Kromek Group plc, where he played a key role in its successful IPO in 2013. Manprit is a qualified chartered accountant (ICAEW) and began his career in audit in London with Deloitte before moving to UNW in Newcastle upon Tyne. Manprit is a full-time employee of the Company. 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. 18 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 Principle Application Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities As at 30 September 2023 the board comprised an independent non-executive chairman, two executive directors and two independent non-executive directors. Two directors are female and three are male. DR CATHERINE PRESCOTT Independent Non-Executive Director DANIELLE BEKKER 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. Time commitment of two days per month. Appointed as a director in April 2022 Danielle Bekker is a Senior Executive with international experience in FMCG Innovation and Supply Chain. She held Global Innovation Director roles in two FTSE 10 organisations. She brings strong direct to consumer, supply chain management and governance skills having worked with big corporates and having launched her own business in the drinks industry. She advises medium- sized businesses on their innovation and commercialisation strategy. Danielle is non-executive director of Blossom. LGBT and a trustee of the Sophie Hayes Foundation. 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. Manprit Randhawa is an executive director and CFO but a member of the Committee due to his experience in this area. All independent directors have direct access to the auditors with the exclusion of Manprit 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. The Directors also receive regular briefings from the Company’s NOMAD in respect of continuing compliance with the AIM Rules. 19 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CORPORATE GOVERNANCE REPORT Continued Principle Evaluate board performance based on clear and relevant objectives, seeking continuous improvement Application The Board designed and implemented an internal board evaluation exercise in 2020. The exercise was led by the Chairman and topics covered included the balance of skills, experience and independence, understanding of the business and its strategy together with engagement with shareholders. Each director completed a questionnaire, and this formed the basis for a subsequent discussion by the Board as a whole. Having repeated the process in 2021, the Board considers an internal evaluation appropriate and intends to repeat this process annually, acting on its findings as appropriate. The Board’s approach to succession planning is based upon identifying the medium to long term objectives of the Group 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. Principle Promote a corporate culture that is based on ethical values and behaviours Application 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 Group in light of the partners with which it works, for example the University of Manchester, Croda Plc and Winclove Probiotics B.V., and recognising the intended end use of its technology in products to be marketed to and purchased by consumers. The Executive team engenders open and positive interactions with a key focus on; scientific rigour, innovation, creative solutions and collective responsibility. As the Group expands its human capability it will look to formalise its culture through an agreed set of values and standards. The Group’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. 20 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 Principle Maintain governance structures and processes that are fit for purpose and support good decision- making by the Board Application Alongside setting the vision and strategy for the Group 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. The Audit Committee is responsible for: • • • • • reviewing the annual financial statements and interim reports prior to approval reviewing and considering reports on internal financial controls, including reports from the auditors considering the appointment of and reviewing the relationship with the auditors, including reviewing and monitoring of independence and objectivity reviewing the consistency of accounting policies 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: • • • monitoring and ensuring compliance with the Company’s MAR dealing policy reviewing the classification of employees, directors and key consultants as regards clearance requirements reviewing and approving or rejecting as appropriate all requests for dealings in shares in the Company Matters reserved for the Board are; • • determining the Group’s overall strategy and direction establishing and maintaining controls, audit processes and risk management policies to ensure they counter identified risks and that the Group operates efficiently • • • • • ensuring effective corporate governance approving budgets and reviewing performance relative to those budgets approving financial statements approving material agreements and non-recurring projects approving senior and board appointments The Chairman has overall responsibility for corporate governance and in promoting high standards throughout the Group. As well as leading and chairing the Board, the Chairman’s responsibilities are to ensure; • • • • committees are properly structured and operate with appropriate terms of reference the performance of individual directors, the Board and its committees are reviewed on a regular basis the Company has a coherent strategy and sets objectives against this there is effective communication between the Company and its shareholders The CEO provides coherent leadership and management of the Group, leads the development of objectives, strategies and performance standards as agreed by the Board, ensures that the assets of the Group 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 Group 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 Group’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. 21 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CORPORATE GOVERNANCE REPORT Continued Principle Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders Application 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 Manprit Randhawa, met twice 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, which comprises Martin Hunt (Chair), Dr Cathy Prescott and Stuart J. Ashman met three times during the course of the year. Remuneration packages for the executive directors comprise a basic salary and performance related bonus. There is a defined 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. The Committee (minus Stuart J. Ashman) reviewed the structure of remuneration packages for the executive directors and agreed they remained appropriate. In setting remuneration, the committee took into consideration the compensation packages of comparable AIM listed companies. The committee (including Stuart J. Ashman) reviewed the structure of remuneration packages for the remaining members of staff and agreed they remained appropriate. The Insiders Committee, comprised of Manprit Randhawa (Chair) and Martin Hunt, met once 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. Plc board meetings Committee meetings Audit Remuneration Insider Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended Stuart Ashman Manprit Randhawa Martin Hunt Dr Cathy Prescott Danielle Bekker 11 11 11 11 11 11 11 11 11 11 - 2 2 2 - - 2 2 2 - 3 - 3 3 - 3 - 3 3 - - 1 1 - - - 1 1 - - 22 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SKINBIOTHERAPEUTICS PLC OPINION We have audited the financial statements of SkinBioTherapeutics Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 30 June 2023 which comprise the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of cash flows, the consolidated statement of changes in equity, the company statement of financial position, the company statement of cash flows and the company 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 UK adopted international accounting standards (IFRSs) and as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: • • • • the financial statements give a true and fair view of the state of the Group’s and Parent Company’s affairs as at 30 June 2023 and of the Group’s loss for the year then ended; the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards (IFRSs); the Parent Company financial statements have been properly prepared in accordance with UK adopted IFRSs and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. CONCLUSIONS RELATING TO GOING CONCERN In auditing the financial statements, we have concluded that the director’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the entity’s ability to continue to adopt the going concern basis of accounting included: • • • • a review of management’s budgets and cashflow forecasts for the 12 months from proposed sign off date; a review of the inputs and assumptions utilised in the budgets and cashflow forecasts taking into account our knowledge of the Group and its levels of operating cashflows; stress testing of the forecasted cashflows; a review of the cash balances held by the Group at year end date and at sign-off date. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. 23 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SKINBIOTHERAPEUTICS PLC Continued KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Key audit matter Going concern How our audit addressed the key audit matter Our evaluation and our audit procedures included the following: The Group incurred a loss of £2.8m and had net cash outflows from operating activities of £2.6m for the year ended 30 June 2023. The cash balance of the group is amounting to £1.3m (2022: £1.8m). There is a risk that the Group may not be able to continue as going concern in the next 12 months from signing the accounts. The Directors have assessed that going concern assumption is appropriate for the year ended 30 June 2023. • • • • • • • we have obtained bank statement support for the recent fund raise in November 2023 where a net amount of £3.0m was received; we assessed the Director’s base cash flow forecasts against our understanding of the business, including considering potential risks and uncertainties associated with the current and future trading at the Group’s cash generating unit; assessment of the reliability of forecasts to date by agreeing historical actuals to budgets, and challenging the current forecasts; tested the clerical accuracy of management’s forecast; challenged management’s forecast assumptions, and inputs including reviewing the forecast revenue and corroborated the assumptions over the conversion of new contracts and the levels of costs that are forecast: we reviewed the latest management accounts to gauge the financial position; we performed sensitivity analysis on the cash flow forecasts prepared by the directors; we compared recent expenses in the management accounts to the Directors’ forecast to assess the reasonableness of the expected cash burn; and • considered the appropriateness of the Group and Company’s disclosures in relation to going concern in the financial statements. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Intangible assets We have performed the following audit procedures: The Group had capitalised intellectual property costs amounting to £700,331 (2022: £625,504). During the year, the Group and Company capitalised a further £75,483 (2022: £96,813) relating to intellectual property costs. These capitalised costs are not yet being amortised as the products are in development stage except for AxisBiotix Limited where amortisation has started because of the start of its selling activities. • • • considered whether the nature of the costs met the necessary criteria under IAS 38 for the costs to be allowed for capitalisation; vouched a sample of the costs capitalised to invoices, to confirm that they relate to intellectual property and have been accurately recorded; 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; • confirmed the directors’ assessment that no amortisation is necessary is accurate; and 24 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 Key audit matter How our audit addressed the key audit matter The Directors have assessed whether the • reviewed cash flow forecasts for the foreseeable future to assess the costs meet the criteria for capitalisation potential future economic benefit from ownership of the intangible and whether there are any indicators of assets. impairment. Based on the audit work performed we are satisfied, that although there The risk is that the costs may not qualify are inherent uncertainties associated with the forecast and estimation for capitalisation or technological of useful economic life of intangible assets, the directors have made advancements may render the market reasonable assumptions about the valuation and useful economic life of value of the capitalised costs below its intangible assets, based on past experience and expected future revenues. carrying value. We are also satisfied that all necessary disclosures have been made in the financial statements. We have performed the following audit procedures: • • • reviewed management’s assessment of future operating cashflows and indicators of impairment; compared the carrying value of the investment at the year end to the net assets and expected future profits of the subsidiary; assessed the methodology used by management to estimate the future profitability of its subsidiary and recoverable value of the investment, in conjunction with any intra-group balances, to ensure that the method used is appropriate; • assessed the reasonableness of the key assumptions used in management’s estimates of recoverable value, in line with the economic and industry statistics relevant to the business; • • • challenged cash inflows from revenue generating activities and the key assumptions applied in arriving at these; assessed the reasonability of cash outflows; and considered the appropriateness of the Parent Company’s disclosures in relation to any impairment in the Company only financial statements. Profit after tax, which is considered by management to be a key metric, is directly impacted by the amount of costs capitalised. Investment in subsidiaries and carrying value of intercompany receivables – parent company financial statements only We identified a risk that the investments and inter-company receivables of the parent company (Skinbiotherapeutics Plc) in its subsidiary (AxisBiotix Limited) may be impaired. At the end of each reporting period, the directors are required to assess whether there is any indication that the investment in subsidiary undertakings and amounts receivable from subsidiary undertakings as shown in the parent company may be impaired. Management’s assessment of the recoverable amount of investments/ inter-company receivables in/with subsidiaries requires estimation and judgement around assumptions used, including the cash flows to be generated from continuing operations. Changes to assumptions could lead to material changes in the estimated recoverable amount, impacting the value of investment in the subsidiaries/ amounts receivable from subsidiaries and impairment charges. 25 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SKINBIOTHERAPEUTICS PLC Continued OUR APPLICATION OF MATERIALITY The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgment, we determined materiality for the financial statements as a whole as follows: Group Financial statements Company Financial Statements Overall materiality £52,000 (2022: £62,000). £49,000 (2022: £61,000) How we determined it Based on 2% of gross assets (2022: 2% gross Based on 2% of gross assets capped in assets) reference to group materiality (2022: 1.5% gross assets) Rationale for benchmark We believe that gross assets is the primary We believe that gross assets is the primary applied measure used by the shareholders in measure used by the shareholders in assessing the performance of the Company assessing the performance of the Company as revenue is yet to be generated. as revenue is yet to be generated. We agreed with the Audit Committee that we would report to them misstatements identified during our audit for the Group £2,600 (2022: £3,650) and for the Company above £2,450 (2022: £3,100) 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 structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. The Group financial statements are a consolidation of 2 reporting units, comprising the Group’s operating businesses and holding companies. We performed audits of the complete financial information of SkinbioTherapeutics Plc and AxisBiotix Limited reporting units, which were individually financially significant and accounted for 100% of the Group’s absolute loss before tax (i.e. the sum of the numerical values without regard to whether they were profits or losses for the relevant reporting units) and 100% of the Group’s assets and liabilities. We also performed specified audit procedures over certain account balances and transaction classes that we regarded as material to the Group at the 2 reporting units. We have audited all components within the Group, and no unaudited components remain. 26 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 OTHER INFORMATION The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion, based on the work undertaken in the course of the audit: • • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the Strategic report and the Directors’ Report have been prepared in accordance with applicable legal requirements. 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 Strategic report nor the Directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • • • • adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or certain disclosures of Directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. RESPONSIBILITIES OF DIRECTORS As explained more fully in the Directors’ responsibilities statement set out on page 13 the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. 27 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SKINBIOTHERAPEUTICS PLC Continued 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. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud The objectives of our audit, in respect to fraud are; to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatements due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management. Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows: • • • • • the senior statutory auditor ensured the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations; we identified the laws and regulations applicable to the company through discussions with directors and other management, and from our knowledge and experience of the entity’s activities. we focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the company, including Companies Act 2006, taxation legislation, data protection, employment and health and safety legislation. we assessed the extent of compliance with the laws and regulations identified above through making enquiries of management and reviewing legal expenditure; and identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit. We assessed the susceptibility of the company’s financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by: • • making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud; and considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations. To address the risk of fraud through management bias and override of controls, we: performed analytical procedures to identify any unusual or unexpected relationships; tested journal entries to identify unusual transactions; assessed whether judgements and assumptions made in determining the accounting estimates were indicative of potential bias; and investigated the rationale behind significant or unusual transactions. • • • • 28 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to: • • • agreeing financial statement disclosures to underlying supporting documentation; reading the minutes of meetings of those charged with governance; and enquiring of management as to actual and potential litigation and claims There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any. Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. 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. JAN CHARLESWORTH Senior Statutory Auditor For and on behalf of Gravita Audit Limited, Statutory Auditor Finsgate 5 – 7 Cranwood Street London EC1V 9EE 30 November 2023 29 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS FINANCIAL STATEMENTS IN THIS SECTION Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Financial Position 31 32 33 Consolidated Statement of Cash Flows 34 35 Company Statement of Financial Position 36 Company Statement of Cash Flows 37 Company Statement of Changes in Equity 38 Notes to the Financial Statements 57 Statutory and Other Information 30 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Year Ended 30 June 2023 CONTINUING OPERATIONS Revenue Cost of Sales Gross Profit Selling and distribution costs Research and development Operating expenses Total administrative expenses Loss from operations Finance costs Loss before taxation Taxation Loss for the year Other comprehensive income Total comprehensive loss for the year Basis and diluted loss per share (pence) The notes on pages 38 to 56 form part of these financial statements. Notes 2023 £ 2022 £ 3 4 5 7 8 132,057 (46,867) 85,190 (81,294) (930,636) (2,072,612) 74,761 (29,424) 45,337 (43,804) (861,383) (2,122,238) (3,084,542) (3,027,425) (2,999,352) (2,982,088) (8,886) (10,135) (3,008,238) (2,992,223) 173,089 199,622 (2,835,149) (2,792,601) – – (2,835,149) (2,792,601) (1.72) (1.78) 31 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2023 ASSETS Non-current assets Property, plant and equipment Right-of-use assets Intangible assets Total non-current assets Current assets Inventories Trade and 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 Non-current liabilities Lease liabilities Total non-current liabilities Current liabilities Trade and other payables Lease liabilities Total current liabilities Total liabilities Total equity and liabilities Notes 2023 £ 2022 £ 10 11 12 14 15 15 19 19 17 16 17 78,658 94,502 700,331 873,491 33,497 192,885 182,545 1,311,834 1,720,761 2,594,252 – 126,903 625,504 752,407 122,571 138,150 266,916 1,804,923 2,332,560 3,084,967 1,731,390 10,947,874 438,589 1,567,802 8,758,037 437,316 (11,122,943) (8,287,794) 1,994,910 2,475,361 69,601 69,601 498,696 31,045 529,741 599,342 100,647 100,647 481,742 27,217 508,959 609,606 2,594,252 3,084,967 These financial statements were approved and authorised for issue by the Board of Directors on 30 November 2023 and were signed on its behalf by: Manprit Singh Randhawa Director Company Registration No. 09632164 The notes on pages 38 to 56 form part of these financial statements. 32 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Ended 30 June 2023 Cash flows from operating activities Loss before tax for the period Depreciation of property, plant and equipment Right-of-use assets depreciation and interest Amortisation of IP Share-based payments charge Changes in working capital Decrease/(increase) in inventories (lncrease)/decrease in trade and other receivables Increase in trade and other payables Cash generated by operations Taxation received Net cash used in operating activities Investing activities Purchase of property, plant and equipment Purchase of IP Net cash used in investing activities Cash flows from financing activities Net proceeds from issue of shares Lease payments made Net cash generated by/(used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period The notes on pages 38 to 56 form part of these financial statements. 2023 £ 2022 £ (3,008,238) (2,992,223) 11,136 41,287 656 1,273 – 39,557 250 52,704 (2,953,886) (2,889,712) 89,074 (54,735) 16,954 51,293 257,458 (122,571) 130,796 101,922 110,147 116,534 (2,645,135) (2,673,031) (89,794) (75,483) (165,277) 2,353,425 (36,102) 2,317,323 (493,089) 1,804,923 1,311,834 – (96,813) (96,813) – (35,122) (35,122) (2,804,966) 4,609,889 1,804,923 33 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2023 As at 1 July 2021 Loss for the period Share-based payments As at 30 June 2022 Loss for the period Issue of shares Cost of share issue Share-based payments As at 30 June 2023 Share capital £ Share premium £ Other reserves £ Retained earnings £ Total £ 1,567,802 8,758,037 384,612 (5,495,193) 5,215,258 – – – – – (2,792,601) (2,792,601) 52,704 – 52,704 1,567,802 8,758,037 437,316 (8,287,794) 2,475,361 – – 163,588 2,453,793 (263,956) – – – 1,273 – – – (2,835,149) (2,835,149) – – – 2,617,381 (263,956) 1,273 1,731,390 10,947,874 438,589 (11,122,943) 1,994,910 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. Retained earnings represents accumulated profit or losses to date. The notes on pages 38 to 56 form part of these financial statements. 34 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 COMPANY STATEMENT OF FINANCIAL POSITION As at 30 June 2023 ASSETS Non-current assets Property, plant and equipment Right-of-use assets Intangible assets Investments Other receivables Total non-current assets Current assets Trade and 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 Non-current liabilities Lease liabilities Total non-current liabilities Current liabilities Trade and other payables Lease liabilities Total current liabilities Total liabilities Total equity and liabilities Notes 2023 £ 2022 £ 10 11 12 13 15 15 15 19 19 17 16 17 78,658 94,502 694,402 482,434 1,445,801 2,795,797 149,157 182,545 1,124,961 1,456,663 4,252,460 1,731,390 10,947,874 438,589 (9,441,596) 3,676,257 69,601 69,601 475,557 31,045 506,602 576,203 – 126,903 624,255 423,072 1,142,891 2,317,121 91,427 230,391 1,561,402 1,883,220 4,200,341 1,567,802 8,758,037 437,316 (7,151,781) 3,611,374 100,647 100,647 461,103 27,217 488,320 588,967 4,252,460 4,200,341 No Statement of Comprehensive Income is presented in these financial statements for the Parent Company as provided by Section 408 of the Companies Act 2006. The loss for the financial year dealt with in the financial statements of the Parent Company was £2,289,815 (2022: £1,866,892). These financial statements were approved and authorised for issue by the Board of Directors on 30 November 2023 and were signed on its behalf by: Manprit Singh Randhawa Director Company Registration No. 09632164 The notes on pages 38 to 56 form part of these financial statements. 35 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS COMPANY STATEMENT OF CASH FLOWS For the Year Ended 30 June 2023 Cash flows from operating activities Loss before tax for the period Depreciation of property, plant and equipment Right-of-use assets depreciation and interest Impairment of financial assets Share-based payments charge Changes in working capital (lncrease)/decrease in trade and other receivables Increase in trade and other payables Cash (used)/generated by operations Taxation received Net cash used in operating activities Investing activities Purchase of property, plant and equipment Purchase of IP Investment in subsidiaries Net cash used in investing activities Cash flows from financing activities Net proceeds from issue of shares Lease payments made Net cash generated by/(used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period The notes on pages 38 to 56 form part of these financial statements. 2023 £ 2022 £ (2,471,551) (2,029,989) 11,136 41,287 16,573 1,273 – 39,557 28,407 52,704 (2,401,282) (1,909,321) (57,731) 14,454 (43,277) 229,583 (31,539) 108,423 76,884 116,534 (2,214,976) (1,715,903) (89,794) (70,147) (378,847) (538,788) 2,353,425 (36,102) 2,317,323 (436,441) 1,561,402 1,124,961 – (95,314) (856,949) (952,263) – (35,122) (35,122) (2,703,288) 4,264,690 1,561,402 36 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 COMPANY STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2023 As at 1 July 2021 Loss for the period Share-based payments As at 30 June 2022 Loss for the period Issue of shares Cost of share issue Share-based payments As at 30 June 2023 Share capital £ Share premium £ Other reserves £ Retained earnings £ Total £ 1,567,802 8,758,037 384,612 (5,284,889) 5,425,562 – – – – – (1,866,892) (1,866,892) 52,704 – 52,704 1,567,802 8,758,037 437,316 (7,151,781) 3,611,374 – – 163,588 2,453,793 (263,956) – – – 1,273 – – – (2,289,815) (2,289,815) – – – 2,617,381 (263,956) 1,273 1,731,390 10,947,874 438,589 (9,441,596) 3,676,257 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. Retained earnings represents accumulated profit or losses to date. The notes on pages 38 to 56 form part of these financial statements. 37 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2023 1 GENERAL INFORMATION SkinBioTherapeutics plc (‘the Company’) 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 57. The principal activity of the Group is the identification and development of technology that harnesses the human microbiome to improve health. 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION a) Statement of compliance The consolidated and company financial statements of SkinBioTherapeutics plc have been prepared in accordance with UK-adopted International Accounting Standards (‘IFRS’) and the Companies Act 2006 applicable to companies reporting under IFRS. b) Basis of preparation The consolidated and company 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 consolidated and company financial statements are presented in Sterling (£) as this is the predominant functional currency of the Group and Company, and is the currency of the primary economic environment in which it operates. Foreign transactions are accounted in accordance with the policies set out below. c) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 30 June each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. All intra-group transactions, balances, income and expenses are eliminated on consolidation. d) 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 Group’s projections for the twelve months from the date of approval of this financial information, including cash flow forecasts. The directors are confident that based on the Group’s forecasts and the recently completed capital raise of approximately £3.3 million (before costs) the Group will have enough funds to continue in operation for at least 12 months from the date of signing these financial statements. The Directors believe that the Group 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. e) 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. The following are the critical judgements that the Directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements. Estimation of the lifetime of intangible assets Intangible assets acquired separately from a business are recognised at cost and are subsequently measured at cost less accumulated amortization and accumulated impairment losses. Intangible assets recognised are reviewed against the criteria for capitalisation with useful life determined by reference to the underlying product being developed. Management believes that the assigned values and useful lives, as well as the underlying assumptions, are reasonable, though different assumptions and assigned lives could have a significant impact on the reported amounts. 38 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONTINUED) Useful lives are also examined on an annual basis and adjustments, where applicable are made on a prospective basis. The Group does not have any intangible assets with indefinite lives. Amortisation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful life of that asset as follows: Intellectual property - 20% straight line Capitalisation of development costs During the year £75,483 (2022: £96,813) of development costs were capitalised, bringing the total amount of development costs capitalised, as intangible assets, as at 30 June 2023, to £700,331 (2022: £625,504), net of amortisation. Management has reviewed the balances by project, compared the carrying amount to expected future revenues and is satisfied that no impairment exists and that the costs capitalised will be fully recovered as the products are launched to market. New product projects are monitored regularly and should the technical or market feasibility of a new product be in question, the project would be cancelled and capitalised costs to date will be removed from the balance sheet and charged to the statement of comprehensive income. Inventory valuation Inventory is carried at the lower of cost and net realisable value, using the first in first out method. Appropriate provisions for estimated irrecoverable amounts due to slow-moving or obsolete inventory are recognised in the income statement where there is objective evidence that the assets are impaired. The provision is £35,386 at 30 June 2023 (2022: £265,966). Refund accruals Accruals for sales returns are estimated on the basis of historical returns and are recorded so as to allocate them to the same period in which the original revenue is recorded. These accruals are reviewed regularly and updated to reflect The Board’s latest best estimates. The Board do not believe that the difference between the accrual estimate and actual returns will be material. The accrual for net refunds totalled £82 at 30 June 2023 (2022: £267). The expected returns rate would need to differ to actual returns by 10% to have an impact of +/- £1,014 on reported revenue and on operating profit. The choice of a 10% change for the determination of sensitivity represents an extreme variation in the return rate. Share-based payments The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. The judgments made and the model used are further specified in note 20. Estimation of incremental borrowing rate in accounting for leases under IFRS16 In recognising a lease liability and right-of-use asset under IFRS 16 the Group has used an estimated incremental borrowing rate of 8%. The Group does not have any borrowings, so in order to apply IFRS 16 it was necessary to estimate the incremental borrowing rate that would be faced by the Group. The rate of 8% was determined by looking at a range of loans available on the market. If the interest rate used in the calculation were higher, this would have the effect of reducing the size of both the lease liability and right-of-use asset, reducing the depreciation charge and increasing the interest charge in the consolidated income statement. The overall change to the Company Income Statement and the Company Statement of Financial Position would be immaterial. There would be no change to operating cash flows or lease payments as a result of a change in the estimate of the incremental interest rate. f) Application of new and revised International Financial Reporting Standards (IFRSs) The Group has adopted all of the new or amended Accounting Standards and interpretations issued by the International Accounting Standards Board (‘IASB’) or the IFRS Interpretations Committee (‘IFRIC’) that are mandatory and relevant to The Group’s activities for the current reporting period. No new standards or interpretations issued by the IASB or the IFRIC have led to any material changes in the Group’s accounting policies or disclosures during each reporting period. 39 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2023 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONTINUED) New and revised IFRSs in issue but not yet effective There are a number of new and revised IFRSs that have been issued but are not yet effective that the Group has decided not to adopt early. The most significant of these are as follows: Reference Title Summary IFRS17 Insurance Contracts IAS1 Presentation of Financial Statements Principles for the recognition, measurement, presentation and disclosure of insurance contracts Amendments to address concerns and implementation challenges that were identified after IFRS 17 was published Amendments regarding the classification of liabilities as current or non-current Application date of standard (Periods commencing on or after) 1 January 2023 1 January 2023 1 January 2023 IAS8 Accounting Policies, Changes in Accounting Estimates Amendments regarding the definition of accounting estimates 1 January 2023 IAS12 Income taxes Deferred Tax related to Assets and Liabilities arising from a Single Transaction 1 January 2023 IAS37 Amendments to IAS1 and IFRS Practice Statement 2 Amendments regarding disclosure of material accounting policies 1 January 2023 The adoption of these Standards and Interpretations is not expected to have a material impact on the financial information of the Group in the period of initial application when they come into effect. g) Foreign currencies 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. h) Revenue recognition Revenue consists exclusively of internet sales, in addition to postage receipts, with the Group acting as the Principal in all arrangements. Revenues are recorded net of an appropriate deduction for actual and expected returns, sales discounts and sales taxes. Revenue is recognised on the satisfaction of performance obligations and an assessment of when control is transferred to the customer. This is on dispatch of goods to the customer. i) 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 Group is expected to benefit. 40 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONTINUED) j) Inventories Inventory is carried at the lower of cost and net realisable value. Cost is determined using the first in, first out method and represents the purchase cost, including transport, handling costs and duties. Appropriate provisions for estimated irrecoverable amounts due to slow-moving or obsolete inventory are recognised in the income statement where there is objective evidence that the assets are impaired. k) Property, plant and equipment Property, plant and equipment are stated at historical cost less subsequent accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. Depreciation on property, plant and equipment is calculated using the straight-line method to write off their cost over their estimated useful lives at the following annual rates: - 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. l) Impairment testing of intangible assets At the end of each reporting period, the Group 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. m) Leasing A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’. To apply this definition the Group assesses whether each of the following criteria apply: • • • the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group; the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract; and the Group has the right to direct the use of the identified asset throughout the period of use. The Group assesses whether it has the right to direct ‘how and for what purpose’ the asset is used throughout the period of use. 41 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2023 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONTINUED) Measurement and recognition of leases as a lessee At the commencement date of a lease, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date, net of any incentives received. The Group depreciates right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when indicators of impairment exist. At the commencement date of a lease, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available, or the Group’s incremental borrowing rate. Details of this borrowing rate are given in note 2e. Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under any residual value guarantees and payments arising from options reasonably certain to be exercised. Subsequent to initial measurement, the liability is reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments. If a lease liability is remeasured, a corresponding adjustment is reflected in the value of the right-of-use asset, or, if the carrying value of the right-of-use asset is already reduced to zero, the income statement. The Group has elected to account for short-term leases (with a term of up to 12 months) and leases of low-value assets using the practical expedients available in IFRS 16. Instead of recognising a right-of- use asset and lease liability, the payments in relation to such leases are recognised as an expense in the income statement on a straight-line basis over the lease term. n) Tax 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 Group’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. o) 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. p) Share-based compensation The Group 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. 42 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONTINUED) 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. q) Financial assets and liabilities Financial assets and liabilities are recognised when the Group unconditionally becomes a party to the contractual terms of the instrument. Unless otherwise indicated, the carrying amounts of financial assets and liabilities are considered by the directors to be a reasonable estimate of their fair values at each balance sheet date. Financial assets include trade and other receivable; these are classified as loans and receivables. Financial liabilities include trade and other payables, convertible loan notes and borrowings; these are classified as other financial liabilities carried at amortised cost. Classification as debt or equity Debt and equity instruments issued by the Group are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised as the proceeds received, net of direct issue costs. Derecognition Financial assets are derecognised when rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss. Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss. When the terms of a financial liability are renegotiated and result in the Group issuing equity instruments to a creditor of the Group to extinguish all or part of the financial liability, the Group recognises the issue of equity instruments at their fair values. Any difference between the fair value of the equity instruments and the carrying amount of the financial liability to be extinguished is recognised in the income statement. Trade and other receivables Trade and other receivables are recognised initially at their fair value and subsequently at their amortised cost using the effective interest method, less provision for impairment. 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. Intercompany receivables Amounts owed by subsidiary undertaking represent loans made to the Company’s main subsidiary on an interest-free basis. No repayment terms have been mandated. IFRS 9’s impairment requirements use forward-looking information to recognise expected credit losses – the ‘expected credit loss (ECL) model’. The Group considers a broad range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument. 43 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2023 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONTINUED) In applying this forward-looking approach, a distinction is made between: • • • financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (‘Stage 1’); financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low (‘Stage 2’); and financial assets that have objective evidence of impairment at the reporting date (‘Stage 3’). ‘12-month expected credit losses’ are recognised for ‘Stage 1’ financial instruments, while ‘lifetime expected credit losses’ are recognised for ‘Stage 2’ financial instruments. Measurement of the expected credit losses is determined by a probability weighted estimate of credit losses over the expected life of the financial instrument. The Group considers that the current intercompany loan should be recognised as Stage 1, and 12- month expected credit losses have been calculated. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and demand deposits and other short-term highly liquid investments with maturities of three months or less at inception that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Trade and other payables Trade and other payables are recognised initially at their fair value, net of transaction costs, and subsequently at their amortised cost using the effective interest method. r) Financial risk management Risk management objectives Management identify and evaluate financial risks on an on-going basis. The principal risks to which the Group 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 Group’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 Group’s interest-bearing assets comprise of only cash and cash equivalents. As the Group’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 Group’s income. Currency risk The Group 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 Group. The Group 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 Group’s total transactions. In future the Group 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 Group. Credit risk arises from cash balances (including bank deposits, cash and cash equivalents) and credit exposures to trade receivables. The Group’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 Group may encounter difficulty in meeting its obligations associated with financial liabilities that are settled by delivering cash or other financial assets. The Group seeks to manage its liquidity risk by ensuring that sufficient liquidity is available to meet its foreseeable needs. 44 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONTINUED) s) Capital management The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders. The Group’s overall strategy remained unchanged during the period. The capital structure of the Group 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 Group is not subject to any externally imposed capital requirements. As part of the Group’s management of capital structure, consideration is given to the cost of capital. 3 SEGMENTAL INFORMATION IFRS 8 ‘Operating Segments’ requires operating segments to be determined based on The Group’s internal reporting to the Chief Operating Decision Maker. The Chief Operating Decision Maker has been determined to be The Board of Directors which receives information on the basis of the Group’s operations in key geographical territories, based on the Group’s management and internal reporting structure. Based on this assessment the Group consider there to be 3 operating segments. Despite there being 3 operating segments, it is not currently feasible to allocate assets and liabilities to the operating segments. As these operating segments grow, we expect that allocation of assets and liabilities will be possible. Administrative expenses are not segmented for accounting purposes as the Board do not review these by segment currently. Retail sales Cost of sales Gross profit Retail sales Cost of sales Gross profit Year ended 30 June 2023 UK £ US £ EU £ Total £ 118,921 9,275 3,861 132,057 (42,205) (3,292) (1,370) (46,867) 76,716 5,983 2,491 85,190 Year ended 30 June 2022 UK £ 57,687 (23,264) 34,423 US £ 17,074 (6,160) 10,914 EU £ – – – Total £ 74,761 (29,424) 45,337 Due to the nature of its activities, the Group is not reliant on any individual major customers. 45 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2023 4 EXPENSES - ANALYSIS BY NATURE Other income Selling and distribution costs Depreciation of right-of-use asset Depreciation of plant and equipment Research and development Directors remuneration (including share-based compensation) Staff costs Foreign exchange differences Auditors remuneration – audit fees – other services Inventory write down Other operating costs Total operating expenses 5 FINANCE COSTS Interest payable Interest payable represents amounts arising on leases accounted for under IFRS 16. 6 EMPLOYEES AND DIRECTORS Group and company The average monthly number of employees and senior management was: Executive directors Non-executive directors Employees Average total persons employed As at 30 June 2023 the Company had 11 employees (2022: 7). Group 2023 £ (3,292) 81,294 32,401 11,136 930,636 778,639 214,606 (51) 34,450 3,000 35,386 966,337 3,084,542 2022 £ (1,032) 43,804 29,422 – 861,383 624,564 142,342 1,127 26,250 2,260 265,966 1,031,339 3,027,425 Group 2023 £ 8,886 8,886 2022 £ 10,135 10,135 2023 Number 2022 Number 2 3 7 12 2 2 4 8 46 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 6 EMPLOYEES AND DIRECTORS (CONTINUED) Group and company Staff costs in respect of these employees were: Wages and salaries Social security costs Defined contribution pensions Share-based payments (see note 20) Total remuneration 2023 £ 1,012,909 137,531 19,733 1,273 1,171,446 2022 £ 631,789 68,816 16,883 52,704 770,192 All staff were directly employed by SkinBioTherapeutics Plc. Some of these staff costs are included within research and development and some in share issue costs. 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. 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 2023 are £3,326 (2022: £2,633). Group and company Directors remuneration: Stuart J. Ashman Manprit Randhawa Doug Quinn Martin Hunt Dr Cathy Prescott Danielle Bekker Total remuneration Which is made up of: Remuneration Amounts receivable under long term incentive schemes Company contributions to pension schemes Total remuneration 2023 £ 382,478 261,480 – 68,670 41,011 25,000 2022 £ 368,449 14,951 140,414 63,000 31,500 6,250 778,639 624,564 2023 £ 755,258 11,375 12,006 778,639 2022 £ 572,151 42,603 9,810 624,564 The number of directors to whom retirement benefits are accruing in respect of qualifying services under defined contribution pension schemes is 2 (2022: 2). The highest paid director received total emoluments of £382,478 (2022: £368,449) during the year. 47 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2023 7 TAXATION 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 Group 2023 £ – 182,547 (8,458) 173,089 2022 £ – 173,729 25,893 199,622 The tax charge for each period can be reconciled to the loss per the statement of comprehensive income as follows: Taxable losses Normal applicable rate of tax Loss on ordinary activities multiplied by normal rate of tax Effects of: Depreciation Disallowables Capital allowances R&D enhanced deductions R&D tax credit Losses surrendered Unused tax losses carried forward UK tax charge/(credit) Group 2023 £ 2022 £ (3,008,238) (2,992,223) 19.00% (571,565) 2,116 3,752 (17,061) (137,215) (173,089) 248,189 471,784 (173,089) 19.00% (568,522) – 12,525 – (128,668) (199,622) 227,644 457,021 (199,622) The Group has an unrecognised deferred tax asset of £1,637,470 (2022: £1,132,844) at the period end, which has not been recognised in the financial statements due to uncertainty of future profits. The Group has an estimated tax loss of £8,618,261 (2022: £5,962,339) available to be carried forward against future profits. 8 LOSS PER SHARE Basic and diluted loss per share Total comprehensive loss for the year Weighted average number of shares Basic and diluted loss per share (pence) Group 2023 £ 2022 £ (2,835,149) (2,792,601) 164,713,045 156,780,236 (1.72) (1.78) As the Group and Company are 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. 48 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 9 COMPANY’S RESULT FOR THE PERIOD The Group has elected to take the exemption under section 408 of the Companies Act 2006 not to present the Parent Company income statement account. The loss for the Parent Company for the period was £2,289,815 (2022: £1,866,892). 10 PROPERTY, PLANT AND EQUIPMENT Group and company Plant & Machinery £ Cost At 1 July 2021 Additions At 30 June 2022 Additions At 30 June 2023 Accumulated depreciation At 1 July 2021 Charge for the year At 30 June 2022 Charge for the year At 30 June 2023 Net book value At 1 July 2021 At 30 June 2022 At 30 June 2023 11 RIGHT-OF-USE ASSETS Group and company Cost At 1 July 2021 Additions At 30 June 2022 At 30 June 2023 Accumulated amortisation At 1 July 2021 Charge for the year At 30 June 2022 Charge for the year At 30 June 2023 Net book value At 1 July 2021 At 30 June 2022 At 30 June 2023 10,200 – 10,200 89,794 99,994 10,200 – 10,200 11,136 21,336 – – 78,658 Total £ 145,757 12,997 158,754 158,754 2,429 29,422 31,851 32,401 64,252 143,328 126,903 94,502 49 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2023 12 INTANGIBLE ASSETS Cost At 1 July 2021 Additions At 30 June 2022 Additions At 30 June 2023 Accumulated amortisation At 1 July 2021 Charge for the year At 30 June 2022 Charge for the year At 30 June 2023 Net book value At 1 July 2021 At 30 June 2022 At 30 June 2023 Patents & trademarks Group £ Patents & trademarks Company £ 528,941 96,813 625,754 75,483 701,237 – 250 250 656 906 528,941 625,504 700,331 528,941 95,314 624,255 70,147 694,402 – – – – – 528,941 624,255 694,402 Intellectual property is to be amortised over the expected period that the asset generates income. A small part of the IP belonging to the active subsidiary, AxisBiotix Limited, commenced amortisation in the year ending 30 June 2022. Other IP amortisation is expected to commence in the year ending 30 June 2024. 13 INVESTMENTS Company: Investments in subsidiary undertakings Cost At 1 July 2021 Additions At 30 June 2022 Additions At 30 June 2023 £ 113,733 309,339 423,072 59,362 482,434 As at 30 June 2023, the Company directly owned the following subsidiaries: Name of company SkinBiotix Limited AxisBiotix Limited MediBiotix Limited CleanBiotix Limited PharmaBiotix Limited Country of incorporation Proportion of equity interest United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom 100% of ordinary shares 100% of ordinary shares 100% of ordinary shares 100% of ordinary shares 100% of ordinary shares 50 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 14 INVENTORIES Inventories Group 2023 £ 33,497 33,497 2022 £ 122,571 122,571 The cost of inventories recognised as an expense during the year was £82,252 (2022: £295,390). The cost of inventories recognised as an expense includes £35,386 (2022: £265,966) in respect of write-downs of inventory to net realisable value. 15 TRADE AND OTHER RECEIVABLES Current Trade debtors Corporation tax Sales taxes recoverable Other receivables Prepayments Non-current Amounts due from group undertakings Group 2023 £ 816 182,545 108,720 12,693 70,656 375,430 – – 2022 £ 1,800 266,916 48,669 11,101 76,580 405,066 – – Company 2023 £ – 182,545 96,240 12,891 40,026 331,702 1,445,801 1,445,801 2022 £ – 230,391 13,560 11,101 66,766 321,818 1,142,891 1,142,891 The fair values of the Company’s current 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 current financial assets are impaired. The amounts owed by subsidiary undertakings include a loan to AxisBiotix Limited for £1,788,549 (2022:£1,531,177) which was discounted to £1,524,909 and then impaired by £16,573, in addition to earlier years impairment of £62,531 to give a current value of £1,445,801 (2022: £1,142,891) under IFRS 9, as set out in note 2. Although the loan has no repayment terms, it is anticipated to be repaid in 3 years from the date of these financial statements. 51 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2023 16 TRADE AND OTHER PAYABLES Current Trade creditors Accruals Sales taxes payable Other taxes Other payables Group 2023 £ 194,274 236,837 505 62,815 4,265 498,696 2022 £ 72,610 366,784 85 31,812 10,451 Company 2023 £ 176,176 233,839 – 61,636 3,906 481,742 475,557 2022 £ 66,277 353,534 – 31,059 10,233 461,103 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. 17 LEASE LIABILITIES Group and company Maturity analysis Year 1 Year 2 Year 3 Year 4 Year 5 Less future interest charges Analysed as Current Non-current 52 2023 £ 37,770 39,029 35,777 – – 112,576 (11,930) 100,646 31,045 69,601 100,646 2022 £ 36,102 37,770 39,029 35,778 – 148,679 (20,815) 127,864 27,217 100,647 127,864 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 18 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 2023 is as follows: Group Assets Cash and cash equivalents Trade and other receivables Liabilities Trade and other payables Lease liabilities Company Assets Cash and cash equivalents Trade and other receivables Liabilities Trade and other payables Lease liabilities On demand and less than 3 months Carrying amount 1,311,834 1,311,834 13,509 13,509 1,325,343 1,325,343 435,881 435,881 112,576 8,498 548,457 444,379 On demand and less than 3 months Carrying amount 1,124,961 1,124,961 12,892 12,892 1,137,853 1,137,853 413,923 413,923 112,576 8,498 526,499 422,421 3 to 12 months 1 to 2 years 2 to 5 years – – – – – – – – – – – – 29,272 29,272 39,029 35,777 39,029 35,777 3 to 12 months 1 to 2 years 2 to 5 years – – – – – – – – – – – – 29,272 29,272 39,029 35,777 39,029 35,777 53 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2023 18 FINANCIAL INSTRUMENTS (CONTINUED) The maturity analysis of financial instruments at 30 June 2022 is as follows: Group Assets Cash and cash equivalents Trade and other receivables Liabilities Trade and other payables Lease liabilities Company Assets Cash and cash equivalents Trade and other receivables Liabilities Trade and other payables Lease liabilities 19 SHARE CAPITAL Company - Issued and fully paid As at 1 July 2021 As at 30 June 2022 Ordinary share issued at 1p per share Costs related to shares issued As at 30 June 2023 On demand and less than 3 months Carrying amount 1,804,923 1,804,923 12,901 12,901 1,817,824 1,817,824 449,930 449,930 133,501 5,854 583,431 455,784 On demand and less than 3 months Carrying amount 1,561,402 1,561,402 1,542,278 11,101 3,103,680 1,572,503 430,044 430,044 133,501 5,584 563,545 435,898 3 to 12 months 1 to 2 years 2 to 5 years – – – – – – – – – – – – 26,341 26,341 33,989 33,989 67,317 67,317 3 to 12 months 1 to 2 years 2 to 5 years – – – – – – – – 26,341 26,341 33,989 33,989 – 1,531,177 1,531,177 – 67,317 67,317 Number of Shares Share capital Share premium 156,780,236 1,567,802 8,758,037 156,780,236 1,567,802 8,758,037 16,358,618 163,588 2,453,793 – – (263,956) 173,138,854 1,731,390 10,947,874 On 5 January 2023 16,358,618 ordinary shares were issued by way of a placing at a price of 16p per share to raise funding for the Group. 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. 54 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 20 SHARE-BASED PAYMENTS Share Options The Group 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 Group at the date of grant. Each share option converts into one ordinary share of the Group 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: Group and company Outstanding at 1 July Granted during the year Forfeited/cancelled during the year Outstanding at 30 June 2023 2022 Number of options 17,379,343 – (650,000) 16,729,343 Weighted average exercise price £ 0.12 – 0.38 0.11 Number of options 16,729,343 650,000 – 17,379,343 Weighted average exercise price £ 0.11 0.38 – 0.12 On 9 May 2023, 650,000 options were forfeited, which were previously granted at an exercise price of £0.376 per share. The total credit recognised for the year ended 30 June 2023 for these share options is -£10,102, whereas in 2022 this was a charge of £10,102. The fair values of the share options issued in the year were derived using the Black Scholes model. The charge recognised for the year ended 30 June 2023 for share options is £11,375 (2022: £52,704) amounting to a total net charge of £1,273 being recognised in the profit and loss account. 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 1 2 3a 3b 3c 05/04/17 05/04/17 05/04/17 05/04/17 05/04/17 9p 9p 0.24% 60% 9p 9p 0.24% 60% 9p 9p 0.16% 60% 9p 9p 0.16% 60% 9p 9p 0.16% 60% 3.5 years 3.5 years 2.75 years 2.75 years 2.75 years 2.58p 4 1.85p 5 2.30p 6 2.30p 7 2.30p 8 18/04/19 18/04/19 18/04/19 03/03/20 08/04/20 18p 18p 0.75% 60% 18p 18p 0.75% 60% 18p 18p 0.75% 60% 9.5p 9.5p 0.29% 80% 9p 7p 0.12% 80% 3.5 years 3.5 years 3.5 years 0 years 2 years 2.85p 3.99p 3.48p 9.50p 0.87p The closing share price per share at 30 June 2023 was 12.5p (30 June 2022: 20.25p). 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. 55 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2023 21 RELATED PARTY TRANSACTIONS Group and company Key management personnel compensation Short-term employee benefits including social security costs Post-employment benefits Share-based payments 2023 £ 934,467 13,218 11,375 959,060 2022 £ 694,844 11,239 42,603 748,686 Compensation figures above include directors and key management personnel. Detailed remuneration disclosures for directors are provided in the employees and directors note on page 46, and in the Directors Report. Transactions with other related parties During the period ended 30 June 2023, the Company was charged fees of £55,440 (2022: £50,400) 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 2023 £5,292 (2022: £5,040) was outstanding. During the period ended 30 June 2023, the Company was charged fees of £28,096 (2022: £25,200) 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 2023 £nil (2022: £nil) was outstanding. 22 ULTIMATE CONTROLLING PARTY No one shareholder has control of the Company. 23 EVENTS AFTER THE REPORTING DATE The Company has evaluated all events and transactions that occurred after 30 June 2023 up to the date of signing of the financial statements. On 22 November 2023 the Company completed a fundraise through a placing and open offer, raising £3.3m of gross proceeds. No other material subsequent events have occurred that would require adjustment to or disclosure in the financial statements. 56 SkinBioTherapeutics plc Annual Report & Financial Statements 2023 STATUTORY AND OTHER INFORMATION DIRECTORS Martin Hunt Non-Executive Chairman Stuart J. Ashman Chief Executive Officer Manprit Randhawa Chief Financial Officer Dr Cathy Prescott Non-Executive Director Danielle Bekker Non-Executive Director SECRETARY Manprit Randhawa REGISTERED OFFICE The Core Newcastle Helix Newcastle upon Tyne NE4 5TF AUDITOR Gravita Audit Limited Finsgate 5-7 Cranwood Street London EC1V 9EE REGISTRARS Share Registrars Limited 3 The Millennium Centre Crosby Way Farnham GU9 7XX NOMINATED ADVISER AND BROKER Cavendish Capital Markets Limited One Bartholomew Close London EC1A 7BL BANKERS Barclays Bank PLC Churchill Place London E14 5HP PUBLIC RELATIONS Instinctif Partners Limited First Floor 65 Gresham Street London EC2V 7NQ 57 SkinBioTherapeutics plc Annual Report & Financial Statements 2023STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Designed and by: printed perivan.com SkinBioTherapeutics plc ANNUAL REPORT AND FINANCIAL STATEMENTS 2023 STRATEGIC REPORT 1 2 3 4 About us Our Vision and Strategy Chairman’s Statement Strategic and Financial Review GOVERNANCE 12 Directors’ Report 15 Corporate Governance Report 23 Independent Auditor’s Report to the Members of SkinBioTherapeutics Plc FINANCIAL STATEMENTS 31 Consolidated Statement of Comprehensive Income 32 Consolidated Statement of Financial Position 33 Consolidated Statement of Cash Flows 34 Consolidated Statement of Changes in Equity 35 Company Statement of Financial Position 36 Company Statement of Cash Flows 37 Company Statement of Changes in Equity 38 Notes to the Financial Statements 57 Statutory and Other Information i i S k n B o T h e r a p e u t i c s p c A n n u a l l R e p o r t i & F n a n c a i l S t a t e m e n t s 2 0 2 3 ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 The Core, Bath Lane Newcastle Helix Newcastle upon Tyne NE4 5TF SkinBioTherapeutics plc COMPANY REGISTRATION NUMBER: 09632164