Tissue Regenix Group plc

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Annual results for the year ended 31 December 2019

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and

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Notice of AGM

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Revenue up 12% year-on-year (8% constant currency)

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Fundraising of gross proceeds of �14.62m subject to shareholder approval at a General Meeting

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Leeds, 5 June 2020 - Tissue Regenix Group (AIM:TRX) ("Tissue Regenix", the "Company" or the "Group"), the regenerative medical devices company, today announces its annual results for the year ended 31 December 2019.

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Financial highlights

������ Increased revenues by 12% (8% constant currency) to �13.03m (2018: �11.62m)

o� BioSurgery sales of dCELL� products sales increased by 25% to �4.23m (2018: �3.38m)

o� Orthopaedics and Dental sales of BioRinse products grew by 5% to �6.72m

(2018: �6.40m)

o� Joint venture GBM-v sales grew by13% to �2.08m (2018: �1.84m)

������ Gross profit increased to �6.02m (2018: �5.92m)

������ Operating loss narrowed to �7.20m (2018: �8.69m)

������ Drawdown of $2m of the MidCap Financial Term Loan, with access to a $3m Revolving Credit Facility as at� 31��December 2019

������ Net cash at 31 December 2019 of �2.38m (2018: �7.82m), including �1m of the MidCap Revolving Credit Facility

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Operational highlights

������ Strengthened the San Antonio management team, including establishing a specialist Donor Services team

������ Orthopaedic donor throughput more than doubled between Q1-Q4 2019

������ Commenced a second shift in the San Antonio facility

������ Outsourced certain product lines to increase manufacturing capacity

������ Lease signed on additional 21,000sq ft manufacturing facility in San Antonio, which subject to securing financing is ready to commence clean room fit out

������ Soft launch of DermaPure non-oriented product for surgical and urogynaecology applications

������ Further Group Purchasing Organisation (GPO) approvals for DermaPure, increasing coverage to c.95% of US GPO hospitals

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Post period highlights

������ Q1 revenue increased by 18% year-on-year, despite cyberattack experienced at San Antonio facility

������ Conditional fundraising raised gross proceeds of �14.62m announced on 22 May, subject to shareholder approval at a General Meeting on 9 June and admission of shares to AIM

������ New strategic collaboration with a top 10 global healthcare company for a newly developed product line was announced on 11 May 2020

������ US Government backed loans of $1m secured in April 2020 to assist with US cost base during COVID-19 pandemic

������ Award of CE Mark for OrthoPure XT announced on 1 June 2020

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Gareth Jones, Interim CEO of Tissue Regenix Group, commented:�

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"During� 2019, recognising the need to optimise our supply chain and processes to address various operational challenges and support the growing demand for our products, we concentrated efforts on implementing a number of efficiency improvements which manifested in donor throughput more than doubling between Q1-Q4 2019 at the facility in San Antonio. Despite experiencing manufacturing capacity constraints and operational challenges, these initiatives meant we were able to increase our top-line revenue by 12% year-on-year (8% constant currency). In conjunction with this we implemented a number of cost control measures in Q4 2019 which will provide annualised savings of circa. �1m.� We remain committed to assessing our ongoing operational cost base to ensure that funds are deployed in the most efficient manner and efficiencies maximised, as we work towards a position of break-even. In May 2020, we undertook a fundraise of �14.62m, subject to approval by shareholders at a General Meeting and admission of shares on AIM, to invest in our manufacturing infrastructure to increase this capacity further which will allow us to unlock additional revenues and new partnership opportunities.

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As an example of the exciting growth potential of the business and testament to the strong underlying demand for our portfolio of regenerative biologic products, following the year-end, we announced a strategic partnership with a top 10 global healthcare company for a new product launch. Additionally, the receipt of CE Mark approval for OrthoPure XT is a significant milestone in the evolution of our product portfolio and corporate objectives.

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We remain confident in our long-term strategy to grow the business. However, whilst sales were not materially impacted during Q1 2020, where we delivered 18% year-on-year growth, the Board is unable to provide clarity on the financial outlook for 2020 until there is greater visibility around the impact of the COVID-19 pandemic in the market."

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Posting of Report and Accounts and Notice of AGM

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The Company announces that the Annual Report and Accounts will be posted to shareholders today together with a notice of Annual General Meeting (the "AGM") and accompanying form of proxy.

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The AGM will be held at the offices of Squire Patton Boggs (UK) LLP, 6 Wellington Place, Leeds at 10am on 30 June 2020.

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The UK Government passed into law mandatory measures in order to reduce the transmission of COVID-19. These mandatory measures prohibit, amongst other things, individuals engaging in non-essential travel and public gatherings of more than two people, save where the gathering is essential for work purposes (the "Stay at Home Measures").

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The Company is required to hold the AGM in order to implement the planned fundraise. However the Stay at Home Measures will significantly restrict our ability to follow a standard shareholder meeting format. In order to ensure shareholders can comply with the Stay at Home Measures the Board has concluded that shareholders should not plan to attend the AGM in person. It is currently intended that the AGM will be held with only the minimum number of shareholders present as required to form a quorum under the Company's Articles of Association, and who are essential for the business of the AGM to be conducted.

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The results of the votes on the proposed resolutions will be announced in the normal way as soon as practicable after the conclusion of the AGM.

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Having regard to their own safety and that of others, shareholders are respectfully asked to comply with the Stay at Home Measures and not make plans to attend the AGM. To ensure the safety of the limited number of people whose attendance is essential, the Company will not be able to allow other shareholders to gain access to the AGM on the day. Given the restrictions on travel and as to how the meeting itself may be conducted, shareholders are strongly encouraged to exercise their right to vote and to submit a proxy as early as possible.

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The Annual Report and Accounts, notice of AGM and accompanying form of proxy, will be available from later on this morning on the Company's website, www.tissueregenix.com, in accordance with AIM Rule 20.

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For more Information:

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About Tissue Regenix

Tissue Regenix is a leading medical devices company in the field of regenerative medicine. Tissue Regenix was formed in 2006 when it was spun-out from the University of Leeds, UK. The company's patented decellularisation ('dCELL^�') technology removes DNA and other cellular material from animal and human soft tissue leaving an acellular tissue scaffold which is not rejected by the patient's body and can then be used to repair diseased or worn out body parts. Current applications address many critical clinical needs such as sports medicine,�heart valve replacement and wound care.

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In November 2012 Tissue Regenix Group plc set up a subsidiary company in the United States - 'Tissue Regenix Wound Care Inc.', January 2016 saw the establishment of�joint venture GBM-V, a multi- tissue bank based in Rostock, Germany.

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In August 2017 Tissue Regenix acquired CellRight Technologies^�, a biotech company that specializes in regenerative medicine and is dedicated to the development of innovative osteoinductive and wound care scaffolds that enhance healing opportunities of defects created by trauma and disease. CellRight's human osteobiologics may be used in spine, trauma, general orthopedic, foot & ankle, dental, and sports medicine surgical procedures.

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Chairman's statement

Introduction

We remain focused on delivering positive, sustainable growth across key divisions of the business. Our strategic realignment has been successful, and having fully integrated CellRight Technologies into the Group, we have achieved considerable commercial and operational progress. We are well positioned to capitalise on these achievements, as well as to grow our addressable market opportunities through the launch of new products, and partnerships, during 2020 and beyond.

During 2019 our focus was on optimising our supply chain and operational processes, which allows us to develop and maintain strong working relationships with our current and potential strategic partners. As previously announced we have experienced capacity constraints at our San Antonio facility however, despite this, we still reported top-line revenue growth of 12%, and saw continued significant demand for our products. As a result of the operational initiatives implemented throughout the year, we believe we are now positioned to achieve continued top-line growth into the future.

Financial performance

The Group recorded top-line revenue of �13.0m (2018: �11.6m) however, the overall performance was impacted by the capacity constraints experienced. This particularly affected our BioRinse orthopaedic portfolio, where we continue to see high levels of demand, from both our current customers and partners such as Arthrex, Inc. and also potential future opportunities that we are not currently positioned to serve until the additional capacity expansion project is completed.

Our DermaPure portfolio, under the BioSurgery division, continued to see strong growth, increasing sales by 25% year-on-year, derived primarily from further penetration into key hospital accounts and the urogynaecology market, with strategic partner, ARMS Medical.

Our controlled joint venture, GBM-v, has continued to increase revenue from their corneal business and is now financially self-sufficient.

The Company renegotiated the terms of the MidCap Financial funding, secured in June 2019, repaying $5.5m of the initial $7.5m term loan and at the year end the Group recorded a cash position of �2.4m after drawing down �1m of the MidCap Revolving Credit Facility. The Board has successfully secured alternative financing, details of which were announced post year end, as discussed further below.��

Operations

Following the review of our supply chain and operational processes we implemented several initiatives, including commencement of the recruitment and training of a second shift at the facility in San Antonio. However, due to the three-four month lead time for the BioRinse orthopaedic portfolio, the benefits of this increased processing became evident towards the end of the year, with an uptick in sales during Q4 which we expect to continue into 2020.�

Our strategy

We made the strategic decision to shift our focus away from R&D and concentrate on the commercialisation of the existing product lines. This still allows for product line extensions, such as DermaPure non-oriented, to be brought to market in a cost efficient and timely manner, but removes the cost and burden of organic product development and pre-clinical trials, as we focus on reaching break even and increasing value for our stakeholders.

We have continued to strengthen our relationships with key strategic partners, including Arthrex and ARMS Medical. We have also identified additional opportunities and distribution agreements that target products and therapeutic areas which are complementary to current processing activities and will diversify the Group's sales portfolio.

Management

Following a recurrence of his illness, Steve Couldwell retired from the position of Chief Executive Officer (CEO) in August 2019. On behalf of the Board I would like to thank Steve for his commitment and exceptional leadership as both CEO and, prior to this, a Non-Executive Director of the Company. Gareth Jones, Chief Operating Officer, stepped into the interim CEO position where he remains, and Mike Barker joined as interim Chief Finance Officer in January 2019 before being formally appointed in August 2019. Due to family circumstances, Mike stepped down from this position in November; I would like to thank Mike for his support and guidance in what was a challenging time for the management team. Kirsten Lund, Group Financial Controller, was promoted to Group Finance Director in November 2019.

We strengthened our operational management team in the US appointing Daniel Lee, President of US Operations, in January 2019, and Tina Trimble, VP Donor Services, in March 2019. Both bring significant experience to the team and have been at the forefront of implementing the successful operational improvements.

Shareholders

In June 2019, Woodford Investment Management, the second largest shareholder of the Tissue Regenix Group, suspended their Equity Income Fund, instigating a period of uncertainty. During the year the composition and nature of our investor base changed with an increase in smaller funds and individual shareholders. On behalf of the Board I would like to thank all of our shareholders for their continued support of the business.

Our employees

Our employees remain a key stakeholder in the success of our business. We look to maintain a collaborative and supportive working environment where everyone can excel, and I would like to thank all employees for their continued hard work and commitment. Due to the shift in our strategy to focus on the commercial growth of our existing product portfolio, and as the Group looks to maintain cash reserves, a restructuring of our employee base was undertaken in Q4 2019, resulting in a number of redundancies, primarily from the R&D and clinical teams in the UK.

Post balance sheet events

In January 2020, the Company was subject to a cyber-attack at our base in San Antonio, Texas. There is not expected to be any long-term financial implications and, as announced on 15 April 2020, Q1 2020 sales grew by 18% year-on-year, confirming that sales were not materially impacted by this event.

As with all businesses, the COVID-19 pandemic has been a challenging time. However, I am encouraged by the work undertaken by the management team to ensure the health and wellbeing of our employees and stakeholders whilst also allowing processing at our San Antonio facility to continue in line with all relevant US Government protocols. We recently received US Government backed loans of $1m to assist with the payroll, health insurance and utility and rent payments in the US during this time.�

In the UK, following UK Government advice, our technical and operations staff were furloughed and processing halted once we ensured there was sufficient levels of finished goods to meet near-term demand.�

During March 2020, John Samuel stepped down from the position of Executive Chairman and as a Director of the Board. John had been a Director of the Company for 12 years and played an important role in building the Company from a start up to its current form. On behalf of the Board and all stakeholders, I would like to thank John for his unwavering commitment to the Company throughout this time.

In line with our refocused strategy, in May 2020 we entered a white label (unbranded) manufacturing agreement, launching a new product line with a top 10 global healthcare company. It is expected that this agreement will have a material impact on our top-line revenue during the next two years.

In addition, OrthoPure XT, a decellularised xenograft ligament was awarded a CE mark in May 2020.

Outlook

We believe there is strong underlying demand for our portfolio of products, which is further illustrated by our recent announcement regarding a new strategic collaboration.

The COVID-19 pandemic has affected most businesses during H1 2020. As previously communicated, a number of elective surgical procedures that utilise our products have been postponed and there remains ongoing uncertainty around level and duration of the disruption from the pandemic and therefore, the time it will take to perform any delayed surgical procedures thereafter. However, the Group has continued to work closely with partners and distributors during this time and we remain confident that, once appropriate, we are well positioned to service the demand for our products and address these clinical requirements.

Post-period, on 22 May 2020, we announced that gross proceeds of �14.62m had been conditionally raised through an offer of new ordinary shares in the Company to institutional and qualifying retail investors.

This fundraise is conditional on shareholder approval at a General Meeting of shareholders to be held on 9 June 2020, and also to admission of the fundraising shares to trading on AIM. If this does not occur, the Directors would consider alternative sources of funding, however the Group would only have sufficient working capital to trade through to the first week of August without taking any mitigating measures and the Directors may not be in a position to pursue further the commercial activities of the Group and in such circumstances would need to take immediate steps to protect the position of its creditors.

The injection of capital from this fundraising will allow the Group to accelerate the planned capacity expansion of its US manufacturing facility and capabilities. Additionally, during 2019, we made significant progress in optimising processes at the current facility, such that donor throughput had more than doubled by the end of the year. Together this investment and the current operational initiatives will enable us to meet the anticipated future demand for our products, and allow us to realise new opportunities that we foresee emerging once the impact of the COVID-19 pandemic has passed. This, we believe, will translate into a step change for the business. Therefore, despite the current near-term uncertainty resulting from the COVID-19 pandemic, the Board remains confident in the Group's future prospects.�

Jonathan Glenn

Interim Chairman

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Interim CEO operational review

Introduction

In 2019 we focused on optimising our operational capabilities to enable us to deliver the ever-increasing volume of product demanded by our customer base.

During 2019 we implemented a number of efficiency improvements throughout our supply chain and operations, as we look to increase throughput at our San Antonio facility to service the increasing commercial demand from both existing, and new partners, and extend our reach into additional territories where we see significant opportunities.

Divisional performance

BioSurgery reported significant underlying growth, with a 25% year-on-year increase.

This was largely driven by our strategic partnership with ARMS Medical, specialist distributor for the urogynaecology applications. Demand is growing in the urogynaecology marketplace due to the withdrawal of many synthetic mesh products. In September 2019, we undertook a soft launch for a 'non-oriented' DermaPure product to specifically address these applications.

This product is processed from the second layer of dermis tissue and therefore has no basement membrane; however, it maintains the same biomechanical properties, extracellular matrix and regenerative activity of DermaPure. Removing the requirement for orientation makes handling and application in surgical settings much simpler, and initial feedback from clinicians has been extremely positive; we therefore see great potential for this product line extension in the future. Outside of the clinical benefits, this product line extension allows for the utilisation of layers of the dermis, which were previously unsuitable for processing, thereby improving donor yields and the number of patients treated.�

After outsourcing a percentage of our DermaPure production to Community Tissue Services (CTS), we worked closely with them throughout the year to improve both processing efficiencies and yields. Production transfers can be operationally challenging, however, having devoted the necessary resources to ensuring a smooth transition, we anticipate a significant increase in output from this partner during 2020.

The Orthopaedics and Dental division was more significantly impacted due to the capacity constraints experienced throughout the year, resulting in year-on-year growth of 5%.

Recognising the need to improve our supply chain, during H1 2019 we created a donor services team, recruiting additional specialist skills. The team worked closely with the production staff and this manifested in donor processing increasing by more than double throughout the year, with a commensurate increase seen in yields in the latter months as supply chain initiatives were pulled through. In order to ensure that we can continue to increase our processing and meet demand, we now have agreements in place with a number of donor recovery agencies resulting in improved access to donors meeting our quality criteria.

In conjunction with this, during H1 we commenced the hiring and training of technicians in order to commence a second shift for processing of the BioRinse products. Due to the highly skilled nature of this work, in a regulated environment, the hiring process takes time as technicians need to undergo a rigorous training programme, which coupled with the three to four month lead time for the osteoinductivity testing for this product range, meant that we did not start to see the benefits of this in our revenues until late in Q4. However, it is anticipated that moving forward into 2020 the additional revenue associated with these initiatives will become apparent on a consistent basis. The revamping of the front end of the business has meant that we are in a far stronger position to capitalise on commercial opportunities during 2020 and beyond.

In Germany, the Company's controlled joint venture, GBM-v, has continued to increase sales from their cornea products and has reached a point of becoming financially self-sustainable through the revenues generated. They continue to pursue the required regulatory clearance for the CardioPure portfolio and work closely with the team in the UK in order to decipher the best path forward for this portfolio.�

Funding

In June 2019 we announced a credit facility of up to $20m with MidCap, via a term loan split into three tranches and a Revolving Credit Facility ("RCF"). We immediately drew down the initial $7.5m term loan and were granted access to a $3m RCF; the additional tranches were contingent upon agreed revenue targets and a $5m net equity raise. In November, due to operational challenges discussed, we renegotiated this agreement repaying $5.5m of the term loan.

This repayment reduced our net cash position at 31 December 2019 to �2.4m.�However, the Company implemented several cost saving initiatives to extend the cash runway including the restructuring of the employee base. In Q4 2019, a number of positions were made redundant, largely in the R&D and clinical function in Leeds; a cost saving that is expected to deliver �1m per annum from 2020. In the trading statement released on 22 January 2020, the first signs of these cost savings were evident. As we move towards break even we will continue to assess our cost base to ensure funds are deployed in the most efficient manner.�

Personnel

Following his appointed in January 2019 as President of US Operations, Daniel Lee has been a key member of the team working to increase our throughput, improve yields, and meet customer demand.

Alongside Daniel, in Q1 2019 Tina Trimble joined as VP Donor Services. Tina is well respected throughout the industry holding a seat on the Board of the American Association of Tissue Banks, and has become a key member of our team, implementing several initiatives in order to improve our donor sourcing and processing.

Product pipeline

During 2019 we undertook a soft launch of DermaPure non-oriented, specifically for use in urogynaecology applications, with our strategic partner ARMS Medical, and to date have received positive feedback from clinicians.

Capacity expansion project

As previously documented we are challenged with capacity constraints at our San Antonio facility. In the existing facility we currently face two limiting factors: namely, space for freezers, which limits the amount of donor tissue we can hold on site, and clean room capacity. We currently have five clean rooms, of which four are dedicated to BioRinse products, and one that processes DermaPure.

With the support of the MidCap funding we were able to take the first steps towards increasing our manufacturing footprint, securing a ten year lease on a 21,000 sq. ft facility adjacent to our existing facility in San Antonio, Texas. We believe our plans, which are in two phases, will provide a significant capacity increase and help us fulfil the demand for our products.� However, these expansion plans are subject to completion of the recent funding.�

We signed the lease, with an option to buy, on the new facility in August 2019. Universal City provided a grant of $0.3m to support and permit the upgrades of utilities and infrastructure serving the new facility, which has now been completed.�

Phase one of the expansion project will involve moving the freezer capacity into the new facility, allowing for two additional clean rooms to be developed, bringing the total number of clean rooms to seven, in the current facility. This would also increase our potential freezer capacity by threefold allowing us to hold more donor tissue onsite. We would expect this phase to be completed in around six months, which given the three to four month lead time for BioRinse products, would allow for the first revenues to become evident roughly nine to ten months after commencement of this phase.

Our current intention is for phase two to provide a further ten clean rooms in the new facility. The timing of this phase has not yet been finalised. Once fully operational, it is expected that this completed expansion programme will increase the Company's revenue generation potential by up to c.$36m per year.

Revenue per additional clean room is inherently an estimate and depends on several factors including the product mix, the number of shifts, the availability of technicians and donor tissue and continuing product demand. Nonetheless, we are confident that enough demand exists to justify the capacity expansions outlined above.

Post balance sheet events

In January 2020 the Group was hit by a cyber attack, which temporarily impacted our ability to process at the facility in San Antonio. We quickly implemented an action plan to mitigate the potential impact, and believe that there were no indications of any external transfer of sensitive or financial data from the business. There was a short-term impact on our ability to service customer demand as we were unable to release batches for distribution in line with the necessary regulations.

During the weeks that followed the attack, the San Antonio team worked to catch up with this demand, and in April 2020 we were able to report that, despite this incident, revenue increased by 18% year-on-year for Q1 2020. Following the incident, the Company reported this attack to all relevant authorities as required, has reviewed its IT service providers and implemented additional data security procedures to reduce the risk of a similar incident in the future.

As with most businesses, the Company was impacted by the COVID-19 pandemic that began in Q1 2020. The priority of the Company throughout this time was to protect the health and wellbeing of our employees and stakeholders, and the Company ensured to implement all relevant government-led policies in relation to this. By undertaking certain initiatives, there was minimal disruption to the processing undertaken at the facility in San Antonio, which continued to show strong production throughput. As the impact of COVID-19 becomes more evident, we will continue to monitor and adapt our approach. During Q2 it is apparent that reprioritisation of healthcare professionals during this time will lead to a notable decline in the number of elective procedures undertaken at hospitals, which was initially most evident in the urogynaecology and dental applications. We continue to work closely with our partners and distributors to ensure that, once these procedures are recommenced in a normalised manner, enough inventory of all products will be available to meet demand.

At the facility in Leeds where processing of the porcine products is undertaken, in-line with the UK Government guidelines, our technical and operations staff were furloughed until at least the end of June 2020. However, the Group holds sufficient inventory to meet near-term demand of these particular products.

As a result of the uncertainties surrounding the level and duration of disruption from COVID-19, we are unable to determine how long it will take to catch up on postponed surgical procedures therefore, while sales were not materially impacted during Q1 2020, the Board is not able to provide clarity on the outlook for 2020 until there is greater visibility around the market environment.

In May 2020 we announced a strategic collaboration with a top 10 global healthcare company to bring to market a newly developed product line. This agreement for white label manufacturing follows collaboration between the R&D teams of both companies using one of the Group's proprietary technology platforms to address orthopaedic soft tissue repairs. Agreements such as this underscore the differentiation of, and increasing market demand for, our products, providing further validation of the exciting growth potential for the business once we have completed the planned expansion of our processing capacity, and ensures that we continue to drive our commercial strategy forward, as illustrated by our strategic growth drivers, for the continued success of the business.

We were also awarded the CE Mark certification for OrthoPure XT in May 2020, for use in revision of the Anterior Cruciate Ligament following re-rupture and also the reconstruction of other knee ligaments, including multi-ligament procedures following trauma.

On 22 May 2020 the Group announced that it� had completed an equity fundraise, by issuance of ordinary shares, to raise gross proceeds of �14.62m, which provided the resolutions are passed at the General Meeting on the 9 June, will allow for the commencement of the capacity expansion programme and provide sufficient working capital until at least December 2021. We believe that this investment will move the Group into a new sphere of opportunity and competitive market positioning.

Financial overview

Revenue

In the year ended 31 December 2019 revenue increase by 12% on an underlying basis or 8% constant currency basis to �13,033k (2018: �11,619k). As expected, the year was second half weighted (47%/53%) as throughput in our San Antonio facility more than tripled in the year. However, due to the lead times involved it is expected that a significant proportion of this increased processing will become available for sale during H1 2020.

Revenue from the BioSurgery division, which utilises the legacy Tissue Regenix dCELL^� Technology in product DermaPure^�, reported a year-on-year increase in revenues of 25% to �4,233k (2018: �3,381k). The withdrawal of many synthetic products from the urogynaecology market meant that there was increasing demand for biologic products such as DermaPure^�. Working closely with our strategic partner, ARMS Medical, we saw strong demand in this sector, resulting in a year-on-year growth of 57%. The expectation going into 2020 is that this sector will continue to experience high levels of growth.

We continued to expand our GPO coverage and now have access to c.95% of relevant US hospitals under GPO agreements. This coverage enabled the business to continue to grow its distribution network in the US and secure several leading marquee accounts.

The Orthopaedics and Dental division reported annual revenues of �6,724k (2018: �6,396k), an increase of 5% year-on-year. The capacity constraints within the San Antonio facility meant that output for this division was constrained. Despite these limitations, demand for products within this division remain strong, and following several operational changes within the San Antonio facility during 2019, we expect the orthopaedic portfolio to experience a notable increase in output in 2020.

Our controlled joint venture in Germany, GBM-v reported high levels of demand for its cornea products, with year-on-year growth of 13% to �2,076k (2018: �1,842k).

Cost of sales and gross profit

Gross profit for the year is �6,019k (2018: �5,917k). Gross margin percentage decreased to 46% (2018: 51%) due to product mix with the CellRight BioRinse portfolio contributing a lower percentage of overall sales due to capacity constraints, which have been addressed throughout the year, as discussed. As the business continues to increase capacity to meet demand, the margins are expected to recover throughout 2020.

Included in costs of sales is cost of product �5,803k (2018:�4,723k) and third party commissions �1,211k (2018: �979k).

Administrative expenses

During the year administrative expenses decreased by �985k to �13,198k (2018: �14,183k), excluding exceptional costs, largely due to a reduction in research and development and sales and marketing costs.�The increased focus on commercial activities meant that the Group was able to reduce its research and development expenditure by �268k to �1,368k (2018: �1,635k). In addition, the Group sought to reduce its overhead cost base resulting in 18 positions being made redundant in Q4 2019, largely from the UK side of the business.

Exceptional items

Net assets were assessed for impairment and an expense of �1,311k was posted in recognition of SurgiPure development costs in BioSurgery segment and fixed assets in the Central and Other segment.

Redundancy costs in relation to the 18 positions made redundant in Q4 2019 are accounted for in exceptional items and amounted to �164k.

Litigation costs of �69k were charged in the year.

A credit of �1,523k was due to the CellRight contingent consideration which was not met.

Finance income/charges

Finance income of �17k (2018: �72k) represented interest earned on cash deposits. Finance charges for the year were reported at �477k (2018: �262k), and related primarily to interest charges and associated costs for the MidCap loan arrangement.

Taxation

The Group continues to invest in developing its product offering, and as, such is eligible to submit enhanced research and development tax claims, enabling it to exchange tax losses for a cash refund. In the year to December 2019, a refund of �488k was receivable (2018: �790k). The year-on-year reduction was a result of the business continuing to move its resources away from research and development to more commercial activities.

Corporation tax payable in the US amounted to �29k (2018: �72k). Gross tax losses carried forward in the UK were �43,533k (2018: �43,254k). The Group does not currently pay tax in the UK. A deferred tax asset has not been recognised as the timing and recoverability of the tax losses remain uncertain.

Loss for the year

The loss for the year was �7,106k (2018: loss �8,259k) resulting in a basic loss per share of (0.60p) (2018: loss (0.70p)).

Balance sheet

At December 2019, the Group had net assets of �24,595k (2018: �32,570k) of which cash in hand totalled �2,380k (2018: �7,816k).

Intangible assets decreased through amortisation charges in the year. A further �213k of development costs were capitalised in the year, which were then fully impaired at year end.

In addition to testing the CellRight cash generating unit (CGU) for impairment, a full impairment test was performed on the Group's CGUs as the Group's market capitalisation at 31 December 2019 was lower than net assets. This impairment testing resulted in an impairment of �1,311k, which has been disclosed within exceptional items.

Net working capital decreased in the year, which reflects the continued growth of the business. The balance sheet included corporations tax receivable of �1,035k (2018: �1,200k) in respect of UK research and development tax credits.

As part of the CellRight Technologies acquisition agreement financial milestone payments were contingent upon certain revenue targets being achieved. The capacity constraints experienced at the San Antonio facility meant that these goals were not met for 2019, as such the costs totalling �1,523k were released. This was the last financial milestone due for payment under this acquisition.

Borrowings

Non-current liabilities represent the �2,286k debt facility. This includes �1,525k of the term loan and �761k of the revolving credit facility.

Dividend

No dividend has been proposed for the year to 31 December 2019 (2018: Nil).

Accounting policies

The Group's consolidated financial information has been prepared in accordance with International Financial Reporting Standards as adopted in the EU. The Group's significant accounting policies, which have been applied consistently throughout the year, are set out in the report and accounts.

Going concern

These financial statements have been prepared on a going concern basis, given the current cash flow projections forecast for the Group to 31 December 2021. Funding requirements are reviewed on a regular basis by the Group's Chief Executive Officer and Group Finance Director and are reported to the Board at each Board meeting, as well as on an ad hoc basis, if requested. Until sufficient cash is generated from its operations, the Group remains reliant on external funding including current debt facilities provided by MidCap, to meet its working capital requirements, capital investment programme and other financial commitments.

On 22 May, the Group announced that gross proceeds of �14.6m had been conditionally raised through an offer of new ordinary shares in the Company to Institutional and other qualifying investors. This fundraise is conditional on shareholder approval at a General Meeting of shareholders to be held on 9 June 2020 and also to admission of the fundraising shares to trading on AIM. In reporting the Group's finances on a going concern basis, the Directors have assumed the appropriate resolutions at this Meeting will be passed. However, if the necessary resolution is not passed, the fundraising will not proceed and the Company would not have funds immediately available to continue executing its current business plan. In this eventuality, the Directors would need to consider alternative sources of adequate funding. Should the Company be unable to raise enough funds, shareholders could be at risk of losing all or a substantial amount of their investment.

The COVID-19 pandemic has affected most businesses during H1 2020. As a result of the reprioritisation of healthcare professionals during this time, there has been a decline in elective procedures undertaken across a number of medical specialities that use our products. Given the uncertainty around the level and duration of disruption from COVID-19, it is difficult to determine how long the current situation may last, and the time taken to catch-up any postponed surgical procedures thereafter. However, the Board, in compiling possible cashflow projections for the business, has considered a number of scenarios regarding the effect of reduced and delayed revenues due to COVID-19, and has undertaken market soundings regarding the likely timeframe for the recommencement of procedures. It has concluded that, if additional funds are received as expected, there will not be a significant long-lasting impact on the capability of the business to carry out its commercial activities.�

In summary, the Directors have considered their obligations in relation to the assessment of the going concern basis for preparation of the financial statements of the Group, and each statutory entity within it, and have reviewed the current budget, cash forecasts and assumptions, as well as the main risk factors facing the Group as set out on pages 22 to 25 of the financial statements. They have concluded that it remains appropriate to prepare the financial statements on a going concern basis, noting that assumptions relating to the completion of the fundraise give rise to a material level of uncertainty in respect of the going concern assumption.

The financial statements do not include any adjustments that would result in the basis of preparation as a going concern being inappropriate.

Post balance sheet events

The Group was victim to a cyber attack in January 2020; no material financial impact has been determined and operations are fully back up and running.

Due to the impact of the COVID-19 pandemic in Q1 2020, UK operations and technical staff were furloughed under the Government job retention scheme, and processing at the UK facility was temporarily halted. In the US, due to initiatives implemented, processing at this facility continued without disruption however, due to the reprioritisation of healthcare professionals during this time, elective surgeries such as urogynaecology or dental procedures were postponed. The Company secured over $1m of US Government backed loans to assist with the US overhead costs during this time. These loans have a two-year term and carry a 1% annual interest rate deferred for six months. However, under the Loan agreements, the principal will not require repayment if the funds are used to support employee payroll, healthcare, utilities and rent payments within the US during the next two months. The Company intends to use the funds to support these activities and therefore expects the Loan not to require repayment.

Gareth Jones

Interim CEO

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