ANNUAL REPORT FOR THE YEAR ENDED 31 JANUARY 2013 i i T s s u e R e g e n x G r o u p p c – A n n u a l l R e p o r t f o r t h e y e a r e n d e d 3 1 J a n u a r y 2 0 1 3 Tissue Regenix Group plc The Biocentre Innovation Way Heslington York YO10 5NY United Kingdom www.tissueregenix.com Highlights General Shareholder Information Tissue Regenix Group plc During the year, Tissue Regenix has: ●● Completed a successful pre-clinical study for dCELL® meniscus ●● Established its US subsidiary in order to target its growing regenerative medicine market ●● Added patents related to ‘Acellular Arteries’ to global exclusive licence portfolio ●● Produced positive interim clinical data for its dCELL® Dermis technology ●● Demonstrated a strong safety profile and effectiveness of its vascular patch in results from two year clinical study ●● Made a number of senior business development appointments across the company ●● Received endorsement of its dCELL® implant technology from Professor Alan Dardik of Yale University ●● Expanded the scope of development activities of its dCELL® technology with NHS Blood and Transplant (NHSBT) Directors John Samuel Antony Odell Ian Jefferson Alan Miller Alison Fielding (Executive Chairman) (Managing Director) (Chief Financial Officer) (Non-executive Director) (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 Jefferies International Ltd Vintners Place 68 Upper Thames Street London EC4V 3BJ 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 Chairman’s Statement The dCELL® Process The Board Managing Director’s Review Advanced Wound Care Cardiac Vascular Orthopaedic Directors’ Report and Financials 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 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 2 3 4 5 8 10 12 14 16 18 21 22 23 24 25 26 27 28 41 42 43 44 46 General Shareholder Information IBC Annual Report January 2013 1 Tissue Regenix Group plc Chairman’s Statement Overview The past year has seen Tissue Regenix continue to make good progress toward the commercialisation of our proprietary dCELL® regenerative medicine technology. The technology is patent protected and forms a platform for the development of a number of products in different therapy areas. The successful fundraising achieved a year ago has given us the ability to develop different products in parallel and this year has seen us reach important milestones. Firstly, we have established a subsidiary in the USA which puts us on track to develop our international presence. It also complements our relationships with existing collaboration partners such as the Pontifical University of Parana in Brazil and with the NHS Blood and Transplant (NHSBT) in the U.K. Indeed it has been our relationship with the NHSBT that has enabled the successful development of our dCELL® Dermis product which will soon be undergoing trials in the USA. Secondly, we have appointed a number of Business Development managers in our respective therapy areas. This adds significant sales and marketing experience to our already high levels of technical expertise. Support for Life Sciences We are well placed to capitalise on the UK Government’s strategy to maintain a world-leading presence in life sciences by encouraging investment and research and innovation within the NHS and leading UK universities. In particular, we continue to have a strong relationship with Leeds University where the technology continues to be developed further. We translate that world leading research into commercial applications and by working with bodies such as the NHS we are capable of delivering global solutions to key and enormously costly medical problems. The Board In November we announced the appointment of Non-executive Director Dr Alison Fielding, Chief Operating Officer of IP Group. I am sure Alison’s considerable experience and expertise in the healthcare sector will be of great benefit to the This year we have seen the departure of Alan Aubrey, Michael Bretherton and Alex Stevenson as Non-executive Directors. All three were founding first stage investors in the company and I would like to thank them for their contributions over the years. Their departure is part of our strategy of evolving the composition of the Board away from early stage investors and towards becoming more industry and market focused. We are actively seeking to complement the Board with two more non- executive directors. Outlook We continue to build a comprehensive body of data to support the validity of dCELL® technology’s effectiveness in treating various conditions. Furthermore, we believe that regenerative medicine is capable of revolutionising healthcare and significantly improving patient outcomes. In addition, there are significant cost pressures on healthcare budgets around the world and the delivery of dCELL® solutions will make a significant and beneficial impact. For example the dCELL® Dermis product is aimed at tackling chronic wounds which it is estimated cost the UK alone over £1 billion every year. The need for products employing tissue engineering is very large and growing quickly. The chronic shortage of human donor tissue will result in even more demand for animal tissue-based solutions. Our pipeline of products remains strong and continues to progress through the various demanding regulatory requirements and is moving towards commercialisation of the leading products in the coming year. We continue to pursue our objective to become a global leader in our chosen field and are confident we will thereby create significant shareholder value. John Samuel Executive Chairman company as we continue to develop. 13 May 2013 2 Annual Report January 2013 Tissue Regenix Group plc The dCELL® process Tissue Regenix Group plc Tissue Regenix is leading the development of regenerative medicine treatments. At the heart of Tissue Regenix’s technology is our patented dCELL® process which removes DNA and other cellular material from animal and human tissue, leaving an inert, acellular tissue scaffold which can be used to repair damaged organs and skin, while dramatically cutting the risk of rejection by the patient’s body. Tissue Regenix’s platform technology has been developed to maintain the integrity of the tissue structure, while providing a scaffold to attract stem cells and accelerate natural, regenerative healing. Regenerative biological scaffold No special storage requirements S t o r e Simple process Laboratory technicians easily trained s ® pr o c e s dCELL “Raw material” animal/human Core patent covers dCELL® Process Know-how protects each individual tissue processing procedure Regenerated original part Storage y r e g r u S Existing surgical technique used Regeneration with patient’s own cells Annual Report January 2013 3 The Board John Samuel, Executive Chairman Antony Odell, Managing Director Ian Jefferson, Chief Financial Officer John Samuel joined Tissue Regenix Antony Odell joined Tissue Regenix Ian Jefferson joined Tissue Regenix Limited as Chairman in March 2008. Limited as a consultant from January Group plc as Chief Financial Officer in John qualified as a Chartered 2008 and was appointed to the Board June 2011. Ian was formerly Chief Accountant with Price Waterhouse in October 2008. Antony has Executive Officer of AIM listed COE and has held a number of senior extensive commercial experience in Group Plc. Having initially joined COE finance positions in industry, including the medical technology sector. As well as CFO in 2007, he became CEO in Financial Director of Whessoe plc and as working as co-director of Xeno 2008, restructuring the Group and then Ellis & Everard plc. He was formerly Medical, a medical technology successfully planning and executing its the CEO of the Molnlycke Health consultancy, he was CEO for a UK sale. Prior to COE, Ian held a number Care Group, a global provider of NHS cardiovascular device spin-out, of senior finance positions within single use surgical and wound care Tayside Flow Technologies Ltd. LSE-quoted companies, most recently products to the healthcare sector. Antony has a strong corporate sector as Group Financial Controller of 600 Until January 2010 he was a Partner background, having worked for Group Plc. He has a comprehensive with Apax Partners LLP. Currently he J&J Medical for almost 10 years in financial and operations background is Chairman of Xeros Ltd. European business development and extensive experience of roles for Drug Delivery & Vascular organisational transformation and M&A. Access, and General Manager (UK) for A qualified chartered accountant, Fresenius (Critical Care & Diagnostics). Ian holds a BSc in Physics with Electronics from Manchester University and an MSc in Applied Radiation Physics from Birmingham University. Dr. Alison Fielding, Non-executive Director Alan Miller, Non-executive Director Dr. Alison Fielding is Chief Operating Officer at IP Group plc, Alan Miller is a founding partner of SCM Private, the a leading UK intellectual property commercialisation wealth management company, which was set up in 2009. company. Alison co-founded Techtran Group Ltd and He was formerly the Chief Investment Officer and founding was the Chief Operating Officer of Techtran, which was shareholder of New Star Asset Management from 2001 acquired by IP Group plc in January 2005. Previously she until 2007. Prior to that, he was a Director at Jupiter Asset spent five years at McKinsey & Co, where she consulted to Management having spent his early career as a senior the pharmaceutical and health care sectors. Alison has fund manager at Gartmore Investment Management. also worked as a development chemist for Zeneca, Alan is also a Non-executive Director of several private carrying out technical roles in the speciality chemicals companies including Pharminox Ltd, a pharmaceutical and agrochemicals divisions. 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. 4 Annual Report January 2013 Tissue Regenix Group plc Managing Director’s Review Overview This year has been transformational for Tissue Regenix and we are continuing to develop a growing body of data confirming the quality and efficacy of our technology, while taking the necessary steps in target markets as we prepare for full commercialisation. We have also been able to further develop our pipeline of products and portfolio of patents following the fundraising that we achieved at the end of the last financial year. Intellectual Property received. Furthermore, during the year a number of changes to the research and development corporation tax credit system were confirmed. These changes included the removal of the cap on the level of refund payable at the level of PAYE and NIC paid in the year. This change, along with the additional development expenditure incurred this year, has resulted in an increase in the corporation tax refund for the year to £0.5m (2012: £0.2m). This refund is expected to be received in 2013. As anticipated, administrative expenditure increased to £4.5m (2012: £3.1m), due to planned increases in development expenditure and PATENTS Meniscal Repair EU [Aus, China, Can, India, Japan, US] Bladder UK [EU, Aus, US] Ultrasonic modification of soft tissues [EU, US] Pending applications Decellularisation of matrices [Aus, Can, EU, US] w o h - w o n K head count, as we advanced our multiple product programmes. International Expansion In November 2012, we announced the establishment of our North American subsidiary. In this key market Tissue Regenix will use its patented dCELL® technology to target a number of areas, focusing initially on applying the dCELL® in human donor tissues to treat a number Financial Review of chronic conditions initially in wound care. Over Tissue Regenix maintains a strong cash position with time we believe this could be developed for other a balance of £24.2m at the year end (2012: £28.0m). applications including vascular repair, heart valve We expect to continue to use our cash resources to replacement and knee repair. As a part of this fund our development programmes, and would expect expansion we were delighted to welcome Greg Bila cash utilisation to increase over the coming years as as President of our US business. Greg joins us the programmes progress through pre-clinical and from Kinetic Concepts Inc, where he has amassed clinical trials. Income for the year of £0.05m two decades of sales and marketing experience in (2012: £0.1m) continues to reflect grant income the pharmaceutical and medical device field. Annual Report January 2013 5 Tissue Regenix Group plc Managing Director’s Review continued Product Development Pipeline Translation/Pilot Pre-clinical Clinical Commercial Porcine Pulmonary Valve Porcine Meniscus Human Aortic Valve Porcine Vascular Patch (EU) Porcine General Surgery Patch Porcine Dermis Porcine Tendon Bovine AV Graft Human Pulmonary Valve Human Dermis ●● Chronic Wounds ●● Rotator Cuff ●● Hernia The dCELL® process Our proprietary platform technology, dCELL®, is protected by a library of patents. It is used to decellularise human or animal donor tissue to create biological scaffolds that are then implanted into patients to replace diseased or damaged parts of their body. These scaffolds are also capable of regeneration through natural healing mechanisms and, because they are inert when implanted, they are classified as medical devices. This means they are required to follow a regulatory pathway that is typically faster and less costly than, for example, a pharmaceutical product. with our expansion into the US, and are currently in discussions with prospective product manufacturers and distributors, as well as exploring the possibility of clinical trials with major academic institutions and key opinion leaders to support marketing efforts in the US in 2014. Tissue Regenix has a portfolio of dCELL® Scaffolds, enabling clinicians to get the right tissue for the application area rather than trying to make one tissue type perform a multiplicity of clinical roles that it was not designed to do. As we roll out this portfolio, this clear distinction from other approaches will become an important factor in our future success. Looking Ahead All of these activities, as well as evaluating the feasibility The past year has seen significant developments in of applying our pioneering dCELL® technology for use a number of areas of the business, and we are confident in other applications, puts Tissue Regenix in a strong of building on this further in the coming year. The position to build upon the progress achieved this year. development of the dCELL® platform using human tissues, (e.g. seven-year data in heart valves) provides early validation of the technology and revenue opportunities, with the animal-derived constructs Antony Odell Managing Director following on behind them. We are also moving ahead 13 May 2013 6 Annual Report January 2013 Tissue Regenix Group plc Advanced Wound Care Advanced Wound Care Tissue Regenix announced in April 2013 that approval had been given for a clinical research trial of dCELL® dermis matrix in treating acute wounds. This is an important milestone in our plans to target the global market for both chronic and acute wound care, which research firm Kalorama estimates could be worth around $21 billion by 2015. Finding more effective ways to treat acute wounds, including surgical incisions and traumatic injuries, would save healthcare systems significant sums of money, improve patient recovery times and promote more successful healing. The clinical study will be conducted by University Hospital of South Manchester NHS Foundation Trust and will involve a series of six-week trials on 50 healthy human patients to suggested that treatment of chronic wounds with investigate the responsiveness of acute wounds to Tissue Regenix dCELL® Dermis has led to a significant Tissue Regenix’s dCELL® dermis matrix, and to clarify if reduction in the size of all wounds, with 45% of patients dCELL® dermis improves the closure of acute wounds being completely healed. We have also begun compared to “normal” wound healing and other options. discussions on initiating a clinical study in the USA. The human dermis clinical trial on chronic wounds also Early discussions with potential suppliers of the human continues to produce positive results. The final results dermis material are underway, and we also continue to of the study are due for release shortly, but interim data develop the equivalent porcine product. According to Kalorama, the global market for chronic and acute wound care is estimated to be worth around $21 billion by 2015 (from $16.8 billion in 2012). 8 Annual Report January 2013 Tissue Regenix Group plc Cardiac Cardiac Pilot pre-clinical activity is continuing as we move these products along the translation path. Several options with regard to application of the dCELL® is being translated from the work done at the University technology to bioprosthetic heart valves are being of Leeds, and pre-clinical work is planned for H1 2013. explored. We are continuing discussions with tissue banks for the commercialisation of the dCELL® human heart valve in the EU against the background of positive We also welcomed Andrea Rausch to the cardiac team at Tissue Regenix during the year as Business clinical data for the implant. A porcine pulmonary valve Development Manager. Andrea brings with her considerable experience of the cardiac field of medicine through a number of senior sales and marketing roles. Furthermore, Professor Francisco da Costa, the internationally renowned cardiac surgeon from Pontifical University of Parana, Brazil, and one of the company’s long term clinical collaborators, continues to be at the forefront of the cardiac research field in trialling Tissue Regenix’s dCELL® technology. The findings of his latest study has focused on decellularised human ‘dCELL®’ heart valve. The study’s findings will be published in H1 2013, and will demonstrate the use of decellularised tissue engineered valves emerging as a better alternative to Right Ventricular Outflow Tract (RVOT) reconstruction, using the patented ‘dCELL®’ technology of Tissue Regenix. The number of people aged 65 and over in the UK who require care for coronary heart disease is expected to rise by over 50% between 2010 and 2030. 10 Annual Report January 2013 Tissue Regenix Group plc Vascular Vascular During the year we added a patent application related to ‘Acellular Arteries’, the latest in Tissue Regenix’s portfolio granted through its worldwide exclusive licence from the University of Leeds. The patent relates to the development of products to address some major indications, such as Arteriovenous (‘AV’) dialysis grafts and coronary artery bypass grafts (‘CABG’). Furthermore, a pilot study for the AV graft is now in progress, and we remain on course with our plans for a pre-clinical study in H2 2013. In 2012, two year data was released for the existing vascular patch, and we also met with the FDA during the year to progress US approval. Furthermore, at our technology day in October 2012, the potential advantages of the Company’s dCELL® technology over other types of decellularised tissue scaffolds was underpinned by Dr Alan Dardik, Associate Professor of Surgery at Yale University. Dr Dardik has conducted pre-clinical studies of the Tissue Regenix dCELL® vascular patch, and published the results in the scientific journal PLoS ONE. There are estimated to be 820,000 end-stage renal disease patients in the EU and USA, 70% of whom receive dialysis annually. 12 Annual Report January 2013 Tissue Regenix Group plc Orthopaedic Orthopaedic During the year we completed the pre-clinical study of the meniscus repair product, in which the results were encouraging. We will be submitting regulatory application to start a clinical trial in Europe in H1 2014 when we have completed biomechanical testing and refined the suturing technique. The ligament repair product will be in pre-clinical studies by the end of H2 2013, and we have begun discussions with the FDA in respect of approval requirements for the US market. As we move nearer to clinical and pre-clinical trials we are developing health economic models to support later commercialisation. Over 1.5 million meniscal procedures are expected in the US and Europe in 2013. 14 Annual Report January 2013 Tissue Regenix Group plc Directors’ Report and Financials Tissue Regenix Group plc Directors’ Report The Directors present their report and consolidated financial statements for the year ended 31 January 2013. 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 page 2. Key performance indicators Key Group performance indicators are set out below: 31 January 2013 £000 31 January 2012 £000 24,466 27,879 (3,498) 24,206 (2,687) 28,021 Net assets Total loss attributable to equity holders Cash and cash equivalents Results and dividends The loss for the year attributable to equity holders was £3,498k (2012: £2,687k). The directors do not recommend the payment of a dividend (2012: nil). Substantial shareholders 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 (resigned 8th March 2013) Alison Fielding (resigned 8th Feb 2013) (resigned 30th November 2012) (appointed 1st December 2012) Directors’ interests in the shares of the Company, including family interests are included in the Remuneration Report on pages 18 to 20. 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. As at 31 March 2013, 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 Techtran Group Limited ORA (Guernsey) Limited University of Leeds The Northern Entrepreneurs Fund LLP IP Venture Fund John Samuel* Alan Miller Henderson Global Investors 192,257,019 89,884,942 89,542,488 33,980,127 30,512,434 24,794,730 23,878,928 21,486,988 20,935,015 29.45 13.77 13.72 5.21 4.67 3.80 3.66 3.29 3.21 *Includes 10,740,000 shares held jointly by the director and the Tissue Regenix Employee Share Trust. 16 Annual Report January 2013 Tissue Regenix Group plc Directors’ Report continued Risk management Policy on payment of suppliers Details of the Group’s financial risk management objectives and policies are disclosed in note 11 to the financial statements. 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 £24,206k as at 31 January 2013 (2012: £28,021k) 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 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. Auditor 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. No charitable or political donations were made in the year (2012: nil). On behalf of the Board Antony Odell Director 13 May 2013 Annual Report January 2013 17 Tissue Regenix Group plc Directors’ Remuneration Report 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 John Samuel, who is chairman of the committee, Alison Fielding 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. 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. 18 Annual Report January 2013 Tissue Regenix Group plc Directors’ Remuneration Report continued Directors’ remuneration The remuneration of the main Board Directors’ of Tissue Regenix Group plc who served in the year to 31 January 2013 was: Antony Odell (note 1) John Samuel (note 1) Ian Jefferson (note 1) Michael Bretherton (note 1 & 4) Alan Aubrey (note 2) Alison Fielding (note 3) Alexander Stevenson Alan Miller Total Note 1 Salary & fees £000 Bonus £000 Benefits £000 147 100 124 11 13 2 15 15 427 51 – 30 – – – – – 81 – – – – – – – – – Total 2013 £000 198 100 154 11 13 2 15 15 508 Total 2012 £000 229 100 95 12 15 – 10 15 476 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 £20,000 (2012: £59,000), Antony Odell £10,000 (2012: £30,000), Ian Jefferson £36,000 (2012: £28,000) and Michael Bretherton £1,000 (2012: £3,000). Note 2 Alan Aubrey resigned on 30 November 2012. Note 3 Alison Fielding was appointed on 1 December 2012. Note 4 Mike Bretherton resigned on 8 Feb 2013. Directors’ shareholdings Directors’ interests in the shares of the Company, including family interests at 31 January 2013 were: John Samuel (note 5) Antony Odell (note 5) Ian Jefferson (note 5) Michael Bretherton (note 5) Alan Aubrey (note 6 & 7) Alan Miller Alexander Stevenson (note 7 ) 2013 Number 23,878,928 5,572,800 1,009,404 1,200,000 2,389,259 21,486,988 – Ordinary shares of 0.5p each 2013 % 3.66% 0.85% 0.03% 0.18% 0.37% 3.29% – 2012 Number 23,588,928 5,572,800 1,009,404 1,200,000 2,389,259 21,486,988 – 2012 % 3.61% 0.85% 0.03% 0.18% 0.37% 3.29% – Note 5 Includes shares held jointly by the director and EBT as set out below. Note 6 Shares are held through IP2IPO Nominees Limited Note 7 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 to 12.5% and 25% respectively of any shares (or proceeds thereof) distributed by the Northern Entrepreneurs Fund Co-investment LLP. Annual Report January 2013 19 Tissue Regenix Group plc Directors’ Remuneration Report continued 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 2013 were: Approved EMI scheme options Antony Odell Antony Odell Ian Jefferson John Samuel EBT scheme shares Antony Odell Ian Jefferson John Samuel Michael Bretherton At 1 February 2012 8,307,608 1,187,200 872,727 2,400,000 5,372,800 827,586 10,740,000 600,000 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 allow 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 2013, the employment period and performance conditions had been met in relation to 791,466 EMI share options and 3,581,866 EBT shares held by Antony Odell and 1,600,000 EMI share options and 7,160,000 EBT shares held by John Samuel. These shares were therefore eligible to vest. 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. Granted during year At 31 January 2013 – – – – – – – – 8,307,608 1,187,200 872,727 2,400,000 5,372,800 827,586 10,740,000 600,000 Exercise price 0.73 pence 5.00 pence 13.75 pence 5.00 pence 5.00 pence 14.50 pence 5.00 pence 5.00 pence 2010 at a price of 5 pence per share. Ian Jefferson has an interest in ordinary shares 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 agreement’s (“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 2013 was 13.5 pence per share, the highest and lowest prices during the year were 14.5 pence and 9.1 pence respectively. Further details of all share options and jointly owned shares held by the Trustee are set out in note 16 to the financial statements. On behalf of the Board 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 John Samuel Chairman of the Remuneration Committee 13 May 2013 20 Annual Report January 2013 Tissue Regenix Group plc Corporate Governance Statement Corporate governance Some key features of the internal control system are: The Directors recognise the importance of sound corporate governance and have observed 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 two Non-executive Directors. Audit Committee The Audit Committee’s primary responsibilities are to (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; monitor the integrity of the financial affairs and statements (iv) There is a clearly defined organisational structure; of the Company, to ensure that the financial performance and 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 and Alison Fielding. 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 (v) There are well-established financial reporting and control systems. Going Concern At 31 January 2013, the Group had £24,206k 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. provides reasonable but not absolute assurance against After due enquiry, the Directors consider that the Group material misstatement or loss. The board confirms that it has adequate resources to continue in operational has established the procedures necessary to implement existence for the foreseeable future. Accordingly, they the guidance “Internal Control Guidance for Directors on continue to adopt the going concern basis in preparing the Combined Code” (The Turnbull Report). the financial statements. Annual Report January 2013 21 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 financial 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. 22 Annual Report January 2013 Tissue Regenix Group plc Report of the Independent Auditor to the Members of Tissue Regenix Group plc We have audited the financial statements of Tissue Regenix Group plc for the year ended 31 January 2013 set out on pages 24 to 45. 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 page 22, 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. ●● 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. 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 Scope of the audit of the financial statements explanations we require for our audit. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate 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 2013 and of the group’s loss for the year then ended; Jeremy Gledhill (Senior Statutory Auditor) for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants 1 The Embankment Neville Street Leeds LS1 4DW 13 May 2013 Annual Report January 2013 23 Tissue Regenix Group plc Consolidated Statement of Comprehensive Income For the year ended 31 January 2013 Operating Income Administrative expenses Operating Loss Finance income Loss before taxation Taxation Loss after tax attributable to equity holders of the parent Loss and total comprehensive expense for the year Loss per share Basic and diluted on loss from continuing operations Notes 4 4 6 7 2013 £000 49 (4,461) (4,412) 440 (3,972) 474 2012 £000 109 (3,097) (2,988) 62 (2,926) 239 (3,498) (2,687) (3,498) (2,687) (0.55)p (0.57)p There are no items of other comprehensive income. The loss for the year arises from the Group’s continuing operations. 24 Annual Report January 2013 Tissue Regenix Group plc Consolidated Statement of Changes in Equity For the year ended 31 January 2013 Share Capital £000 Share Premium £000 Reverse Merger Acquisition Reserve Reserve £000 £000 Issued Equity Capital £000 Share Based Payment Reserve £000 Revenue Deficit Reserve £000 Total £000 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 – 919 – 24,094 – – – (784) – – – – – – – – – – – – – 25,013 (784) – – – – – – (2,687) (4) (2,687) 25,009 – (784) 1 1 122 – 122 At 31 January 2012 3,262 31,965 10,884 (7,148) 38,963 454 (11,538) 27,879 Loss and total comprehensive expense for the year Issue of shares Share based payment expense – 2 – – 1 – – – – – – – – 3 – – – (3,498) – (3,498) 3 82 – 82 At 31 January 2013 3,264 31,966 10,884 (7,148) 38,966 536 (15,036) 24,466 Annual Report January 2013 25 Tissue Regenix Group plc Consolidated Statement of Financial Position As at 31 January 2013 Notes 2013 £000 2012 £000 9 238 238 157 157 10 11 707 24,206 350 28,021 24,913 28,371 25,151 28,528 12 13 13 13 13 16 14 (685) (685) (649) (649) 24,466 27,879 3,264 31,966 10,884 (7,148) 38,966 536 (15,036) 3,262 31,965 10,884 (7,148) 38,963 454 (11,538) 24,466 27,879 Assets Non-current assets Property, plant and equipment Total non-current assets Current assets Trade and other receivables Cash and cash equivalents Total current assets Total assets Liabilities Current liabilities Trade and other payables Total liabilities Net assets Equity Share capital Share premium Merger reserve Reverse acquisition reserve Issued equity capital Share based payment reserve Revenue reserve Total equity Approved by the Board of Directors and authorised for issue on 13 May 2013. John Samuel Executive Chairman Company number: 5969271 Ian Jefferson Chief Financial Officer 26 Annual Report January 2013 Tissue Regenix Group plc Consolidated Statement of Cash Flows For the year ended 31 January 2013 Operating activities Operating loss Adjustment for non-cash items: Depreciation of property, plant and equipment Share based payment Tax refunded Operating cash outflow (Increase)/decrease in trade and other receivables Increase in trade and other payables Net cash outflow from operations Investing activities Interest received Purchases of property, plant and equipment Net cash outflow from investing activities Financing activities Proceeds from issue of share capital Sale of joint interest in shares to employees Expenses on issue of share capital Net cash inflow from financing activities Increase in cash and cash equivalents Cash and cash equivalents at start of year Notes 2013 £000 2012 £000 9 16 9 13 14 13 (4,412) (2,988) 74 82 239 62 122 280 (4,017) (2,524) (122) 36 2 396 (4,103) (2,126) 440 (155) 285 3 - - 3 (3,815) 28,021 62 (30) 32 25,009 1 (784) 24,226 22,132 5,889 Cash and cash equivalents at end of year 24,206 28,021 Annual Report January 2013 27 Tissue Regenix Group plc Notes to the Financial Statements 1 Basis of preparation The financial statements of Tissue Regenix Group plc are audited consolidated financial statements for the year to 31 January 2013. These include audited comparatives for the year to 31 January 2012. 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 2013, the Group had £24 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 35 to 36. 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. The principal accounting policies applied are set out below. Segmental reporting At 31 January 2013, 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 losses 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. 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; 28 Annual Report January 2013 Tissue Regenix Group plc Notes to the Financial Statements continued ●● 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 over 5 years Computer equipment over 3 years Office furniture and equipment: 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). 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 Annual Report January 2013 29 Tissue Regenix Group plc Notes to the Financial Statements continued 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 sharebased 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 behavioural 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. 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 opposite: 30 Annual Report January 2013 Tissue Regenix Group plc Notes to the Financial Statements continued 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 £82,000 (31 January 2012: £122,000) 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. 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): International Financial Reporting Standards Effective for accounting periods starting on or after IAS 1* IAS 19* IFRS 10** IFRS 11** IFRS 12** Amendment to financial statement presentation Amendment to employee benefits Consolidated financial statements Joint arrangements Disclosure of interests in other entities IFRS 10, 11 and 12 Amendments in transition guidance IFRS 13* IAS 27** IAS 28** IFRS 7* IFRS 1 IAS 32* Fair value measurement Separate financial statements (revised 2011) Associates and joint ventures (revised 2011) Amendment to financial instruments: disclosures Amendment to first time adoption Amendment to financial instruments: presentation *Endorsed by the European Union. **Endorsed by the European Union for periods starting on or after 1 January 2014. 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 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 2013, 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 January 2013 31 Tissue Regenix Group plc Notes to the Financial Statements continued 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 corporation tax – fees in relation to other tax advice 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 2013 £000 Year to 31 January 2012 £000 45 107 74 189 1,846 4 2,122 62 129 1,330 3 1,089 10 5 5 23 43 10 5 5 – 20 Year to 31 January 2013 £000 Year to 31 January 2012 £000 7 29 36 7 19 26 Year to 31 January 2013 £000 Year to 31 January 2012 £000 1,568 82 196 1,094 122 114 1,846 1,330 590 598 Directors’ emoluments disclosed above include £198,000 paid to the highest paid director (2012: £227,000) as well as share based payments benefit of £82,000 (2012: £122,000). There are no pension benefits for directors. 32 Annual Report January 2013 Tissue Regenix Group plc Notes to the Financial Statements continued 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 Year to 31 January 2013 £000 Year to 31 January 2012 £000 440 62 Year to 31 January 2013 £000 Year to 31 January 2012 £000 (474) – (474) (239) – (239) – – (474) (239) 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% Effects of: Expenses not deductable for tax purposes Research and development tax credits received Surrender of research and development relief for repayable tax credit Research and development enhancement Unutilised tax losses Tax credit for the year Deferred Tax Tax losses Losses available to carry forward against future trading profits Deferred tax asset – unrecognised* Year to 31 January 2013 £000 Year to 31 January 2012 £000 (3,972) (794) (2,926) (585) 16 (474) 846 (463) 395 (474) 25 (239) 382 (186) 364 (239) Year to 31 January 2013 £000 Year to 31 January 2012 £000 6,850 1,370 4,624 925 *The Company has not recognised a deferred tax asset relating to these losses as their recoverability is uncertain. Annual Report January 2013 33 Tissue Regenix Group plc Notes to the Financial Statements continued 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. Total loss attributable to the equity holders of the parent Year to 31 January 2013 £000 Year to 31 January 2012 £000 (3,498) (2,687) No. No. Weighted average number of ordinary shares in issue during the year 635,276,123 469,184,667 Loss per share Basic and diluted on loss for the year (0.55)p (0.57)p The Company has issued employee options over 18,100,725 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. 9 Property, plant and equipment Laboratory Equipment £000 Fixtures & Fittings £000 Computer Equipment £000 Total £000 Cost At 31 January 2011 Additions At 31 January 2012 Additions At 31 January 2013 Depreciation At 31 January 2011 Charge for the year At 31 January 2012 Charge for the year At 31 January 2013 Net book value At 31 January 2013 At 31 January 2012 At 31 January 2011 34 Annual Report January 2013 200 9 209 123 332 60 41 101 51 152 180 108 140 36 – 36 – 36 10 8 18 6 24 12 18 26 35 21 56 32 88 12 13 25 17 42 46 31 23 271 30 301 155 456 82 62 144 74 218 238 157 189 Tissue Regenix Group plc Notes to the Financial Statements continued 10 Trade and other receivables Trade debtors Other receivables Prepayments and accrued income 2013 £000 2 654 51 707 2012 £000 – 299 51 350 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 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. 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: Cash and cash equivalents Cash and cash equivalents 31 January 2013 Fixed rate Floating rate £000 £000 Total £000 23,875 331 24,206 31 January 2012 Fixed rate Floating rate £000 £000 Total £000 26,576 1,445 28,021 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 on page 36. The Company does not consider that any changes in fair value of financial assets or liabilities in the year are attributable to credit risk. Annual Report January 2013 35 Tissue Regenix Group plc Notes to the Financial Statements continued 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 2013 £000 2012 £000 279 23,927 – 132 26,347 1,542 24,206 28,021 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 notes 13 and 14 and in the Statement of Changes in Equity. Categorisation of financial instrument Financial liabilities at amortised cost £000 Loans and receivables £000 Total £000 654 24,206 – – – (259) 654 24,206 (259) 24,860 (259) 24,601 Financial liabilities at amortised cost £000 Loans and receivables £000 Total £000 299 28,021 – – – (324) 299 28,021 (324) 28,320 (324) 27,996 Financial assets/(liabilities) At 31 January 2013 Trade and other receivables Cash and cash equivalents Trade and other payables Total Financial assets/(liabilities) At 31 January 2012 Trade and other receivables Cash and cash equivalents Trade and other payables Total The Company had no financial instruments measured at fair value. 36 Annual Report January 2013 Tissue Regenix Group plc Notes to the Financial Statements continued 12 Trade and other payables Trade payables Taxes and social security Accruals 2013 £000 205 54 426 685 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 13 Share capital Number 2013 £000 205 – – 205 Share capital premium £000 Reverse Share Merger acquisition reserve reserve £000 £000 £000 2012 £000 287 37 325 649 2012 £000 281 2 4 287 Total £000 Total Ordinary shares of 0.5 p each as at 31 January 2011 468,597,903 2,343 8,655 10,884 (7,148) 14,734 Issued for cash Share options exercised Issued to Tissue Regenix Employee Share Trust Expenses on issue of shares 181,818,182 1,136,376 827,586 – 909 24,091 3 – (784) 6 4 – – – – – – 25,000 9 – 4 – (784) – Total Ordinary shares of 0.5 p each as at 31 January 2012 652,380,047 3,262 31,965 10,884 (7,148) 38,963 Share options exercised 444,972 2 1 – – 3 Total Ordinary shares of 0.5p each as at 31 January 2013 652,825,019 3,264 31,966 10,884 (7,148) 38,966 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. Annual Report January 2013 37 Tissue Regenix Group plc Notes to the Financial Statements continued 14 Movement in revenue reserve and own shares At 31 January 2011 Purchase of own shares Employee interest in jointly owned shares Loss for the year At 31 January 2012 Loss for the year At 31 January 2013 15 Commitments Operating lease commitments Retained Earnings Deficit Own shares £000 £000 Deficit Revenue Reserve £000 (8,020) (828) (8,848) – – (2,687) (4) 1 – (4) 1 (2,687) (10,707) (831) (11,538) (3,498) – (3,498) (14,205) (831) (15,036) 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 16 Share based payments 2013 £000 2012 £000 38 11 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. 38 Annual Report January 2013 Tissue Regenix Group plc Notes to the Financial Statements continued The number and weighted average exercise prices of share options and EBT shares are as follows: Number of share interests EMI Unapproved options options EBT shares Total 14,437,504 (826,376) 1,018,181 14,629,309 (444,972) – 1,479,984 1,717,019 16,712,800 32,867,323 (1,136,376) 1,845,767 (310,000) – – 827,586 1,407,019 17,504,386 33,576,714 (444,972) (18,797) 2,528,166 – (18,797) 1,048,182 – – – Weighted average exercise price per share (£) 0.0330 (0.0073) 0.1410 0.0402 (0.0073) (0.0073) 0.1216 At 31 January 2011 Exercised in the year Issued in the year At 31 January 2012 Exercised in the year Lapsed during year Issued in the year At 31 January 2013 15,664,321 2,436,404 17,504,386 35,641,111 0.0464 There were 13,358,644 share options outstanding at 31 January 2013 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 2013. 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 11,141,866 of the jointly held EBT shares which were eligible to vest as at 31 January 2013. 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: Dividend yield Expected volatility Risk free interest rate (%) Expected vesting life of EBT shares and options (years) Weighted average share price (£) EBT shares Granted year to 31 January 2013 Options EBT shares Granted Granted year to year to 31 January 31 January 2012 2013 Options Granted year to 31 January 2012 – – – – – – 47% 0.9 4 0.1216 – 47% 0.9 4 0.1425 – 47% 0.9 4 0.1375 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. Annual Report January 2013 39 Tissue Regenix Group plc Notes to the Financial Statements continued A charge has been recognised in the statement of comprehensive income for each year as follows: Share options Jointly owned shares Total share based payments 17 Related party transactions Trading transactions with Transactions with significant shareholders: Patent support costs Granted year to 31 January 2013 £000 Granted year to 31 January 2012 £000 38 44 82 33 89 122 Year ended Year ended 31 January 31 January 2012 2013 £000 £000 90 20 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: Short-term employment benefits* Year ended Year ended 31 January 31 January 2012 2013 £000 £000 508 476 *In addition, certain directors hold share options and jointly owned shares in the Company for which a fair value share based charge of £82,000 has been recognised in the consolidated statement of comprehensive income (2012: £122,000). During the year ended 31 January 2013, the Company entered into numerous transactions with its subsidiary company which net off on consolidation – these have not been shown above. 18 Ultimate controlling party The directors believe that there is no ultimate controlling party. 40 Annual Report January 2013 Tissue Regenix Group plc Company Statement of Changes in Equity For the year ended 31 January 2013 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 2,343 8,655 10,884 259 (3,228) 18,913 – 909 6 – 24,091 3 4 – – – (784) – – – – – – – 3,262 31,965 10,884 – 2 – – 1 – – – – – – – – – 122 381 – – 82 (841) – – (841) 25,000 9 – – – 4 (784) 122 (4,069) 42,423 (473) – – (473) 3 82 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 At 31 January 2012 Total expense and other comprehensive loss for the year Share options exercised Share based payment expense At 31 January 2013 3,264 31,966 10,884 463 (4,542) 42,035 Annual Report January 2013 41 Tissue Regenix Group plc Notes 2013 £000 2012 £000 C3 12,922 12,922 12,922 12,922 C4 C5 C6 13 13 13 16 157 5,209 23,931 59 1,812 27,877 29,297 29,748 42,219 42,670 (184) (184) (247) (247) 42,035 42,423 3,264 31,966 10,884 46,114 463 (4,542) 3,262 31,965 10,884 46,111 381 (4,069) 42,035 42,423 Company Statement of Financial Position For the year ended 31 January 2013 Assets Non-current assets Investments Total non-current assets Current assets Trade and other receivables Intercompany loan balance Cash and cash equivalents Total assets Liabilities Current liabilities Trade and other payables Total liabilities Net assets Equity Share capital Share premium Merger reserve Issue equity capital Share based payment reserve Revenue reserve Total equity Approved by the Board of Directors and authorised for issue on 13 May 2013. John Samuel Executive Chairman Company number: 5969271 Ian Jefferson Finance Director 42 Annual Report January 2013 Tissue Regenix Group plc Company Statement of Cash Flows For the year ended 31 January 2013 Operating activities Loss before interest and tax Adjustment for non-cash items: Share based payments Operating cash outflow (Increase)/decrease in trade and other receivables (Decrease)/increase in trade and other payables Net cash generated from operations Investing activities Interest received Loan to subsidiary undertaking Net cash generated from investing activities Financing activities Proceeds from issue of share capital Sale of joint interest in shares to employees Expenses on issue of share capital Net cash used in financing activities Increase in cash and cash equivalents Cash and cash equivalents at start of year Notes 2013 £000 2012 £000 16 C6 13 13 (913) (900) 82 (831) (98) (63) (992) 122 (778) 13 163 (602) 440 (3,397) 62 (1,268) (2,957) (1,206) 3 – – 3 (3,946) 27,877 25,009 1 (784) 24,226 22,418 5,459 Cash and cash equivalents at end of year 23,931 27,877 Annual Report January 2013 43 Tissue Regenix Group plc Notes to the Company Information For the year ended 31 January 2013 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 2013 was a loss of £473k. 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 2013, the Company held the following investments in subsidiaries; Share of issued capital and voting rights Undertaking Sector Tissue Regenix Limited TRx Wound Care Limited TRx Orthopaedics Limited TRx Cardiac Limited TRx Vascular Limited Tissue Regenix Wound Care Inc* Oxray Limited *Held through TRx Wound Care Limited Regenerative medicine Regenerative medicine Regenerative medicine Regenerative medicine Regenerative medicine Regenerative medicine Dormant Cost At 1 February Additions At 31 January Impairment At 1 February At 31 January Carrying value at 31 January 2013 100% 100% 100% 100% 100% 100% 85% 2012 100% – – – – – 85% 2013 £000 14,707 – 2012 £000 14,707 – 14,707 14,707 (1,785) (1,785) (1,785) (1,785) 12,922 12,922 The company’s investment in Oxray Limited has been written down to nil and the Company is dormant. C4 Trade receivables Prepayments & accrued income Other debtors 44 Annual Report January 2013 2013 £000 27 130 157 2012 £000 37 22 59 Tissue Regenix Group plc Notes to the Company Information continued C5 Current assets Intercompany loan 2013 £000 2012 £000 5,209 1,812 A loan of £5,209k was advanced to Tissue Regenix Limited in the year. No interest was payable on the loan. C6 Trade payables Trade Creditors Social Security and other taxes Accruals 2013 £000 25 17 142 184 2012 £000 127 17 103 247 Annual Report January 2013 45 Tissue Regenix Group plc Notice of Annual General Meeting Notice is given that the 2013 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 14 June 2013 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 2013. 2. To reappoint Antony Odell, who retires by rotation, as a director of the Company. 3. To reappoint John Samuel, who retires by rotation, as a director of the Company. 4. To reappoint Alison Fielding, who has been appointed since the last annual general meeting, as a director of the Company. 5. To reappoint KPMG Audit Plc as auditors of the Company. 6. To authorise the directors to determine the remuneration of the auditors. 7. 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: 7.1 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 7.2 of this resolution) in connection with a rights issue: 7.1.1 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 7.1.2 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, 46 Annual Report January 2013 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 7.2 otherwise than pursuant to paragraph 7.1 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 7.1 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 14 September 2014 (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. 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: 8. That, subject to the passing of resolution 7 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 Tissue Regenix Group plc Notice of Annual General Meeting continued Act) for cash pursuant to the authorities granted by This power is in substitution for all existing powers resolution 7 as if section 561(1) of the Act did not under section 570 of the Act (which, to the extent apply to any such allotment, provided that this unused at the date of this resolution, are revoked power shall be limited to: with immediate effect). 8.1 the allotment of equity securities in connection with 9. That, pursuant to section 701 of the Act, the 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 7.1 of resolution 7, such power shall be limited to the allotment of equity securities in connection with a rights issue): 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: 9.1 the maximum aggregate number of Shares which 8.1.1 to holders of ordinary shares in the capital of may be purchased is 65,282,501; 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 the allotment of equity securities pursuant to the authority granted by paragraph 7.2 of resolution 7 (otherwise than pursuant to paragraph 8.1 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 14 September 2014 9.2 the minimum price (excluding expenses) which may be paid for a Share is 0.5p; 9.3 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 14 September 2014 (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. (whichever is the earlier), save that the Company By order of the board Registered office 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 Ian Jefferson Secretary 13 May 2013 The Biocentre Innovation Way Heslington York YO10 5NY as if this power had not expired. Registered in England and Wales No. 05969271 Annual Report January 2013 47 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 12 June 2013 (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 12 June 2013 (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 12 June 2013 (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 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 4 of the enclosed annual report and accounts. 48 Annual Report January 2013 Tissue Regenix Group plc Highlights General Shareholder Information Tissue Regenix Group plc During the year, Tissue Regenix has: ●● Completed a successful pre-clinical study for dCELL® meniscus ●● Established its US subsidiary in order to target its growing regenerative medicine market ●● Added patents related to ‘Acellular Arteries’ to global exclusive licence portfolio ●● Produced positive interim clinical data for its dCELL® Dermis technology ●● Demonstrated a strong safety profile and effectiveness of its vascular patch in results from two year clinical study ●● Made a number of senior business development appointments across the company ●● Received endorsement of its dCELL® implant technology from Professor Alan Dardik of Yale University ●● Expanded the scope of development activities of its dCELL® technology with NHS Blood and Transplant (NHSBT) Directors John Samuel Antony Odell Ian Jefferson Alan Miller Alison Fielding (Executive Chairman) (Managing Director) (Chief Financial Officer) (Non-executive Director) (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 Jefferies International Ltd Vintners Place 68 Upper Thames Street London EC4V 3BJ 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 ANNUAL REPORT FOR THE YEAR ENDED 31 JANUARY 2013 i i T s s u e R e g e n x G r o u p p c – A n n u a l l R e p o r t f o r t h e y e a r e n d e d 3 1 J a n u a r y 2 0 1 3 Tissue Regenix Group plc The Biocentre Innovation Way Heslington York YO10 5NY United Kingdom www.tissueregenix.com