SkinBioTherapeutics plc COMPANY REGISTRATION NUMBER: 09632164 ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2024 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 STRATEGIC REPORT 1 About us 2 Our Vision and Strategy 3 Chairman’s Statement 4 Strategic and Financial Review GOVERNANCE 14 Directors’ Report 17 Corporate Governance Report 25 Independent Auditor’s Report to the Members of SkinBioTherapeutics Plc FINANCIAL STATEMENTS 35 Consolidated Statement of Comprehensive Income 36 Consolidated Statement of Financial Position 37 Consolidated Statement of Cash Flows 38 Consolidated Statement of Changes in Equity 39 Company Statement of Financial Position 40 Company Statement of Cash Flows 41 Company Statement of Changes in Equity 42 Notes to the Financial Statements 65 Statutory and Other Information SkinBioTherapeutics plc ANNUAL REPORT AND FINANCIAL STATEMENTS 2024 HARNESSING THE POWER OF THE MICROBIOME £1.2m REVENUE 2023: £0.1m +815% £3.6m OPERATING EXPENDITURE 2023: £3.1m +16% £0.7m GROSS MARGIN 2023: £0.1m +704% £(2.9m) PROFIT BEFORE TAX 2023: £(3.0m) -3% STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS SkinBioTherapeutics plc Annual Report & Financial Statements 2024 1 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OUR VISION AND STRATEGY OUR VISION To harness the power of the microbiome and complementary areas of skin care, to improve how skin looks, feels and most importantly, how it repairs itself from injury. SkinBiotix Strategic Pillars Cosmetics – Enhancing the skin’s natural barrier to make it look and feel younger. Using the application of proprietary lysate technology to hydrate and tighten the skin. Food Supplements – Exploiting the gut-skin axis via probiotic formulations to reduce symptoms associated with irritable skin conditions such as psoriasis, acne and eczema. Medical Devices – Applying our proprietary lysate technology to enhance the skin’s natural barrier to prevent the spread of infection in hard to heal wounds such as venous leg and diabetic foot ulcers. Hospital and Domestic Surface Hygiene – Creating a lysate barrier to be applied to inert surfaces to block the latching on of the harmful bacteria, Staphylococcus aureus. Pharmaceuticals – Formulating clinically regulated food supplements that would be medically prescribed. Complementary Acquisition Opportunities Alongside our in-house strategic pillars strategy, we are accelerating growth via acquisitions in the skin care sector. The criteria: complementary product lines that have the potential to be microbiome-driven, distribution platforms and/or manufacturing capabilities. Dermatonics (acquired FY2024) – is an established topical dermatological player in the skincare and woundcare space. Products are sold through its sales platform and also via a commercial partnership with the Umesh Modi Group, into Africa, the Middle East and Asia. Bio-Tech Solutions – (acquired post year end), Bio-Tech Solutions brings specialist health, hygiene and personal care product manufacturing and packaging. It has potential as a future development platform for advanced topical creams. OUR STRATEGY The deployment of our original platform technology, SkinBiotix across five clear and specific market sectors. In addition, acting as a consolidator to acquire complementary areas that add new capabilities such as distribution and manufacturing. SkinBioTherapeutics plc Annual Report & Financial Statements 2024 2 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 3 CHAIRMAN’S STATEMENT Our original five pillars, based on the SkinBiotix technology, have progressed during the year. Notable successes have included the development of our Croda partnership, first with an extension to the contract to enable further research and post year end, the completion of those studies and contract negotiation, to move to a more commercial setting. AxisBiotix has also seen sales growth and new geographical markets in Europe for the psoriasis product, and very positive results from the consumer study for Acne. We have also started making acquisitions in complementary areas such as skin care and cosmetic applications. These bring new distribution and geographical platforms, and manufacturing capabilities through which we can funnel our in-house pillar products. In the CEO’s report, we have provided fuller details on these transactions. Financial summary The acquisition of Dermatonics before the year end has also made a significant change to the financial landscape of the Group, not only in FY2024 but for the longer term. The CFO’s statement will provide more detail, but in summary, the revenues grew 815% to £1.21m (FY2023: £132k) reflecting the growth of AxisBiotix-Ps sales and the introduction of sales from Dermatonics products. The operating profit/loss was £2.91m (FY2023: £3.0m), again reflecting the increase in costs of operations and headcount, before and after the acquisition. Cash at the year end was £0.8m (FY2023: £1.3m), comprising incoming cash balances from Dermatonics and a successful Placing and Retail Offer raising £3.3m. Post year-end there was an investment of £1.56m from new investors alongside a loan and equity placing with a long standing shareholder to support the cash acquisition of Bio-Tech Solutions. For the Dermatonics acquisition, the Group drew funds from a £5.0m convertible bond facility, but this has now been closed in response to shareholders concerns. Strategy In 2019, we laid out our strategy to apply the SkinBiotix technology across multiple pillars – from skin health as an active ingredient to tackling skin conditions to wound care. In 2022 we extended this strategy to look at complementary products and operations, that would accelerate revenue, earnings and technology adoption. Dermatonics and Bio-Tech Solutions are good examples of the types of company and offerings we are looking to add to the Group. They provide not only new opportunities through the introduction of new products, but also support our in-house products and technology. Board and Leadership During the financial year, Professor Cath O’Neill decided to step down as Chief Scientific Officer and move to a Scientific Advisor role. Since the Company was founded, Cath has combined her academic and corporate roles, but we have always been aware of her eventual desire to return to full time academia. She played an important role at SBTX and we wish her all the best and look forward to retaining a strong connection with her. Post year end, we welcomed Dr Surinder ‘Dass’ Chahal, formerly a senior Croda VP, as Cosmetic Science / Customer Alliances Advisor to the Board. We have got to know Dass well since he was a key member of the Croda team that spotted the potential of SkinBiotix as an active ingredient. We’re delighted to have him on the SBTX team. Outlook In my opinion, we will look back on financial and calendar year 2024 as the beginnings of the evolution of SBTX, from a one technology company, albeit with multiple pillars, to a more integrated, diverse Group with multinational distribution and manufacturing capabilities. With the addition of Dermatonics and post year end, the acquisition of Bio-Tech Solutions, we have grown dramatically into a very different Group, both operationally and financially. As a team, we continue to work hard to build value for our shareholders, and we are grateful for their continuing support as we navigate the highs and lows of being a small AIM quoted business in difficult markets. The two acquisitions this year are just the beginning; we have further ambitions to act as a consolidator in the skincare market, so we expect 2025 (CY) to be just as busy. On behalf of the Board, I would like to take the opportunity to thank everyone at SBTX for the considerable progress achieved by the Group over the course of the year. We look forward to continuing the execution of our strategy in the year ahead. MARTIN HUNT Chairman 4 December 2024 Dear Shareholders, The word ‘transformation’ can be overused, but this financial year and post year end, we have started to evolve significantly as a Group. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS COMPANY BACKGROUND AND STRATEGY SkinBioTherapeutics is a life science company focused on skin health. Our original strategy focuses on our proprietary technology, SkinBiotix, which harnesses the microbiome to promote wound healing and reduce the risk of infection. The second part of the strategy, introduced in 2022, is based on M&A to bring in technological, operational and financial benefits. SkinBiotix platform strategy Realising the multiple benefits of the SkinBiotix platform, we created five strategic pillars based on market sector: SkinBiotix, AxisBiotix, MediBiotix, CleanBiotix and PharmaBiotix. The first two pillars are: • SkinBiotix™, our proprietary technology, is based on a lysate – the fluid resulting from the breaking up of bacterial cells - developed by the translational dermatology team at the University of Manchester. We have a commercial and manufacturing agreement with the multinational Group, Croda plc, developing SkinBiotix as an active ingredient for the skincare / cosmetics industry. • AxisBiotix™, based on SkinBiotix and formulated into a probiotic supplement. The theory is based on research on the gut-skin axis; calming the gut microbiome with the introduction of ‘friendly’ bacteria and therefore reducing the inflammatory pathways associated with irritable skin conditions. Our first product is called AxisBiotix-Ps, to alleviate the symptoms associate with psoriasis. This same approach is also being investigated for acne. The other pillars - MediBiotix, CleanBiotix and PharmaBiotix – are in earlier stages of development. Our aim is to commercialise the products ourselves where feasible (e.g. AxisBiotix-Ps), or license out the technology to specialist industry partners (e.g. SkinBiotix to Croda plc.) M&A strategy From 2022, we put in place an accelerated growth strategy looking at acquisition opportunities outside the Group’s in-house technology. Our criteria included complementary product lines that had the potential to be microbiome-driven, distribution platforms and/or provide manufacturing capabilities. Any acquisitions should also strengthen and accelerate SkinBioTherapeutics’ financial position bringing economies of scale for the day-to-day business, providing scale to aid partnering negotiations and ultimately increase shareholder value. Our first acquisition, Dermatonics, occurred in FY24 with a second taking place post year end, Bio-Tech Solutions. • Dermatonics is an established topical dermatological player in the skincare and woundcare space. Its products range from heel balm, treatments for wart and verrucas, and dry skin relief. The products are sold through its sales platform and also via a commercial partnership with the Umesh Modi Group, into Africa, the Middle East and Asia. • Bio-Tech Solutions is the newest addition to the Group and brings specialist health, hygiene and personal care product manufacturing and packaging. This company also has potential as a future development platform for advanced topical creams. Into FY25, the Group will continue to drive both strategies together to drive scale and value. STRATEGIC AND FINANCIAL REVIEW SkinBioTherapeutics plc Annual Report & Financial Statements 2024 4 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 5 OPERATIONAL REVIEW Biotix division • SkinBiotix (skincare/cosmetics) We have had a commercial and manufacturing agreement with Croda plc since 2019. Croda is a specialist manufacturer of ingredients which it supplies to the international cosmetics and FMCG industry. It has been investigating the use of SkinBiotix as a novel bioactive ingredient. Normally, the time taken for an ingredient to be researched and tested by the Croda team is seven years before it enters commercialisation; in our case, the process has taken only five years which is real testament to our technology. During this time, Croda has been investigating the best quality formulations for its customers as well as scaling-up the manufacture of SkinBiotix to commercial levels i.e. 20,000 litres, in order to be able to service the global market. In October 2023, Croda extended its development agreement in order to explore evidence of additional activity. This study was successfully completed post year end in September 2024, with validation of additional efficacy and marketing claims for Croda’s commercialisation team to use with potential customers. Samples are now being sent out to prospective customers and the formal launch of SkinBiotix as an active ingredient is planned to take place at In-Cosmetics Global, the world’s largest cosmetic ingredients exhibition, taking place in Amsterdam (April 8-10, 2025). We are fully confident in Croda’s deep experience in launching new products. Most recently (post year end), we announced that commercial terms had been finalised following the completion of the extended studies. The terms are based on the original agreement with SkinBioTherapeutics i.e. paid tiered royalties based on global sales revenues on any licensed products derived from the partnership. Under the terms of the agreement, all details about formulation, functionality and Croda’s financial expectations remain completely confidential due to the competitiveness of the cosmetics market. Any royalty revenues arising from future sales will be reported to the market at the appropriate time, and we will draw shareholders’ attention to any relevant public announcements from the Croda team. Sales and distribution rights are for the cosmetic sector alone, leaving SkinBioTherapeutics to focus on further applications of its technology in other sectors. • AxisBiotix™ (gut/skin axis) AxisBiotix is being commercialised as a food supplement to alleviate the symptoms of psoriasis and is in development as a product for acne. AxisBiotix-Ps, the psoriasis food supplement, is being sold in the UK and Europe. Our primary focus for FY24 has been continue to grow sales in the UK whilst maintaining high customer retention, and expanding the sales operation into Europe. Sales in FY24 reached £25k per month (FY23: £12k) and the monthly retention rate has stayed high at similar levels to FY23, achieving over 80% during the period. The retention rate is measured as the number of subscribers who remain a subscriber at the end of each monthly period, compared to the same cohort that were in existence at the start of a month period. The first European channel opened in Spain last year, and new territories in Italy and France commenced trading in FY24. We also started trading on Amazon’s UK and French platforms during the year, and the intention is to broaden this into Amazon’s Spanish and Italian platforms. Discussions are also underway with two UK national high street retail chains. During the financial year, we made good progress in preparing for and running a consumer study to look at AxisBiotix in acne. The benefit of undertaking another consumer study is the relatively short time and cost compared to a clinical trial. The product is also classified as a food supplement rather than a heavily regulated medical device. The study involved 98 UK-based participants with acne-prone skin and the results were published post year end in June 2024. In summary, 84% of participants reporting that the appearance of their spots had improved, 77% that the pain caused by their spots had eased, and 62% that the anxiety they felt due to their spots had improved. Our next step is establishing the best formulation for commercial launch e.g. in gel or gum form. The aim is to commercialise once the optimal version has been created. The overall result is two very positive consumer studies for the AxisBiotix pillar that validates it as a platform technology from which multiple products can be derived; important evidence for potential partnerships. • Research & Development MediBiotix is developing SkinBiotix for accelerated wound closure, STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS a medical device application. During the year, we started Project Epiderm with the aim of developing a technology that promoted wound healing. This work is being undertaken by Professors Cruikshank and McBain at the University of Manchester and is being joint funded by SBTX and grant funding. Due to the complexity, size and level of regulation around medical devices, an experienced multinational partner will be sought for this technology. We also have two other programmes ongoing with the University of Manchester in oral health and inflammation. The first extended phase of developing a new lysate for the oral programme is complete and the Company is in discussions with the University to establish next steps, since it will require further funding. The inflammation study is looking at how the microbiome can influence and balance the body’s response to inflammation specifically related to harmful UVR (sunlight) light. The programme will run until June 2025. In light of the recent acquisitions, the Board is planning to review its whole R&D portfolio to determine which programmes have the greatest potential for future commercialisation. Dermatonics In January 2024, we acquired Dermatonics Limited, a specialist in innovative topical and dermatological products in the skincare/woundcare space, using natural ingredients wherever possible. The initial consideration was £1.68m plus £1.25m earn-out over three years, in a cash-free and debt-free acquisition. Completion took place on 25 January 2024. The acquisition was funded by a £1.6m draw down of a £5.0m convertible bond facility which has subsequently been closed. This acquisition aligned directly with our previously stated strategy to seek accretive inorganic opportunities that provided immediate synergies and accelerated routes to market. It has expanded our product range and customers base, provided a sales platform with senior regulatory and sales expertise, and new sales channels for our in-house strategic pillars. In addition, the acquisition has provided significant financial benefits; Dermatonics was revenue generating, profitable and cash flow positive. For the 12 months ended 31 January 2024, Dermatonics reported revenues of £1.86m (2023: £1.82m) assisted by the increased sale of products into the NHS and podiatry clinics, at higher price points negotiated in February 2023, as well as growth in key distributor relationships outside of the UK. EBITDA for the 12 months to 31 January 2024, increased by 77% to £422k (31 January 2023: adjusted EBITDA £230k). The adjustments were for one-off items: £150k stock write off and £123k bad debt in FY2023. The cash balance as at 31 January 2024 was £149k (2023: £213k). Shortly after the acquisition, in March 2024, Dermatonics signed a manufacturing and distribution agreement with the Umesh Modi Group which focused on Dermatonics Once Heel Balm. The product is being sold by Umesh Modi’s 1,200 salespeople across six countries in Asia, the Middle East and Africa. The total addressable market in these regions for dermatology and diabetes management is in excess of £5bn. Discussions are underway regarding other product opportunities, which underlines the benefits of bringing in inorganic acquisitions like Dermatonics to the Group. Bio-Tech Solutions Post year end, in October 2024, we completed our second acquisition of Bio-Tech Solutions Ltd (“BTS”) for a total enterprise consideration of £1.25m payable in cash on closing. BTS is a well-established manufacturer and supplier of health, hygiene and personal care products and brings the capabilities of manufacturing and packaging to the Group, as well as a future development platform for advanced topical creams. The manufacturing facilities are to GMP standards and ISO certified, and the Company has quality control (QC) facilities, including HPLC (high-performance liquid chromatography) analysis service and can also deal with flammables. The acquisition was funded by a loan of £950,000 with an existing shareholder, David Brierwood, and a subscription for 2,349,624 new Ordinary Shares at 10.64p raising £250,000, as well as utilisation of Group cash reserves. The rationale behind the use of the loan and equity element was to preserve the Group’s cash runway, and allows time for integration and realisation of synergies, such as manufacturing products from Dermatonics’ pipeline in-house. STRATEGIC AND FINANCIAL REVIEW Continued “Management are pleased to have a commercial agreement with Croda plc. “ SkinBioTherapeutics plc Annual Report & Financial Statements 2024 6 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 7 For the financial year ended 30 June 2024, BTS reported unaudited revenues of £2.1m and EBITDA of £0.5m. Over the last four financial years, BTS has grown both revenue and EBITDA. Post year end, the business has performed well, and financially, it is expected to reach £3.0m in proforma revenues and £0.9m in proforma EBITDA pre‑synergies. * Based on unaudited management accounts FINANCIAL REVIEW Prior to the acquisitions, we projected FY24 turnover of c.£240k, but with the acquisition of Dermatonics, that financial picture has changed significantly. In the year to 30 June 2024, the Group reported sales of £1.2m (2023: £0.1m), reflecting continuing increase in AxisBiotix-Ps™ sales and the addition of Dermatonics revenues. Revenues from AxisBiotix-Ps were £0.2m (2023: £0.1m) following an increase in subscriber numbers and launch into new territories during 2024. Dermatonics contributed £1.0m from January to 30 June 2024, but for its full year, reached c.£1.9m which was pleasing. Cost of sales were £0.53m (2023: £0.01m), reflecting the impact of the Dermatonics acquisition and financials on the Group. Gross profits were £0.7m (2023: £0.1m) and resulted in a gross margin of 57% (2023: 65%). The decline in overall gross margin was due to the blended mix of AxisBiotix-Ps™ and Dermatonics revenues. Overall expenses were £3.6m (2023: £3.1m). Research and development expenditure of £0.6m (2023: £0.9m) for the ongoing oral and inflammation research programmes ongoing and the new EpiDerm programme. Operating expenses were £2.9m (2023: £2.1m) reflecting the impact of Dermatonics into the Group’s financials. The operating loss was in line with prior year at £2.9m (2023: £3.0m). The cash balance as at 30 June 2024 was £0.8m (2023: £1.3m) which factored in the £0.5m earn-out payment in May 2024 on the Dermatonics acquisition. As stated in the trading update on 29 July 2024, we do not have any short term concerns over cash on the basis that the acquisition of Dermatonics reduced monthly cash burn by 32% and the post period end acquisition of Bio-Tech Solutions further boosted cash balances. In addition, following the completion of the Croda commercial agreement, we have been able to update expectations further to be cash positive in FY 2025 and not to require any further fund raises for working capital in the foreseeable future. To support the underlying business and future acquisitions, we undertook several financings in the year. In November 2023, we achieved a successful Placing and Retail offer which raised £3.3m in a very difficult market. In January 2024, management entered into a £5.0m Convertible Bond Facility for the purposes of its acquisition strategy, starting with Dermatonics. Upon review, management decided to close this facility post year end, having drawn down £1.6m in total. Existing investors and some new institutional investors agreed to purchase the remaining shares directly from the holder, Macquarie Bank. Following the year end, we further raised £1.56m of gross proceeds in August 2024, having been approached by two new institutional investors. And as mentioned above, in order to acquire Bio-Tech Solutions, we raised a loan of £950,000 with an existing shareholder, David Brierwood, and a subscription for 2,349,624 new Ordinary Shares at 10.64p raising £250,000, to enable a cash acquisition. Current trading and outlook The profile of the Group has changed completely this year, and next year’s FY25 results will better reflect this with bolstered sales from our in-house strategic pillars with revenues from AxisBiotix-Ps sales and the introduction of Croda royalties, and also 12 months of Dermatonics’ and nine months of Bio-Tech Solutions’ contributions. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Now that commercialisation by Croda of SkinBiotix has begun, revenues are expected to start gradually. Croda is currently estimating future sales, but due to the highly confidential nature of its business and market, shareholders will only see the impact of these upon our financial results at interims and full year, however, we believe the potential enhanced commercial opportunities could be considerable. In FY2023, the majority of our focus was on growing sales of AxisBiotix-PS™ in the UK and starting to push into new European territories, beginning with Spain. As stated in the trading update in July 2024, revenues of AxisBiotix-Ps are forecasted to be £400k (2024: £248k) reflecting the increase in expansion into Europe, as well as the USA through our partnership with World Products. We may have had limited resources to launch a product ourselves, however we have been pleased with the loyalty and the very positive testimonials we continue to receive. We also look forward to expanding the AxisBiotix product portfolio with the launch of an acne product, following the positive consumer study. For the two new additions to the SBTX Group, Dermatonics revenue forecast is expected to be £2.91m (2024: £1.90m), and EBITDA at £0.7m (2024: £420k), with growth across all revenue streams in the business, as well as the uplift following the Umesh Modi partnership announced earlier in 2024. We will have revenues from Bio-Tech Solutions of £2m for the period October 2024 to June 2025. On an annualised basis, this reflects revenue of £3m for the 12 months to June 2025. EBITDA is expected to come in at £0.45m. In summary, with a firmer financial footing with respect to cash, a scaled up Group infrastructure, we are in a much stronger position for making new consolidating acquisitions and for negotiations with potential industry partners. 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 operational costs of the business and more particularly the cash requirements to support its scientific development programmes and IPR strategy. Net cash used in operating activities was £2.73m (2023: £2.65m). 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 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. Further details can be found in the financial review. STRATEGIC AND FINANCIAL REVIEW Continued SkinBioTherapeutics plc Annual Report & Financial Statements 2024 8 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 9 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 derived from the Group’s detailed risk register. These risks are reviewed by the Audit Committee at least biannually, which reports its findings to the Board. 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. Stage of operations SkinBioTherapeutics is still at an early stage of development in several pillars, however is generating growing revenues in the AxisBiotix pillar 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 commercialisation of its SkinBiotix® platform through Croda plc. In addition, the Group is exploring potential licensing opportunities in the MediBiotix pillar. Clinical development risk 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 different jurisdictions. In addition, the need to manufacture clinical grade materials for medical device products may result in further unexpected costs. 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 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. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 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. Competitive risk The Directors believe the skin microbiome to be an innovative area of development and scientific focus. As such this area is subject to significant and rapid technological and consumer change. It is an area of interest to academic institutions, government agencies and private and public companies. Competition from existing companies and new entrants has emerged and maintaining an IP and technology advantage over the competition will require a sustained development focus. The need for safe and supportive skin health and well-being products is acknowledged by consumers and healthcare providers around the globe. Large multinationals have divisions dedicated to the sector and many have established brands or approved products on the market. These brand owners have greater financial and human resources which can be deployed to build and maintain a brand position. Many also have dedicated R&D units and could therefore choose to develop technologies that compete with those of the Group. Regulatory environment The Group operates in a regulated environment that varies dependent upon the jurisdiction and technology. These regulations are subject to change at short notice and differ according to any proposed product claims, intended use or marketing route. While the Group will take every effort to ensure that it and its partners comply with all applicable regulations, there can be no guarantee of this. Failure to comply with applicable regulations could result in the 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. STRATEGIC AND FINANCIAL REVIEW Continued “The need for safe and supportive skin health and well‑being products is acknowledged by consumers and healthcare providers around the globe.“ SkinBioTherapeutics plc Annual Report & Financial Statements 2024 10 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 11 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 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 6-13. • 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 engage with employees with regards 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 16-23. • The impact of the Company’s operations on the community and the environment The Group is committed to operating with a high level of corporate social responsibility and environmental sustainability. Principle 8 of the Corporate Governance Report provides further disclosure on how we promote a corporate culture that is based on ethical values and behaviour. • 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, as detailed in the Corporate 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 our strategy and deliver long term 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. Conclusion FY2024 has been a year of extraordinary highs in an extremely challenging economic environment for a small growth company with big ambitions requiring funding. The strategy to grow our business through acquisition at the same time as driving the underlying business has been a deliberate one in order to provide additional products and capabilities, and increasingly importantly, scale-up for negotiations with present partners as well as future ones. Dermatonics and in time, Bio-Tech solutions have completely changed our shape and positioning, and have created additional products, operational and manufacturing infrastructure to complement the SkinBiotix platform. Our ambition is to build a Group that is a leader in the skincare sector, creating significant value for our shareholders and be an exciting place to work for current and future employees. Thank you to the internal team for all their hard work, and to our shareholders for their long-standing support. STUART ASHMAN CEO 4 December 2024 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS THIS PAGE IS INTENTIONALLY LEFT BLANK IN THIS SECTION 14 Directors’ Report 17 Corporate Governance Report 25 Independent Auditor’s Report to the Members of SkinBioTherapeutics Plc GOVERNANCE AN ONGOING COMMITMENT TO PROMOTE A CULTURE OF EXCELLENT CORPORATE GOVERNANCE. SkinBioTherapeutics plc Annual Report & Financial Statements 2024 13 DIRECTORS’ REPORT The Directors present their report and the audited financial statements of the Group for the year ended 30 June 2024. Principal activity The principal activity of the Group is that of research and development focused on harnessing the microbiome for human health, and commercialisation of these technologies, as well as the manufacture and sales of dermatological products through acquired entities. 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: ISSUED SHARE CAPITAL SHARE OPTIONS Ordinary shares of £0.01 each Percentage held Ordinary shares of £0.01 each Options exercise price Martin Hunt 560,417 0.25% 3,892,082 £0.09 Stuart J. Ashman 276,804 0.12% 5,189,444 £0.09 & £0.18 Manprit Randhawa 153,165 0.07% - - Dr Cathy Prescott 181,112 0.08% - - Danielle Bekker 43,750 0.02% - - 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 2024, the following interests in 3% or more of the issued share capital appear in the register: Percentage of issued share capital OptiBiotix Health Plc 10.92% Tyndall Investment Management 8.04% Seneca Partners Limited 6.23% David Brierwood 4.09% University of Manchester 3.50% Unicorn Asset Management 3.46% SkinBioTherapeutics plc Annual Report & Financial Statements 2024 14 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 15 DIRECTORS’ REMUNERATION The Directors received the following remuneration during the year: Salaries Fees Share-based payments* Pension contributions Total remuneration 2024 Total remuneration 2023 EXECUTIVE Stuart J. Ashman £317,503 - - £7,139 £324,642 £382,478 Manprit Randhawa £223,017 - - £4,971 £227,988 £261,480 NON-EXECUTIVE Martin Hunt £13,892 £57,123 - - £71,015 £68,670 Dr Cathy Prescott £6,946 £29,153 - - £36,099 £41,011 Danielle Bekker £26,250 - - - £26,250 £25,000 £587,608 £86,276 - £12,110 £685,994 £778,639 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 4-11 gives information of the Group’s research and development activities. EVENTS AFTER THE REPORTING DATE Refer to note 26 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 42 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). STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 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 4 December 2024 and signed on its behalf by STUART J. ASHMAN Chief Executive Officer DIRECTORS’ REPORT Continued SkinBioTherapeutics plc Annual Report & Financial Statements 2024 16 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 17 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. STRATEGIC REPORT GOVERNANCE FINANCIAL 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 Holding 30 November 2024 OptiBiotix Health Plc 10.92% Tyndall Investment Management 8.04% Seneca Partners Limited 6.23% David Brierwood 4.09% University of Manchester 3.50% Unicorn Asset Management 3.46% 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. SkinBioTherapeutics plc Annual Report & Financial Statements 2024 18 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 19 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 24 details the attendance record of each director at board and committee meetings during the course of the year. STRATEGIC REPORT GOVERNANCE FINANCIAL 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 2024 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 Appointed as a director & Chairman in October 2016; Chair of the Remuneration Committee and member of the Audit and Insider Committees. Martin has had a long executive career in the medtech and life science sectors including sales and general management roles with large corporations in Europe and the US. He was previously CEO of biomaterials company Tissue Science Laboratories plc taking it from start-up through an AIM listing and eventual sale to Covidien. More recently he has held a number of non-executive roles with both private and public companies. Martin is well versed in the early and growth stages of companies in the life science sector as well as bringing experience of corporate governance and shareholder communications. Martin is currently Non-Executive Chairman of Videregen Limited and Non- Executive Chairman of MediMusic Limited. Time commitment of at least two days per month. STUART J. ASHMAN CEO Appointed as a director in April 2019 and CEO in July 2019 and member of the Remuneration Committee. 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. MANPRIT RANDHAWA CFO Appointed as company secretary, director and CFO in June 2022; 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. SkinBioTherapeutics plc Annual Report & Financial Statements 2024 20 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 21 DR CATHERINE PRESCOTT Independent Non-Executive Director Appointed as a director in March 2017; Chair of the Audit Committee and member of the Remuneration Committee. Cathy has over two decades of experience in research and management in the biotech, pharmaceutical and venture capital sectors. Cathy was 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. DANIELLE BEKKER Independent Non-Executive Director 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. STRATEGIC REPORT GOVERNANCE FINANCIAL 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. SkinBioTherapeutics plc Annual Report & Financial Statements 2024 22 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 23 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. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 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 10 10 - - 3 3 - - Manprit Randhawa 10 10 2 2 - - 1 1 Martin Hunt 10 10 2 2 3 3 1 1 Dr Cathy Prescott 10 10 2 2 3 3 - - Danielle Bekker 10 10 - - - - - - CORPORATE GOVERNANCE REPORT Continued SkinBioTherapeutics plc Annual Report & Financial Statements 2024 24 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 25 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 2024 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 2024 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. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Key audit matter How our audit addressed the key audit matter Going concern The Group incurred a loss of £2.9m and had net cash outflows from operating activities of £2.8m for the year ended 30 June 2024. The cash balance of the group is amounting to £0.8m (2023: £1.3m). 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 2024. Our evaluation and our audit procedures included the following: • 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 units; • 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; • considered the appropriateness of the Group and Company’s disclosures in relation to going concern in the financial statements; and • considered known and planned acquisitions and commitments post year end. 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. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SKINBIOTHERAPEUTICS PLC Continued SkinBioTherapeutics plc Annual Report & Financial Statements 2024 26 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 27 Key audit matter How our audit addressed the key audit matter Intangible assets The Group had capitalised intangible assets amounting to £1,388,959 (2023: £700,331). During the year, the Group and Company capitalised a further £169,996 (2023: £75,483) relating to intellectual property costs and the Group also acquired £577,000 and £25,000 of Customer relationship and Brands, respectively from the Dermatonics acquisition. The intellectual property 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. The Directors have assessed whether the costs meet the criteria for capitalisation and whether there are any indicators of impairment. The risk is that the costs may not qualify for capitalisation or technological advancements may render the market value of the capitalised costs below its carrying value. We have performed the following audit procedures: • considered whether the nature of the costs met the necessary criteria under IAS 38 for the costs to be allowed for capitalisation; • reviewed the underlying calculations and assumptions of management that support valuation of the Customer relationship and Brands acquired from the Dermatonics acquisition to confirm its compliance with IFRS 3 requirements. • 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 for the intellectual property costs; and • reviewed cash flow forecasts for the foreseeable future to assess the potential future economic benefit from ownership of the intangible assets. Based on the audit work performed we are satisfied, that although there are inherent uncertainties associated with the forecast and estimation of useful economic life of intangible assets, the directors have made reasonable assumptions about the valuation and useful economic life of intangible assets, based on past experience and expected future revenues. We are also satisfied that all necessary disclosures have been made in the financial statements. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Key audit matter How our audit addressed the key audit matter 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 subsidiaries (AxisBiotix Limited and Dermatonics 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. 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 subsidiaries; • assessed the methodology used by management to estimate the future profitability of its subsidiaries 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. Carrying value of goodwill The acquisition of Dermatonics Limited during the year resulted in a recognition of goodwill amounting to £2m. Goodwill represents the difference between the fair value of the consideration paid and the fair value of the assets and liabilities acquired. Due to the estimates involved, there is a risk that the amounts calculated, and fair value disclosed are incorrect. We have performed the following audit procedures: • reviewed management’s impairment workings such as forecasts of the cash generating units which included their approach and methodology as well as inputs and significant assumptions, namely: o Future revenue, operating costs and overall net cash outflows; o Discount rates; o Current and ongoing research projects; • considered whether management had exercised any bias in assumptions used or the outputs produced in the forecasts prepared; • reviewed their key assumptions and obtained support to corroborate them where necessary; and • performed a sensitivity analysis. Based on work performed, we deem that the carrying value of the assets is considered reasonable and not materially misstated. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SKINBIOTHERAPEUTICS PLC Continued SkinBioTherapeutics plc Annual Report & Financial Statements 2024 28 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 29 Key audit matter How our audit addressed the key audit matter Revenue recognition The Group had revenues amounting to £1.2m (2023: £132k). Revenue consists exclusively of internet sales. Revenues are recorded net of an appropriate deduction for actual and expected returns, sales discounts and sales taxes when goods are dispatched. Based on this, reports are generated from online platform such as Shopify for sales details and revenue earned. We have performed the following audit procedures: • reviewed sales register for unusual items; • reviewed a sample of invoices and credit notes from the sales register; • carried out sales cut-off procedures to verify that the invoices are recorded in the correct period; • analysed the list of top 10 customers and queried unusual variances; • reviewed invoices sequence to ensure sales are complete; and • reviewed post year end sales register and credit notes to ensure the same have been accounted in the correct period Based on audit work, we conclude that revenue has been properly recognized in the correct period as and when the obligation of the Company has been satisfied in accordance with the standard. Carrying value of inventory Inventory is measured at the lower of cost and net realisable value. Net realisable value is based on estimated selling price less additional costs to completion and disposal. There is a risk that inventory is overstated in quantity and value. The Group had inventories amounting to £472k (2023: £33k) after accounting for an allowance for inventory write-down. Of this balance, £90k relates to Axisbiotix inventory, with the remainder attributed to Dermatonics. In the prior year, an allowance of £35k was recognised for near-expiring products. Management has confirmed that these products were disposed of during the year, resulting in a £nil balance for the allowance. To mitigate the risk of near-expiring stock, management has implemented a purchasing policy aligned with forecasted sales. We have performed the following audit procedures: • attended on site inventory counts near the year end and compared this to stock listings; • agreed a reconciliation of stock listing per site verses values recorded with the trail balance; • performed sales and purchases inventory cut-off testing; • obtained and reviewed the management’s inventory provision assessment; and • performed inventory valuation testing to ensure stock is measured at the lower of cost and net realisable value Based on work performed, we agreed with the management not to provide allowance for inventory obsolescence. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 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 £79,000 (2023: £52,000). £68,000 (2023: £49,000) How we determined it Based on 1.5% of gross assets (2023: 2% gross assets) Based on 1.0% of gross assets (2023: 2% gross assets) Rationale for benchmark applied We believe that gross assets is the primary measure used by the shareholders in assessing the performance of the Group as stable revenue is yet to be generated. We believe that gross assets is the primary measure used by the shareholders in assessing the performance of the Company as stable revenue is yet to be generated. For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality allocated across components was between £14,000 and £68,000. We set performance materiality at an amount less than materiality for the financial statements as a whole to reduce to an appropriately low level, the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. Performance materiality was set at 75% of the overall materiality. We agreed with the Audit Committee that we would report to them misstatements identified during our audit for the Group £3,950 (2023: £2,600) and for the Company above £3,400 (2023: £2,450) 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 3 reporting units, comprising the Group’s operating businesses and holding companies. We performed audits of the complete financial information of SkinbioTherapeutics Plc, AxisBiotix Limited and Dermatonics Ltd 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 3 reporting units. We have audited all components within the Group, and no unaudited components remain. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SKINBIOTHERAPEUTICS PLC Continued SkinBioTherapeutics plc Annual Report & Financial Statements 2024 30 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 31 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 pages 15-16 the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and 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. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 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. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SKINBIOTHERAPEUTICS PLC Continued SkinBioTherapeutics plc Annual Report & Financial Statements 2024 32 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 33 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 Aldgate Tower 2 Leman Street London E1 8FA 4 December 2024 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS IN THIS SECTION 35 Consolidated Statement of Comprehensive Income 36 Consolidated Statement of Financial Position 37 Consolidated Statement of Cash Flows 38 Consolidated Statement of Changes in Equity 39 Company Statement of Financial Position 40 Company Statement of Cash Flows 41 Company Statement of Changes in Equity 42 Notes to the Financial Statements 65 Statutory and Other Information FINANCIAL STATEMENTS 34 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 35 Notes 2024 £ 2023 £ CONTINUING OPERATIONS Revenue 3 1,208,669 132,057 Cost of Sales (525,631) (46,867) Gross Profit 683,038 85,190 Selling and distribution costs (170,597) (81,294) Research and development (562,911) (930,636) Operating expenses (2,854,662) (2,072,612) Total operating expenses 4 (3,588,170) (3,084,542) Loss from operations (2,905,132) (2,999,352) Finance costs 5 (43,760) (8,886) Loss before taxation (2,948,892) (3,008,238) Taxation 7 72,902 173,089 Loss for the year (2,875,990) (2,835,149) Other comprehensive income – – Total comprehensive loss for the year (2,875,990) (2,835,149) Basis and diluted loss per share (pence) 8 (1.54) (1.72) The notes on pages 42 to 64 form part of these financial statements. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Year Ended 30 June 2024 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Notes 2024 £ 2023 £ ASSETS Non-current assets Property, plant and equipment 10 44,357 78,658 Right-of-use assets 11 72,012 94,502 Goodwill 12 2,038,325 – Intangible assets 13 1,388,959 700,331 Total non-current assets 3,543,653 873,491 Current assets Inventories 15 472,419 33,497 Trade and other receivables 16 398,088 192,885 Corporation tax receivable 16 – 182,545 Cash and cash equivalents 800,904 1,311,834 Total current assets 1,671,411 1,720,761 Total assets 5,215,064 2,594,252 EQUITY AND LIABILITIES Equity Capital and reserves Called up share capital 22 2,022,552 1,731,390 Share premium 22 14,507,673 10,947,874 Share based payment reserves 23 438,589 438,589 Accumulated deficit (13,998,933) (11,122,943) Total equity 2,969,881 1,994,910 Liabilities Non-current liabilities Lease liabilities 18 39,861 69,601 Deferred consideration 20 250,000 – Deferred tax 20 150,624 – Total non-current liabilities 440,485 69,601 Current liabilities Trade and other payables 17 498,560 498,696 Corporation tax payable 17 27,257 – Lease liabilities 18 38,881 31,045 Convertible loan 19 740,000 – Deferred consideration 20 500,000 – Total current liabilities 1,804,698 529,741 Total liabilities 2,245,183 599,342 Total equity and liabilities 5,215,064 2,594,252 These financial statements were approved and authorised for issue by the Board of Directors on 4 December 2024 and were signed on its behalf by: Manprit Singh Randhawa Director Company Registration No. 09632164 The notes on pages 42 to 64 form part of these financial statements. CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2024 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 36 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 37 2024 £ 2023 £ Cash flows from operating activities Loss before tax for the period (2,948,892) (3,008,238) Net interest 36,816 – Depreciation of property, plant and equipment 49,260 11,136 Right-of-use assets depreciation and interest 43,345 41,287 Amortisation of IP 83,368 656 Share-based payments charge – 1,273 (2,736,103) (2,953,886) Changes in working capital Decrease/(increase) in inventories 96,419 89,074 (Increase)/decrease in trade and other receivables 166,842 (54,735) (Decrease)/increase in trade and other payables (436,019) 16,954 Cash generated by operations (172,758) 51,293 Taxation received 182,545 257,458 Net cash used in operating activities (2,726,316) (2,645,135) Investing activities Purchase of property, plant and equipment (14,959) (89,794) Purchase of IP (169,996) (75,485) Purchase of right-of-use assets (13,214) – Cash consideration (1,598,423) – Deferred consideration (500,000) – Net cash used in investing activities (2,296,592) (165,277) Cash flows from financing activities Net proceeds from issue of shares 3,119,553 2,353,425 Net amounts raised from convertible loan 1,472,000 – Interest paid (36,816) – Lease payments made (42,759) (36,102) Net cash generated by/(used in) financing activities 4,511,978 2,317,323 Net decrease in cash and cash equivalents (510,930) (493,089) Cash and cash equivalents at the beginning of the period 1,311,834 1,804,923 Cash and cash equivalents at the end of the period 800,904 1,311,834 The notes on pages 42 to 64 form part of these financial statements. CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Ended 30 June 2024 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Share capital £ Share premium £ Share based payment reserves £ Retained earnings £ Total £ As at 1 July 2022 1,567,802 8,758,037 437,316 (8,287,794) 2,475,361 Loss for the period – – – (2,835,149) (2,835,149) Issue of shares 163,588 2,453,793 – – 2,617,381 Cost of share issue – (263,956) – – (263,956) Share-based payments – – 1,273 – 1,273 As at 30 June 2023 1,731,390 10,947,874 438,589 (11,122,943) 1,994,910 Loss for the period – – – (2,875,990) (2,875,990) Issue of shares 291,162 3,841,413 – – 4,132,575 Cost of share issue – (281,614) – – (281,614) As at 30 June 2024 2,022,552 14,507,673 438,589 (13,998,933) 2,969,881 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. Retained earnings represents accumulated profit or losses to date. Share based payment reserve represents the share option charges. The notes on pages 42 to 64 form part of these financial statements. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2024 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 38 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 39 Notes 2024 £ 2023 £ ASSETS Non-current assets Property, plant and equipment 10 44,357 78,658 Right-of-use assets 11 72,012 94,502 Intangible assets 13 801,850 694,402 Investments 14 3,642,860 482,434 Other receivables 16 1,593,553 1,445,801 Total non-current assets 6,154,632 2,795,797 Current assets Trade and other receivables 16 89,054 149,157 Corporation tax receivable 16 68,425 182,545 Cash and cash equivalents 524,854 1,124,961 Total current assets 682,333 1,456,663 Total assets 6,836,965 4,252,460 EQUITY AND LIABILITIES Equity Capital and reserves Called up share capital 22 2,022,552 1,731,390 Share premium 22 14,507,673 10,947,874 Share based payments reserves 23 438,589 438,589 Accumulated deficit (11,943,918) (9,441,596) Total equity 5,024,896 3,676,257 Liabilities Non-current liabilities Lease liabilities 18 39,861 69,601 Deferred consideration 20 250,000 – Total non-current liabilities 289,861 69,601 Current liabilities Trade and other payables 17 243,327 475,557 Lease liabilities 18 38,881 31,045 Convertible loan 19 740,000 – Deferred consideration 20 500,000 – Total current liabilities 1,522,208 506,602 Total liabilities 1,812,069 576,203 Total equity and liabilities 6,836,965 4,252,460 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 £2,502,322 (2023: £2,289,815). The notes on pages 42 to 64 form part of these financial statements. These financial statements were approved and authorised for issue by the Board of Directors on 4 December 2024 and were signed on its behalf by: Manprit Singh Randhawa Director Company Registration No. 09632164 COMPANY STATEMENT OF FINANCIAL POSITION As at 30 June 2024 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 2024 £ 2023 £ Cash flows from operating activities Loss before tax for the period (2,570,747) (2,471,551) Depreciation of property, plant and equipment 49,260 11,136 Right-of-use assets depreciation and interest 43,345 41,287 Impairment of financial assets 7,608 16,573 Share-based payments charge – 1,273 (2,470,534) (2,401,282) Changes in working capital (Increase)/decrease in trade and other receivables (95,256) (57,731) (Decrease)/increase in trade and other payables (232,232) 14,456 Cash (used)/generated by operations (327,488) (43,275) Taxation received 182,545 229,581 Net cash used in operating activities (2,615,477) (2,214,976) Investing activities Purchase of property, plant and equipment (14,959) (89,794) Purchase of IP (107,448) (70,147) Investment in subsidiaries (312,003) (378,847) Cash consideration (1,598,423) – Deferred consideration (500,000) – Net cash used in investing activities (2,532,833) (538,788) Cash flows from financing activities Net proceeds from issue of shares 3,118,962 2,353,425 Net amounts raised from convertible loan 1,472,000 – Lease payments made (42,759) (36,102) Net cash generated by/(used in) financing activities 4,548,203 2,317,323 Net decrease in cash and cash equivalents (600,107) (436,441) Cash and cash equivalents at the beginning of the period 1,124,961 1,561,402 Cash and cash equivalents at the end of the period 524,854 1,124,961 The notes on pages 42 to 64 form part of these financial statements. COMPANY STATEMENT OF CASH FLOWS For the Year Ended 30 June 2024 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 40 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 41 Share capital £ Share premium £ Share based payments reserves £ Retained earnings £ Total £ As at 1 July 2022 1,567,802 8,758,037 437,316 (7,151,781) 3,611,374 Loss for the period – – – (2,289,815) (2,289,815) Issue of shares 163,588 2,453,793 – – 2,617,381 Cost of share issue – (263,956) – – (263,956) Share-based payments – – 1,273 – 1,273 As at 30 June 2023 1,731,390 10,947,874 438,589 (9,441,596) 3,676,257 Loss for the period – – – (2,502,322) (2,502,322) Issue of shares 291,162 3,841,413 – – 4,132,575 Cost of share issue – (281,614) – – (281,614) As at 30 June 2024 2,022,552 14,507,673 438,589 (11,943,918) 5,024,896 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. Retained earnings represents accumulated profit or losses to date. Share based payment reserve represents the share option charges. The notes on pages 42 to 64 form part of these financial statements. COMPANY STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2024 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 1 GENERAL INFORMATION SkinBioTherapeutics plc (‘the Company’) is a public company limited by shares 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 65. The principal activity of the Group is that of research and development focused on harnessing the microbiome for human health, and commercialisation of these technologies, as well as the manufacture and sales of dermatological products through acquired entities. 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. Subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. A list of all the Company’s subsidiary undertakings is provided in note 14 and for the business combination details, refer to note 20. 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 £1.56m (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. NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2024 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 42 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 43 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONTINUED) 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. 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 Patents & Trademarks - 10% straight line Trade Name - 10% straight line Customer Relationships - 25% straight line Capitalisation of development costs During the year £169,996 (2023: £75,483) of development costs were capitalised, bringing the total amount of development costs capitalised, as intangible assets, as at 30 June 2024, to £860,391 (2023: £700,331), 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 £nil at 30 June 2024 (2023: £35,386). Recoverability of goodwill, customer relationships and trade name intangible assets As noted above, part of the Company’s strategy is to grow through acquisitions which has led to material goodwill, customer relationships and trade name intangible assets being recognised on the balance sheet. Goodwill, which is allocated across CGUs, is tested annually to determine if there is any indication of impairment by comparing the carrying amount of the goodwill to the recoverable amount of the CGU to which it has been allocated. Assumptions and estimates are used to determine the recoverable amount of each CGU, principally based on the present value of estimated future cash flows. Actual performance may differ from management’s expectations. The estimates and assumptions used in performing impairment testing are described in note 12. Customer relationships and trade name intangible assets are also reviewed annually for indicators of impairment and if an indicator of impairment exists then similar recoverability testing, involving the use of estimates and assumptions, is performed for the business to which the customer relationships and trade name intangible assets relate. The useful economic lives of customer relationships and trade name intangible assets are also reviewed at least annually, with any revisions to the original estimated useful economic lives accounted for prospectively. 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 £255 at 30 June 2024 (2023: £82). The expected returns rate would need to differ to actual returns by 10% to have an impact of +/- £1,945 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. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONTINUED) 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 23. 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. The following standards, amendments and interpretations are new and effective for the year ended 30 June 2024 and have been adopted. None of the pronouncements had a material impact on the Group’s consolidated results, assets and liabilities. Reference Title Summary Application date of standard (Periods commencing on or after) IAS 1 Disclosure of Accounting Policies Amendments require that an entity discloses its material accounting policies, instead of its significant accounting policies. 1 January 2023 IAS 8 Definition of Accounting Estimates Amendments replace the definition of a change in accounting estimates with a definition of accounting estimates. 1 January 2023 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 Application date of standard (Periods commencing on or after) IAS1 Presentation of Financial Statements Amendments regarding the classification of liabilities as current or non-current 1 January 2024 Amendments regarding non-current liabilities with Covenants 1 January 2024 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. NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2024 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 44 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 45 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONTINUED) 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 of internet sales, in addition to postage receipts, as well as sales to a range of distributors, national pharmacy chains and wholesalers, 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. 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. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONTINUED) m) Business combinations and goodwill Business combinations are accounted for under IFRS 3 Business Combinations (Revised) using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition-date fair value. Acquisition costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IFRS 9 in the income statement. Goodwill is initially measured at cost, being the excess of the aggregate of the acquisition-date fair value of the consideration transferred over the net identifiable amounts of the assets acquired and the liabilities assumed in exchange for the business combination. Assets acquired and liabilities assumed in transactions separate from the business combinations, such as the settlement of pre-existing relationships or post-acquisition remuneration arrangements, are accounted for separately from the business combination in accordance with their nature and applicable IFRSs. Identifiable intangible assets, meeting either the contractual-legal or separability criterion, are recognised separately from goodwill. Contingent liabilities representing a present obligation are recognised if the acquisition-date fair value can be measured reliably. Brands and customer relationships arising on the acquisition of business combinations, are measured at cost less accumulated amortisation and accumulated impairment losses. The acquired brand is a well-know brand which is registered, has a good track record and has a finite useful life. Customer relationships are measured at the time of the business combination and have finite useful lives. n) 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. 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. NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2024 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 46 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 47 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONTINUED) 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. o) 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. p) 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. q) 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). Nonmarket vesting conditions are included in assumptions about the number of options that are expected to vest. At each statement of financial position date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. The fair value of share-based payments recognised in the income statement is measured by use of the Black Scholes model, which takes into account conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted; based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The share price volatility percentage factor used in the calculation is based on management’s best estimate of future share price behaviour and is selected based on past experience, future expectations and benchmarked against peer companies in the industry. r) 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. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONTINUED) 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. 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. NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2024 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 48 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 49 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONTINUED) 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. 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. 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. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 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 4 operating segments. Despite there being 4 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. Year ended 30 June 2024 UK £ US £ EU £ RoW £ Total £ Sales of products 990,350 35,363 102,676 80,280 1,208,669 Cost of sales (444,616) (8,238) (39,862) (32,915) (525,631) Gross profit 545,734 27,125 62,814 47,365 683,038 Year ended 30 June 2023 UK £ US £ EU £ RoW £ Total £ Sales of products 118,921 9,275 3,861 – 132,057 Cost of sales (42,205) (3,292) (1,370) – (46,867) Gross profit 76,716 5,983 2,491 – 85,190 Due to the nature of its activities, the Group is not reliant on any individual major customers. 4 EXPENSES - ANALYSIS BY NATURE Group 2024 £ 2023 £ Other income (15,726) (3,292) Selling and distribution costs 170,597 81,294 Depreciation of right-of-use asset 35,704 32,401 Depreciation of plant and equipment 49,260 11,136 Research and development 562,911 930,636 Directors remuneration (including share-based compensation) 685,994 778,639 Staff costs 341,425 214,606 Foreign exchange differences 1,041 (51) Auditors remuneration – audit fees 66,400 34,450 – other services 4,025 3,000 Inventory write down – 35,386 Lease interest on ROU 7,641 8,886 Other operating costs 1,678,898 957,451 Total operating expenses 3,588,170 3,084,542 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2024 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 50 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 51 5 FINANCE COSTS Group 2024 £ 2023 £ Interest payable 6,944 8,886 Other interest charges 7,762 – Convertible loan interest 29,054 – 43,760 8,886 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: 2024 Number 2023 Number Executive directors 2 2 Non-executive directors 3 3 Employees 9 7 Average total persons employed 14 12 As at 30 June 2024 the Company had 15 employees (2023: 11). Group and company Staff costs in respect of these employees were: 2024 £ 2023 £ Wages and salaries 922,275 873,637 Social security costs 108,419 118,510 Defined contribution pensions 18,867 17,124 Share-based payments (see note 23) – 1,273 Total remuneration 1,049,561 1,010,544 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 2024 are £2,911 (2023: £3,326). STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 6 EMPLOYEES AND DIRECTORS (CONTINUED) Group and company Directors remuneration: 2024 £ 2023 £ Stuart J. Ashman 324,642 382,478 Manprit Randhawa 227,988 261,480 Martin Hunt 71,015 68,670 Dr Cathy Prescott 36,099 41,011 Danielle Bekker 26,250 25,000 Total remuneration 685,994 778,639 Which is made up of: 2024 £ 2023 £ Remuneration 673,884 755,258 Amounts receivable under long term incentive schemes – 11,375 Company contributions to pension schemes 12,110 12,006 Total remuneration 685,994 778,639 The number of directors to whom retirement benefits are accruing in respect of qualifying services under defined contribution pension schemes is 2 (2023: 2). The highest paid director received total emoluments of £324,642 (2023: £382,478) during the year. 7 TAXATION Income taxes recognised in profit or loss Group 2024 £ 2023 £ Current tax Current period – UK corporation tax (4,476) – R&D tax credit (68,426) 182,547 R&D tax credit – prior year – (9,458) Tax credit for the year 72,902 173,089 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2024 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 52 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 53 7 TAXATION (CONTINUED) The tax charge for each period can be reconciled to the loss per the statement of comprehensive income as follows: Group 2024 £ 2023 £ Taxable losses (2,948,892) (3,008,238) Normal applicable rate of tax 25.00% 19.00% Loss on ordinary activities multiplied by normal rate of tax (737,223) (571,565) Effects of: Depreciation 31,015 2,116 Disallowables 85,165 3,752 Capital allowances (3,740) (17,061) R&D enhanced deductions (78,927) (137,215) R&D tax credit (68,426) (173,089) Losses surrendered 201,594 248,189 Unused tax losses carried forward 497,640 471,784 UK tax charge/(credit) (72,902) (173,089) The Group has an unrecognised deferred tax asset of £2,648,809 (2023: £1,637,470) 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 £10,595,235 (2023: £8,618,261) available to be carried forward against future profits. 8 LOSS PER SHARE Group 2024 £ 2023 £ Basic and diluted loss per share Total comprehensive loss for the year (2,875,990) (2,835,149) Weighted average number of shares 186,287,360 164,713,045 Basic and diluted loss per share (pence) (1.54) (1.72) 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. 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 £2,502,322 (2023: £2,289,815). STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 10 PROPERTY, PLANT AND EQUIPMENT Group £ Company £ Cost At 1 July 2022 10,200 10,200 Additions 89,794 89,794 At 30 June 2023 99,994 99,994 Additions 14,959 14,959 At 30 June 2024 114,953 114,953 Accumulated depreciation At 1 July 2022 10,200 10,200 Charge for the year 11,136 11,136 At 30 June 2023 21,336 21,336 Charge for the year 49,260 49,260 At 30 June 2024 70,596 70,596 Net book value At 1 July 2022 – – At 30 June 2023 78,658 78,658 At 30 June 2024 44,357 44,357 11 RIGHT-OF-USE ASSETS Group £ Company £ Cost At 1 July 2022 158,754 158,754 Additions – – At 30 June 2023 158,754 158,754 Additions 13,214 13,214 At 30 June 2024 171,968 171,968 Accumulated amortisation At 1 July 2022 31,851 31,851 Charge for the year 32,401 32,401 At 30 June 2023 64,252 64,252 Charge for the year 35,704 35,704 At 30 June 2024 99,956 99,956 Net book value At 1 July 2022 126,903 126,903 At 30 June 2023 94,502 94,502 At 30 June 2024 72,012 72,012 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2024 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 54 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 55 12 GOODWILL Net Book Value £ Cost At 1 July 2023 – Acquired through business combinations 2,038,325 At 30 June 2024 2,038,325 During the year an amount of £2.0m (2023: nil) has been acquired through business combinations. Goodwill represents the excess of consideration over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Impairment testing The carrying amount of goodwill is allocated across CGUs and is tested annually for impairment by comparing the recoverable amount of each CGU with its carrying value. The identification of CGUs reflects the way the business is managed and monitored on a business by business basis, taking into account the generation of cash flows and the sharing of synergies. Given the similar nature of the activities of each CGU, a consistent methodology is applied across the Group in assessing CGU recoverable amounts. The recoverable amount is the higher of the value in use and the fair value less the costs of disposal. The value in use is the present value of the cash flows expected to be generated by the CGU over a projection period together with a terminal value. The projection period is the time period over which future cash flows are predicted. The Group’s methodology is to use a projection period of four years consisting of detailed cash flow forecasts for the first two years and CGU specific growth assumptions for years three and four. For periods after this four year period, the methodology applies a long term growth rate specific to the CGU to derive a terminal value. The value in use calculations are principally sensitive to revenue growth, including any significant changes to the customer base, achievability of future profit margins and the discount rates used in the present value calculation. The information used for valuation purposes takes into consideration past experience and the current economic environment with regard to customer attrition rates and additions to the customer base, the ability to introduce price increases and new products and experience in controlling the underlying cost base. This information is used to determine a long term growth rate which is consistent with the geographic segments in which the Group operates and management’s assessment of future operating performance and market share movements. The discount rates used are determined with assistance provided by external valuation specialists. The weighted average long term growth rate used in 2024 was in the range of 8%–15% (2023: nil) reflecting the anticipated revenue and profit growth. A pre-tax discount rate of 40% (2023: nil) has been applied to the value in use calculations reflecting market assessments of the time value of money at the balance sheet date. Based on our impairment testing, no impairments were identified to the carrying value of goodwill within the Group. As for the impairment testing for the Group’s CGUs noted above, value in use calculations were prepared based on management’s latest expectations of the performance of the relevant business over a five year projection period and appropriate long term growth and discount rates. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2024 13 INTANGIBLE ASSETS Group Patents & trademarks £ Customer relationships £ Brands £ Total £ Cost At 1 July 2022 625,754 – – 625,754 Additions 75,483 – – 75,483 At 30 June 2023 701,237 – – 701,237 Additions 169,996 577,000 25,000 771,996 At 30 June 2024 871,233 577,000 25,000 1,473,233 Accumulated amortisation At 1 July 2022 250 – – 250 Charge for the year 656 – – 656 At 30 June 2023 906 – – 906 Charge for the year 9,936 72,179 1,253 83,368 At 30 June 2024 10,842 72,179 1,253 84,274 Net book value At 1 July 2022 625,504 – – 625,504 At 30 June 2023 700,331 – – 700,331 At 30 June 2024 860,391 504,821 23,747 1,388,959 Company Patents & trademarks £ Customer relationships £ Brands £ Total £ Cost At 1 July 2022 624,255 – – 624,255 Additions 70,147 – – 70,147 At 30 June 2023 694,402 – – 694,402 Additions 107,448 – – 107,448 At 30 June 2024 801,850 – – 801,850 Accumulated amortisation At 1 July 2022 – – – – Charge for the year – – – – At 30 June 2023 – – – – Charge for the year – – – – At 30 June 2024 – – – – Net book value At 1 July 2022 624,255 – – 624,255 At 30 June 2023 694,402 – – 694,402 At 30 June 2024 801,850 – – 801,850 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 2023. SkinBioTherapeutics plc Annual Report & Financial Statements 2024 56 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 57 14 INVESTMENTS Company: Investments in subsidiary undertakings £ Cost At 1 July 2022 423,072 Additions 59,362 At 30 June 2023 482,434 Additions 3,160,426 At 30 June 2024 3,642,860 As at 30 June 2024, the Company directly owned the following subsidiaries: Name of company Country of incorporation Proportion of equity interest SkinBiotix Limited United Kingdom 100% of ordinary shares AxisBiotix Limited United Kingdom 100% of ordinary shares MediBiotix Limited United Kingdom 100% of ordinary shares CleanBiotix Limited United Kingdom 100% of ordinary shares PharmaBiotix Limited United Kingdom 100% of ordinary shares Dermatonics Limited (acquired 25 January 2024) United Kingdom 100% of ordinary shares 15 INVENTORIES Group 2024 £ 2023 £ Inventories 472,419 33,497 472,419 33,497 The cost of inventories recognised as an expense during the year was £525,631 (2023: £82,252). The cost of inventories recognised as an expense includes £nil (2023: £35,386) in respect of write-downs of inventory to net realisable value. 16 TRADE AND OTHER RECEIVABLES Group Company 2024 £ 2023 £ 2024 £ 2023 £ Current Trade debtors 279,806 816 – – Corporation tax – 182,545 68,425 182,545 Sales taxes recoverable – 108,720 24,348 96,240 Other receivables 61,348 12,693 11,589 12,891 Prepayments 56,934 70,656 53,117 40,026 398,088 375,430 157,479 331,702 Non-current Amounts due from group undertakings – – 1,593,553 1,445,801 – – 1,593,553 1,445,801 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 16 TRADE AND OTHER RECEIVABLES (CONTINUED) 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 loans to AxisBiotix Limited and Dermatonics for £1,976,870 (2023: £1,788,549) which was discounted to £1,687,877 and then impaired by £7,608, in addition to earlier years impairment of £86,716 to give a current value of £1,593,553 (2023: £1,445,801) under IFRS 9, as set out in note 2. Although the loan has no repayment terms, it is anticipated to be repaid in 2 years from the date of these financial statements. 17 TRADE AND OTHER PAYABLES Group Company 2024 £ 2023 £ 2024 £ 2023 £ Current Trade creditors 281,062 194,274 119,116 176,176 Corporation Tax 27,257 – – – Accruals 175,712 236,837 115,812 233,839 Sales taxes payable 23,943 505 – – Other taxes 14,103 62,815 6,095 61,636 Other payables 3,740 4,265 2,304 3,906 525,817 498,696 243,327 475,557 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. 18 LEASE LIABILITIES Group and company 2024 £ 2023 £ Maturity analysis Year 1 43,485 37,770 Year 2 41,254 39,029 Year 3 – 35,777 Year 4 – – Year 5 – – 84,739 112,576 Less future interest charges (5,997) (11,930) 78,742 100,646 Analysed as Current 38,881 31,045 Non-current 39,861 69,601 78,742 100,646 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2024 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 58 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 59 19 CONVERTIBLE LOAN NOTE On 25th January 2024, the Company entered into a £5m convertible bond facility with Macquarie Bank Limited and CLG Capital LLC, from which a tranche of £1.6m was drawn down on that date in order to finance the upfront cash consideration for the acquisition of Dermatonics Limited. The issue price of each bond was 92% of the principal amount (£10,000 per bond), with the conversion price set a the higher of (i) 93% of the 5-day Volume Weighted Average Price of the Shares on one trading day selected by the holder in its sole discretion out of the 5 trading days immediately preceding the date of the conversion notice, and (ii) the minimum conversion price (£0.0475 for the first tranche). The convertible bonds shall have a maturity of two years from issuance. In addition, under the first tranche 2,349,244 warrants were issued with an exercise price of £0.204321 per share; the warrants expire 3 years after issuance. Group and company 2024 £ 2023 £ Proceeds of issue of convertible loan notes 1,600,000 – Transaction costs (128,000) – Net proceeds from issue of convertible loan notes 1,472,000 – 2024 £ 2023 £ As at 1 July 2023 – – Drawdown 1,600,000 – Conversions into equity during the year (860,000) – Liability at 30 June 2024 740,000 – The interest expensed for the year is calculated by applying an effective interest rate of 1% per annum over the 3-month term SONIA rate and payable quarterly in cash. The interest expense during the year was £29,054 (2023: £0). 20 BUSINESS COMBINATIONS This note details acquisition transactions carried out in the current period. For accounting policies see ‘Business combinations and goodwill’ in note 2. The Group has developed a process to assist with the identification of the fair values of the assets acquired and liabilities assumed, including the separate identification of intangible assets in accordance with IFRS 3 ‘Business Combinations’ as revised. This formal process is applied to each acquisition and involves an assessment of the assets acquired and liabilities assumed. The consideration paid or payable in respect of acquisitions comprises amounts paid on completion and deferred consideration. All consideration has been allocated against the identified net assets, with the balance recorded as goodwill. Transaction costs and expenses such as professional fees are charged to the income statement. The acquisitions provide opportunities for further development of the Group’s activities and to create enhanced returns. On 25th January 2024, SkinBioTherapeutics Plc acquired 100% of Dermatonics Ltd for an initial sum of £1.75m plus £1.25m earn out over three years. £0.5m earn out was paid on 20th May 2024, £0.5m is due within 1 year and £0.25m is due after 1 year. This gives a total consideration £2.99m. The deferred consideration is based on Dermatonics Ltd achieving an EBITDA target in the 12 months to 31st January 2025 and again in the 12 months to 31st January 2026. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 20 BUSINESS COMBINATIONS (CONTINUED) Aggregate net assets at the date of acquisition: £ Property, plant and equipment 9,367 Intangible assets 35,354 Cash and cash equivalent 147,222 Trade and other receivables 191,047 Inventories 535,341 Trade and other payables (411,577) Net assets 506,754 Deferred tax liability (150,624) Fair Value of Asset at acquisition: Trade Name 25,000 Customers 577,000 Goodwill 2,038,325 Total consideration 2,996,455 Goodwill of £2.04m (2023: nil) reflects certain intangibles that cannot be individually separated and reliably measured due to their nature. These items include value of expected synergies arising from business combination and the experience and skill of the acquired workforce. The fair value of the acquired trademark, brand and customer base was identified and included in intangible assets detailed in note 13. Acquisition costs of £318k (2023: nil) have been expensed through operating costs, £226k of these relate to the acquisition with further expenses relating to the convertible loan raise of £92k. The acquisition of Dermatonics contributed £960k to the Group’s revenue and £124k to the Group’s operating loss. The estimated contribution from the Dermatonics acquisition to the results of the Group for the year ended 30 June 2024 if such an acquisition had been made at the start of the financial year are £1.9m to revenue and £202k to operating losses. NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2024 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 60 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 61 21 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 2024 is as follows: Group Carrying amount On demand and less than 3 months 3 to 12 months 1 to 2 years 2 to 5 years Assets Cash and cash equivalents 800,904 800,904 – – – Trade and other receivables 341,155 341,155 – – – 1,142,059 1,142,059 – – – Liabilities Trade and other payables 460,743 460,743 – – – Lease liabilities 84,739 10,871 32,614 41,254 – Convertible loan note 740,000 – – 740,000 – Deferred consideration 750,000 – 500,000 250,000 – Deferred tax 150,624 – – – 150,624 2,186,106 471,614 532,614 1,031,254 150,624 Company Carrying amount On demand and less than 3 months 3 to 12 months 1 to 2 years 2 to 5 years Assets Cash and cash equivalents 524,854 524,854 – – – Trade and other receivables 11,588 11,588 – – – Amounts due from group undertakings 1,593,553 1,593,553 – – – 2,129,995 2,129,995 – – – Liabilities Trade and other payables 237,231 237,231 – – – Lease liabilities 84,739 10,871 32,614 41,254 – Convertible loan note 740,000 – – 740,000 – Deferred consideration 750,000 – 500,000 250,000 – 1,811,970 248,102 532,614 1,031,254 – STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 21 FINANCIAL INSTRUMENTS (CONTINUED) The maturity analysis of financial instruments at 30 June 2023 was as follows: Group Carrying amount On demand and less than 3 months 3 to 12 months 1 to 2 years 2 to 5 years Assets Cash and cash equivalents 1,311,834 1,311,834 – – – Trade and other receivables 13,509 13,509 – – – 1,325,343 1,325,343 – – – Liabilities Trade and other payables 435,881 435,881 – – – Lease liabilities 112,576 8,498 29,272 39,029 35,777 548,457 444,379 29,272 39,029 35,777 Company Carrying amount On demand and less than 3 months 3 to 12 months 1 to 2 years 2 to 5 years Assets Cash and cash equivalents 1,124,961 1,124,961 – – – Trade and other receivables 12,892 12,892 – – – Amounts due from group undertakings 1,445,801 1,445,801 – – – 2,583,654 2,583,654 – – – Liabilities Trade and other payables 413,923 413,923 – – – Lease liabilities 112,576 8,498 29,272 39,029 35,777 526,499 422,421 29,272 39,029 35,777 22 SHARE CAPITAL Company - Issued and fully paid Number of shares Share capital Share premium As at 1 July 2022 156,780,236 1,567,802 8,758,037 As at 30 June 2023 173,138,854 1,731,390 10,947,874 Ordinary share issued at 1p per share 17,224,087 172,240 3,100,336 Costs related to shares issued – – (281,614) Shares issued from convertible loan 11,892,282 118,922 741,077 As at 30 June 2024 202,255,223 2,022,552 14,507,673 On 22 November 2023 17,224,087 ordinary shares were issued by way of a placing at a price of 19p per share to raise finance. On 13 February 2024 487,659 ordinary shares were issued by way of conversion at a price of 10.25p per share. On 29 February 2024 836,825 ordinary shares were issued by way of conversion at a price of 9.559935p per share. On 14 March 2024 1,108,524 ordinary shares were issued by way of conversion at a price of 7.2168p per share. On 8 April 2024 7,583,958 ordinary shares were issued by way of conversion at a price of 6.592863p per share. On 30 May 2024 1,875,316 ordinary shares were issued by way of conversion at a price of 7.998651p per share. 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. NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2024 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 62 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 63 23 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 2024 2023 Number of options Weighted average exercise price £ Number of options Weighted average exercise price £ Outstanding at 1 July 16,729,343 0.11 17,379,343 0.12 Granted during the year – – – – Forfeited/cancelled during the year – – (650,000) 0.38 Outstanding at 30 June 16,729,343 0.11 16,729,343 0.11 No share options were issued in the year. The charge recognised for the year ended 30 June 2024 for share options is £nil (2023: £1,274). The following assumptions were used in the calculations: Deed pool 1 2 3a 3b 3c Grant date 05/04/17 05/04/17 05/04/17 05/04/17 05/04/17 Exercise price 9p 9p 9p 9p 9p Share price at grant date 9p 9p 9p 9p 9p Risk-free rate 0.24% 0.24% 0.16% 0.16% 0.16% Volatility 60% 60% 60% 60% 60% Expected life 3.5 years 3.5 years 2.75 years 2.75 years 2.75 years Fair value 2.58p 1.85p 2.30p 2.30p 2.30p Deed pool 4 5 6 7 8 Grant date 18/04/19 18/04/19 18/04/19 03/03/20 08/04/20 Exercise price 18p 18p 18p 9.5p 9p Share price at grant date 18p 18p 18p 9.5p 7p Risk-free rate 0.75% 0.75% 0.75% 0.29% 0.12% Volatility 60% 60% 60% 80% 80% Expected life 3.5 years 3.5 years 3.5 years 0 years 2 years Fair value 2.85p 3.99p 3.48p 9.50p 0.87p The closing share price per share at 30 June 2024 was 8.75p (30 June 2023: 12.5p). 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. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 24 RELATED PARTY TRANSACTIONS Group and company Key management personnel compensation 2024 £ 2023 £ Short-term employee benefits including social security costs 749,202 934,467 Post-employment benefits 12,110 13,218 Share-based payments – 11,375 761,312 959,060 Compensation figures above include directors and key management personnel. Detailed remuneration disclosures for directors are provided in the employees and directors note on page 52, and in the Directors Report. Transactions with other related parties During the period ended 30 June 2024, the Company was charged fees of £57,123 (2023: £55,440) 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 2024 £5,557 (2023: £5,292) was outstanding. During the period ended 30 June 2024, the Company was charged fees of £28,550 (2023: £28,096) 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 2024 £nil (2023: £nil) was outstanding. 25 ULTIMATE CONTROLLING PARTY No one shareholder has control of the Company. 26 EVENTS AFTER THE REPORTING DATE The Company has evaluated all events and transactions that occurred after 30 June 2024 up to the date of signing of the financial statements. On 7 August 2024 the Company completed a fundraise through a placing raising £1.56m of gross proceeds. On 10 October 2024 SkinBioTherapeutics signed an agreement to acquire 100% of Bio-Tech Solutions Limited for an enterprise value consideration of £1.25m. The purchase price was settled in cash and financing of the transaction was arranged through a combination of debt and equity with an existing long-term shareholder in SkinBioTherapeutics plc. No other material subsequent events have occurred that would require adjustment to or disclosure in the financial statements. NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2024 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 64 SkinBioTherapeutics plc Annual Report & Financial Statements 2024 65 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 Aldgate Tower 2 Leman Street London E1 8FA 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 Vigo Consulting Limited 78-79 New Bond Street London W1S 1RZ STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS The Core, Bath Lane Newcastle Helix Newcastle upon Tyne NE4 5TF