Tissue Regenix Group
Annual Report 2012

Plain-text annual report

ANNUAL REPORT FOR THE YEAR ENDED 31 JANUARY 2012 158556 TISSUE REGENIX Annual Report.indd 2 04/05/2012 13:17 Tissue Regenix Group plc DIRECTORS John Samuel (Executive Chairman) Antony Odell (Managing Director) Ian Jefferson (Chief Financial Officer) Michael Bretherton (Non-Executive Director) Alan Aubrey (Non-Executive Director) Alan Miller (Non-Executive Director) Alexander Stevenson (Non-Executive Director) COMPANY SECRETARY Ian Jefferson COMPANY WEBSITE www.tissueregenix.com COMPANY NUMBER 5969271 (England & Wales) REGISTERED OFFICE The Biocentre Innovation Way Heslington York North Yorkshire YO10 5NY AUDITOR KPMG Audit Plc 1 The Embankment Neville Street Leeds LS1 4DW NOMINATED ADVISER AND BROKER Peel Hunt Limited Moor House 120 London Wall London EC2Y 5ET REGISTRAR Capita Registrars Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU LEGAL ADVISER DLA Piper UK LLP Princes Exchange Princes Square Leeds LS1 4BY Contents Chairmans’ Statement Directors’ Report Directors’ Remuneration Report Corporate Governance Statement Statement of Directors’ Responsibilities Auditor’s Report Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Company Statement of Changes in Equity Company Statement of Financial Position Company Statement of Cash Flows Notes to the Company Information Notice of Annual General Meeting Tissue Regenix Group plc 2 4 9 13 14 15 17 18 19 20 21 37 38 39 40 42 Annual Report for the year ended 31 January 2012 1 Tissue Regenix Group plc Chairman’s Statement Overview We continue to make good progress in the development of a number of products, addressing a range of needs across multiple therapeutic areas, utilising our proprietary platform technology, dCell®. Our goal is to become a global leader in regenerative medicine. The successful share placing in December 2011, which raised £25m (before expenses), has greatly enhanced our momentum by allowing us to develop a number of products in parallel. The dCell Process The dCell® process is protected by a library of patents and is used to create biological scaffolds by decellularising human or animal tissue. These scaffolds are intended to replace damaged or diseased parts of the human body and have been shown to be capable of regeneration, thereby becoming integrated into the patient. Because the scaffolds are inert on implantation and the subsequent regeneration has been shown to occur through natural bodily functions, they are classified as medical devices and therefore follow a regulatory pathway which is typically faster and less costly than, for example, pharmaceutical products. Product Development Cardiac We are continuing to prepare the data required to support the development of a dCell® version of an existing bioprosthetic heart valve, which has already been used in over 1200 patients. The dCell® process has been used with human donor valves in over 140 patients and with encouraging results covering a period of over five years. Discussions are at an early stage to develop commercial agreements with tissue banks and work has commenced on both aortic and pulmonary replacement porcine heart valves. Although at an early stage we believe these products have the potential to represent a tremendous advance in this field. Dermis The pilot study of the use of human donor decellularised skin in the treatment of chronic wounds, which was initiated with our UK development partner NHSBT, continues with very early but promising results. We expect preliminary clinical data to be available towards the end of 2012. This product will also be evaluated for use in plastic surgery and burns. A porcine donor version is also under examination. Vascular Two year follow up data for the dCell® Vascular Patch will be available later this year and we continue to build clinical evidence and experience to assist in its commercialisation. Dialogue with the FDA continues in respect of approval of its use in the USA and we are preparing additional data that they have requested. Thus far its use has been mainly in the femoral position (arteries of the thigh) and we are examining how it may best be used by surgeons in carotid applications (arteries of the head and neck). A pre-pilot study for a cardiac patch is under way and showing early signs of promise and we expect a study of its use in patching the Dura will be underway soon. Also we continue to progress the Arterial-Vascular graft, which can be used to replace damaged veins and arteries, with our development partners in Brazil. 2 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc Orthopaedic The preclinical trial of our porcine meniscal repair product is nearing its end and we expect data to be available in the second half of the year. There is a very large but un-met clinical need for this product and initial surgeon feedback has been encouraging. We have also begun to refine production processes for a porcine ligament repair product and will commence preclinical work shortly. Financial Review During the year we raised £25.0m (before expenses) through a placing of shares achieved in very demanding market conditions, with support from a major new institutional shareholder, Invesco Asset Management Limited, plus a number of our existing shareholders. The purpose of the fund-raising was to enable the development of a number of products simultaneously. As at the year end the cash balance was £28.0m (2011: £5.9m). Operating income of £0.1m (2011: £0.2m) was comprised mainly of grant income. Administrative expenses increased to £3.1m (2011: £2.1m) primarily due to increased development spend on new product trials and additional staff costs incurred as we began to scale up to develop multiple products concurrently. As a result of these investments, the operating loss for the period increased to £3.0m (2011: £1.9m excluding £3.7m of deemed cost on reverse acquisition). The Board and external recognition There have been no changes in the composition of the Board since the previously announced appointment of Ian Jefferson as Chief Financial Officer on 13 June 2011. I am however delighted that external recognition has been given to our development partners at Leeds University. The Institute of Medical and Biological Engineering at the University was awarded the Queens Diamond Jubilee Award for Higher and Further Education for their work in the field of regenerative medical devices. Outlook The chronic global shortage of donor tissue will result in clinical demand for products to address this issue continuing to increase. Tissue Regenix’s programmes in Cardiac, Orthopaedics, Vascular and Advanced Woundcare are ideally placed to provide long term solutions to replace and regenerate diseased or aging body parts. Markets like advanced wound care (which has estimated revenues of $5bn per year globally) continue to grow as conditions such as chronic wounds and diabetic foot ulcers place huge burdens on healthcare systems and are prime candidates for products based on our technology platform. The fundraising which we successfully achieved in 2011 leaves me confident that we are now ideally positioned to capitalise on major market needs and become a leader in regenerative medicine. Our product pipeline continues to progress well and we are looking forward to being in a position to advance these through a range of trials with the intention of commercialising them in due course. John Samuel Executive Chairman 9 May 2012 Annual Report for the year ended 31 January 2012 3 Tissue Regenix Group plc Directors’ Report The Directors present their report and consolidated financial statements for the year ended 31 January 2012. Principal activity The principal activity of the Group was that of exploiting innovative platform technologies in the field of tissue engineering and regenerative medicine. The Company is incorporated and domiciled in the UK. Review of the business and future developments A review of the Group’s performance and future prospects is included in the Chairman’s statement on pages 2 and 3. Key performance indicators Key Group performance indicators are set out below: 31 January 2012 31 January 2011 £’000 £’000 Net assets 27,879 6,218 Loss attributable to equity holders pre cost of acquisition (2,687) (1,678) Deemed cost of reverse acquisition – (3,749) Total loss attributable to equity holders (2,687) (5,427) Cash and cash equivalents 28,021 5,889 Results and dividends The loss for the year attributable to equity holders pre exceptional items was £2,687k (2011: £1,678k). The directors do not recommend the payment of a dividend (2011: nil). Share capital and funding Full details of the Group and Company’s share capital movements during the year are given in note 13 of the financial statements. Directors and their interests The following directors held office in the year. John Samuel Antony Odell Ian Jefferson Michael Bretherton Alan Aubrey Alan Miller Alexander Stevenson (appointed 13 June 2011) Directors’ interests in the shares of the Company, including family interests are included in the Remuneration Report on pages 9 to 12. Directors’ indemnity insurance The Group has maintained insurance throughout the year for its directors and officers against the consequences of actions brought against them in relation to their duties for the Group. 4 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc Profile of the directors John Samuel, Executive Chairman John Samuel joined Tissue Regenix Limited as Chairman in March 2008. John qualified as a Chartered Accountant with Price Waterhouse and has held a number of senior finance positions in industry, including as Financial Director of Whessoe plc and Ellis & Everard plc. He was formerly the CEO of the Molnlycke Health Care Group, a global provider of single use surgical and wound care products to the healthcare sector. Until January 2010 he was a Partner with Apax Partners Llp. Currently, he is also Chairman of Xeros Ltd. Antony Odell, Managing Director Antony Odell joined Tissue Regenix Limited as a consultant from January 2008 and was appointed to the Board of Tissue Regenix Limited in October 2008. Antony has extensive commercial experience in the medical technology sector. As well as working as co-director of Xeno Medical, a medical technology consultancy, he was CEO for a UK NHS cardiovascular device spin-out, Tayside Flow Technologies Ltd. Antony has a strong corporate sector background having worked for J&J Medical for almost 10 years in European business development roles for Drug Delivery & Vascular Access and General Manager (UK) for Fresenius (Critical Care & Diagnostics). Ian Jefferson, Chief Financial Officer Ian Jefferson joined Tissue Regenix Group Plc as Chief Financial Officer in June 2011. Ian was formerly Chief Executive Officer of AIM listed, COE Group Plc. Having initially joined COE as CFO in 2007 he became CEO in 2008, restructured the Group and then successfully planned and executed its sale. Prior to COE, Ian held a number of senior finance positions within LSE-quoted companies, most recently as Group Financial Controller of 600 Group Plc. He has a comprehensive financial and operations background and extensive experience of organisational transformation and M&A. A qualified chartered accountant Ian holds a BSc in Physics with Electronics from Manchester University and an MSc in Applied Radiation Physics from Birmingham University. Michael Bretherton, Non-Executive Director Michael Bretherton graduated in Economics from the University of Leeds and then worked as an accountant and manager with Pricewaterhouse for 7 years in both London and the Middle East. He subsequently worked for the Plessey Company Plc before being appointed Finance Director of Bridgend Group Plc in 1988 where he held the position for 12 years. More recently, he has worked at the property and services company, Mapeley Limited as Financial Operations Director and then at the entertainment software games developer, Lionhead Studios Limited. Michael currently is a director of ORA Capital Partners Limited, which is one of the significant investors in Tissue Regenix, as well as a number of other AIM listed companies. Alan Aubrey, Non-Executive Director Alan was the joint founder and Chief Executive of Techtran Group Ltd, the first company in Europe to offer a complete outsourced technology transfer function to universities. Techtran was acquired by IP Group in 2005. Alan is also Non-Executive Chairman of Proactis, an AIM-listed software company based in York. From 1995-2002 Alan was a partner in KPMG where he specialised in providing advice to fast growing Annual Report for the year ended 31 January 2012 5 Tissue Regenix Group plc Directors’ Report technology businesses. Alan holds a BA in Economics from the University of Leeds and a MBA with Distinction from the University of Bradford. He is a fellow of the Institute of Chartered Accountants of England and Wales. Alan is also Chairman of the Department for Business, Innovation & Skills (BIS) Audit and Risk Committee. Alan Miller, Non-Executive Director Alan Miller is a founding partner of SCM Private, the wealth management company, which was set up in 2009. He was formerly the Chief Investment Officer and founding shareholder of New Star Asset Management from 2001 until 2007. Prior to that, he was a Director at Jupiter Asset Management having spent his early career as a senior fund manager at Gartmore Investment Management. Alan is also a Non-Executive Director of several private companies including Pharminox Ltd, a pharmaceutical company specialising in cancer research. Alan has a degree in Commerce (Accounting) from Birmingham University and is a member of the Chartered Institute of Management Accountants. Alexander Stevenson, Non-Executive Director Alex Stevenson joined Tissue Regenix Limited as a Non-Executive Director in December 2007. Alex is a Director of Aquarius Equity Partners, one of the significant investors in Tissue Regenix. He began his career as a scientist, before focusing on identification, establishment and growth of high value technology businesses. Alex worked for Techtran from formation through to its sale to main market listed IP Group in 2005. Following the acquisition, Alex worked in a variety of roles within IP Group and managed investments in portfolio companies including Avacta and Syntopix (where he was also CEO), both of which listed on AIM in 2006. Most recently, Alex was a founder and Chief Operating Officer of Modern Biosciences plc, the drug development subsidiary of IP Group. Substantial shareholders As at 31 March 2012, shareholders holding more than 3% of the share capital of Tissue Regenix Group plc were: Name of shareholder Number of shares % of voting rights Invesco Limited 186,457,019 28.58 ORA (Guernsey) Limited 129,435,477 19.83 Techtran Group Limited 89,884,942 13.77 University of Leeds 33,980,127 5.21 The Northern Entrepreneurs Fund LLP 30,512,434 4.67 IP Venture Fund 24,794,730 3.80 Henderson Global Investors 23,808,207 3.65 John Samuel* 23,588,928 3.61 Alan Miller 22,861,655 3.50 * Includes 10,740,000 shares held jointly by the director and the Tissue Regenix Employee Share Trust. Risk management Details of the Group’s financial risk management objectives and policies are disclosed in note 11 to the financial statements. 6 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc The main risks arising from the Group’s activities are market risk and liquidity risk. The Directors review and agree policies for managing risk at least annually. Market risk Interest rate risk The Group has no external financing facilities therefore its interest rate risk is limited to the level of interest received on its cash surpluses. Interest rate risk is partially mitigated by using an element of fixed rate deposit accounts. Liquidity risk The Company seeks to manage liquidity by ensuring sufficient funds are available to meet foreseeable needs and to invest cash assets safely and profitably. The Group had cash balances of £28,021k as at 31 January 2012 (2011: £5,889k) which the Directors consider to be sufficient to continue in business for the foreseeable future. In order to minimise risk to the Group’s capital, funds are invested across a number of financial institutions with strong credit ratings. Cash forecasts are updated regularly to ensure that there is sufficient cash available for foreseeable requirements. Credit risk The Company’s principal financial asset is cash. The credit risk associated with cash is limited because the Group only holds cash with banks with high credit ratings. Donations No charitable or political donations were made in the year (2011: nil). Policy on payment of suppliers The Group does not follow any code or standard payment practice. The Group’s policy is to agree the terms of payment with key suppliers. For all other suppliers, terms are agreed for each transaction. The Group endeavours to abide by the terms of payment with suppliers. Employment policies The Group supports employment of disabled people where possible through recruitment, by retention of those who become disabled and generally through training, career development and promotion. The Group is committed to keeping employees as fully-informed as possible with regard to the Group’s performance and prospects and seeks their views, wherever possible, on matters which affect them as employees. Statement as to disclosure of information to the auditor The Directors who were in office on the date of approval of these financial statements have confirmed, that as far as they are aware, that there is no relevant audit information of which the auditor is unaware. Each of the Directors have confirmed that they 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 it has been communicated to the auditor. Annual Report for the year ended 31 January 2012 7 Tissue Regenix Group plc Directors’ Report Auditor During the year the Group decided to change auditors and the appointment of KPMG Audit Plc was approved by the board on 1 March 2012. In accordance with section 489 of the Companies Act 2006, a resolution to appoint KPMG Audit Plc will be put to the members at the Annual General Meeting. On behalf of the Board Antony Odell Director 9 May 2012 8 Annual Report for the year ended 31 January 2012 Directors’ Remuneration Report Tissue Regenix Group plc It is the Company’s policy that Executive Directors should have contracts with an indefinite term providing for a maximum of six months’ notice. In the event of early termination, the Directors’ contracts provide for compensation up to a maximum of basic salary for the notice period. Non-executive Directors are employed on letters of appointment which may be terminated on not less than three months’ notice. Companies with securities listed on AIM do not need to comply with the UKLA Listing Rules. The Remuneration Committee is however committed to maintaining high standards of corporate governance and disclosure and has applied the guidelines as far as practical given the current size and development of the Company. Remuneration Committee The Remuneration Committee’s primary responsibilities are to review the performance of the Executive Directors of the Company and to determine the broad policy and framework for their remuneration and the terms and conditions of their service and that of senior management (including the remuneration of and grant of options to such persons under any share scheme adopted by the Company). The Remuneration Committee comprises Alexander Stevenson, who is chairman of the committee, Alan Aubrey and Alan Miller. The committee meets no less than twice in each financial year. The main elements of the remuneration packages for Executive Directors and senior management are: Basic annual salary (including directors’ fees) The base salary is reviewed annually at the beginning of each year. The review process is undertaken by the Remuneration Committee and takes into account several factors, including the current position and development of the Group, individual contribution and market salaries for comparable organisations. Discretionary annual bonus All Executive Directors and senior managers are eligible for a discretionary annual bonus which is paid in accordance with a bonus scheme developed by the Remuneration Committee. This takes into account individual contribution, business performance and commercial progress, along with financial results. Share incentive schemes The Group operates a share option plan, under which certain directors’ and senior management have been granted options to subscribe for ordinary shares. All options are equity settled. The options are subject to service and performance conditions, have an exercise price of between 0.5 pence and 14.25 pence and the vesting period is generally 1-3 years. If the options remain unexercised after a period of 10 years from the date of grant, the options expire. The Group has no legal or constructive obligation to repurchase or settle the options in cash. In addition, certain Executive Directors are eligible to acquire interests in ordinary shares in the Company to be owned jointly with the trustee of the Tissue Regenix Group Employee Share Trust (EBT) and under which, subject to meeting performance criteria conditions, most of any future increase in the value of the shares will accrue to the employees. Annual Report for the year ended 31 January 2012 9 Tissue Regenix Group plc Directors’ Remuneration Report Remuneration Policy for Non-Executive Directors Remuneration for Non-Executive Directors is set by the Chairman and the Executive Members of the Board. Non-Executives do not participate in bonus schemes or share incentive schemes. Directors’ remuneration The remuneration of the main Board Directors’ of Tissue Regenix who served in the year to 31 January 2012 was: Salary & Total Total fees Bonus Benefits 2012 2011 £’000 £’000 £’000 £’000 £’000 Antony Odell (note 2 & 3) 140 89 – 229 136 John Samuel (note 3) 100 – – 100 65 Ian Jefferson (note 1 & 3) 77 18 – 95 - Michael Bretherton (note 3) 12 – – 12 11 Alan Aubrey 15 – – 15 9 Alexander Stevenson 10 – – 10 13 Alan Miller 15 – – 15 13 Total 369 107 – 476 247 Note 1 Note 2 Note 3 Represents remuneration from 13 June 2011, being the date Ian Jefferson joined the Company. £39k of Antony Odell’s bonus relates to the prior year. In addition certain directors hold employee share scheme interests in the company. Fair value share based payment charges recognised in the consolidated statement of comprehensive income attributable to these directors are; John Samuel £59,000 (2011: £53,000), Antony Odell £30,000 (2011: £203,000), Ian Jefferson £28,000 (2011: £nil) and Michael Bretherton £5,000 (2011: £2,000). Directors’ shareholdings Directors’ interests in the shares of the Company, including family interests at 31 January 2012 were: Ordinary shares of 0.5p each 2012 2012 2011 2011 Number % Number % John Samuel (note 4) 23,588,928 3.61% 22,861,655 4.87% Antony Odell (note 4) 5,572,800 0.85% 5,572,800 1.19% Ian Jefferson (note 4) 1,009,404 0.03% – – Michael Bretherton (note 4) 1,200,000 0.18% 1,200,000 0.26% Alan Aubrey (note 5 & 6) 2,389,259 0.37% 2,389,259 0.51% Alan Miller 21,486,988 3.29% 21,486,988 4.57% Alexander Stevenson (note 6) – – – – Note 4 Note 5 Note 6 Includes shares held jointly by the director and EBT as set out below. Shares are held through IP2IPO Nominees Limited. Alan Aubrey holds approximately 0.4 per cent. of the issued share capital of IP Group plc, the holding company of Techtran Group Limited and a 0.17 per cent. limited partnership interest in IP Venture Fund. In addition, Alan Aubrey has a 3 per cent. direct interest in the Northern Entrepreneurs Fund LLP and approximately a 0.24 per cent. indirect interest in the same through his shareholding in Axiomlab Group plc, the parent company of Inhoco 2835 Limited which has a 3 per cent. interest in the Northern Entrepreneurs Fund LLP. Further, Alan Aubrey and Alexander Stevenson are participants in the Northern Entrepreneurs Fund Co-investment LLP which holds 1,731,665 shares in Tissue Regenix Group Plc. Alan and Alexander would be entitled 10 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc Directors’ interests in jointly owned EBT shares and share options Directors’ interests in shares owned jointly with the Trustees of the Tissue Regenix Group Employee Share Trust (EBT) and in share options to acquire ordinary shares of 0.5 pence each in the Company at 31 January 2012 were: At At 1 February Granted 31 January Exercise 2011 during year 2012 price Approved EMI scheme options Antony Odell 8,307,608 – – – 8,307,608 Antony Odell 1,187,200 – – – 1,187,200 Ian Jefferson – – – 872,727 872,727 John Samuel 2,400,000 – – – 2,400,000 EBT scheme shares Antony Odell 5,372,800 – – – 5,372,800 Ian Jefferson – – 827,586 827,586 John Samuel 10,740,000 – – – 10,740,000 Michael Bretherton 600,000 – – – 600,000 0.73 pence 5.00 pence 13.75 pence 5.00 pence 5.00 pence 14.50 pence 5.00 pence 5.00 pence There are no performance conditions outstanding in relation to the 8,307,608 options granted to Antony Odell prior to the reverse acquisition all of which were eligible to be exercised at 31 January 2011. All of the other options and EBT share interests are subject to employment period and performance conditions which allows for vesting in three equal proportions on or after the three consecutive annual anniversaries from the date of grant subject to the Company’s share price performance. For Antony Odell and John Samuel the share price is required to reach 10 pence per share, 15 pence per share and 20 pence per share by the respective three vesting dates and for Ian Jefferson the share price is required to reach 15 pence per share, 20 pence per share and 25 pence per share by the respective three vesting dates. At 31 January 2012, the employment period and performance conditions had been met in relation to 395,733 EMI share options and 1,790,933 EBT shares held by Antony Odell and 800,000 EMI share options and 3,580,000 EBT shares held by John Samuel. These shares were therefore eligible to vest. Also, at 31 January 2012, the performance conditions had been met in relation to a further 395,733 EMI shares options and 1,790,933 EBT shares held by Antony Odell and 800,000 EMI share options and 3,580,000 EBT shares held by John Samuel. These shares will become eligible to vest on completion of the associated employment period condition on 30 June 2012. The Tissue Regenix Group Employee Share Trust (“the EBT”) was established with Osiris Management Services Limited appointed as trustee (“the Trustee”) to enable the Trust to acquire ordinary shares in the Company and to make interests in those shares available for the benefit of current and future employees of the Company and its subsidiaries. Antony Odell, John Samuel and Michael Bretherton have interests in ordinary shares in the Company which were acquired jointly with the Trustee in the market on 29 June 2010 at a price of 5 pence per share. Ian Jefferson has an interest in ordinary shares Annual Report for the year ended 31 January 2012 11 Tissue Regenix Group plc Directors’ Remuneration Report in the Company which were acquired jointly with the Trustee in the market on 25 July 2012 at a price of 14.25 pence. The shares were all acquired pursuant to certain conditions set out in Joint Owned Equity agreements (“JOE’s”). Subject to meeting the performance criteria conditions set out in the JOE’s, most of any future increase in the value of the shares will accrue to the employees provided that they have not ceased employment with the Group on or before the date that these conditions are met. The employees are also under certain circumstances able to benefit from an increase in the value of the Shares on a takeover, change of control, scheme of arrangement or a voluntary winding-up of the Company. Where the performance conditions are not met, the Trustee has an option to acquire the interests of the employees in the Shares at a price equal to the original purchase cost they paid so that none of any increase in the value of the Shares will accrue to them. The market price of the shares at 31 January 2012 was 13.62 pence per share, the highest and lowest prices during the year were 15.00 pence and 11.00 pence respectively. Further details of all share options and jointly owned shares held by the Trustee are set out in note 17 to the financial statements. On behalf of the Board Alexander Stevenson Chairman of the Remuneration Committee 9 May 2012 12 Annual Report for the year ended 31 January 2012 Corporate Governance Statement Tissue Regenix Group plc Corporate governance The Directors recognise the importance of sound corporate governance and observe the principals of the UK Corporate Governance Code, to the extent that they consider them appropriate for the Group’s size, throughout the accounting year. The Board The Board currently comprises three Executive Directors and four Non-Executive Directors. Audit Committee The Audit Committee’s primary responsibilities are to monitor the integrity of the financial affairs and statements of the Company, to ensure that the financial performance of the Company and any subsidiary of the Company is properly measured and reported on, to review reports from the Companies auditors relating to the accounting and internal controls and to make recommendations relating to the appointment of the external auditors. The Audit Committee comprises Alan Miller, who acts as chairman of the committee, Alan Aubrey and Alex Stevenson. Internal Control The Board is responsible for maintaining a sound system of internal control. The Board’s measures are designed to manage, not eliminate risk, and such a system provides reasonable but not absolute assurance against material misstatement or loss. The board confirms that it has established the procedures necessary to implement the guidance “Internal Control Guidance for Directors on the Combined Code” (The Turnbull Report). Some key features of the internal control system are: (i) Management accounts information, budgets, forecasts and business risk issues are regularly reviewed by the Board who meet at least ten times per year; (ii) The Company has operational, accounting and employment policies in place; (iii) The Board actively identifies and evaluates the risks inherent in the business and ensures that appropriate controls and procedures are in place to manage these risks; and (iv) There is a clearly defined organisational structure and there are well-established financial reporting and control systems. Going Concern At 31 January 2012, the Group had £28,021k of cash and cash equivalents available to it. The Directors have considered their obligation, in relation to the assessment of the going concern of the Group and each statutory entity within it and have reviewed the current budget cash forecasts and assumptions as well as the main risk factors facing the Group. After due enquiry, the Directors consider 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 financial statements. Annual Report for the year ended 31 January 2012 13 Tissue Regenix Group plc Statement of Directors’ Responsibilities Statement of Directors’ responsibilities The Directors are responsible for preparing the Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare Group and Company financial statements for each financial year. The Directors are required by the AIM rules of the London Stock Exchange to prepare Group financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union (“EU”) and have elected under company law to prepare the Company financial statements in accordance with IFRS as adopted by the EU. The financial statements are required by law and IFRS as adopted by the EU to present fairly the financial position of the Group and Company and the financial performance of the Group. The Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing each of the Group and Company financial statements, the Directors are required to: a. select suitable accounting policies and then apply them consistently; b. make judgements and estimates that are reasonable and prudent; c. state whether they have been prepared in accordance with IFRS as adopted by the EU; d. prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and 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 and the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and to 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 Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and inancial information included on the Tissue Regenix Group website, www.tissueregenix.com. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 14 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc Report of the Independent Auditor to the Members of Tissue Regenix Group Plc We have audited the group and parent company financial statements (“the financial statements”) which comprise, the Consolidated and Parent Company Statements of Financial Position, the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statements of Cash Flows, the Consolidated and Parent Company Statements of Changes in Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. 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. Respective responsibilities of directors and auditor As more fully explained in the Directors’ Responsibilities Statement set out on 14, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm. Opinion on financial statements In our opinion • the financial statements give a true and fair view of the state of the group’s and the parent’s affairs as at 31 January 2012 and of the group’s loss for the year then ended; • the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the parent financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Annual Report for the year ended 31 January 2012 15 Tissue Regenix Group plc Report of the Independent Auditor to the Members of Tissue Regenix Group Plc Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Jeremy Gledhill KPMG Audit Plc, Statutory Auditor Chartered Accountants 1 The Embankment Neville Street Leeds LS1 4DW 9 May 2012 16 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc Consolidated Statement of Comprehensive Income For the year ended 31 January 2012 2012 2011 Notes £’000 £’000 OPERATING INCOME 4 109 173 Administrative expenses 4 (3,097) (2,117) Deemed cost on reverse acquisition 16 – (3,749) Operating loss (2,988) (5,693) Finance income 6 62 28 Loss before taxation (2,926) (5,665) Taxation 7 239 238 Loss after tax attributable to equity holders of the parent (2,687) (5,427) Loss and total comprehensive expense for the year (2,687) (5,427) Loss per share Basic and diluted on loss from continuing operations (0.57)p (1.48)p There are no items of other comprehensive income. The loss for the year arises from the Group’s continuing operations. Annual Report for the year ended 31 January 2012 17 Tissue Regenix Group plc Consolidated Statement of Changes in Equity For the year ended 31 January 2012 Share Reverse Issued Based Revenue Share Share Merger Acquisition Equity Payment Deficit Capital Premium Reserve Reserve Capital Reserve Reserve Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 At 31 January 2010 600 4,333 – (1,054) 3,879 1 (2,593) 1,287 Loss and total comprehensive expense for the year Reverse acquisition Issue of shares Expenses on issue of shares Employee interest in jointly owned shares Share based payment expense – – – – – – (5,427) (5,427) 1,210 – 10,884 (6,094) 6,000 – – 6,000 533 4,803 – – 5,336 – (836) 4,500 – (481) – – (481) – – (481) – – – – – – 8 8 – – – – – 331 – 331 At 31 January 2011 2,343 8,655 10,884 (7,148) 14,734 332 (8,848) 6,218 Loss and total comprehensive expense for the year Issue of shares Expenses on issue of shares Employee interest in jointly owned shares Share based payment expense – – – – – – (2,687) (2,687) 919 24,094 – – 25,013 – (4) 25,009 – (784) – – (784) – – (784) – – – – – – 1 1 – – – – – 122 – 122 At 31 January 2012 3,262 31,965 10,884 (7,148) 38,963 454 (11,538) 27,879 18 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc Consolidated Statement of Financial Position As at 31 January 2012 2012 2011 Notes £’000 £’000 Assets Non-current assets Property, plant and equipment 9 157 189 Total non-current assets 157 189 Current assets Trade and other receivables 10 350 393 Cash and cash equivalents 11 28,021 5,889 Total current assets 28,371 6,282 Total assets 28,528 6,471 Liabilities Current liabilities Trade and other payables 12 (649) (253) Total liabilities (649) (253) Net assets 27,879 6,218 Equity Share capital 13 3,262 2,343 Share premium 13 31,965 8,655 Merger reserve 13 10,884 10,884 Reverse acquisition reserve 13 (7,148) (7,148) Issue equity capital 38,963 14,734 Share based payment reserve 454 332 Revenue reserve 14 (11,538) (8,848) Total equity 27,879 6,218 Approved by the Board of Directors and authorised for issue on 9 May 2012. John Samuel Executive Chairman Ian Jefferson Chief Financial Officer Company number: 5969271 Annual Report for the year ended 31 January 2012 19 Tissue Regenix Group plc Consolidated Statement of Cash Flows For the year ended 31 January 2012 2012 2011 Notes £’000 £’000 Operating activities Operating loss (2,988) (5,693) Adjustment for non-cash items: Depreciation of property, plant and equipment 9 62 46 Share based payment 17 122 331 Deemed cost of reverse acquisition 16 – 3,749 Tax refunded 280 183 Operating cash outflow (2,524) (1,384) Decrease/(increase) in trade and other receivables 2 (68) Increase/(decrease) in trade and other payables 396 (24) Net cash outflow from operations (2,126) (1,476) Investing activities Interest received 62 28 Purchases of property, plant and equipment 9 (30) (100) Net cash outflow from investing activities 32 (72) Financing activities Cash acquired on reverse acquisition 16 – 2,327 Proceeds from issue of share capital 13 25,009 4,500 Sale of joint interest in shares to employees 14 1 8 Expenses on issue of share capital 13 (784) (481) Net cash inflow from financing activities 24,226 6,354 Increase in cash and cash equivalents 22,132 4,806 Cash and cash equivalents at start of year 5,889 1,083 Cash and cash equivalents at end of year 28,021 5,889 20 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc Notes to the Financial Statements For the year ended 31 January 2012 1. BASIS OF PREPARATION The financial statements of Tissue Regenix Group plc are audited consolidated financial statements for the year to 31 January 2012. These include audited comparatives for the year to 31 January 2011. The Group financial statements consolidate the financial statements of Tissue Regenix Group plc and the entities it controls, its subsidiaries. Going Concern As at 31 January 2012, the Group had £28 million of cash and cash equivalents available to it. The Directors have considered their obligation, in relation to the assessment of the going concern of the Group and each statutory entity within it and have reviewed the current budget cash forecasts and assumptions as well as the main risk factors facing the Group as set out on pages 29 to 30. After due enquiry, the Directors consider 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 financial statements. 2. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared under the historical cost convention in accordance with International Financial Reporting Standards as adopted by the European Union. Historical Cost Convention The financial information has been prepared on the historic cost basis. The principal accounting policies applied are set out below. SEGMENTAL REPORTING At 31 January 2012, the Group operated in one business segment, that of the development and commercialisation of innovative platform technologies in the field of tissue engineering and regenerative medicine. All of the Group’s assets are held in the UK and all of its capital expenditure arises in the UK. REVENUE Revenue is measured as the fair value of the consideration received or receivable in the normal course of business, net of discounts, VAT and other sales related taxes and is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow in to the Company. Grant income is recognised as earned based on contractual conditions, generally as expenses are incurred. FOREIGN CURRENCIES Transactions in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Gains and losses arising on retranslation are charged to profit or loss as they are incurred. The functional and presentational currency of the Group is British pounds. RESEARCH AND DEVELOPMENT Research costs are charged to profit or loss as they are incurred. An intangible asset arising from development expenditure on an individual project is recognised only when all of the following criteria can be demonstrated. Annual Report for the year ended 31 January 2012 21 Tissue Regenix Group plc Notes to the Financial Statements The criteria for recognising expenditure as an asset are: • it is technically feasible to complete the product and the Company is satisfied that appropriate regulatory hurdles have been, or will be achieved; • management intends to complete the product and use or sell it; • there is an ability to use or sell the product; • it can be demonstrated how the product will generate probable future economic benefits; • adequate technical, financial and other resources are available to complete the development, use or sell the product; and • expenditure attributable to the product can be reliably measured. Such intangible assets are amortised on a straight-line basis from the point at which the assets are ready for use over the period of the expected benefit, and are reviewed for an indication of impairment at each reporting date. Other development costs are charged against profit or loss as incurred since the criteria for their recognition as an asset are not met. The costs of an internally generated intangible asset comprise all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Directly attributable costs include employee costs incurred on technical development, testing and certification, materials consumed and any relevant third party cost. The costs of internally generated developments are recognised as intangible assets and are subsequently measured in the same way as externally acquired intangible assets. However, until completion of the development project, the assets are subject to impairment testing only. No development costs to date have been capitalised as intangible assets. LEASES Rentals payable under operating leases, which are leases where the lessor retains a significant proportion of the risks and benefits of the asset are charged in the statement of comprehensive income on a straight line basis over the expected lease term. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment assets are stated at historical cost. Depreciation is provided on all property, plant and equipment assets at rates calculated to write each asset down to its estimated residual value evenly over its expected useful life, as follows: Laboratory equipment Computer equipment Office furniture and equipment: over 5 years over 3 years over 5 years IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment and 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 in order to determine the extent of the impairment loss (if any). 22 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc Discounted cash flow valuation techniques are generally applied for assessing recoverable amounts using 3 year forward looking cash flow projections and terminal value estimates, together with discount rates appropriate to the risk of the related cash generating units. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. SHARE BASED PAYMENTS Share options Equity settled share-based payment transactions are measured with reference to the fair value at the date of grant, recognised on a straight line basis over the vesting period, based on the company’s estimate of shares that will eventually vest. Fair value is measured using the Black-Scholes model unless the options are subject to market conditions when the binomial model is used. At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management’s best estimate of the achievement or otherwise of non-market conditions and the number of equity instruments that will ultimately vest. The movement in cumulative expense since the previous reporting date is recognised in the statement of comprehensive income, with a corresponding entry in equity. Jointly held shares Where an employee acquires an interest in shares in the Company jointly with the Tissue Regenix Employee Share Trust, the fair value benefit at the purchase date is recognised as an expense, with a corresponding increase to equity share based payment reserve on a straight-line basis, over the vesting period. The fair value benefit is measured using a Binomial valuation model, taking into account the terms and conditions upon which the jointly owned shares were purchased. The expected life used in the model has been adjusted, based on management’s best estimate, for the effect of non-transferability, sale restrictions, and behavioral considerations. FINANCIAL ASSETS AND LIABILITIES Trade and other receivables Trade and other receivables do not carry any interest and are initially recognised at fair value. They are subsequently measured at amortised cost using the effective interest rate method, less any provision for impairment. Impairment provisions are recognised when there is objective evidence that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. Trade and other payables Trade and other payables are not interest bearing and are initially recognised at fair value. They are subsequently measured at amortised cost using the effective interest method. Cash and cash equivalents Cash and cash equivalents comprise cash at hand and deposits on a term of not greater than 12 months. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax from proceeds. Annual Report for the year ended 31 January 2012 23 Tissue Regenix Group plc Notes to the Financial Statements TAXATION The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the period. The Group’s liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial information and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled using tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax is charged or credited to profit or loss, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. CRITICAL ACCOUNTING ESTIMATES AND AREAS OF JUDGEMENT Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and assumptions that have the most significant effects on the carrying amounts of the assets and liabilities in the financial information are discussed below: Equity settled share-based payments The estimation of share-based payment costs requires the selection of an appropriate valuation method, consideration as to the inputs necessary for the valuation model chosen and the estimation of the number of awards that will ultimately vest. Inputs subject to judgement relate to the future volatility of the share price of comparable companies, the Group’s expected dividend yields, risk free interest rates and expected lives of the options. The Directors draw on a variety of sources to aid in the determination of the appropriate data to use in such calculations. The share based payment charge for the year was £122,000 (31 January 2011: £331,000). Research and development costs Careful judgement by the Directors is applied when deciding whether the recognition requirements for capitalising development costs have been met. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems. Judgements are based on the information available at each reporting date which includes the progress with testing and certification and progress on, for example, establishment of commercial arrangements with third parties. In addition, all internal activities related to research and development of new products are continuously monitored by the Directors. To date, no development costs have been capitalised. 24 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc ACCOUNTING STANDARDS AND INTERPRETATIONS NOT APPLIED At the date of authorisation of these financial statements, the following standards and interpretations relevant to the Group that have not been applied in these financial statements were in issue but not yet effective or endorsed (unless otherwise stated): IIAS 12 IFRS IAS 1 IFRS 1 IFRS 10 IAS 27 IFRS 11 IAS 28 IFRS 12 IFRS 13 IAS 27 IAS 28 IAS 19 IFRS 7 IAS 32 IFRS 9 Income Taxes (amendments) Financial Instruments Presentation of Items of Other Comprehensive Income (amendments) Government loans (amendments) Consolidated Financial Statements Separate Financial Statements Joint Arrangements Amendments to IAS 28 Disclosure of Interests in Other Entities Fair Value Measurement Separate Financial Statements Investments in Associates and Joint Ventures Defined Benefit Plans (amendments) Disclosures – Offsetting Financial Assets and Financial Liabilities Offsetting Financial Assets and Financial Liabilities (amendments) Financial Instruments Effective Date 1 January 2012 1 January 2013 1 July 2012 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2014 1 January 2015 The Directors anticipate that the adoption of these Standards and Interpretations in future years will have no material impact on the financial statements of the Group. No Standards or Interpretations adopted in the year had any material impact on the financial statements of the Group. 3. SEGMENTAL REPORTING At 31 January 2012, the Group operated in one business segment, that of the development and commercialisation of innovative platform technologies in the field of tissue engineering and regenerative medicine. All of the Group’s assets are held in the UK and all of its capital expenditure arises in the UK. Annual Report for the year ended 31 January 2012 25 Tissue Regenix Group plc Notes to the Financial Statements 4. LOSS FROM OPERATIONS Loss from operations is stated after crediting: Grant income Loss from operations is stated after charging to administrative expenses: Depreciation of plant and equipment (see note 9) Operating lease rentals – land and buildings Staff costs Foreign exchange losses Research and development (inclusive of research and development personnel) Auditors remuneration: – fees payable to Company’s auditor for the audit of the Company’s accounts – auditing the accounts of subsidiaries pursuant to legislation Other services: – fees in relation to acquisition and AIM listing – fees in relation to establishing the Tissue Regenix Employee Share Trust – fees in relation to taxation Total auditor’s remuneration 5. STAFF COSTS The average monthly number of persons (including directors) employed by the Group during the year was: Directors Laboratory and administration staff The aggregate remuneration, including directors, comprised: Wages and salaries Share based expense (see note 17) Social security costs Directors’ remuneration included comprised: Emoluments for qualifying services Year to 31 January 2012 £’000 Year to 31 January 2011 £’000 107 62 129 1,330 3 1,089 10 5 – – 5 20 173 46 95 1,108 2 653 12 10 50 30 – 102 Year to 31 January 2012 Number Year to 31 January 2011 Number 7 19 26 6 13 19 Year to 31 January 2012 £’000 Year to 31 January 2011 £’000 1,094 122 114 1,330 598 704 331 73 1,108 505 Directors’ emoluments disclosed above include £227,000 paid to the highest paid director (2011: £136,000) as well as share based payments benefit of £122,000 (2011: £258,000). There are no pension benefits for directors. 26 Annual Report for the year ended 31 January 2012 6. FINANCE INCOME Bank interest receivable 7. TAXATION Tax on loss on ordinary activities Current tax: UK corporation tax credit on losses of period Tax credits received in respect of prior periods Deferred tax: Origination and reversal of temporary timing differences Tax credit on loss on ordinary activities Tissue Regenix Group plc Year to 31 January 2012 £’000 62 Year to 31 January 2011 £’000 28 Year to 31 January 2012 £’000 Year to 31 January 2011 £’000 (239) – (239) – (239) (167) (71) (238) – (238) The charge for the year can be reconciled to the loss before tax per the Statement of Comprehensive Income as follows: Factors affecting the current tax charges The tax assessed for the year varies from the small company rate of corporation tax as explained below: The tax assessed for the period varies from the small company rate of corporation tax as explained below: Loss on ordinary activities before tax Tax at the standard rate of corporation tax 20% (2011: 21%) Effects of: Expenses not deductable for tax purposes Capital allowances in excess of depreciation Research and development tax credits received Surrender of research and development relief for repayable tax credit Research and development enhancement Adjustment to prior year research and development relief Unutilised tax losses Tax credit for the year Year to 31 January 2012 £’000 Year to 31 January 2011 £’000 (2,926) (585) (1,959) (411) 25 – (239) 382 (186) – 364 (239) 69 (14) (167) 250 (118) (71) 224 (238) Annual Report for the year ended 31 January 2012 27 Tissue Regenix Group plc Notes to the Financial Statements Deferred Tax Tax losses Losses available to carry forward against future trading profits Deferred tax asset – unrecognised* Year to 31 January 2012 £’000 Year to 31 January 2011 £’000 4,624 925 2,806 589 * The Company has not recognised a deferred tax asset relating to these losses as their recoverability is uncertain. 8. LOSS PER SHARE (BASIC AND DILUTED) Basic loss per share is calculated by dividing the loss attributable to equity holders of the parent by the weighted average number of ordinary shares in issue during the year excluding own shares held jointly by the Tissue Regenix Employee Share Trust and certain employees. Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares in issue during the year to assume conversion of all dilutive potential ordinary shares. Loss attributable to the equity holders of the parent Pre deemed cost on reverse acquisition Deemed cost on reverse acquisition Total loss attributable to the equity holders of the parent Weighted average number of ordinary shares in issue during the year Loss per share Basic and diluted on loss for the year Pre deemed cost on reverse acquisition Post deemed cost on reverse acquisition Year to 31 January 2012 £’000 Year to 31 January 2011 £’000 (2,687) – (2,687) (1,678) (3,749) (5,427) No. 469,184,667 No. 366,159,076 (0.57)p (0.57)p (0.46)p (1.48)p The Company has issued employee options over 16,036,328 ordinary shares and there are 17,540,386 jointly owned shares which are potentially dilutive. There is however, no dilutive effect of these issued options as there is a loss for each of the years concerned. 28 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc 9. PROPERTY, PLANT AND EQUIPMENT Laboratory Equipment £’000 Fixtures & Fittings £’000 Computer Equipment £’000 Total £’000 Cost At 31 January 2010 Additions At 31 January 2011 Additions At 31 January 2012 Depreciation At 31 January 2010 Charge for the year At 31 January 2011 Charge for the year At 31 January 2012 Net book value At 31 January 2012 At 31 January 2011 At 31 January 2010 10. TRADE AND OTHER RECEIVABLES Other receivables Prepayments and accrued income 124 76 200 9 209 27 33 60 41 101 108 140 97 32 4 36 – 36 3 7 10 8 18 18 26 29 15 20 35 21 56 6 6 12 13 25 31 23 9 2012 £’000 299 51 350 171 100 271 30 301 36 46 82 62 144 157 189 135 2011 £’000 351 42 393 The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. No provisions are held against receivables and no amounts past due have been impaired. 11. RISK MANAGEMENT OF FINANCIAL ASSETS AND LIABILITIES The Company’s activities expose it to a variety of financial risks: market risk, specifically interest rate risk, credit risk and liquidity risk. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company’s financial performance. The management of these risks is vested in the Board of Directors. The policies for managing each of these risks are summarised below: Management of market risk (i) Interest rate risk As the Company has no significant borrowings the risk is limited to the potential reduction in interest received on cash surpluses held. Interest rate risk is managed in accordance with the liquidity requirement of the Group, with a minimal amount of its cash surpluses held within an instant access account, which has a variable interest rate attributable to it, to ensure that sufficient funds are available to cover the working capital requirements of the Company. Annual Report for the year ended 31 January 2012 29 Tissue Regenix Group plc Notes to the Financial Statements Interest rate sensitivity The principal impact to the Company is the result of interest-bearing cash and cash equivalent balances held as set out below: Fixed rate Floating rate Total £’000 £’000 £’000 Cash and cash equivalents 26,576 1,445 28,021 31 January 2012 Fixed rate Floating rate Total £’000 £’000 £’000 Cash and cash equivalents 5,850 39 5,889 31 January 2011 Due to the high proportion of funds held on a fixed deposit, the impact of a 5 per cent. increase/decrease in interest rates would have an immaterial impact on the loss in each year. Management of credit risk The Company is exposed to credit risk from its operating activities, it principally arises from short term bank deposits. The Company seeks to minimise this risk by only depositing funds with banks with a high credit rating. The maximum exposure to credit risk on the Company’s financial assets is represented by their carrying amounts as outlined in the categorisation of financial instruments table below. The Company does not consider that any changes in fair value of financial assets or liabilities in the year are attributable to credit risk. Management of liquidity risk The Company seeks to manage liquidity risk to ensure that sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. No maturity analysis for financial liabilities is presented, as the Directors consider that liquidity risk is not material. The Company had cash and cash equivalents at each reporting date is set out below. Cash and cash equivalents AA A BBB 2012 £’000 132 26,347 1,542 28,021 2011 £’000 3,353 1,022 1514 5,889 The above has been split by the Fitch rating system and gives an analysis of the credit rating of the financial institutions where cash balances are held. Capital risk management The Company manages its capital to ensure that the Company will be able to continue as a going concern while maximising the return to stakeholders. The Company’s overall strategy is to minimise costs and liquidity risk. The capital structure of the Company consists of equity attributable to the owners of the Company, comprising issued capital, reserves and retained earnings as disclosed in note 13 and 14 and in the Statement of Changes in Equity. 30 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc Categorisation of financial instrument Total Financial assets/(liabilities) £’000 £’000 £’000 Financial liabilities at amortised cost Loans and receivables At 31 January 2012 Trade and other receivables Cash and cash equivalents Trade and other payables TOTAL 299 28,021 – 28,320 – – (324) (324) 299 28,021 (324) 27,996 Total Financial assets/(liabilities) £’000 £’000 £’000 Financial liabilities at amortised cost Loans and receivables At 31 January 2011 Trade and other receivables Cash and cash equivalents Trade and other payables TOTAL The Company had no financial instruments measured at fair value. 12. TRADE AND OTHER PAYABLES Trade payables Taxes and social security Accruals 351 5,889 – 6,240 – – (199) (199) 2012 £’000 287 37 325 649 The Directors consider that the carrying amount of trade and other payables approximates to their fair value. Trade payables, split by the currency they will be settled are shown below: Sterling US Dollars Euros Trade payables 2012 £’000 281 2 4 287 351 5,889 (199) 6,041 2011 £’000 168 32 53 253 2011 £’000 144 3 21 168 Annual Report for the year ended 31 January 2012 31 Tissue Regenix Group plc Notes to the Financial Statements 13. SHARE CAPITAL Share capital £’000 Share premium £’000 Merger reserve £’000 Number Reverse acquisition reserve £’000 Allotted, issued and fully paid shares Ordinary shares of 0.1 p each as at 31 January 2010 600,000,000 600 4,333 Share consolidation 1 for 5 in to Ordinary shares of 0.5p each Issued to acquire the entire issued share capital of Tissue Regenix Limited Issued for cash Issued to Tissue Regenix Employee Share Trust Arising on reverse acquisition of Tissue Regenix Limited Expenses on issue of shares Total Ordinary shares of 0.5 p each as at 31 January 2011 (480,000,000) – 241,885,103 90,000,000 1,210 450 – – 4,050 16,712,800 83 753 – – – – – (481) Issued for cash 181,818,182 909 24,091 Share options exercised 1,136,376 6 4 – 3 – (784) 827,586 – Issued to Tissue Regenix Employee hare Trust Expenses on issue of shares Total Ordinary shares of 0.5p each as at 31 January 2012 – – 10,884 – – – – Total £’000 4,933 – 12,094 4,500 836 – – – – – (7,148) (7,148) – (481) – – – – – – – – 25,000 9 4 (784) 652,380,047 3,262 31,965 10,884 (7,148) 38,963 As permitted by the provisions of the Companies Act 2006, the Company does not have an upper limit to its authorised share capital. On 29 December 2011 the Company issued 181,818,182 ordinary shares of 0.5 pence each for a cash price of 13.75 pence per share raising a gross amount of £25,000,000. 32 Annual Report for the year ended 31 January 2012 468,597,903 2,343 8,655 10,884 (7,148) 14,734 Tissue Regenix Group plc 14. MOVEMENT IN REVENUE RESERVE AND OWN SHARES Deficit Revenue Reserve £’000 £’000 £’000 Retained Earnings Deficit Own shares At 31 January 2010 Purchase of own shares Employee interest in jointly owned shares Loss for the year At 31 January 2011 Purchase of own shares Employee interest in jointly owned shares Loss for the year At 31 January 2012 15. COMMITMENTS (2,593) – – (5,427) (8,020) – – (2,687) – (836) 8 – (828) (4) 1 – (2,593) (836) 8 (5,427) (8,848) (4) 1 (2,687) (10,707) (831) (11,538) Operating lease commitments The Group leases premises under non-cancellable operating lease agreements. The future aggregate minimum lease and service charge payments under non-cancellable operating leases are as follows: Land and buildings: Amounts due within one year Amounts due in one to five years 2012 £’000 2011 £’000 11 – 11 51 – 51 16. ACQUISITION OF SUBSIDIARY UNDERTAKING On 29 June 2010 the Company acquired 100 percent. of the issued share capital of Tissue Regenix Limited for consideration satisfied by the issue of 241,885,103 ordinary shares of 0.5 pence each. The transaction was accounted for as a reverse acquisition equity transaction as if Tissue Regenix Limited had issued new shares in exchange for Oxeco plc’s cash and other assets. The substance of the transaction is that of a share issue fund raising under which Tissue Regenix Limited received cash and bank balances of £2,327,000 representing 103 percent. of the value of the net assets of Oxeco plc and the associated costs of the transaction have therefore been charged directly against equity share capital. Annual Report for the year ended 31 January 2012 33 Tissue Regenix Group plc Notes to the Financial Statements The fair value of the shares issued was determined from the perspective of Tissue Regenix Limited as the market capitalisation value of Oxeco plc immediately prior to the acquisition. Based on an Oxeco plc market price of 5 pence per share, being the market price at which new money was also raised by the Company by the issue of shares for cash on the acquisition date, gave an implied fair value of Oxeco plc at acquisition of £6,000,000 which is £3,749,000 higher than the value of the net assets deemed acquired as set out below: Net assets acquired: Bank and cash Trade and other receivables Trade and other payables Deemed cost on reverse acquisition Fair value of reverse acquisition £’000 2,327 16 (92) 2,251 3,749 6,000 The difference between the fair value of the consideration and the fair value of the net assets deemed acquired was recorded as a deemed cost on reverse acquisition in the statement of comprehensive income. The fair value of the assets deemed to have been acquired was assessed as the book value on the acquisition date. Oxeco plc changed its name to Tissue Regenix Group plc on completion of the acquisition on 29 June 2010 and was re-admitted to AIM on that same day. 17. SHARE BASED PAYMENTS Share options and shares held in employee benefit trust (“EBT”) The Company operates a share option plan, under which certain employees have been granted options to subscribe for ordinary shares. All options are equity settled. The options have an exercise price of between 0.5p to 14.25p and a vesting period between 1 and 3 years. If the options remain unexercised after a period of 10 years from the date of grant, the options expire. The Group has no legal or constructive obligation to repurchase or settle the options in cash. The Group also operates a jointly owned EBT share scheme for senior management under which the trustee of the Group sponsored EBT has acquired shares in the Group jointly with a number of employees. The shares were acquired pursuant to certain conditions, set out in Jointly Owned Equity agreements (“JOE’s”). Subject to meeting the performance criteria conditions set out in the JOE’s, the employees are able to benefit from most of any future increase in the value of the jointly owned EBT shares. The fair value benefit is measured using the Binomial model, taking into account the terms and conditions upon which the jointly owned shares were purchased. 34 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc The number and weighted average exercise prices of share options and EBT shares are as follows: Weighted average Number of share interests exercise EMI Unapproved EBT price options options shares Total per share (£) At 31 January 2010 524 129 – 653 125.000 Exercised in the year (29) (57) – (86) 0.010 Adjustment on reverse acquisition 10,849,809 1,716,947 – 12,566,756 (124.430) Issued in the year 3,587,200 – 16,712,800 20,300,000 0.050 At 31 January 2011 14,437,504 1,717,019 16,712,800 32,867,323 0.033 Exercised in the year (826,376) (310,000) – (1,136,376) (0.073) Issued in the year 1,018,181 – 827,586 1,845,767 0.141 At 31 January 2012 14,629,309 1,407,019 17,540,386 33,576,714 0.040 On 29 June 2010 the Company acquired 100 percent. of the share capital of Tissue Regenix Limited for a consideration satisfied by the issue of 241,885,103 ordinary sharesof 0.5p each in a ratio of 21,919.81 for 1. Consequently the share options issued by Tissue Regenix Limited were replaced with share options in Tissue Regenix Group plc. No changes were made to the options other than an adjustment to the number of options, which were increased by a factor of 21,919.81 and the adjustment to the exercise price which was decreased by a factor of 21,919.81. See note 13 for further details. There were 12,626,680 share options outstanding at 31 January 2012 which were eligible to be exercised. The remaining options were not eligible to be exercised as these are subject to employment period and market based vesting conditions, some of which had not been met at 31 January 2012. The performance conditions in relation to these options allows for vesting in three equal proportions on or after the three consecutive annual anniversaries from the date of grant subject to the Company’s share price reaching certain hurdle values by the respective vesting dates. There were 5,570,933 of the jointly held EBT shares which were eligible to vest as at 31 January 2012. The remaining shares were not eligible to vest because the related employment period conditions and some of the performance conditions under the JOE’s had not been met. The fair value benefit received on share options granted is measured using either the Black Scholes model or the Binomial model as appropriate taking in to account the effects of the vesting and performance conditions, expected exercise price and the payment of the dividends by the Company. The fair value benefit received on EBT shares is measured using the Binomial model, taking into accounts the terms and conditions upon which the jointly owned shares were purchased. The following table lists the inputs to the models used: Options EBT shares Options Granted year Granted year Granted year Granted year to 31 January to 31 January to 31 January to 31 January 2011 EBT shares 2012 2012 2011 Dividend yield – – – – Expected volatility 47% 47% 50% 50% Risk free interest rate (%) 0.9 0.9 0.9 0.5 Expected vesting life of EBT shares and options (years) 4 4 3 1 Weighted average share price (£) 0.1425 0.1375 0.05 0.05 Annual Report for the year ended 31 January 2012 35 Tissue Regenix Group plc Notes to the Financial Statements Any share options and employee interests in jointly owned EBT shares which are not exercised within 10 years from the date of grant will expire. A charge has been recognised in the statement of comprehensive income for each year as follows: Granted year Granted period to 31 January to 31 January 2012 2011 £’000 £’000 Share options 33 264 Jointly owned shares 89 67 Total share based payments 122 331 18. RELATED PARTY TRANSACTIONS Trading transactions with Year ended Year ended 31 January 31 January 2012 2011 £’000 £’000 Transactions with significant shareholders: Staff secondment and sundry office running costs – 7 Patent support costs 20 30 Laboratory facility costs – 3 Reverse acquisition fees – 19 Management fees – 5 Amounts due to related parties at the year end – 7 Transactions with Key Management Personnel The Company’s key management personnel comprise only the Directors of the Company. During the year the Company entered into the following transactions in which the Directors had an interest: Directors’ remuneration: Remuneration received by the Directors from the Company is set out below: Year ended Year ended 31 January 31 January 2012 2011 £’000 £’000 Short-term employment benefits* 476 272 * In addition, certain directors hold share options and jointly owned shares in the Company for which a fair value share based charge of £122,000 has been recognised in the consolidated statement of comprehensive income (2011: £258,000). During the year ended 31 January 2012, the Company entered into numerous transactions with its subsidiary company which net off on consolidation – these have not been shown above. 19. ULTIMATE CONTROLLING PARTY The directors believe that there is no ultimate controlling party. 36 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc Company Statement of Changes in Equity Attributable to the equity holders of the Company Share Capital £’000 Share Premium £’000 Merger reserve £’000 Share Based Payment Reserve £’000 Revenue Deficit Reserve £’000 Total £’000 At 31 January 2010 Total expense and other comprehensive loss for the year 600 4,333 – – – – Shares issued to acquire Tissue Regenix Limited Shares issued for cash Shares issued to the Tissue Regenix Employee Share Trust Expenses on issue of shares Share based payment expense At 31 January 2011 Total expense and other comprehensive loss for the year Shares issued for cash Share options exercised Shares issued to the Tissue Regenix Employee Share Trust Expenses on issue of shares Share based payment expense 1,210 450 - 4,050 10,884 – 83 – – 753 (481) - – – – 2,343 8,655 10,884 – 909 6 4 – – – 24,091 3 – (784) – – – – – – – At 31 January 2012 3,262 31,965 10,884 – – – – – – 259 259 – – – – – 122 381 (2,638) 2,295 (582) (582) – – – – – 12,094 4,500 836 (481) 259 (3,228) 18,913 (841) – – (841) 25,000 9 – – – 4 (784) 122 (4,069) 42,423 Annual Report for the year ended 31 January 2012 37 Tissue Regenix Group plc Company Statement of Financial Position 2012 2011 Notes £’000 £’000 Assets Non-current assets Investments C3 12,922 12,922 Total non-current assets 12,922 12,922 Current assets Trade and other receivables C4 59 72 Intercompany loan balance C5 1,812 544 Cash and cash equivalents 27,877 5,459 29,748 6,075 Total Assets 42,670 18,997 Liabilities Current liabilities Trade and other payables C6 (247) (84) Total Liabilities (247) (84) Net Assets 42,423 18,913 Equity Share capital 13 3,262 2,343 Share premium 13 31,965 8,655 Merger reserve 13 10,884 10,884 Issue equity capital 46,111 21,882 Share based payment reserve 381 259 Revenue reserve (4,069) (3,228) Total Equity 42,423 18,913 Approved by the Board of Directors and authorised for issue on 9 May 2012. John Samuel Executive Chairman Company number: 5969271 Ian Jefferson Finance Director 38 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc Company Statement of Cash Flows 2012 2011 Notes £’000 £’000 Operating activities Loss before interest and tax (900) (602) Adjustment for non-cash items: Share based payments 122 259 Tax received – – Impairment of loan to subsidiary undertaking – – Operating cash outflow (778) (343) Decrease/(increase) in trade and other receivables 13 (61) Increase in trade and other payables 163 52 Net cash generated from operations (602) (352) Investing Activities Interest received 62 20 Loan to subsidiary undertaking C6 (1,268) (544) Net cash generated from investing activities (1,206) (524) Financing Activities Proceeds from issue of share capital 13 25,009 4,500 Sale of joint interest in shares to employees 1 – Expenses on issue of share capital 13 (784) (481) Net cash used in financing activities 24,226 4,019 Increase in cash and cash equivalents 22,418 3,143 Cash and cash equivalents at start of year 5,459 2,316 Cash and cash equivalents at end of year 27,877 5,459 Annual Report for the year ended 31 January 2012 39 Tissue Regenix Group plc Notes to the Company Information C1. PRINCIPAL ACCOUNTING POLICIES The separate financial statements of the Company are presented as required by the Companies Act 2006 and in accordance with IFRS. The principal accounting policies adopted are the same as for those set out in the Group’s financial statements. C2. COMPANY RESULTS The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the parent company’s statement of comprehensive income. The parent company’s result for the year ended 31 January 2012 was a loss of £841k. The audit fee for the company is set out in note 4 of the Group’s financial statements. C3. INVESTMENT IN SUBSIDIARY COMPANIES At 31 January 2012, the Company held the following investments in subsidiaries; Share of issued capital and voting rights Sector 2012 2011 Undertaking Regenerative medicine 100% 100% Tissue Regenix Limited Dormant 85% 85% Oxray Limited 2012 2011 Cost £’000 £’000 At 1 February 14,707 1,785 Additions – 12,922 At 31 January 14,707 14,707 Impairment At 1 February (1,785) (1,785) At 31 January (1,785) (1,785) Carrying value at 31 January 12,922 12,922 The company’s investment in Oxray Limited has been written down to nil and the Company is dormant. 40 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc C4. TRADE RECEIVABLES 2012 2011 £’000 £’000 Prepayments & accrued income 37 33 Social Security and other taxes 22 39 59 72 C5. CURRENT ASSETS 2012 2011 £’000 £’000 Intercompany loan 1,812 544 A loan of £1,812k was advanced to Tissue Regenix Limited in the year. No interest was payable on the loan. C6. TRADE PAYABLES 2012 2011 £’000 £’000 Trade Creditors 127 48 Social Security and other taxes 17 11 Accruals 103 25 247 84 Annual Report for the year ended 31 January 2012 41 Tissue Regenix Group plc Notice of Annual General Meeting Notice is given that the 2012 annual general meeting of Tissue Regenix Group plc (“Company”) will be held at DLA Piper UK LLP, Princes Exchange, Princes Square, Leeds, LS1 4BY, on 11 June 2012 at 10 am for the following purposes: To consider and, if thought fit, to pass the following resolutions as ordinary resolutions: 1. To receive the Company's annual accounts and directors' and auditors' reports for the year ended 31 January 2012. 2. To reappoint Michael Bretherton, who retires by rotation, as a director of the Company. 3. To reappoint Alan Miller, who retires by rotation, as a director of the Company. 4. To reappoint Alexander Stevenson, who retires by rotation, as a director of the Company. 5. To reappoint Ian Jefferson, who has been appointed by the board since the last annual general meeting, as a director of the Company. 6. To reappoint KPMG Audit plc as auditors of the Company. 7. To authorise the directors to determine the remuneration of the auditors. 8. That, pursuant to section 551 of the Companies Act 2006 (“Act”), the directors be and are generally and unconditionally authorised to exercise all powers of the Company to allot Relevant Securities: 8.1 comprising equity securities (as defined in section 560(1) of the Act) up to an aggregate nominal amount of £2,176,083 (such amount to be reduced by the aggregate nominal amount of Relevant Securities allotted pursuant to paragraph 8.2 of this resolution) in connection with a rights issue: 8.1.1 to holders of ordinary shares in the capital of the Company in proportion (as nearly as practicable) to the respective numbers of ordinary shares held by them; and 8.1.2 to holders of other equity securities in the capital of the Company, as required by the rights of those securities or, subject to such rights, as the directors otherwise consider necessary, but subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates or any legal or practical problems under the laws of any territory or the requirements of any regulatory body or stock exchange; and 8.2 otherwise than pursuant to paragraph 8.1 of this resolution, up to an aggregate nominal amount of £1,088,041 (such amount to be reduced by the aggregate nominal amount of Relevant Securities allotted pursuant to paragraph 8.1 of this resolution in excess of £1,088,042), provided that (unless previously revoked, varied or renewed) these authorities shall expire at the conclusion of the next annual general meeting of the Company after the passing of this resolution or on 11 September 2013 (whichever is the earlier), save that, in each case, the Company may make an offer or agreement before the authority expires which would or might require Relevant Securities to be allotted after the authority expires and the directors may allot Relevant Securities pursuant to any such offer or agreement as if the authority had not expired. 42 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc In this resolution, “Relevant Securities” means shares in the Company or rights to subscribe for or to convert any security into shares in the Company; a reference to the allotment of Relevant Securities includes the grant of such a right; and a reference to the nominal amount of a Relevant Security which is a right to subscribe for or to convert any security into shares in the Company is to the nominal amount of the shares which may be allotted pursuant to that right. These authorities are in substitution for all existing authorities under section 551 of the Act (which, to the extent unused at the date of this resolution, are revoked with immediate effect). To consider and, if thought fit, to pass the following resolutions as special resolutions: 9. That, subject to the passing of resolution 8 and pursuant to section 570 of the Act, the directors be and are generally empowered to allot equity securities (within the meaning of section 560 of the Act) for cash pursuant to the authorities granted by resolution 8 as if section 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to: 9.1 the allotment of equity securities in connection with an offer of equity securities (whether by way of a rights issue, open offer or otherwise, but, in the case of an allotment pursuant to the authority granted by paragraph 8.1 of resolution 8, such power shall be limited to the allotment of equity securities in connection with a rights issue): 9.1.1 to holders of ordinary shares in the capital of the Company in proportion (as nearly as practicable) to the respective numbers of ordinary shares held by them; and 9.1.2 to holders of other equity securities in the capital of the Company, as required by the rights of those securities or, subject to such rights, as the directors otherwise consider necessary, but subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates or any legal or practical problems under the laws of any territory or the requirements of any regulatory body or stock exchange; and 9.2 the allotment of equity securities pursuant to the authority granted by paragraph 8.2 of resolution 8 (otherwise than pursuant to paragraph 9.1 of this resolution) up to an aggregate nominal amount of £326,412, and (unless previously revoked, varied or renewed) this power shall expire at the conclusion of the next annual general meeting of the Company after the passing of this resolution or on 11 September 2013 (whichever is the earlier), save that the Company may make an offer or agreement before this power expires which would or might require equity securities to be allotted for cash after this power expires and the directors may allot equity securities for cash pursuant to any such offer or agreement as if this power had not expired. This power is in substitution for all existing powers under section 570 of the Act (which, to the extent unused at the date of this resolution, are revoked with immediate effect). 10. That, pursuant to section 701 of the Companies Act 2006 (“Act”), the Company be and is generally and unconditionally authorised to make market purchases (within the meaning of section 693(4) of the Act) of ordinary shares of 0.5p each in the capital of the Company (“Shares”), provided that: 10.1 the maximum aggregate number of Shares which may be purchased is 65,282,501; 10.2 the minimum price (excluding expenses) which may be paid for a Share is 0.5p; Annual Report for the year ended 31 January 2012 43 Tissue Regenix Group plc Notice of Annual General Meeting 10.3 the maximum price (excluding expenses) which may be paid for a Share is an amount equal to 105 per cent of the average of the middle market quotations for a Share as derived from the Daily Official List of the London Stock Exchange plc for the five business days immediately preceding the day on which the purchase is made, and (unless previously revoked, varied or renewed) this authority shall expire at the conclusion of the next annual general meeting of the Company after the passing of this resolution or on 11 September 2013 (whichever is the earlier), save that the Company may enter into a contract to purchase Shares before this authority expires under which such purchase will or may be completed or executed wholly or partly after this authority expires and may make a purchase of Shares pursuant to any such contract as if this authority had not expired. By order of the board Registered office Ian Jefferson The Biocentre Secretary Innovation Way Heslington York YO10 5NY 9 May 2012 Registered in England and Wales No. 05969271 44 Annual Report for the year ended 31 January 2012 Tissue Regenix Group plc Notes Entitlement to attend and vote 1. The right to vote at the meeting is determined by reference to the register of members. Only those shareholders registered in the register of members of the Company as at 6.00pm on 7 June 2012 (or, if the meeting is adjourned, 6.00pm on the date which is two working days before the date of the adjourned meeting) shall be entitled to attend and vote at the meeting in respect of the number of shares registered in their name at that time. Changes to entries in the register of members after that time shall be disregarded in determining the rights of any person to attend or vote (and the number of votes they may cast) at the meeting. Proxies 2. A shareholder is entitled to appoint another person as his or her proxy to exercise all or any of his or her rights to attend and to speak and vote at the meeting. A proxy need not be a shareholder of the Company. A shareholder may appoint more than one proxy in relation to the meeting, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. Failure to specify the number of shares each proxy appointment relates to or specifying a number which when taken together with the numbers of shares set out in the other proxy appointments is in excess of the number of shares held by the shareholder may result in the proxy appointment being invalid. A proxy may only be appointed in accordance with the procedures set out in notes 3 to 4 below and the notes to the proxy form. The appointment of a proxy will not preclude a shareholder from attending and voting in person at the meeting. 3. A form of proxy is enclosed. When appointing more than one proxy, complete a separate proxy form in relation to each appointment. Additional proxy forms may be obtained by contacting the Company's registrar on 0871 664 0300 (calls cost 10p per minute plus network extras) or the proxy form may be photocopied. State clearly on each proxy form the number of shares in relation to which the proxy is appointed. To be valid, a proxy form must be received by post or (during normal business hours only) by hand at the offices of the Company's registrar, Capita Registrars PXS, 34 Beckenham Road, Beckenham BR3 4TU, no later than 10 am on 9 June 2012 (or, if the meeting is adjourned, no later than 48 hours before the time of any adjourned meeting). 4. CREST members who wish to appoint a proxy or proxies for the meeting (or any adjournment of it) through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited's specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by Capita Registrars (ID RA10) no later than 10 am on 9 June 2012 (or, if the meeting is adjourned, no later than 48 hours before the time of any adjourned meeting). For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which Capita Registrars is able to retrieve the message by enquiry to CREST in the manner prescribed Annual Report for the year ended 31 January 2012 45 Tissue Regenix Group plc Notice of Annual General Meeting by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his or her CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat a CREST Proxy Instruction as invalid in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. Corporate representatives 5. A shareholder which is a corporation may authorise one or more persons to act as its representative(s) at the meeting. Each such representative may exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual shareholder, provided that (where there is more than one representative and the vote is otherwise than on a show of hands) they do not do so in relation to the same shares. Documents available for inspection 6. The following documents will be available for inspection during normal business hours at the registered office of the Company from the date of this notice until the time of the meeting. They will also be available for inspection at the place of the meeting from at least 15 minutes before the meeting until it ends. 6.1 Copies of the service contracts of the executive directors. 6.2 Copies of the letters of appointment of the non executive directors. Biographical details of directors 7. Biographical details of all those directors who are offering themselves for reappointment at the meeting are set out on page 5 of the enclosed annual report and accounts. 46 Annual Report for the year ended 31 January 2012 sterling 158556 Tissue Regenix Group plc The Biocentre Innovation Way Heslington York, YO10 5NY United Kingdom www.tissueregenix.com 158556 TISSUE REGENIX Annual Report.indd 1 04/05/2012 13:16 

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