SKIN ELEMENTS LIMITED — Annual Report 2018

Sep 2, 2018

==> picture [596 x 90] intentionally omitted <==

31 August 2018

Preliminary Final Report 2018 – Skin Elements Continues Growth

Australian natural skin care company Skin Elements Limited (ASX: SKN) (Skin Elements, the Company) is pleased to present its Preliminary Final Report for the year ending 30 June 2018.

The 2017/18 financial year results highlight the work on the further development of the Company’s all natural skincare products with $3.6 million spent on new product development adding to the $10 million previously invested in building the Company’s base skincare technology.

At the same time sales revenue and research grant income of $1.28 million over 2018 increased by 170% compared to the 2017 year being the first full year since listing.

The Company’s thirty five new products are being marketed to the global personal skincare care sector through online, wholesale and distributor networks. This sector has an estimated turnover today in excess of US$110 billion per annum (Euromonitor 2016).

Two new all natural 30+SPF sunscreen ranges - Soleo Organics Baby and Soleo Organic Everyday have been completed over the current year to broaden the market presence of the Company’s number one rated Soleo Organics sunscreen.

Additionally the Company has launched its new PapayActivs therapeutic range with five papaya based TGA registered therapeutic creams and has developed the new SknEssience natural skincare range of over twelve commentary skincare products.

Together with the Elizabeth Jane Natural Cosmetic range due for release in 2019, this completes the Company’s current range of over fifty natural skincare products.

Peter Malone Executive Chairman said “ Skin Elements is pleased with the commencement of sales achieved during the year which has laid the foundations to deliver greater opportunities over the year ahead.”

ENDS

==> picture [544 x 35] intentionally omitted <==

==> picture [242 x 57] intentionally omitted <==

==> picture [544 x 11] intentionally omitted <==

For further information, please contact:

Peter Malone Media and Investor Inquiries Executive Chairman James Moses Skin Elements Limited Mandate Corporate T: +61 439 430 770 T: +61 420 991 574 E: peter@senatural.com E: james@manadatecorporate.com.au

About Skin Elements

Skin Elements is an ASX-listed skin care company focused on the development of natural and organic skin care products, as an alternative to current chemical-based products. It has developed a portfolio of products which includes its lead product, the Soléo Organics 100% natural and organic sunscreen, the Elizabeth Jane Natural Cosmetics brand, and the natural pawpaw based PapyaActivs therapeutics range and SkinEssience natural skincare. The Company has completed a highly successful test marketing phase in major international markets for Soléo Organics and has regulatory approval with the USA FDA, TGA and other significant regulators. Skin Elements aims to become the number one recognised national and international sunscreen brand.

Further information is available via the Company website: http://skinelementslimited.com/

==> picture [544 x 35] intentionally omitted <==

==> picture [242 x 57] intentionally omitted <==

==> picture [544 x 11] intentionally omitted <==

Appendix 4E Preliminary Final Report

Appendix 4E

Preliminary Final Report Skin Elements Limited

ABN 90 608 047 794

Dates

Dates
Financial Year Ended	30 June 2018
Previous Corresponding Reporting Period	Financial year ended 30 June 2017

Results for Announcement to the Market

Results for Announcement to the Market
	Current Period (30 Jun 2018) $	Percentage increase /(decrease) over previous corresponding period	Previous Corresponding Period (30 Jun 2017) $
Revenue from ordinary activities1	838,292	170%	310,753
(Loss) from ordinary activities after tax attributable to members2	(2,728,114)	71%	(1,597,605)
Net (loss) for the period attributable to members	(2,728,114)	71%	(1,597,605)

Notes:

1. Revenue from continuing operations has been disclosed as revenue from ordinary activities.

2. Net loss for the year from continuing operations has been disclosed as loss from ordinary activities after tax attributable to members

Dividends (distributions)	Amount per security	Amount per security	Franked amount per security
Final Dividend	Nil		Nil
Interim Dividend	Nil		Nil
Record date for determining entitlements to the dividends(if any)		Not Applicable

Page 1

Appendix 4E Preliminary Final Report

Commentary on the results for the financial year ended 30 June 2018

Brief explanation of any of the figures reported above necessary to enable the figures to be understood:

Skin Elements Limited has continued to execute its business plan and growth strategy to position itself as a leading global supplier of natural and organic skincare products.

The Key highlights for the year ended 30 June 2018 include:

• Sales income of $838,292 (increase from $310,753 in 2017) through increased online sales promotion and expanding full product ranges into wholesaler and distributor networks throughout Australia.

• Cash and non-cash expenses of $3,623,683 (an increase from $1,735,474) as a result of increased activities.

• Other non-cash expenses include amortisation of the Soleo Organics and McArthur intangible assets of $301,977.

• Research and development expenditure of $1,003,955 with a R&D Tax rebate of $450,181 receivable at 30 June 2018.

• The Company has restated the comparative period resulting from a review of its provisional accounting for the McArthur business combination acquisition undertaken in May 2017. The net impact to the profit and loss was $21,478 (benefit) during that year and an adjustment to the fair value of stock and intangible assets of $149,910 and $171,388 respectively.

• The Company completed a private placement on 29 June 2018 raising $150,000. On 8 August 2018 the Company completed a further capital raising of $1,075,663 through s fully underwritten entitlement offer to existing shareholders.

Page 2

Appendix 4E Preliminary Final Report

Net tangible assets per ordinary share

	30 June 2018	30 June 2017
	$	$
Net tangible asset per share	0.001	0.017

Details of Associates and Joint Venture Entities

	Ownership Interest	Ownership Interest	Contribution to net profit/(loss)	Contribution to net profit/(loss)
Name of entity	2018 %	2017 %	2018 $A	2017 $A
	**N/A **	**N/A **	**N/A **	**N/A **
Associates
Joint Venture Entities
Aggregate Share of Losses

Details of entities over which control has been gained during the period

Name of entity	N/A
Date of gaining control
Commentary and contribution

Details of businesses acquired

Details of businesses acquired
Name of entity	N/A
Date of gaining control
Commentary and contribution

Audit Status

This report is based on accounts to which o (Tick one)	ne of the following applies:	ne of the following applies:
The accounts have been audited		The accounts have been subject to review
The accounts are in the process of being audited or subject to review		The accounts have not yet been audited or reviewed

Page 3

Appendix 4E Preliminary Final Report

If the accounts have not yet been audited and are likely to contain an independent audit report that is subject to a modified opinion, emphasis of matter or other matter paragraph, a description of the modified opinion, emphasis of matter or other matter:

The Company’s Interim Financial report for the half year ended 31 December 2017 contained an emphasis of matter paragraph covering a material uncertainty relating to going concern. The Company expects to receive a similar emphasis of matter paragraph in relation to its full year annual report for 30 June 2018. If the accounts have been audited contain an independent audit report that is subject to a modified opinion, emphasis of matter or other matter paragraph, a description of the modified opinion, emphasis of matter or other matter: N/A.

Page 4

Appendix 4E Preliminary Final Report

SKIN ELEMENTS LIMITED APPENDIX 4E FOR THE YEAR ENDED 30 JUNE 2018 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Notes	Year Ended 30 Jun 2018 $ 838,292 (392,978) 445,314 74 (1,183,159) (826,108) (122,519) - (1,003,955) (301,977) (185,965) (3,623,683) (3,178,295) 450,181 (2,728,114) - - (2,728,114) (0.0350) N/A	RESTATED
		Year Ended 30 Jun 2017
		$
Revenue Revenue from continuing operations Cost of sales - Gross profit Other Income Expenses Administration and corporate expenses 2 Contract and consulting fees 2 Occupancy expenses Listing expenses 2 Research and development expenditure Amortisation expense 8 Advertising and marketing expenses Total Expenditure Loss before income tax Income tax benefit 2 Loss after income tax from continuing activities attributable to equity holders of Skin Elements Limited Other comprehensive income Items that may be realised through to profit or loss Movements in reserves Total comprehensive income for the year Loss and total comprehensive income attributable to equity holders of Skin Elements Limited Basic earnings per share (cents per share) 14 Diluted earnings per share (cents per share)		310,753 (173,664)
		137,089 780 (538,565) (595,795) (114,486) (196,993) - (140,408) (149,227)
		(1,735,474)
		(1,597,605) -
		(1,597,605)
		-
		-
		(1,597,605)
		(0.0250) N/A

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes to this Appendix 4E.

Page 5

Appendix 4E Preliminary Final Report

SKIN ELEMENTS LIMITED APPENDIX 4E AS AT 30 JUNE 2018 CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Notes	As at 30 Jun 2018 $ 195,661 36,509 46,058 191,255 450,181 919,664 9,379,763 9,379,763 10,299,427 810,386 - 810,386 810,386 9,489,041 13,679,321 738,340 (4,928,620) 9,489,041	RESTATED
		As at 30 Jun 2017
		$
CURRENT ASSETS Cash and cash equivalents 3 Trade and other receivables 4 Other receivables 5 Inventories 7 Research and development receivable 6 TOTAL CURRENT ASSETS NON-CURRENT ASSETS Intangible assets 8 TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables 9 Borrowings – related parties 10 TOTAL CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital 11 Reserves 13 Accumulated losses 12 TOTAL EQUITY		1,407,153 48,657 125,047 272,910 196,584
		2,050,351
		9,681,740
		9,681,740
		11,732,091
		737,586 44,201
		781,787
		781,787
		10,950,304
		13,033,994 116,816 (2,200,506)
		10,950,304

The above consolidated statement of financial position should be read in conjunction with the accompanying notes to this Appendix 4E.

Page 6

Appendix 4E Preliminary Final Report

SKIN ELEMENTS LIMITED APPENDIX 4E FOR THE YEAR ENDED 30 JUNE 2018 CONSOLIDATED STATEMENT OF CASH FLOW

Notes	Year Ended 30 Jun 2018 Year Ended 30 Jun 2017 $ $
Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest paid Interest received Net cash (outflows) / inflow from operating activities 3 Cash flows from investing activities Payments for businesses 19 Payments for intangibles Receipt of research and development tax incentive Net cash outflow from investing activities Cash flow from financing activities Proceeds from the issue of equity Payment for share issue costs Proceeds from share applications Proceeds from borrowings Repayment of borrowings Net cash inflow from financing activities Cash and cash equivalents at the beginning of the year Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at the end of the financial year 3	851,395 264,339 (2,151,496) (1,686,394) - - 74 780
	(1,300,027) (1,421,275)
	(205,847) (416,869) (183,702) (269,040) 196,584 156,008
	(192,965) (529,901)
	150,000 3,710,000 - (360,179) 32,500 - 99,000 593,091 - (593,501)
	281,500 3,349,411
	1,407,153 8,918 (1,211,492) 1,398,235
	195,661 1,407,153

The above consolidated statement of cash flow should be read in conjunction with the accompanying notes to this Appendix 4E.

Page 7

Appendix 4E Preliminary Final Report

SKIN ELEMENTS LIMITED APPENDIX 4E FOR THE YEAR ENDED 30 JUNE 2018 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Issued Share based Accumulated Convertible Total
		Capital Payments losses Note Equity
		Reserves Reserve
		$ $ $ $ $
Balance at 1 July 2017		13,033,994 116,816 (2,200,506) - 10,950,373
Loss for the year		- - (2,728,114) - (2,728,114)
Other comprehensive income
Total comprehensive income for theyear		- - (2,728,114) - (2,728,114)
Transactions with owners in
their capacity as owners Equity Issued - consultants Issue of convertible notes Conversion of convertible notes Equity Issued - consultants Share issued Share issue costs
		233,000 - - - 233,000
		- - - 592,092 592,092
		69,257 - - (69,257) (69,257)
		200,000 - - - 200,000
		150,000 - - - 150,000
		(6,930) - - - (6,930)
Share basedpayments		- 98,689 - - 98,689
		645,327 98,689 522,835 1,273,782
Balance as at 30 June 2018		13,679,321 215,505 (4,928,620) 522,835 9,489,041
Balance at 1 July 2016		RESTATED 9,245,988 - (602,901) - 8,643,087
Prior period adjustment Loss for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Equity Issued Share issue costs Share based payments		21,478 21,478 - - (1,619,082) - (1,619,082) - - - - -
		- - (1,597,605) - (1,597,605)
		4,265,001 - - - 4,265,001 (360,179) - - - (360,179) (116,816) 116,816 - - -
		3,788,006 116,816 - - 3,904,822
Balance as at 30 June 2017		13,033,994 116,816 (2,200,506) - 10,950,304

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes to this Appendix 4E.

Page 8

Appendix 4E Preliminary Final Report

NOTES TO THE APPENDIX 4E PRELIMINARY FINAL REPORT

FOR THE YEAR ENDED 30 JUNE 2018

Note 1 Accounting Policies

(a) Basis of preparation

This preliminary final report has been prepared in accordance with ASX Listing Rule 4.3A and the disclosure requirements of ASX Appendix 4E.

These consolidated Appendix 4E financial statements are general purpose financial statements prepared in accordance with the requirements of the Corporations Act 2001. Australian Accounting standards, including Australian Accounting Interpretations and other pronouncements of the Australian Accounting Standards Board.

It is recommended that this Appendix 4E be read in conjunction with any public announcements made Skin Elements Limited (the Company or Group) and its controlled entity during the period since listing in accordance with continuous disclosure requirements arising under the Corporations Act 2001.

This Appendix 4E covers the consolidated group of Skin Elements Limited and its controlled entity from the date of the acquisition. Skin Elements Limited is a listed public company, incorporated and domiciled in Australia.

The Appendix 4E of Skin Elements Limited comply with all the International Financial Reporting Standards (IFRS) in their entirety.

The accounting policies have been consistently applied by the consolidated entity across both periods presented in this report unless otherwise stated.

This report does not include full disclosures of the type normally included in the annual financial report.

Reporting basis and Convention

This Appendix 4E has been prepared on an accruals basis and are based on historical cost with the exception of the business combination, share based payments and convertible note fair values. The Appendix 4E is presented in Australian dollars and all values are rounded to the nearest dollar unless otherwise stated.

On 23 December 2016 Skin Elements Limited (SEL) completed a transaction with the shareholders of SE Operations Pty Ltd (SEO) to acquire 100% of the share capital of SEO in exchange for 55,000,000 shares, 27,500,000 listed options and 27,500,000 unlisted options. In accordance with Australian Accounting Standards, the acquisition does not meet the definition of a business combination as SEL was established for the sole purpose of facilitating the listing process and to acquire SEO by way of an equity swap.

The accounting policies adopted are consistent with the accounting policies adopted in the Company’s last annual financial statements for year ended 30 June 2017.

(b) Segment Information

Operating Segments – AASB 8 requires a management approach under which segment information is presented on the same basis as that used for internal reporting purposes. This is consistent to the approach used for the comparative period. Operating segments are reported in a uniform manner to which is internally provided to the chief operating decision maker. The chief operating decision maker has been identified as the Board of Director.

An operating segment is a component of the group that engages in business activity from which it may earn revenues or incur expenditure, including those that relate to transactions with other group components. Each operating segment’s results are reviewed regularly by the Board to make decisions about resources to be allocated to the segments and assess its performance, and for which discrete financial information is available.

The Board monitors the operations of the Company based on two segments, operational and corporate. The financial results of each segments are reported to the board to assess the performance of the Group.

The Board has determined that strategic decision making is facilitated by evaluation of the operations of the legal parent and subsidiary which represent the operational performance of the group’s revenues and the research and development activities as well as the finance, treasury, compliance and funding elements of the Group.

Page 9

Appendix 4E Preliminary Final Report

NOTES TO THE APPENDIX 4E PRELIMINARY FINAL REPORT

FOR THE YEAR ENDED 30 JUNE 2018

Note 1 Accounting Policies

(c) Estimates and judgements

The preparation of the Appendix 4E requires the use of accounting estimates and judgements which, by definition, will seldom equal the actual results. This note provides an overview of the areas that involve a degree of judgement or complexity in preparing the Appendix 4E. All judgements, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances known to the executives. Facts and circumstances may come to light after the event which may have significantly varied the assessment used which result in a materially different value being recorded at the time of preparing Appendix 4E:

• (i) Impairment of assets

The Company assesses the impairment of assets at each reporting date by evaluating conditions specific to the asset that may lead to impairment. The assessment of impairment is based on the best estimate of future cash flows available at the time of preparing the report. However, facts and circumstances may come to light in later periods which may change this assessment if these facts had been known at the time.

• (ii) Deferred tax assets relating to losses

Deferred tax assets relating to income tax losses have not been brought to account as it is not considered probable that the Company will make taxable profits over the next 12 months. The Company will make a further assessment at the next reporting period.

• (iii) Amortisation rates

The Company has assessed the effective life of its Soléo and McArthur intangible assets taking into account sector practices, the expected product life cycle and its own internal knowledge of the sunscreen and skincare markets to determine an appropriate amortization rate. This rate is an estimate of what the Company anticipates the intangible will be able to generate future benefits from the production and sale of the product and this may differ from the future results. The directors will continue to assess the effective life at each reporting date.

• (iv) Share based payments

The Company has assessed the fair value of the options issued using on Black Scholes Option Pricing model. This model includes a number of estimated inputs including a comparable company’s volatility, the risk-free rate and an estimated shares price of the Company’s shares upon listing. These inputs were considered to be a reasonable basis for valuing the options in the absence of a price for services but the outcome would be materially different if the Company had used different inputs.

(d) Significant accounting policies

The Company’s accounting policies have been consistently applied from the most recent annual report with the addition of the following significant accounting policies:

• (i) Principles of consolidation

Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Page 10

Appendix 4E Preliminary Final Report

NOTES TO THE APPENDIX 4E PRELIMINARY FINAL REPORT

FOR THE YEAR ENDED 30 JUNE 2018

Note 1 Accounting Policies

• (ii) Business combinations

The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:

(I) Fair value of assets transferred; (II) Liabilities incurred; (III) Equity interests issued; and

(IV) Fair value of any assets or liabilities resulting from contingent consideration.

Identifiable assets acquired and liabilities assumed in a business combination are measured at fair value as the acquisition date. The acquisition costs relating to the transaction are expenses as incurred. The excess of the consideration transferred, amount of any non-controlling interest and the acquisition fair value of assets and liabilities are recorded as goodwill.

(iii) Intangible asset amortisation

The Company commences amortisation where the development process is at a stage where the products can be produced in commercial quantities. The Company has assessed that the Soléo intangible assets and the McArthur intangibles assets are at a stage where they meet this test. The Company has assessed the effective life for these assets to be 25 years and amortised the asset carrying values on a straight-line basis for the period. The Company has a policy to regularly review of the effective life of each asset.

• (iv) Convertible notes

The Company recognises convertible notes that automatically convert to shares after a set period as equity instruments within a reserve. The initial recognition of the notes is at the face value of the cash received and the amounts are carrying within a reserve until the notes are converted to shares.

Page 11

Appendix 4E Preliminary Final Report

SKIN ELEMENTS LIMITED FOR THE YEAR ENDED 30 JUNE 2018

CONDENSED NOTES TO THE CONSOLIDATED APPENDIX 4E

Year ended 30 Jun 2018 $	Year ended 30 Jun 2017
	$

Profit and loss items

2 LOSS FOR THE YEAR

Loss for the year included the following items:

(a) Listing costs[(i)]

Costs of ASX listing

- -	196,993
	196,993

(i) The Company incurred costs to list on the ASX over the last 18 months, these costs include professional fees in preparing the prospectus and additional expenditure in connection with this process. These represent one off costs and will not be incurred in the future.

(b) Administration and corporate expenses

Accounting and taxation services Audit expenses Legal expenses Wages and salaries Directors fees Travel expenses Other expenses c) Contract and consulting fees Executive services contracts (i) External consulting fees	98,362 47,337 40,631 474,828 179,590 112,391 230,020 1,183,159 317,245 508,863 826,108	65,521 77,412 128,888 110,144 98,876 17,440 40,284
		538,565
		167,002 428,793
		595,795

(i) The Company engages the executives under consulting agreements to provide their services. These services are disclosed in the most recent annual report and the nature of these services have not changed.

Reconciliation of income tax expense

Income tax expense Deferred taxes Research and development tax incentive	- - 450,181 450,181	- - -
		-

Page 12

Appendix 4E Preliminary Final Report

SKIN ELEMENTS LIMITED

FOR THE YEAR ENDED 30 JUNE 2018 CONDENSED NOTES TO THE CONSOLIDATED APPENDIX 4E

3 CASH Cash at bank Balance per statement cash flows (a) Reconciliation of loss after income tax to net cash flows from operating activities Loss for the year Non-cash items Amortisation Acquisition stock margin and deferred taxes Share based payments (Increase) / decrease in traded receivables (Increase) / decrease in other receivables (Increase) / decrease in inventories Increase in trade and other payables Net cash (outflow) / inflows from operating activities	As at 30 Jun 2018 $ 195,661 195,661 Year ended 30 Jun 2018 $ (2,728,114) 301,977 (26,149) 600,946 12,147 (453,326) 109,559 882,933 (1,300,027)	As at 30 Jun 2017
		$
		1,407,153
		1,407,153
		RESTATED
		Year ended
		30 Jun 2017
		$
		(1,597,605) 140,408 - - (46,414) 58,687 (223,749) 247,398
		(1,421,275)

(b) Non-cash financing and investing activities

(i) Issue of shares to consultants

The Company issued 165,000 shares to consultants at a fair value of $0.20 per share for services rendered. The Company also issued 2,000,000 shares to consultants at a fair value of $0.10 per share for corporate advisory services. The total value attributed to the shares was $233,000 (refer note 11).

(ii) Issue of shares on conversion of notes

The Company issued 338,000 shares on conversion of notes with a fair value of $0.20 per share. The total value attributed to the shares was $69,257 (refer note 11).

(iii) Issue of shares for services

The Company issued 500,000 shares to an entity associated with a directors and 500,000 to an external consultant with a fair value of $0.20 per share for professional services rendered. The total value attributed to the shares was $200,000 (refer note 11).

(iv) Issue of rights

The Company agreed to issue 4,400,000 performance rights to a director with a fair value of $0.075 and $0.077 per right. The total expense recorded for these rights (for this year as a proportion of the vesting period) was $98,689.

(v) Issue of convertible notes

The Company has issued 360,972 convertible notes to extinguish trade debts and borrowings. The fair value of the notes was $493,092 (refer note 13).

Page 13

Appendix 4E Preliminary Final Report

SKIN ELEMENTS LIMITED FOR THE YEAR ENDED 30 JUNE 2018 CONDENSED NOTES TO THE CONSOLIDATED APPENDIX 4E

4 TRADE RECEIVABLES Trade receivables (i)	As at 30 Jun 2018 $ 36,509 36,509	As at 30 Jun 2017
		$
		48,657
		48,657

(i) Classification and impairment of trade and other receivables

Trade debtors are amounts due from customers for the sale of goods in the ordinary course of business. The trade receivables are generally due for settlement within 30 days and therefore are classified as current. The group does not currently have any provision for doubtful debts in respect to their receivables as at 30 June 2018 (30 June 2017: Nil). Due to the short-term nature of the current receivables, their carrying amounts approximate their fair value. The trade debtor’s balance does not currently have any amounts that are past due but not impaired.

5 OTHER RECEIVABLES

GST receivable (net) ABN Withholding RESEARCH AND DEVELOPMENT TAX INCENTIVE Research and development receivable (i)	45,681 377 46,058 450,181 450,181	124,670 377
		125,047
		196,584
		196,584

• 6 RESEARCH AND DEVELOPMENT TAX INCENTIVE

• (i) The Group continued its development program during the year ended 30 June 2018 resulting in a claim for research and development tax incentive.

INVENTORY Finished goods Raw materials	As at 30 Jun 2018 $ 129,636 61,619 191,255	RESTATED
		As at 30 Jun 2017
		$
		237,289 35,621
		272,910

7 INVENTORY

Page 14

Appendix 4E Preliminary Final Report

SKIN ELEMENTS LIMITED

FOR THE YEAR ENDED 30 JUNE 2018 CONDENSED NOTES TO THE CONSOLIDATED APPENDIX 4E

8 INTANGIBLE ASSETS Soléo Organics – formula and technology McArthur skincare – formula and technology Website development costs Elizabeth Jane Natural Cosmetics – formula and technology Movements in Soléo Organics – formula and technology Opening balance Development cost additions Less: R&D tax incentives Less: Write-off or impairments Less: Amortisation Closing balance Movements in McArthur – formula and technology Opening balance Cost on acquisition Add: prior period adjustment Less: R&D tax incentives Less: Write-off or impairments Less: Amortisation Closing balance Movements in website development costs Opening balance Cost on acquisition Less: R&D tax incentives Less: Write-off or impairments Less: Amortisation Closing balance Movements in Elizabeth Jane Natural Cosmetics – formula and technology Opening balance Development cost additions Less: R&D tax incentives Less: Write-off or impairments Less: Amortisation Closing balance Profit or loss expense Soléo amortisation McArthur amortisation Website costs	As at 30 Jun 2018 $ 6,315,261 835,642 14,607 2,214,253 9,379,763 6,578,397 (263,136) 6,315,261 870,683 - - - - (35,041) 835,642 18,407 - - - (3,800) 14,607 2,214,253 - - - - 2,214,253 263,136 35,041 3,800 301,977	RESTATED
		As at 30 Jun 2017
		$
		6,578,397 870,683 18,407 2,214,253
		9,681,740
		6,457,529 451,913 (196,584) - (134,461)
		6,578,397
		- 703,572 172,465 - - (5,354)
		870,683
		- 19,000 - - (593)
		18,407
		2,214,253 - - - -
		2,214,253
		134,461 5,354 593
		140,408

Page 15

Appendix 4E Preliminary Final Report

SKIN ELEMENTS LIMITED FOR THE YEAR ENDED 30 JUNE 2018 CONDENSED NOTES TO THE CONSOLIDATED APPENDIX 4E

9 TRADE PAYABLES Trade creditors (i) Other creditors (ii)	As at 30 Jun 2018 $ 236,139 574,247 810,386	As at 30 Jun 2017
		$
		216,784 520,802
		737,586

(i) Fair value of trade and other payables

Trade payables are unsecured and are usually paid within 60 days of recognition.

The carrying amount of trade and other payables are assumed to be the same as their fair values, due to their shortterm nature.

(ii) In the prior period other payables amount includes liabilities payable to the previous owners of the McArthur business of $205,847 and amounts payable to executive management of $202,871 and to directors of $58,667.

BORROWINGS Loans - related parties Movements in related party loans Opening balance Amounts borrowed Amounts repaid Conversion of debt to notes (ii) Closing balance	As at 30 Jun 2018 $ - - 44,201 62,662 - (106,863) -	As at 30 Jun 2017
		$
		44,201
		44,201
		44,611 593,091 (593,501) -
		44,201

10 BORROWINGS

(i) Terms of the borrowings

The operating company and the Company obtained working capital funding from the executives of the Company to allow the Group to continue operating and pay its debts as and when they fell due. The loan is provided on the following terms:

Particulars	Terms
Principal Interest rate Period Repayment Security	No fixed amount, funding provided when needed. 0% No fixed term. On commencement of listing, at the Company’s discretion and subject to available funds. The borrowingis unsecured and there are no covenants inplace for the loan.

(ii) On 1 March 2018, the Company agreed to issue 106,863 convertible notes to extinguish borrowings (refer note 13)

Page 16

Appendix 4E Preliminary Final Report

SKIN ELEMENTS LIMITED FOR THE YEAR ENDED 30 JUNE 2018 CONDENSED NOTES TO THE CONSOLIDATED APPENDIX 4E

11 ISSUED CAPITAL

ISSUED CAPITAL
(i) Share Capital Ordinary Shares	As at 30 Jun 2018 As at 30 Jun 2017 As at 30 Jun 2018 As at 30 Jun 2017
	Shares Shares $ $
	86,053,001 76,550,001 13,679,321 13,033,994

• (ii) Movement in share capital

Date Details	Number of shares $
1/07/2017 Opening balance 31/08/2017 Issue of shares - consultants (i) 30/10/2017 Issue of shares – services (ii) 06/03/2018 Issue of shares – Conversion of notes (iii) 06/03/2018 Issue of shares - consultants (iv) 29/06/2018 Issue of shares – Placement (v) Less: Transaction costs (v) Deferred tax recognised in equity Closing balance	76,550,001 13,033,994 165,000 33,000 1,000,000 200,000 338,000 69,257 2,000,000 200,000 6,000,000 150,000 (6,930) -
	86,053,001 13,679,321

• (i) The company issued 165,000 shares to consultants at a fair value of $0.20 per share.

• (ii) The company issued 500,000 share to an associate of a director and 500,000 to an external consultant for services rendered. The fair value of the shares was $0.20 per share.

• (iii) During the period the company issued shares on the conversion of a parcel of convertible notes, the fair value of the notes was $69,257.

• (iv) The company issued 2,000,000 shares in satisfaction of a corporate consulting fee. The fair value of a share at the date of issue was $0.10 per share.

• (v) The company undertook a placement of 6,000,000 shares (with 1,500,000 free attaching options at $0.10 per share on or before 31/12/2020) at $0.025 before year end to raise $150,000.

12 ACCUMULATED LOSSES Opening balance Prior period adjustment Loss for the year Closing balance	As at 30 Jun 2018 $ 2,200,506 - 2,728,114 4,928,620	RESTATED
		As at 30 Jun 2017
		$
		602,901 (21,478) 1,619,082
		2,200,506

Page 17

Appendix 4E Preliminary Final Report

SKIN ELEMENTS LIMITED

FOR THE YEAR ENDED 30 JUNE 2018

CONDENSED NOTES TO THE CONSOLIDATED APPENDIX 4E

13 RESERVES Share based payment reserve Convertible note reserve (i) Options Options		As at 30 Jun 2018 $ 215,505 522,835 738,340	As at 30 Jun 2017
			$
			116,816 -
			116,816
	As at 30 Jun 2017 As at 30 Jun 2016 As at 30 Jun 2017		As at 30 Jun 2016
	Options Options $		$
	2,000,000 2,000,000 116,816		116,816

No movement in options during the period.

(ii) Performance rights Performance rights	As at 30 Jun 2018 As at 30 Jun 2017 As at 30 Jun 2018 As at 30 Jun 2017
	Rights(a) Rights $ $
	4,400,000 - 98,689 -

• (a) The Company has agreed to issue performance rights to directors, however, these are subject to shareholder approval and have not yet been issued. Under the accounting standard, the Company is required to fair value these instruments at the date of the agreement and remeasure the instruments when they have been approved by shareholders. The rights are subject to performance conditions and are amortised over the vesting period which is up to 20 months from the date of issue.

• (b) Movement in Performance rights

Date Details Number of notes	$
1/07/2017 Opening balance - 30/11/2017 Agreement to issue rights 4,400,000 Closing balance	- 98,689
	98,689

• (c) Fair value of rights granted to directors

The fair value of the rights has been valued at $0.075 to $0.077 per right. The Company used a Monte Carlo simulation model to value the rights with the following inputs:

Particulars	Terms
Consideration Grant date Expiry date Share price Expected volatility Dividend yield Risk free rate	Nil 30 November 2017 30 June 2019 and 30 June 2020 $0.16 90% 0% 1.75% and 1.89%

Page 18

Appendix 4E Preliminary Final Report

SKIN ELEMENTS LIMITED

FOR THE YEAR ENDED 30 JUNE 2018

CONDENSED NOTES TO THE CONSOLIDATED APPENDIX 4E

13 RESERVES (CONTINUED)

(iii) Convertible Note reserve Performance rights	As at 30 Jun 2018 As at 30 Jun 2017 As at 30 Jun 2018 As at 30 Jun 2017
	Notes Notes $ $
	409,272 - 522,835 -

• (a) The Company has agreed to issue performance rights to directors, however, these are subject to shareholder approval and have not yet been issued. Under the accounting standard, the Company is required to fair value these instruments at the date of the agreement and remeasure the instruments when they have been approved by shareholders.

(ii) Movement in Performance rights

(ii) Movement in Performance rights
Date Details	Number of notes $
1/07/2017 Opening balance 13/12/2017 Issue of convertible notes 30/01/2018 Issue of convertible notes 30/01/2018 Issue of convertible notes to extinguish debt 28/02/2018 Issue of convertible notes to extinguish debt 01/03/2018 Issue of convertible notes to extinguish debt Fair value adjustment (i) 06/03/2018 Conversion of notes to shares Closing balance	- - 24,000 24,000 75,000 75,000 203,409 203,409 50,700 50,700 106,863 106,863 132,120 (50,700) (69,257)
	409,272 522,835

(i) Terms of the notes

Particulars	Terms
Principal Interest rate Period Repayment Security	Face value of the consideration provided. 10% 1 year Convertible at any time during the year and automatically after one year. The borrowingis unsecured and there are no covenants inplace for the notes.

(ii) Fair value of the notes – extinguishment of liabilities

The convertible notes convert to shares at $0.15 per share. In addition, the note holder receives an option exercisable at $0.22 on or before 30 January 2020. The notes also include an additional option, where the first option has been exercised, the additional option is exercisable at $0.34 on or before 30 January 2022. The three instruments have been values as follows:

Particulars	Terms
Share Option – Exercise price Option – Grant date Option – Expiry date Option – Share price Option – Expected volatility Option – Dividend yield Option – Risk free rate	Share price at date of issue $0.11 $0.22 (first option) and $0.34 (second options) 31 January 2018 30 January 2020 (first option) 30 January 2022 (second option) $0.11 86.81% 0% 1.77%(first option)and 2.15%(second options)

Page 19

Appendix 4E Preliminary Final Report

SKIN ELEMENTS LIMITED

FOR THE YEAR ENDED 30 JUNE 2018

CONDENSED NOTES TO THE CONSOLIDATED APPENDIX 4E

			RESTATED
		Year Ended	Year Ended
	30 Jun 2018		30 Jun 2017
		$	$
14	EARNINGS PER SHARE
	Loss attributable to ordinary shareholders	(2,728,114)	(1,597,604)
	Opening balance	76,550,001
	Balance before transaction	-	1
	Effect of shares issued for the acquisition (55,000,000 shares (220mill/4))	-	55,000,000
	Effect of shares issued for the IPO (18,550,000 shares * (189 / 365 days))	-	9,605,342
	Share issue for the business combination (3,000,000 shares * (56 / 365 days))	-	460,274
	Effect of shares to consultants	772,589	-
	Effect of shares to directors	665,753	-
	Effect of shares from conversion of notes	107,419	-
	Effect of shares issued for cash	16,438	-
		78,112,200	64,605,617
	Basic loss per share calculation (12mths loss / weighted ave shares)	(0.035)	(0.025)
	Operations	Corporate & Administration	Company

15	SEGMENT REPORTING
	Year ended 30 June 2018
	Segment Revenue	838,292 - 838,292
	Expenses
	Interest income	- 74 74
	Consultants fees	(156,391) (669,717) (826,108)
	Amortisation	(301,977) - (301,977)
	Share Based Payments	- (98,689) (98,689)
	Segment net operating loss after tax	(1,372,056) (1,356,058) (2,728,114)
	Year ended 30 June 2017 RESTATED Segment Revenue Significant items Interest Income Consultants fees Listing fees Segment net operating loss after tax–RESTATED Segment assets
		310,753 - 310,753
		- 780 780 (21,800) (573,995) (595,795) - (196,993) (196,993)
		(158,827) (1,438,778) (1,597,605)
	At 30 June 2018	10,095,169 204,258 10,299,427
	At 30 June 2017 –RESTATED Segment liabilities	10,197,839 1,534,252 11,732,091
	At 30 June 2018	(338,438) (471,948) (810,386)
	At 30 June 2017 –RESTATED	(337,477) (444,310) (781,787)

Page 20

Appendix 4E Preliminary Final Report

SKIN ELEMENTS LIMITED FOR THE YEAR ENDED 30 JUNE 2018 CONDENSED NOTES TO THE CONSOLIDATED APPENDIX 4E

16 CONTINGENT LIABILITIES

The directors are not aware of any contingent liabilities as at 30 June 2018.

17 SUBSEQUENT EVENTS

On 8 August 2018 the Company completed a further capital raising of $1,075,663 through s fully underwritten entitlement offer to existing shareholders. Other than this item, there have been no significant events after the end of the reporting period to the date of the Appendix 4E.

18 PRIOR PERIOD ACQUISITION

During the prior year, Skin Elements Limited (SEL) which was established in September 2015 entered into a Share Sale Agreement whereby the existing shareholders of SE Operations Pty Ltd (SEO) exchanged their shares in SEO for shares in SEL. The result of the transaction was that the original holders of the shares in SEO received the same proportion of shares in SEL. The acquisition does not fall within the provisions of AASB 3 and therefore the Company has applied continuation accounting in the preparation of the Appendix 4E.

The total number of shares issued to the shareholders of SEO was 55,000,000 ordinary shares, 22,500,000 listed options exercisable at $0.20 each on or before 31 October 2018, and 22,500,000 unlisted options exercisable at $0.30 each on or before 30 November 2018, with the fair value per share being the IPO price of $0.20 each.

19 BUSINESS COMBINATION

On 5 May 2017, the Company acquired the business and business assets of McArthur Skincare. The acquisition provides the Group with an established product formula which will augment the Company's current activities and future progress.

RESTATED

Business combination Value of share issued Cash paid and payable - Total purchase consideration The fair value of assets and liabilities recognized as a result of the acquisition ar Website development asset Product formulation and technology intangible Inventory Net identifiable assets acquired Fair value of net assets acquired Outflow of cash from the acquisition of subsidiaries, net of cash required Purchase consideration Less: Balance required Amount payable as at 30 June	Year Ended 30 Jun 2018 $ - - - e as follows: - - - - - - - - -	Year Ended 30 Jun 2017
		$
		555,000 622,716
		1,177,716
		19,000 876,037 282,679
		1,177,716
		1,177,716
		416,869 -
		416,869
		(205,847)

Page 21

Appendix 4E Preliminary Final Report

SKIN ELEMENTS LIMITED FOR THE YEAR ENDED 30 JUNE 2018

CONDENSED NOTES TO THE CONSOLIDATED APPENDIX 4E

19 BUSINESS COMBINATION (CONTINUED)

Acquisition-related costs have all been included in the administration and consulting expenses in the profit and loss. The contribution of the acquisition for the period from 5 May to 30 June was a profit of $16,869. The amount payable is subject to the sale of inventories at fair value.

20 CORRECTION TO PROVISIONAL ACCOUNTING FOR BUSINESS COMBINATION

Balance sheet Inventory Intangible assets Net Assets Retained losses Income statement Cost of sales Amortisation Loss before income tax	Year Ended 30 Jun 2017 Increase / (decrease) Year Ended 30 Jun 2017 $ $ 422,820 (149,910) 272,910 9,510,353 171,388 9,681,741
	10,928,826 21,478 10,950,304
	(2,221,984) 21,478 (2,200,506)
	(196,219) 22,555 (173,663) (139,330) (1,077) (140,408)
	(1,619,082) 21,478 (1,597,605)

• (a) Explanation

During the year the Company undertook a review of the stock that was acquired from the previous owners of McArthur as part of the business combination. The review highlighted that the stock cost values previously assess were considerable higher than the actual costs of generating the items. The Company then reviewed the entire stock valuation model and this resulted in an adjustment to the business combination workings in note 19.

Page 22