ANNUAL REPORT FOR THE YEAR ENDED 31 JANUARY 2015 Tissue Regenix Group plc The Biocentre Innovation Way Heslington York YO10 5NY United Kingdom www.tissueregenix.com Tissue Regenix Group plc Commercialising academic research in regenerative medicine Tissue Regenix is a pioneering, international medical devices company, leading the development of regenerative products to make replacement body parts using biological (human & animal) materials. The Company’s patented decellularisation (‘dCELL®’) technology removes DNA and other cellular material from tissue leaving an acellular scaffold which is not rejected by the patient’s body. The potential applications of dCELL® are diverse and address critical clinical needs such as wound care, vascular disease, heart valve replacement and knee repair. Contents Strategic Report Chairman’s Statement Chief Executive’s Review Strategic Report Directors’ Report and Financials 2 5 9 Directors’ Report Directors’ Remuneration Report Corporate Governance Statement Statement of directors’ responsibilities Independent Auditor’s Report Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Company Statement of Changes in Equity Company Statement of Financial Position Company Statement of Cash Flows Notes to the Company Information Notice of Annual General Meeting Directors and Officers 10 12 16 17 18 19 20 21 22 23 38 39 40 41 43 47 165275 Tissue Regenix Annual Report Cover.indd 4 08/05/2015 15:56 Highlights During the year, the Group: • Launched DermaPure® (decellularised human dermis) in June into the US acute care chronic wound market. • Outstanding clinical results from DermaPure® from initial US clinical use • Secured ‘Q’ code as a preliminary to obtaining Medicare reimbursement for non- acute care • Deployed direct salesforce to work alongside distributor network • Peer-reviewed paper published showing superior healing compared to competition in acute (surgical) wounds • Clinical trials for DermaPure® in other geographies continue to be encouraging • Gained approval to start OrthoPure™ XM (porcine meniscus) clinical trial in the EU • Board and Company structure reflects growing commercial focus • Secured grant of several important patents including meniscus in the US • Maintained a strong cash position with a balance of £10.3m at the year-end (2014: £18.5m) • Raised £19.0m, net of expenses, post year-end via share placing The year ended 31 January 2015 was a year of real progress for Tissue Regenix. We are delighted, not only with the continued drive towards the commercialisation of DermaPure®, but also the highly encouraging early-stage results from our portfolio of other products. These developments validate our strong belief that our dCELL® technology has the capacity and capability to address significant markets and improve the treatment and recovery of millions of patients per year. We have continued this strong momentum into the new financial year, with approval from Novitas for usage and reimbursement of DermaPure® for Medicare patients in the post-acute and outpatient setting being a significant development in the US. Similarly the commencement of the UK arm of the EU clinical trial for OrthoPure™ XT represents an important step in bringing our tendon and meniscus products to market. We look forward to the coming year with real confidence. DermaPure® looks set to repay the considerable financial & intellectual capital investment that has been made in its development, and current progress give us confidence that our pipeline of other products will progress successfully through clinical trials. www.tissueregenix.com 1 Tissue Regenix Group plc Chairman’s Statement Overview FY15 was an important year for Tissue Regenix, during which the Group launched its first product, DermaPure®, into the US market, backed by strong results from the UK clinical trial and supported by an experienced team of dedicated sales & marketing personnel across the US. Further products using our proprietary dCELL® technology are in advanced stages of development and are proceeding through/towards human clinical trials. Our strategy to commercialise our patented technology by finding multiple clinical applications for them is on track, and we expect early revenues in calendar 2016. In short, FY15 has taken us a step closer to reaching our ambition to become a world leader in regenerative medicine, with a range of products addressing existing markets that are already of very significant scale and which are growing. More details of our product pipeline, and the markets they address, are included in the Chief Executive’s review below. dCELL® Technology At the heart of Tissue Regenix lies our patented dCELL® process which removes all DNA and cellular material from animal or human tissue which is similar or identical to the treatment needed. Once the dCELL® process is completed, we are left with a tissue ‘scaffold’ which can be used in a variety of ways to repair damage – sustained through injury or degeneration – to various parts of the human body. The scaffold we produce allows the patient’s body to heal successfully by attracting the patient’s own stem cells to populate it since it’s almost identical to the tissue to be replaced. Because of the dCELL® process the elements of the source that could cause rejection have been removed before the tissue is applied. Our products can be stored at room temperature, have good shelf lives and are developed so the clinician can use existing methods to apply to their patients. Board of Directors Although the composition of the Board of Directors has not changed during the year, the focus of those on the Board has shifted from Research and Development towards implementing a successful commercialisation strategy. Our primary focus is on DermaPure® which is now being aggressively marketed across the US. A similar strategy for marketing our OrthoPure™ products in Europe, once CE marks have been granted, is also in development under the stewardship of the Board. It is intended that the new money we have raised will be used to allow the development and launch of our human meniscus and ligament products in the US, the further expansion of our salesforce for DermaPure® in the US and the continued development and commercialisation of the Company’s porcine- derived products in Europe. We expect FY16 to be another exciting year for Tissue Regenix in which the ground work from our commercialisation strategy for DermaPure® begins to be reflected in sales from a diverse range of customers. In particular, DermaPure® will benefit from our investment in an expanded direct salesforce to work alongside third party distributors, and we are anticipating seeing customer relationships convert into orders in the near future. Our drive to commercialise OrthoPure™ based products will continue. We anticipate applying for a CE mark for OrthoPure™ XM in H1 calendar 2016 to allow the launch in the EU later that year. Similarly, the EU trial for our ligament product will commence shortly with a plan to recruit 40 patients in the UK, Spain and Germany. The application for a CE mark, which will allow us to market this product across Europe, will take place soon after the patients have been recruited. Under this timetable, our plan is to roll out both the Porcine Meniscus and Ligament products following approval. In February we announced the resignation from the Board of Dr Alison Fielding. I would like to put on record my thanks to Alison for her contribution to the development of Tissue Regenix over the past decade, including her two years on the Board. She leaves the Company with our very best wishes. We are currently actively seeking a replacement. Tissue Regenix benefits from having a range of therapeutic uses for its core technology. With encouraging initial responses from customers to our first commercial wound care product and further strong clinical data coming through for our decellularised human heart valves in Cardiac, we look forward to the future with confidence. Outlook Since the year end, the company raised net proceeds of £19 million in February 2015 from existing and new investors via a share placing, which represents a significant endorsement of our products and strategy by our shareholders. John Samuel Chairman 11 May 2015 2 Annual Report and Accounts 2015 The dCELL® process Tissue Regenix Group plc 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. Regenerated body tissue ‘Raw material’ animal/human Regeneration with patient’s own cells Surgery – Existing surgical technique used dCELL® dCELL® process – Simple process Laboratory Technicians easily trained Regenerative biological scaffold Storage Store – No special storage requirements www.tissueregenix.com 3 The Human Body Cosmetics Wrist Shoulder Carotid Artery Heart Valve Dialysis Access Bladder Cruciate Ligament Meniscus Wound Care Bypass Surgery Aorta Spine Hernia Repair Pelvic Floor Peripheral Blood Vessels Knee Ankle 4 Annual Report and Accounts 2015 Chief Executive’s Review Overview During the year to 31st January 2015 Tissue Regenix made significant strides in bringing a number of products towards commercialisation. We are deliberately phasing the trial and commercial launch of these products in order to ensure that we can give enough management focus and investment to ensure that they address their markets successfully. Dialysis Access Our strategic focus is: US • Human tissue products • Porcine dermis (general surgery) dCELL® evidence base • Health economics • Clinical/mechanism of action dCELL® Core focus areas • Wound care • Orthopaedics EU • CE Mark (pig products) Financial Review We ended the financial year in a strong position, with cash balances of £10.3m (2014: £18.5m). Post year-end a further cash injection of £19.0m (net of expenses) was received via the placing of new shares completed during February 2015. Our cash balances give us sufficient headroom to drive the commercialisation of our first product, DermaPure®, in the US, while investing in additional products across a range of clinical applications in the US and Europe. As expected we made a loss after tax of £7.6m (2014: £5.6m) for the year as we continued to invest heavily in development as well as into building the necessary infrastructure to market our products in the US. We continue to anticipate losses in the coming year as we invest more in our future. The Group continues to manage its cash resources to maximise interest income whilst at the same time minimising any risk to these funds. A balance of working capital and short to medium term deposits are maintained. The Group continues to submit enhanced research and development tax claims and elects to exchange tax losses for a cash refund. The refund expected for the year to 31 January 2015 is £620k (2014: £710k). www.tissueregenix.com 5 Tissue Regenix Group plc Chief Executive’s Review continued Product Development Pipeline Product Pipeline – Through Development To Commercially Available Products 2015* 2016* OrthoPure™ XM (US) SurgiPure™ XD G. Surgery (US) OrthoPure™ XT (US) dCELL® Heart Valve OrthoPure™ XT (EU) SurgiPure™ XD G. Surgery (EU) DermaPure®(Dental) (US) OrthoPure™ XM (EU) DermaPure®(Ortho) (US) *Calendar years – indicative timings only – dependant on development timings & regulatory considerations HUMAN PORCINE 25 DermaPure® Sales Pipeline Progress As anticipated, we launched our first product of scale – DermaPure® - at the end of June 2014. Although we expect a 6-18 month sales cycle to achieve the hospital approval that will allow DermaPure® into clinical supply chains, initial responses from hospital groups, driven by the direct sales force in the US, have been encouraging Code + Coverage = Reimbursement We have also made significant headway with regulatory approvals and clinical trials for DermaPure®, which have allowed us to commercialise it further. We successfully secured a ‘Q’ code which is a step that allows us the potential to offer DermaPure® to non-acute wound patients in the US – a far larger pool of potential beneficiaries than we are addressing currently. The ‘Q’ code allows us to apply for coverage for DermaPure® for Medicare. This is the final piece needed for reimbursement, especially in outpatient facilities, unlocking the largest potential group of US patients who would be unable to access our products without it. Excellent US Clinical Outcomes Clinical results for DermaPure® continue to be extremely encouraging, with very strong clinical results from our KOL’s (Key Opinion Leaders) and a number of individual case studies. We presented initial data from a clinical trial conducted with the University Hospital of South Manchester NHS Foundation Trust at the Symposium on Advanced Wound Care in Las Vegas. This demonstrated improved healing over control patients in a new application for acute wounds, which showed DermaPure® outperforming the current market leading approaches. We initiated 6 Annual Report and Accounts 2015 Branding Tissue Regenix Brand Architecture and Naming Strategy DermaPure® OrthoPure™ CardioPure™ – Distinct Brands HD Human Dermis Product XD Porcine Surgical Product HM Human Meniscus Product XM Porcine Meniscus Product HT Human Tendon Product XT Porcine Tendon Product HV Human Heart Valve Product – Product Mix Wound Care/General Surgery Position Orthopaedic Position Cardiology Position – Category Position dCell® Technology – Endorser Brand a US randomised clinical trial at the end of the year with a focus on patients with diabetic foot ulcers which we expect, once completed, to give further evidence of the clinical strength of our product. Other Products At a time when the commercialisation of DermaPure® has started to achieve traction, we have continued to develop other therapeutic applications of our core dCELL® technology. Our OrthoPure™ category, which applies the technology into orthopaedic applications, is in advanced development. OrthoPure™ XM, our porcine meniscus product, which will be used to repair damage from ‘tears’ in the meniscus knee cartilage as a result of acute injury or degeneration, has seen further progress towards our goal of commercialisation. The patent portfolio also strengthened over the period with notices of allowance for the meniscus patent being received from the People’s Republic of China in April 2014 and from the US in November 2014. In July 2014 we announced that we had received approval from the Medicines and Healthcare Products Regulatory Agency to start the UK arm of the EU clinical trial of this technology. Recruitment for the 60 patients who will make up this study, which will take place in the UK and Poland, is well underway. This clinical study represents a significant milestone in the process towards gaining EU approval (signified by a CE Mark) which will enable full commercialisation of the product and allow it to be used by clinics and doctors to address a substantial clinical need across the EU. Orthopure™ XT, our tendon product, is aimed at the significant market for anterior cruciate ligament repairs. We have initiated applications to conduct a clinical study with patients recruited in the UK, Spain and Germany. We hope that this study will lead to a CE mark application and commercialisation. Orthopure™ XT and Orthopure™ XT are complementary products, which may well ultimately be used to treat the same patient who is suffering from complex knee injuries. Once CE Marks have been obtained we will be able to market them together, providing useful synergies. The CardioPure™ HV product has also seen significant progress during the year. This product takes donor heart valves and uses the dCELL® process to remove the donor’s DNA to produce an inert scaffold which can be re-populated by the recipient’s own cells. It provides a more durable repair in heart valve replacement surgery and brings significantly reduced risk of rejection and infection. In September 2014 we presented the findings of a study into the performance of this product in clinical trials at the 6th Biennial Heart Valve and Tissue Engineering Meeting in London. The findings of this study showed no reoperations necessary in the study group, better valve performance, and no calcification. We presented an update on the trial at the 28th Annual Meeting of the European Association of Cardio Thoracic Surgery in Milan in October of this year. This showed that after 7 years of the trial’s commencement, freedom from reoperation in the high risk group that constituted the www.tissueregenix.com 7 Tissue Regenix Group plc Chief Executive’s Review continued trial sample was as high as 94% – a dramatic improvement on the performance of the artificial valves which are the current preferred route to treat patients in this category. Although evaluations, conducted with our long-term clinical collaborator Professor Francisco da Costa are continuing, we believe these results show great promise for the CardioPure™ HV technology. Overall we have an extensive programme of commercial development activities at various stages that will enable the full potential of the wound care & sports medicine products to be more visible in the coming months. TR’s multiple market approach means we are addressing significant opportunities with products that redefine the clinical approach and outcomes for patients. Current trading and outlook Tissue Regenix has made progress in several respects in the period since year-end. In particular we were very pleased to achieve Local Coverage Determination from the Medicare Administrative Contractor, Novitas, in March. The Medicare programme in the United States is administered by bodies such as Novitas, each one with their own jurisdiction of states. When coverage is approved it allows the product to be purchased by medical establishments and to be used to treat post-acute and outpatients who are beneficiaries of the Medicare initiative. The Novitas jurisdiction covers the states of Colorado, New Mexico, Oklahoma, Texas, Louisiana, Mississippi, Arkansas, Washington DC, Delaware, Maryland, New Jersey and Pennsylvania with total health care coverage of 8.9 million people. While the approval process takes some time to complete, being granted Novitas coverage gives the Board confidence that similar outcomes can be achieved across the 7 other jurisdictions, 8 Annual Report and Accounts 2015 covering the approximately 28 million people across the country who are covered by Medicare; a significant potential market. Subsequent to the achievement of the Local Coverage Determination we signed a new regional distribution agreement for DermaPure®. This major new contract has been signed with an experienced surgical and wound care distribution network; the contract covers two of the twelve states that comprise the region covered by the Novitas reimbursement Local Coverage Determination notice and represents approximately 11% of the Medicare patients addressed by the notice. The contract is expected to be worth a minimum of $600k over the next 12 months and provides for additional areas to be covered by mutual agreement. In addition, we recently announced approval for the first clinical trial of our decellularised tendon device, Orthopure™ XT, for surgical reconstruction of a torn Anterior Cruciate Ligament in the knee. This is an important step in bringing this device to a market that affects 900,000 people per year globally and which is growing at a CAGR of 7%. We were delighted that this followed so swiftly after our March announcement that, for the first time, a patient had received a partial knee meniscal replacement using Tissue Regenix’s Orthopure™ XM. Both achievements are crucial steps towards being granted CE Marks. This continued progress demonstrates the speed at which our portfolio is developing and I look forward to updating the market on further achievements in due course. Antony Odell Chief Executive Officer 11 May 2015 Strategic Report Principal activity The principal activity of the Group is the exploitation of innovative platform technologies in the field of tissue engineering and regenerative medicine. The Company is incorporated and domiciled in the UK. Business model A description of the Group’s activities and how it seeks to add value are included in the Chairman’s statement and Chief Executive’s report on pages 2 to 8. Business review and results A review of the Group’s performance and future prospects is included in the Chairman’s statement and Chief Executive’s report on pages 2 to 8. The loss for the year attributable to equity holders was £7,581k (2014: £5,593k). The directors do not recommend the payment of a dividend (2014: nil). Key performance indicators Key Group performance indicators are set out below: • Monthly review of product development timelines and costs • Monthly review of revenue progress and forecasts • Monitoring of cash balance and associated working capital requirements • Monthly review of actual results against budget Key risks The Board carefully considers the risks facing the Group and endeavours to minimise the impact of those risks. The key risks are as follows: • Regulatory risk. Regulatory approval timelines can be affected by a number of factors such as trial recruitment rates, clinical results and changes to regulatory requirements which are outside the control of the Group. However, all of the Group’s products follow well established regulatory routes and the Group employs experienced regulatory personnel to navigate the process. • Intellectual property protection. The commercial success of the Group may depend on its ability to protect and exercise its intellectual property rights. Some of the patents held by the Group are process patents which can be difficult to defend. However, the Group retains a significant amount of know-how, not disclosed in the patents, which offers protection in this area. Some of the intellectual property in the Group, including know-how is transferred to partners who undertake tissue processing on behalf of the Group. These transfers of intellectual property are undertaken under strict legal agreements but the Group acknowledges that there is a risk of IP leakage as a result and hence endeavours to only undertake such arrangements with parties and in territories where there is appropriate legal protection. • Competition. Although the Directors believe that for certain of the Group’s products there is limited direct competition, there may be products and competitors that they are currently unaware of which could have a detrimental effect on the Group’s trading performance. Furthermore, certain of the Group’s products will be sold in more competitive environments. The Group therefore expects a balanced exposure to competition with some offerings facing little competition, but others facing significantly more. • Attraction and retention of key employees. The Group depends on the Directors and certain other key employees spread across its various subsidiaries. The ability to attract and retain key employees cannot be guaranteed. However, the Group endeavours to ensure succession planning where possible and ensures that remuneration and incentive packages are in line industry standards. • Development risk. There can be no guarantee that any of the products currently in development will be developed into commercially viable products, meet regulatory requirements or be manufactured in commercial quantities at an acceptable expense or marketed successfully and profitably. However, the Vascular Patch product, already CE marked, demonstrated that the development process works and the same process is being utilised for the subsequent products. Additionally the Group employs experienced development and commercial personnel who have experience of successfully bringing such products to the market. • Sourcing risk. For the human tissue derived products, the Group relies on third party tissue banks to provide the source material for processing with the dCELL® technology. There can be no assurance that sufficient source material will be available to match demand. Future developments Future developments are described in the Chairman’s statement and Chief Executive’s Review on page 1 to 8. On behalf of the Board Antony Odell Chief Executive Officer 11 May 2015 www.tissueregenix.com 9 Tissue Regenix Group plc Directors’ Report For the year ended 31 January 2015 The Directors present their report and consolidated financial statements for the year ended 31 January 2015. 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. Post year-end the Company raised £20m (before expenses) by way of a share placing. Directors’ interests in the shares of the Company, including family interests are included in the Remuneration Report on pages 12 to 15. 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. Directors and their interests The following directors held office in the year. John Samuel Antony Odell Ian Jefferson Alan Miller Alison Fielding (resigned 26 February 2015) Randeep Singh Grewal Steven Couldwell Profile of the directors John Samuel, Chairman John Samuel joined Tissue Regenix Limited as Chairman in March 2008. John qualified as a Chartered Accountant with Price Waterhouse and has held a number of senior finance positions in industry. He was formerly the CEO of the Molnlycke Health Care Group, a global provider of single use surgical and wound care products to the healthcare sector. Until January 2010 he was a Partner with Apax Partners LLP. Currently he is also Chairman of Xeros Group Plc. Antony Odell, Chief Executive Officer Antony Odell was appointed CEO of Tissue Regenix in October 2008 and has led its growth from a small privately held spin-out to the present time. He has over 30 year’s commercial experience in the medical technology sector. Antony has a strong corporate sector background having worked for Johnson & Johnson Medical and was European Business Director for its Vascular Access franchise, General Manager (UK & Ireland) for Fresenius (Critical Care & Diagnostics) and International Knee Manager for Stryker (Howmedica International). Antony was also VP- Medical for BTG when the company was involved in early stage technology commercialisation and was CEO for a UK NHS cardiovascular device spin-out, Tayside Flow Technologies Ltd (now Vascular Flow Technologies Ltd). Ian Jefferson, Chief Financial Officer Ian Jefferson joined Tissue Regenix Group Plc as Chief Financial Officer in June 2011. Ian was formerly Chief Executive Officer of AIM listed, COE Group Plc. Having initially joined COE as CFO in 2007 he became CEO in 2008, restructured the Group and then successfully planned and executed its sale. Prior to COE, Ian held a number of senior finance positions within LSE-quoted companies, most recently as Group Financial Controller of The 600 Group Plc. He has a comprehensive financial and operations background and extensive experience of organisational transformation and M&A. A qualified chartered accountant Ian holds a BSc in Physics with Electronics from Manchester University and an MSc in Applied Radiation Physics from Birmingham University. 10 Annual Report and Accounts 2015 Directors’ Report continued Alan Miller, Non-Executive Director Alan Miller is a founding partner of SCM Private, the wealth management company. He was formerly the Chief Investment Officer and founding shareholder of New Star Asset Management from early 2001 until early 2007. Prior to that, he was a Director at Jupiter Asset Management in charge of their specialist high performance division between 1994 and 2000. He is also a qualified accountant. Randeep Singh Grewal, Non-Executive Director Randeep Grewal has 15 years’ experience working in the institutional investment arena and, until December 2012, was a senior portfolio manager and member of the European equities team at F&C Asset Management. Randeep has also held investment analyst and portfolio management roles at ICAP Equities and Tudor Capital, where he spent 10 years covering and investing in healthcare companies. Randeep has considerable entrepreneurial expertise, having been involved in a number of start-up companies, both personally and as an investor, and qualified in Medicine from the University of Cambridge. Steven Couldwell, Non-Executive Director Steven Couldwell has a proven international track record in driving revenues and profit growth in both the medical device and CRO industries. With over 14 years of senior management experience, Steven is currently Vice President and Head of Global Biosurgery at Sanofi, which has revenues of approximately $750m. Steven was also formerly Vice President and General Manager of Covance Laboratories Europe and worked for Smith & Nephew for almost 20 years in a number of roles including President Orthopaedics (Europe) and Senior VP Sales and Marketing for Smith & Nephew’s Advanced Wound Management business. Substantial shareholders As at 30 April 2015, shareholders holding more than 3% of the share capital of Tissue Regenix Group plc were: 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. Name of shareholder Number of shares % of voting rights Invesco Limited 211,328,351 Woodford Investment Management LLP Techtran Group Ltd Baillie Gifford & Co Ltd Leeds University NFU Mutual Jupiter IP Venture Fund John Samuel* 109,978,587 103,042,837 40,832,027 33,980,127 32,244,099 28,000,000 24,794,730 24,276,928 27.82 14.48 13.56 5.38 4.47 4.24 3.69 3.26 3.20 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 LLP as auditors will be made to members at the Annual General Meeting. *Includes 10,740,000 shares held jointly by the director and the Tissue Regenix Employee Share Trust. On behalf of the Board 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. Antony Odell Chief Executive Officer 11 May 2015 www.tissueregenix.com 11 Tissue Regenix Group plc 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 12 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 Steven Couldwell, who is chairman of the committee, Randeep Grewal 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. On 24 April 2014 the Remuneration Committee approved the implementation of a deferred annual bonus plan to commence from the financial year ended 31 January 2014 (the “Deferred Annual Bonus Plan”). Under the terms of the Deferred Annual Bonus Plan directors and senior managers may waive up to 50% of their annual cash bonus and in 12 Annual Report and Accounts 2015 return receive a share option over ordinary shares in the Company (the “Deferred Allocation”). The number of ordinary shares comprising the Deferred Allocation (i.e. subject to the option) will be calculated by dividing the amount of the cash bonus waived by the closing market value of the ordinary shares of the Company on the dealing day immediately prior to the date of deferral of the bonus. The Deferred Allocation option is not capable of exercise until the vesting date has been reached which is three years from the date of grant of the award. By participating in the Deferred Annual Bonus Plan directors and senior managers will be entitled to receive a matching award at no additional cost (the “Matching Allocation”). The Matching Award will be an option over ordinary shares in the Company. The number of ordinary shares comprising the Matching Allocation will be equivalent to three times the number of ordinary shares received in the Deferred Allocation. Participants will not be entitled to receive the Matching Allocation until the vesting date is reached which is three years from the date of grant of the award. Additionally participants will not be entitled to receive the Matching Award unless shares price growth performance targets have been achieved and those price targets sustained for 30 consecutive days. 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 22.5 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. 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 13 Tissue Regenix Group plc Directors’ remuneration The remuneration of the main Board Directors’ of Tissue Regenix who served in the year to 31 January 2015 was: Antony Odell (note 1) John Samuel (note 1) Ian Jefferson (note 1) Randeep Grewal Steven Couldwell Alison Fielding (note 2) Alexander Stevenson (note 3) Alan Miller Total Salary & fees £000 Bonus £000 Benefits £000 Total 2015 £000 Total 2014 £000 158 100 130 20 20 25 – 25 478 90 – 49 – – – – – 139 1 – 1 – – – – – 2 249 100 180 20 20 25 – 25 619 225 100 168 12 12 17 3 17 554 Note 1 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 £32,000 (2014: £4,000), Antony Odell £47,000 (2014: £2,000), Ian Jefferson £51,000 (2014: £14,000). Note 2 Alison Fielding resigned on 26 February 2015. Note 3 Alexander Stevenson resigned on 8 March 2013. Directors’ shareholdings Directors’ interests in the shares of the Company, including family interests at 31 January 2015 were: Ordinary shares of 0.5p each 2014 Number 2015 % 2015 Number John Samuel (note 4) Antony Odell (note 4) Ian Jefferson (note 4) Alison Fielding Alan Miller 24,276,928 5,572,800 1,009,404 2,279,661 21,486,988 3.71% 24,276,928 0.85% 5,572,800 0.15% 1,009,404 0.35% 2,279,661 3.28% 21,486,988 Note 4 Includes shares held jointly by the director and EBT as set out below. 2014 % 3.71% 0.85% 0.15% 0.35% 3.29% www.tissueregenix.com 13 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 14 Directors’ Remuneration Report 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 Benefit Trust (EBT) and in share options to acquire ordinary shares of 0.5 pence each in the Company at 31 January 2015 were: Approved EMI scheme options Antony Odell (note 1) Antony Odell (note 2) Antony Odell (note 3) Ian Jefferson (note 4) Ian Jefferson (note 3) John Samuel (note 5) John Samuel (note 3) Unapproved scheme options Antony Odell (note 6) Ian Jefferson (note 6) Ian Jefferson (note 7) John Samuel (note 6) EBT scheme shares (note 8) Antony Odell Ian Jefferson John Samuel At 1 February 2014 8,307,608 1,187,200 – 872,727 – 2,400,000 – – – – – 5,372,800 827,586 10,740,000 Exercised during year Lapsed during year Granted during year At 31 January 2015 Exercise price – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 577,777 – 577,777 – 577,777 422,223 122,779 346,936 88,890 8,307,608 1,187,200 577,777 872,727 577,777 2,400,000 577,777 0.73 pence 5.00 pence 22.50 pence 13.75 pence 22.50 pence 5.00 pence 22.50 pence 422,223 122,779 346,936 88,890 22.50 pence 22.50 pence 0.05 pence 22.50 pence – – – 5,372,800 827,586 10,740,000 5.00 pence 14.50 pence 5.00 pence Note 1. There were no performance conditions 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 2015. Note 2. There were employment period and performance conditions in relation to the 1,187,200 options granted on 29 June 2010 which allowed 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 10 pence per share, 15 pence per share and 20 pence per share by the respective three vesting dates. As at the 31 January 2015 all the performance conditions had been met and the options were eligible for exercise. Note 3. There were employment period and performance conditions in relation to the 577,777 options granted on 4 February 2014 which allowed 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 30 pence per share, 40 pence per share and 50 pence per share by the respective three vesting dates. As at the 31 January 2015 none of the performance conditions had been met and no options were eligible for exercise. Note 4. There were employment period and performance conditions in relation to the 872,727 options granted on 6 July 2011 which allowed 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 15 pence per share, 20 pence per share and 25 pence per share by the respective three vesting dates. As at the 31 January 2015 all performance conditions had been met and the options were eligible for exercise. Note 5. There were employment period and performance conditions in relation to the 2,400,000 options granted on 29 June 2010 which allowed 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 10 pence per share, 15 pence per share and 20 pence per share by the respective three vesting dates. As at the 31 January 2015 all the performance conditions had been met and the options were eligible for exercise. Note 6. There were employment period and performance conditions in relation to the 422,223, 122,779 and 88,890 options granted on 4 February 2014 which allowed 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 30 pence per share, 40 pence per share and 50 pence per share by the respective three vesting dates. As at the 31 January 2015 none of the performance conditions had been met and no options were eligible for exercise. Note 7. There were employment period and performance conditions in relation to the 346,936 options granted on 20 May 2014 under the Company Deferred Annual Bonus plan. 86,734 options vest after three years and correspond to the amount of bonus deferred by the participant. The remaining 260,202 options which relate to the matching award vest in three equal proportions three years after the date of grant, subject to the Company’s share price reaching 30 pence per share, 40 pence per share and 50 pence per share by the vesting dates. As at the 31 January 2015 none of the performance conditions had been met and no options were eligible for exercise. 14 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 15 Tissue Regenix Group plc Note 8. The Tissue Regenix Group Employee Benefit Trust (“the EBT”) was established with Osiris Management Services Limited appointed as trustee (“the Trustee”) to enable the Trust to acquire ordinary shares in the Company and to make interests in those shares available for the benefit of current and future employees of the Company and its subsidiaries. Antony Odell and John Samuel have interests in ordinary shares in the Company which were acquired jointly with the Trustee in the market on 29 June 2010 at a price of 5 pence per share. Ian Jefferson has an interest in ordinary shares 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 2015 was 20.25 pence per share, the highest and lowest prices during the year were 31.25 pence and 19.38 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 Steve Couldwell Chairman of the Remuneration Committee 11 May 2015 www.tissueregenix.com 15 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 16 Corporate Governance Statement Going Concern At 31 January 2015, the Group had £10.3m of cash and cash equivalents available to it. Post year-end the Company raised an additional £20m, before expenses, by way of a share placing. The Directors have considered their obligation, in relation to the assessment of the going concern of the Group and each statutory entity within it and have reviewed the current budget cash forecasts and assumptions as well as the main risk factors facing the Group. After due enquiry, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. Corporate governance 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 three Non-Executive Directors. Audit Committee The Audit Committee’s primary responsibilities are to monitor the integrity of the financial affairs and statements of the Company, to ensure that the financial performance of the Company and any subsidiary of the Company is properly measured and reported on, to review reports from the Companies auditors relating to the accounting and internal controls and to make recommendations relating to the appointment of the external auditors. The Audit Committee comprises Alan Miller, who acts as chairman of the committee and Steven Couldwell and Randeep Grewal. Internal Control The Board is responsible for maintaining a sound system of internal control. The Board’s measures are designed to manage, not eliminate risk, and such a system provides reasonable but not absolute assurance against material misstatement or loss. The Board confirms that it has established the procedures necessary to implement the guidance “Internal Control Guidance for Directors on the Combined Code” (The Turnbull Report). Some key features of the internal control system are: (i) Management accounts information, budgets, forecasts and business risk issues are regularly reviewed by the Board who meet at least ten times per year; (ii) The Company has operational, accounting and employment policies in place; (iii) The Board actively identifies and evaluates the risks inherent in the business and ensures that appropriate controls and procedures are in place to manage these risks; (iv) There is a clearly defined organisational structure, and (v) There are well-established financial reporting and control systems. 16 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 17 Statement of Directors’ Responsibilities Tissue Regenix Group plc Statement of Directors’ responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare Group and parent Company financial statements for each financial year. As required by the AIM rules of the London Stock Exchange they are required to prepare Group financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and applicable law and have elected to prepare the parent Company financial statements on the same basis. 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 parent Company and of their profit or loss for that period. In preparing each of the Group and the parent 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; and d. prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect 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. www.tissueregenix.com 17 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 18 Independent Auditor’s Report to the members of Tissue Regenix Group Plc • 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 Strategic Report and 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 explanations we require for our audit. Ian Beaumont (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 1 The Embankment Neville Street Leeds LS1 4 DW 11 May 2015 We have audited the financial statements of Tissue Regenix Group Plc for the year ended 31 January 2015 set out on pages 19 to 42. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU 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 explained more fully in the Directors’ Responsibilities Statement set out on page 17, 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 Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the 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 of the parent company’s affairs as at 31 January 2015 and of the group’s loss for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and 18 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 19 Consolidated Statement of Comprehensive Income For the year ended 31 January 2015 Tissue Regenix Group plc Operating Income Administrative expenses Operating Loss Finance income Loss before taxation Taxation Loss after tax attributable to equity holders of the parent Other Comprehensive Income: Foreign currency translation differences – foreign operations TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR Notes 4 4 6 7 2015 £000 100 (8,469) (8,369) 168 (8,201) 620 (7,581) 2014 £000 6 (6,583) (6,577) 274 (6,303) 710 (5,593) (4) 3 (7,585) (5,590) Loss per share Basic and diluted on loss from continuing operations 8 (1.19)p (0.88)p The loss for the year arises from the Group’s continuing operations. www.tissueregenix.com 19 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 20 Consolidated Statement of Changes in Equity For the year ended 31 January 2015 Share Share Capital Premium Reserve £000 £000 £000 Reverse Merger Acquisition Reserve £000 Reserve For Own Payment Reserve £000 Shares £000 Share Based Retained Earnings Deficit £000 Total £000 At 31 January 2013 3,264 31,966 10,884 (7,148) (831) 536 (14,205) 24,466 Loss for the year Other comprehensive expense Loss and total comprehensive expense for the year Exercise of share options Share based payment expense – – – 3 – – – – 5 – – – – – – – – – – – – – – – – – – – – 94 (5,593) 3 (5,593) 3 (5,590) – – (5,590) 8 94 At 31 January 2014 3,267 31,971 10,884 (7,148) (831) 630 (19,795) 18,978 Loss for the year Other comprehensive expense Loss and total comprehensive expense for the year Exercise of share options Share based payment expense – – – 4 – – – – 1 – – – – – – – – – – – – – – – – At 31 January 2015 3,271 31,972 10,884 (7,148) (831) – – (7,581) (4) (7,581) (4) – – 180 810 (7,585) – – (7,585) 5 180 (27,380) 11,578 20 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 21 Consolidated Statement of Financial Position As at 31 January 2015 Tissue Regenix Group plc Assets Non-current assets Property, plant and equipment Total non-current assets Current assets Inventory 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 Reserve for own shares Share based payment reserve Retained earnings deficit Total equity Approved by the Board of Directors and authorised for issue on 11 May 2015. John Samuel Chairman Company number: 5969271 Ian Jefferson Chief Financial Officer Notes 9 10 11 12 13 13 13 13 16 14 2015 £000 435 435 34 1,947 10,257 12,238 12,673 2014 £000 472 472 – 1,127 18,483 19,610 20,082 (1,095) (1,095) (1,104) (1,104) 11,578 18,978 3,271 31,972 10,884 (7,148) (831) 810 (27,380) 3,267 31,971 10,884 (7,148) (831) 630 (19,795) 11,578 18,978 www.tissueregenix.com 21 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 22 Consolidated Statement of Cash Flows For the year ended 31 January 2015 Operating activities Operating loss Adjustment for non-cash items: Depreciation of property, plant and equipment Share based payment R&D tax credit received Operating cash outflow Increase in inventory Increase in trade and other receivables (Decrease)/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 Net cash inflow from financing activities Decrease in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year Notes 2015 £000 2014 £000 9 16 9 13 (8,369) (6,577) 151 180 – 124 94 474 (8,038) (5,885) (34) (200) (13) – (184) 422 (8,285) (5,647) 168 (114) 54 5 5 274 (358) (84) 8 8 (8,226) 18,483 10,257 (5,723) 24,206 18,483 22 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 23 Notes to the Financial Statements For the year ended 31 January 2015 Tissue Regenix Group plc 1 Basis of Preparation The financial statements of Tissue Regenix Group plc are audited consolidated financial statements for the year to 31 January 2015. These include audited comparatives for the year to 31 January 2014. 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 2015, the Group had £10.3 million of cash and cash equivalents available to it. Post year-end the Company raised £20 million before expenses by the way of a share placing. 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 page 9. 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. 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 The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purposes of the consolidated financial statements, the results and the financial position of each Group entity are expressed in Pounds Sterling, which is the functional currency of the Company and the presentational currency for the consolidated financial statements. In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each balance sheet date, monetary items denominated on foreign currencies are retranslated at the rates prevailing at the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in foreign currency are not retranslated. The assets and liabilities of foreign operations are translated using exchange rates at the balance sheet date. The components of shareholders’ equity are started at historical value. An average exchange rate for the period is used to translate the results and cash flows of foreign operations. Exchange differences arising on translating the results and net assets of foreign operation are taken to the translation reserve in equity until the disposal of the investment. The gain or loss in the income statement on the disposal of foreign operations includes the release of the translation reserve relating to the operation that is being sold. 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: • it is technically feasible to complete the product and the Company is satisfied that appropriate regulatory hurdles have been, or will be achieved; • management intends to complete the product and use or sell it; • • • • there is an ability to use or sell the product; it can be demonstrated how the product will generate probable future economic benefits; adequate technical, financial and other resources are available to complete the development, use or sell the product; and expenditure attributable to the product can be reliably measured. Such intangible assets are amortised on a straight-line basis from the point at which the assets are ready for use over the period of the expected benefit, and are reviewed for an indication of impairment at each reporting date. www.tissueregenix.com 23 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 24 Notes to the Financial Statements For the year ended 31 January 2015 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: 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 a Binomial valuation model. At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management’s best estimate of the achievement or otherwise of non-market conditions and the number of equity instruments that will ultimately vest. The movement in cumulative expense since the previous reporting date is recognised in the statement of comprehensive income, with a corresponding entry in equity. Jointly held shares Where an employee acquires an interest in shares in the Company jointly with the Tissue Regenix Employee Share Trust, the fair value benefit at the purchase date is recognised as an expense, with a corresponding increase to equity share based payment reserve on a straight-line basis, over the vesting period. The fair value benefit is measured using a Binomial valuation model, taking into account the terms and conditions upon which the jointly owned shares were purchased. Laboratory equipment Computer equipment Office furniture and equipment: over 5 years over 3 years over 5 years The expected life used in the model has been adjusted, based on management’s best estimate, for the effect of non-transferability, sale restrictions, and behavioral considerations 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. 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. 24 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 25 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 below: Tissue Regenix Group plc 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 £180,000 (31 January 2014: £94,000) 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. www.tissueregenix.com 25 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 26 Notes to the Financial Statements For the year ended 31 January 2015 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: Standard Description Effective date IFRS 9 IFRS 11 IFRS 15 IAS 16 and 38 Financial Instruments Accounting for Acquisitions of Interests in Joint Operations – Amendments to IFRS 11 Revenue from contracts with customers Clarification of Acceptable Methods of Depreciation and Amortisation – Amendments to IAS 16 and IAS 38 Defined Benefit Plans: Employee Contributions – Amendments to IAS 19 Equity Method in Separate Financial Statements – Amendments to IAS 27 IAS 19 IAS 27 Annual Improvements to IFRS – 2010-2012 Cycle Annual Improvements to IFRS – 2011-2013 Cycle Annual Improvements to IFRS – 2012-2014 Cycle 1 January 2018 1 January 2016 1 January 2017 1 January 2016 1 July 2014 1 January 2016 1 July 2014 1 July 2014 1 January 2016 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 2015, 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. The Group operates in two geographic sectors, the UK and the USA. A split of expenses and assets is included below: Geographical analysis UK £000 (8,369) UK £000 (6,577) UK £000 12,330 (711) UK £000 19,861 (846) USA £000 – USA £000 – USA £000 343 (384) USA £000 221 (258) 2015 Total £000 (8,369) 2014 Total £000 (6,577) 2015 Total £000 12,673 (1,095) 2014 Total £000 20,082 (1,104) Operating Loss* *Expenses of £1,725k incurred in USA recharged to UK parent. Operating Loss** **Expenses of £952k incurred in USA recharged to UK parent. Assets Liabilities Assets Liabilities 26 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 27 Tissue Regenix Group plc 2015 £000 20 151 407 3,612 27 4,049 10 17 22 25 74 2014 £000 – 124 281 2,917 44 3,356 10 10 17 12 49 2015 Number 2014 Number 7 53 60 2015 £000 3,094 180 338 3,612 7 41 48 2014 £000 2,557 94 266 2,917 749 574 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 Parent Company and consolidated financial statements – auditing the accounts of subsidiaries pursuant to legislation Other services: – fees in relation to corporation tax – fees in relation to other tax advice Total auditors 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 16) Social security & healthcare costs Directors’ remuneration included above comprised: Emoluments for qualifying services Directors’ emoluments disclosed above include £249,000 paid to the highest paid director (2014: £225,000) as well as share based payments benefit of £47,000 (2014: £2,000). www.tissueregenix.com 27 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 28 Notes to the Financial Statements For the year ended 31 January 2015 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 2015 £000 168 2015 £000 (620) – (620) – (620) 2014 £000 274 2014 £000 (710) – (710) – (710) 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 2015 £000 2014 £000 (8,201) (1,640) 36 (620) 919 (510) 1,195 (620) (6,303) (1,261) 19 (710) 1,291 (717) 668 (710) 28 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 29 Tissue Regenix Group plc Deferred Tax Tax losses Losses available to carry forward against future trading profits Deferred tax asset – unrecognised* 2015 £000 2014 £000 16,121 3,224 10,226 2,045 *The Company has not recognised a deferred tax asset relating to these losses as their recoverability is uncertain. 8 Loss per Share (Basic and Diluted) Basic loss per share is calculated by dividing the loss attributable to equity holders of the parent by the weighted average number of ordinary shares in issue during the year excluding own shares held jointly by the Tissue Regenix Employee Share Trust and certain employees. Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares in issue during the year to assume conversion of all dilutive potential ordinary shares. Total loss attributable to the equity holders of the parent 2015 £000 2014 £000 (7,581) (5,593) No. No. Weighted average number of ordinary shares in issue during the year 636,890,061 635,574,603 Loss per share Basic and diluted on loss for the year (1.19)p (0.88)p The Company has issued employee options over 21,956,458 ordinary shares and there are 16,940,386 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. www.tissueregenix.com 29 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 30 Notes to the Financial Statements For the year ended 31 January 2015 9 Property, Plant and Equipment Laboratory Equipment £000 Fixtures & Fittings £000 Computer Equipment £000 Cost At 31 January 2013 Additions At 31 January 2014 Additions At 31 January 2015 Depreciation At 31 January 2013 Charge for the year At 31 January 2014 Charge for the year At 31 January 2015 Net book value At 31 January 2015 At 31 January 2014 At 31 January 2013 10 Trade and Other Receivables Trade debtors Other receivables Prepayments and accrued income 332 321 653 89 742 152 89 241 116 357 385 412 180 36 16 52 1 53 24 9 33 8 41 12 19 12 88 21 109 24 133 42 26 68 27 95 38 41 46 2015 £000 40 1,415 492 1,947 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. Total £000 456 358 814 114 928 218 124 342 151 493 435 472 238 2014 £000 – 807 320 1,127 30 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 31 Tissue Regenix Group plc 11 Risk Management of Financial Assets and Liabilities The Company’s activities expose it to a variety of financial risks: market risk, specifically interest rate risk, credit risk and liquidity risk. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company’s financial performance. The management of these risks is vested in the Board of Directors. The policies for managing each of these risks are summarised below: Management of market risk i) Interest rate risk As the Company has no significant borrowings the risk is limited to the potential reduction in interest received on cash surpluses held. Interest rate risk is managed in accordance with the liquidity requirement of the Group, with a minimal amount of its cash surpluses held within short term accounts, which have variable interest rates attributable to them, 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 2015 Fixed rate Floating rate £000 £000 Total £000 9,306 951 10,257 2014 Fixed rate £000 Floating rate £000 Total £000 18,402 81 18,483 Due to the high proportion of funds held on a fixed deposit, the impact of a 5 per cent. increase/decrease in interest rates would have an immaterial impact on the loss in each year. Management of credit risk The Company is exposed to credit risk from its operating activities, it principally arises from short term bank deposits. The Company seeks to minimise this risk by only depositing funds with banks with a high credit rating. The maximum exposure to credit risk on the Company’s financial assets is represented by their carrying amounts as outlined in the categorisation of financial instruments table below. The Company does not consider that any changes in fair value of financial assets or liabilities in the year are attributable to credit risk. www.tissueregenix.com 31 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 32 Notes to the Financial Statements For the year ended 31 January 2015 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+ 2015 £000 49 10,208 – 10,257 2014 £000 46 18,399 38 18,483 The above has been split by the Fitch rating system and gives an analysis of the credit rating of the financial institutions where cash balances are held. Capital risk management The Company manages its capital to ensure that the Company will be able to continue as a going concern while maximising the return to stakeholders. The Company’s overall strategy is to minimise costs and liquidity risk. The capital structure of the Company consists of equity attributable to the owners of the Company, comprising issued capital, reserves and retained earnings as disclosed in note 13 and 14 and in the Statement of Changes in Equity. Categorisation of financial instrument Financial assets/(liabilities) Financial liabilities at amortised cost £000 Loans and receivables £000 1,455 10,257 – 11,712 Loans and receivables £000 807 18,483 – 19,290 – – (385) (385) Financial liabilities at amortised cost £000 – – (423) (423) Total £000 1,455 10,257 (385) 11,327 Total £000 807 18,483 (423) 18,867 At 31 January 2015 Trade and other receivables Cash and cash equivalents Trade and other payables At 31 January 2014 Trade and other receivables Cash and cash equivalents Trade and other payables The Company had no financial instruments measured at fair value 32 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 33 12 Trade and Other Payables Trade payables Taxes and social security Accruals Tissue Regenix Group plc 2015 £000 312 73 710 2014 £000 368 55 681 1,095 1,104 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 2015 £000 168 118 26 312 Number Share capital £000 Share premium £000 Merger reserve £000 Reverse acquisition reserve £000 2014 £000 251 91 26 368 Total £000 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 Share options exercised 662,338 3 5 – – 8 Total Ordinary shares of 0.5p each as at 31 January 2014 653,487,357 3,267 31,971 10,884 (7,148) 38,974 Share options exercised 635,674 4 1 – – 5 Total Ordinary shares of 0.5p each as at 31 January 2015 654,123,031 3,271 31,972 10,884 (7,148) 38,979 As permitted by the provisions of the Companies Act 2006, the Company does not have an upper limit to its authorised share capital. Post year-end the Company raised £20 million before expenses by the way of a share placing. www.tissueregenix.com 33 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 34 Notes to the Financial Statements For the year ended 31 January 2015 14 Movement in Retained Earnings and Reserve for Own Shares At 31 January 2013 Loss for the year Exchange movement At 31 January 2014 Loss for the year Exchange movement At 31 January 2015 Retained Reserve For Earnings Deficit Own Shares £000 £000 (14,205) (831) (5,593) 3 – – (19,795) (831) (7,581) (4) – – (27,380) (831) 15 Commitments Operating lease commitments The Group leases premises under non-cancellable operating lease agreements. The future aggregate minimum lease and service charge payments under non-cancellable operating leases are as follows: Land and buildings: Amounts due within one year 2015 £000 175 2014 £000 57 34 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 35 Tissue Regenix Group plc 16 Share Based Payments Share options and shares held in employee benefit trust (“EBT”) The Company operates a share option plan, under which certain employees have been granted options to subscribe for ordinary shares. All options are equity settled. The options have an exercise price of between 0.5p to 22.5p 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. The number and weighted average exercise prices of share options and EBT shares are as follows: At 31 January 2013 Exercised in the year Lapsed during year Issued in the year At 31 January 2014 Exercised in the year Lapsed during year Issued in the year At 31 January 2015 Number of share interests EMI options 15,664,321 (662,338) (145,454) 675,675 15,532,204 (635,674) (319,992) 1,955,553 Unapproved options 2,436,404 – – 2,387,625 EBT shares 17,540,386 (250,414) (349,586) – 4,824,029 – (480,480) 1,080,828 16,940,386 – – – Weighted average exercise price Total per share (£) 35,641,111 (912,752) (495,040) 3,063,300 37,296,619 (635,674) (800,472) 3,036,381 0.0464 0.0225 0.0757 0.0952 0.0505 0.0073 0.1033 0.1993 0.0706 16,532,091 5,424,377 16,940,386 38,896,854 There were 16,622,309 share options outstanding at 31 January 2015 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 2015. 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 16,940,386 of the jointly held EBT shares which were eligible to vest as at 31 January 2015. 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. www.tissueregenix.com 35 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 36 Notes to the Financial Statements For the year ended 31 January 2015 The fair value benefit received on share options granted is measured using the Binomial model 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 account 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 (£) Options Granted year to 31 January 2015 Options Granted year to 31 January 2014 – 47% 0.9 4 0.1993 – 47% 0.9 4 0.0942 Any share options and employee interests in jointly owned EBT shares which are not exercised within 10 years from the date of grant will expire. A charge has been recognised in the statement of comprehensive income for each year as follows: Share options Jointly owned shares 2015 £000 178 2 180 2014 £000 82 12 94 36 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 37 Tissue Regenix Group plc 2015 £000 2014 £000 76 52 17 Related Party Transactions Trading transactions with Transactions with significant shareholders: Patent support costs 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* 2015 £000 619 2014 £000 554 *In addition, certain directors hold share options and jointly owned shares in the Company for which a fair value share based charge of £130,000 has been recognised in the consolidated statement of comprehensive income (2014: £20,000). During the year ended 31 January 2015, 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. www.tissueregenix.com 37 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 38 Company Statement of Changes in Equity For the year ended 31 January 2015 Attributable to the equity holders of the Company At 31 January 2013 Total expense and other comprehensive loss for the year Share options exercised Share based payment expense At 31 January 2014 Total expense and other comprehensive loss for the year Share options exercised Share based payment expense Share Capital £000 3,264 – 3 – Share Premium £000 Merger Reserve £000 31,966 10,884 – 5 – – – – 3,267 31,971 10,884 – 4 – – 1 – – – – At 31 January 2015 3,271 31,972 10,884 Share Based Payment Reserve £000 Retained Earnings Deficit £000 Total £000 463 – – 94 557 – – 180 737 (4,542) 42,035 (743) – – (743) 8 94 (5,285) 41,394 (1,039) – – (6,324) (1,039) 5 180 40,540 38 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 39 Company Statement of Financial Position For the year ended 31 January 2015 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 Share based payment reserve Retained earnings deficit Total equity Approved by the Board of Directors and authorised for issue on 11 May 2015. John Samuel Chairman Company number: 5969271 Ian Jefferson Chief Financial Officer Tissue Regenix Group plc Notes 2015 £000 2014 £000 C3 C4 C5 C6 13 13 13 16 12,922 12,922 40 17,881 9,965 27,886 40,808 12,922 12,922 49 10,232 18,409 28,690 41,612 (268) (268) (218) (218) 40,540 41,394 3,271 31,972 10,884 737 (6,324) 40,540 3,267 31,971 10,884 557 (5,285) 41,394 www.tissueregenix.com 39 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 40 Company Statement of Cash Flows For the year ended 31 January 2014 Operating activities Loss before interest and tax Adjustment for non-cash items: Share based payments Operating cash outflow Decrease in trade and other receivables 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 Net cash used in financing activities Decrease in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year Notes 2015 £000 2014 £000 (1,207) (1,017) 16 C5 13 180 (1,027) 9 50 (968) 168 (7,649) (7,481) 5 5 (8,444) 18,409 9,965 94 (923) 108 34 (781) 274 (5,023) (4,749) 8 8 (5,522) 23,931 18,409 40 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 41 Notes to the Company Information For the year ended 31 January 2015 Tissue Regenix Group plc 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 2015 was a loss of £1,039k (2014: £743k). 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 2015, the Company held the following investments in subsidiaries; Share of issued capital and voting rights Undertaking Sector Regenerative medicine Regenerative medicine Regenerative medicine Regenerative medicine Regenerative medicine Regenerative medicine Dormant 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 Cost At 1 February Additions At 31 January Impairment At 1 February At 31 January Carrying value at 31 January 2015 100% 100% 100% 100% 100% 100% 85% 2015 £000 14,707 – 14,707 2014 100% 100% 100% 100% 100% 100% 85% 2014 £000 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. www.tissueregenix.com 41 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 42 Notes to the Company Information For the year ended 31 January 2015 C4. Trade and other receivables Prepayments & accrued income Other debtors C5. Current assets 2015 £000 10 30 40 2015 £000 2014 £000 17 32 49 2014 £000 Intercompany loan 17,881 10,232 A loan of £17,881 was advanced to other subsidiary companies in the year. No interest was payable on the loan. C6. Trade and other payables Trade creditors Taxes and social security Accruals 2015 £000 40 19 209 268 2014 £000 8 19 191 218 42 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 43 Notice of Annual General Meeting Tissue Regenix Group plc Notice is given that the 2015 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 12 June 2015 at 10.00 a.m. for the following purposes: To consider and, if thought fit, to pass the following resolutions as ordinary resolutions: 1. 2. 3. 4. 5. 6. 7. To receive the Company’s annual accounts, strategic report and directors’ and auditors’ reports for the year ended 31 January 2015. To reappoint John Samuel, who retires by rotation, as a director of the Company. To reappoint Antony Odell, who retires by rotation, as a director of the Company. To reappoint Alan Miller, who retires by rotation, as a director of the Company. To reappoint KPMG LLP as auditors of the Company. To authorise the directors to determine the remuneration of the auditors. 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 £2,532,176 (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, 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 £1,266,088 (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 £1,266,088), 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 12 September 2016 (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 Act) for cash pursuant to the authorities granted by resolution 7 as if section 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to: 8.1 the allotment of equity securities in connection with an offer of equity securities (whether by way of a rights issue, open offer or otherwise, but, in the case of an allotment pursuant to the authority granted by paragraph www.tissueregenix.com 43 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 44 Notice of Annual General Meeting 7.1 of resolution 7, such power shall be limited to the allotment of equity securities in connection with a rights issue): 8.1.1 to holders of ordinary shares in the capital of the Company in proportion (as nearly as practicable) to the respective numbers of ordinary shares held by them; and 8.1.2 to holders of other equity securities in the capital of the Company, as required by the rights of those securities or, subject to such rights, as the directors otherwise consider necessary, but subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates or any legal or practical problems under the laws of any territory or the requirements of any regulatory body or stock exchange; and 8.2 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 £379,826, 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 12 September 2016 (whichever is the earlier), save that the Company may make an offer or agreement before this power expires which would or might require equity securities to be allotted for cash after this power expires and the directors may allot equity securities for cash pursuant to any such offer or agreement as if this power had not expired. This power is in substitution for all existing powers under section 570 of the Act (which, to the extent unused at the date of this resolution, are revoked with immediate effect). 9. That, pursuant to section 701 of the Act, the Company be and is generally and unconditionally authorised to make market purchases (within the meaning of section 693(4) of the Act) of ordinary shares of 0.5p each in the capital of the Company (“Shares”), provided that: 9.1 the maximum aggregate number of Shares which may be purchased is 75,965,309; 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 12 September 2016 (whichever is the earlier), save that the Company may enter into a contract to purchase Shares before this authority expires under which such purchase will or may be completed or executed wholly or partly after this authority expires and may make a purchase of Shares pursuant to any such contract as if this authority had not expired. By order of the board Ian Jefferson Secretary 11 May 2015 Registered office The Biocentre Innovation Way Heslington York YO10 5NY Registered in England and Wales No. 05969271 44 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 45 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 6.00 p.m. on 10 June 2015 (or, if the meeting is adjourned, 6.00 p.m. 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 and 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; lines are open 9.00 a.m. to 5.30 p.m., Monday to Friday) 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 Asset Services PXS 1, 34 Beckenham Road, Beckenham BR3 4TU, no later than 10.00 a.m. on 10 June 2015 (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 Asset Services (ID RA10) no later than 10.00 a.m. on 10 June 2015 (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. www.tissueregenix.com 45 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 46 Notice of Annual General Meeting Notes 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 pages 10 and 11 of the enclosed annual report and accounts. 46 Annual Report and Accounts 2015 165275 Tissue Regenix Annual Report Part 2_165275 Tissue Regenix Annual Report Part 2 08/05/2015 13:42 Page 47 Tissue Regenix Group plc Directors and Officers Directors (Chairman) John Samuel (Chief Executive Officer) Antony Odell (Chief Financial Officer) Ian Jefferson Alan Miller (Non-Executive Director) Randeep Singh Grewal (Non-Executive Director) (Non-Executive Director) Steven Couldwell Company Secretary Ian Jefferson Company Website www.tissueregenix.com Company Number 05969271 (England & Wales) Registered Office The Biocentre Innovation Way Heslington York North Yorkshire YO10 5NY Auditor KPMG LLP 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 www.tissueregenix.com 47 Commercialising academic research in regenerative medicine Tissue Regenix is a pioneering, international medical devices company, leading the development of regenerative products to make replacement body parts using biological (human & animal) materials. The Company’s patented decellularisation (‘dCELL®’) technology removes DNA and other cellular material from tissue leaving an acellular scaffold which is not rejected by the patient’s body. The potential applications of dCELL® are diverse and address critical clinical needs such as wound care, vascular disease, heart valve replacement and knee repair. Contents Strategic Report Chairman’s Statement Chief Executive’s Review Strategic Report Directors’ Report and Financials 2 5 9 Directors’ Report Directors’ Remuneration Report Corporate Governance Statement Statement of directors’ responsibilities Independent Auditor’s Report Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Company Statement of Changes in Equity Company Statement of Financial Position Company Statement of Cash Flows Notes to the Company Information Notice of Annual General Meeting 10 12 16 17 18 19 20 21 22 23 38 39 40 41 43 Designed and produced by Sterling Tissue Regenix Group plc ANNUAL REPORT FOR THE YEAR ENDED 31 JANUARY 2015 Tissue Regenix Group plc The Biocentre Innovation Way Heslington York YO10 5NY United Kingdom www.tissueregenix.com Tissue Regenix Group plc