SKIN ELEMENTS LIMITED — Interim / Quarterly Report 2024

Jan 30, 2024

31 January 2024

Quarterly Activity Report - Period ending 31 December 2023

Australian natural biotechnology company Skin Elements Limited (ASX: SKN) (Skin Elements, the Company) is pleased to present its Quarterly Activity Report for the period ending 31 December 2023.

Quarterly Highlights

• Phase 2 testing of ECO-Nurture sustainable, horticultural plant bio stimulant including the trial of ECO-Nurture on 10 kiwi fruit farms in New Zealand as a replacement to copper and chemical fungicides.

• These trials are approved and closely monitored by Zespri International, the world's largest marketer of kiwifruit.

• Initial results from independent laboratory testing show Eco Nurture is effective against the PSA bacteria which has major negative effect on the kiwifruit industry.

• Continued test marketing assessment of SuprCuvr disinfectant range of product applications with SuprCuvr delivered into health and public transport sectors.

• New Zealand Ministry for Primary Industries (MPI) approval secured for SuprCuvr – paves the way for a new market opportunity in the food processing industry, where specialist cleaning services are required.

• SKN continued to advance a large-scale distribution opportunity for Soléo Organics sunscreen in the retail pharmacy sector.

• Company was a partner at the Rolls Royce Strive for Perfection event in London for highend sustainable, innovative sustainable brands across a range of industries.

• R&D Rebate of $1.13m received in the quarter resulting from the approved R&D expenditure for FY2023.

• Placement to raise $200,000 (before costs) successfully completed.

SE Formula[TM] – the Cornerstone of our Business

The SE Formula has been developed by Skin Elements over the last 15 years and is the core of every natural product we develop. Products with the SE Formula[TM] have scientifically proven efficacy while using only natural and plant-based ingredients and have come to be trusted by consumers.

During the quarter, Skin Elements continued to invest in the research and development, and commercialisation of its proprietary plant-based, high-performance SE Formula biotechnology across its product range.

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Skin Elements has a three phase development process leading into commercial scale production and sales:

• Phase 1. Pure research and development to undertake investigations into natural organic ingredients and processes to prepare prototype formulations.

• Phase 2. Produce test batches and undertake product trials, test marketing and regulatory certifications.

• Phase 3. Negotiate distribution agreements and commence scale up production and launch into commercialisation.

Commenting on the quarter, Skin Elements Executive Chairman Mr Peter Malone said;

“The December 2023 quarter saw the Company make strong progress towards the realisation of potential large scale commercialisation opportunities across the business. This highlighted the success of our formal three-phase approach to research and development, and commercialisation. Our focus now is on bringing these opportunities to fruition, and the Company looks forward to sharing details of material progress and outcomes in the months ahead. Our commitment to research and development also saw the Company receive a Research and Development Tax Rebate of $1.13 million for the 2023 year during the quarter.”

ECO-Nurture – Phase 2 Crop Protection Trials

ECO-Nurture is the latest product developed from plant-based SE Formula biotechnology research and development program. ECO-Nurture is a sustainable, horticultural-specific plant bio stimulant product.

Skin Elements is pursuing opportunities for ECO-Nurture as an effective alternative to chemicalbased agricultural sprays currently used in crop disease protection globally. This represents a major opportunity in the massive agriscience market.

During the quarter the Company continued to support phase 2 testing in New Zealand with ECONurture spray program during the current season on 10 different kiwifruit orchards in North Island, New Zealand. This trial is approved and closely monitored by Zespri and the results are expected later in the season after harvest.

Headquartered in New Zealand, Zespri is the world’s largest marketer of kiwifruit with over $4 billion in sales. Zespri are the leaders in the research and development of kiwifruit varieties that are healthier, better tasting and more sustainable for the environment.

Initial outcomes of independent laboratory testing show Eco Nurture is effective against the PSA bacteria, which has negatively impacted the kiwifruit industry for the past ten years.

Beyond the initial opportunity in kiwifruit, the Company is also assessing opportunities in other horticulture sectors, including testing on grapes and other fruit and vegetable crops. Subject to the successful execution of its ECO-Nurture business plans, there may be a substantial market opportunity for ECO-Nurture in the fast growing and multi-billion dollar horticulture bio-stimulant market.

SuprCuvr - Phase 2 Market Testing

SuprCuvr is an independent laboratory tested TGA registered hospital-grade disinfectant made from a 100% plant-based formula. It combines the world’s highest level of efficacy against viral and bacterial infection with a 100% plant-based organic input certified formula to present a significant market opportunity for a chemical-free disinfectant in large-scale settings such as food manufacturing, hospitality retailing businesses, public transport and health.

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During the quarter, the Company secured New Zealand Ministry for Primary Industries (MPI) approval for SuprCuvr use as a cleaner, sanitiser and disinfectant in premises processing all animal product for human consumption (except dairy) which paves the way for a new market opportunity in the food processing industry, where specialist cleaning services are required.

Further to the initial test market assessment of SuprCuvr in public health and transport sectors, during the quarter Skin Elements has provided further test marketing sales of SuprCuvr for expanded scale assessment in the public transport sector particularly suburban train carriages and stations in Australia.

Soléo Organics – Phase 3 Commercialisation Negotiations

Distribution

Soléo Organics is an award-winning, natural and organic sunscreen formulation, providing a highly effective, high performance chemical-free sunscreen. It was the first application borne out of Skin Elements’ SE Formula research and development program.

During the quarter the Company continued negotiations with a leading health and wellbeing retail chain in the United Kingdom including investigations into large-scale manufacturing and distribution opportunities for Soléo Organics sunscreen formula white label ranges.

Independent laboratory testing of key performance specifications for the UK market commenced, with the initial phase of documentation, systems setup and due diligence underway.

Skin Elements will update the market on any material progress on these, or any other, sales or distribution opportunities.

Marketing

During the quarter, Skin Elements participated in an exclusive Rolls Royce Strive for Perfection: Celebrating 20 years of Goodwood event held in London, on 6 October 2023.

Skin Elements was delighted to be a partner at the event and to promote its natural and organic Soléo Organics to a high net-worth audience with a focus on high-end, innovative and sustainable products.

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Skin Elements at The Strive for Perfection: Celebrating 20 years of Goodwood event in London

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PapayaActivs Therapeutics

During the quarter, PapayaActivs proceeded with phase 2 with improvements in the formulations and expansion of the product range.

PapayaActivs combines a high concentration of natural pawpaw extract with other active natural ingredients to help relieve the symptoms of skin conditions, like psoriasis, rashes, eczema, assist in healing of minor burns and wounds, and relieve mild muscle, joint and arthritic pain. PapayaActivs is listed on the TGAs Australian Register of Therapeutic Goods.

The Company has a target date of this July to complete the Phase with product expected to go into Phase 3 test market launch during September quarter.

Corporate

Research & Development Rebate and Radium Facility

During the quarter, Skin Elements received R&D Rebate of $1.13 million in relation to the eligible research and development spend in the 2023 financial year.

The Company’s commitment to the continued research and development of its natural SE Formula Biotechnology sees it eligible for the Federal Government’s R&D Rebate for the 2024 financial year with R&D Rebate calculation of $714k as at 31 December 2023.

During the quarter, Skin Elements received an advance of $467k under a R&D Rebate advance facility provided by Radium Capital.

Placement

The Company announced on 23 October 2023 that it had undertaken a private placement to sophisticated investors raising $200,000 (before costs). The Company issued 20,000,000 SKN fully paid ordinary shares (under the Company’s ASX LR7.1A placement capacity) at $0.01 each with one attaching SKNOD option exercisable at $0.025 on or before 31 May 2026 (under the Company’s ASX LR7.1 capacity) for each new share issued.

LDA Capital equity funding facility

SKN has an equity funding facility agreement (Agreement) with LDA Capital, under which LDA Capital has agreed to provide Skin Elements with committed equity capital over a period of 36 months concluding on 1 March 2024 (ASX announcement, 6 April 2021).

The Agreement provides the Company with access to equity capital to support its growth objectives for the business, as required. The Company has not made any drawdown under this facility during the quarter.

Summary of Operating Cashflows

The Company’s research and development focus is reflected in the operating cashflows for the quarter, which included customer receipts of $37k, and R&D Rebate of $1.13m in relation to the FY2023 R&D spend. Operational cash outflows included $471k invested in product manufacturing, staff and research and development, marketing costs of $44k, and administration and corporate finance costs of $194k, resulting in net cash inflows from operating activities of $389k for the quarter and cash on hand of $229k. The Company continues to manage operational cashflows in line with operational and financing cash inflows.

Cashflows from financing activities during the quarter included repayment of the 2023 Radium R&D Rebate advances of $732k and associated interest costs of $75k, receipt of further 2024 Radium R&D Tax Rebate advance of $467k, and $200k equity for the placement announced in October 2023.

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Included in the operational cash outflows for the quarter is $22k paid to entities associated with the Directors for executive services and directors’ services in accordance with services agreements, details of which have been disclosed in the Company’s 2023 Annual Report.

This announcement has been approved by the Board of Directors of Skin Elements Limited.

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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@skinelementslimited.com E: james@manadatecorporate.com.au

About Skin Elements

Skin Elements (ASX: SKN) is an award winning Australian owned and operated ASX-listed natural biotechnology company focused on the development of its SE Formula Biotechnology. Skin Elements innovative approach to research and development of plant-based and organic sourced ingredients has enabled the creation of a portfolio of products that have global applications. Its flagship products include the SuprCuvr TGA-registered, hospital-grade plant-based disinfectant, ECO-Nurture plant bio-stimulant, Invisi Shield alcohol free natural sanitiser, Soléo Organics natural and organic sunscreen, PapayaActivs natural therapeutics skincare and Elizabeth Jane Natural Cosmetics brand.

Further information is available via the Company website: http://skinelementslimited.com and on the Company online store: www.sknlife.com.au.

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Appendix 4C Quarterly cash flow report for entities subject to Listing Rule 4.7B

Appendix 4C Quarterly cash flow report for entities subject to Listing Rule 4.7B

Name of entity

SKIN ELEMENTS LIMITED (ASX:SKN)

ABN 90 608 047 794	Quarter ended (Current quarter)	Quarter ended (Current quarter)	Quarter ended (Current quarter)
	31 December 2023
Consolidated statement of cash flows 1. Cash flows from operating activities 1.1 Receipts from customers 1.2 Payments for: (a) research and development (b) product manufacturing and operating costs (c) advertising and marketing (d) leased assets (e) staff costs (f) administration costs (g) corporate costs 1.3 Dividends received(see noteError! Reference source not found.) 1.4 Interest received 1.5 Interest and other costs of finance paid 1.6 Income taxes (paid) / refunded 1.7 Government grants and tax incentives 1.8 Other:(provide details if material) 1.9 Net cash from/ (used in) operating activities		Current Quarter $A'000	Year to date (6 Months) $A'000
		37 - (295) (38) (44) - (138) (145) (49) - 4 (73) - 1,130 -	61 - (498) (57) (44) - (233) (177) (49) - 4 (74) - 1,130 -
		389	63
2. Cash flows from investing activities 2.1 Payments to acquire: (a) entities (b) businesses (c) property, plant and equipment (d) investments (e) intellectual property (f) other non-current assets 2.2 Proceeds from disposal of: (a) entities (b) businesses (c) property, plant and equipment (d) investments (e) intellectual property (f) other non-current assets 2.3 Cash flows from loans to other entities 2.4 Dividends received(see noteError! Reference source not found.) 2.5 Other(provide details if material) 2.6 Net cash from/ (used in) investing activities		- - - - - - - - - - - - - - -	- - - - - - - - - - - - - - -
		-	-

ASX Listing Rules Appendix 5B (17/07/20) + See chapter 19 of the ASX Listing Rules for defined terms.

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Appendix 4C Quarterly cash flow report for entities subject to Listing Rule 4.7B

Consolidated statement of cash flows	Current Quarter $A'000	Year to date (6 Months) $A'000
3. Cash flows from financing activities 3.1 Proceeds from issues of equity securities(excluding convertible debt securities) 3.2 Proceeds from issue of convertible debt securities 3.3 Proceeds from exercise of options 3.4 Transaction costs related to issues of equity securities or convertible debt securities 3.5 Proceeds from borrowings 3.6 Repayment of borrowings 3.7 Transaction costs related to loans and borrowings 3.8 Dividends paid 3.9 Other(provide details if material) 3.10 Net cash from/ (used in) financing activities	200 - - (2) 340 (732) (75) - -	200 - - (18) 734 (732) (376) - -
	(269)	(192)
4. Net increase / (decrease) in cash and cash equivalents for the period 4.1 Cash and cash equivalents at beginning of period 4.2 Net cash from / (used in) operating activities(item 1.9 above) 4.3 Net cash from / (used in) investing activities(item 2.6 above) 4.4 Net cash from / (used in) financing activities(item 3.10 above) 4.5 Effect of movement in exchange rates on cash held 4.6 Cash and cash equivalents at end ofperiod	109 389 - (269) -	358 63 - (192) -
	229	229
5. Reconciliation of cash and cash equivalents at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts 5.1 Bank balances 5.2 Call deposits 5.3 Bank overdrafts 5.4 Other(provide details): 5.5 Cash and cash equivalents at end ofquarter (should equal item 4.6 above)	Current quarter $A'000	Previous quarter $A'000
	229 - - -	109 - - -
	229	109
6. Payments to related parties of the entity and their associates 6.1 Aggregate amount of payments to related parties and their associates included in item 1 6.2 Aggregate amount of payments to related parties and their associates included in item 2 Note: if any amounts are shown in items 6.1 and 6.2 your quarterly activity report must include a description of, and an payments
		Current quarter $A'000
		23
		-
		explanation for, such
Included in the operational cash outflows for the quarter is $23K paid to entities associated with the Directors for executive services and directors’ services in accordance with services agreements, details of which have been disclosed in the Company’s 2023 Annual Report.

Included in the operational cash outflows for the quarter is $23K paid to entities associated with the Directors for executive services and directors’ services in accordance with services agreements, details of which have been disclosed in the Company’s 2023 Annual Report.

ASX Listing Rules Appendix 5B (17/07/20) + See chapter 19 of the ASX Listing Rules for defined terms.

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Appendix 4C Quarterly cash flow report for entities subject to Listing Rule 4.7B

7. Financing facilities Note: the term “facility’ includes all forms of financing arrangements available to the entity. Add notes as necessary for an understanding of the sources of finance available to the entity. 7.1 Loan facilities 7.2 Credit standby arrangements 7.3 Other (please specify): LDA Capital Equity Funding Facility R&D Rebate Advance Facility 7.4 Total financing facilities	Total facility amount at quarter end $A'000	Amount drawn at quarter end $A'000
	- - 58 714	- - - 467
	772	467
7.5 Unused financing facilities available at quarter end
		305

• 7.6 Include in the box below a description of each facility above, including the lender, interest rate, maturity date and whether it is secured or unsecured. If any additional financing facilities have been entered into or are proposed to be entered into after quarter end, include a note providing details of those facilities as well.

• LDA Capital Equity Funding Facility Terms and conditions: Terms 36 months Total facility Put options to require LDA to subscribe for up to $20 million of shares at the Company’s election. Drawdown Nil Issue Price The issue price of the shares pursuant to a put option will be 90% of the higher of:

   - The average VWAP of shares in the 30-trading day period after the issue of a call option by the Company (subject to any applicable adjustments); and
  
   - the minimum price notified to LDA Capital by the Company upon the issue of the call option.
  

  • Limit During the term of the Agreement, LDA Capital may not hold more than 19.9% of the issued share capital of the Company.

  • Capacity Any placement to LDA Capital is expected to be made under the Company’s Listing Rule 7.1 capacity. Security SKN will issue LDA Capital collateral shares (SKN ordinary fully paid for nil consideration) on a one for one basis to the number of shares issued under the capital call notice less any collateral shares already held by LDA Capital.

  • Availability The total number of shares that SKN could issue under the facility based upon the Limit and Capacity as calculated at 31 December 2023 is 11,891,935 shares which at current market price would provide approximately $58K.

• R&D Rebate Advance Facility Terms and conditions: Terms Up to 18 months Total facility $714k based on eligible R&D spend. Drawdown As at 31 December 2023, $467K has been drawn down with balance available of $247K Security The facility is secured against the R&D Tax Rebate based on eligible R&D spend. The facility and interest is repaid on receipt of the R&D Rebate.

  • Interest Rate 14% p.a. pro rata.

8. Estimated cash available for future operating activities

8.1 Net cash from / (used in) operating activities (Item 1.9)

• 8.2 Cash and cash equivalents at quarter end (Item 4.6)

• 8.3 Unused finance facilities available at quarter end (Item 7.5)

8.4 Total available funding (Item 8.2 + Item 8.3)

• 8.5 Estimated quarters of funding available (Item 8.4 divided by Item 8.1)

$A’000 389 229 305 534 N/A

Note: if the entity has reported positive net operating cash flows in item 1.9, answer item 8.5 as “N/A”. Otherwise, a figure for the estimated quarters of funding available must be included in item 8.5.

• 8.6 If Item 8.5 is less than 2 quarters, please provide answers to the following questions:

• Does the entity expect that it will continue to have the current level of net operating cash flows for the time being and, if not, why not ?

Answer:

N/A

ASX Listing Rules Appendix 5B (17/07/20) + See chapter 19 of the ASX Listing Rules for defined terms.

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Appendix 4C Quarterly cash flow report for entities subject to Listing Rule 4.7B

1. Has the entity taken any steps, or does it propose to take any steps, to raise further cash to fund its operations and, if so, what are those steps and how likely does it believe that they will be successful? Answer:

N/A

1. Does the entity expect to be able to continue its operations and to meet its business objectives and, if so, on what basis?

Answer:

N/A

Note: where item 8.5 is less than 2 quarters, all of questions 8.6.1, 8.6.2 and 8.6.3 above must be answered.

Compliance statement

• 1 This statement has been prepared in accordance with accounting standards and policies which comply with Listing Rule 19.11A.

• 2 This statement gives a true and fair view of the matters disclosed.

Date: Wednesday, 31 January 2024

Authorised by: The Board of Directors

(Name of body or officer authorising release – see note)

Notes

1. This quarterly cash flow report and the accompanying activity report provide a basis for informing the market about the entity’s activities for the past quarter, how they have been financed and the effect this has had on its cash position. An entity that wishes to disclose additional information over and above the minimum required under the Listing Rules is encouraged to do so.

2. If this quarterly cash flow report has been prepared in accordance with Australian Accounting Standards, the definitions in, and provisions of, AASB 107: Statement of Cash Flows apply to this report. If this quarterly cash flow report has been prepared in accordance with other accounting standards agreed by ASX pursuant to Listing Rule 19.11A, the corresponding equivalent standard applies to this report.

3. Dividends received may be classified either as cash flows from operating activities or cash flows from investing activities, depending on the accounting policy of the entity.

4. If this report has been authorised for release to the market by your board of directors, you can insert here: “By the board”. If it has been authorised for release to the market by a committee of your board of directors, you can insert here: “By the [name of board committee – e.g. Audit and Risk Committee]”. If it has been authorised for release to the market by a disclosure committee, you can insert here: “By the Disclosure Committee”.

5. If this report has been authorised for release to the market by your board of directors and you wish to hold yourself out as complying with recommendation 4.2 of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations, the board should have received a declaration from its CEO and CFO that, in their opinion, the financial records of the entity have been properly maintained, that this report complies with the appropriate accounting standards and gives a true and fair view of the cash flows of the entity, and that their opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively.

ASX Listing Rules Appendix 5B (17/07/20) + See chapter 19 of the ASX Listing Rules for defined terms.

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