Preliminary Results

23rd Apr 2009 07:00



For Immediate Release

23 April 2009

CORAC GROUP PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008

Corac Group plc ('Corac'), the intellectual property, engineering and licensing group, specialising in compressor technology, announces its preliminary results for the year ended 31 December 2008. 

Operational Highlights

Downhole Gas Compressor ('DGC')

•	DGC modules subjected to continuing extensive trials in Cumbria
•	Eni committed to first field trial unit in Southern Italy
•	Field trial targeted for Q4 2009 following a delay relating to safety equipment, now resolved
•	Joint Development relationship with Baker Hughes to assist with deployment and marketing of DGC
•	Growing interest from other gas majors in DGC technology

Industrial Air

•	Pre-production units operating in Taiwan, China and Austria are performing well
•	Four pre-production units ordered in December 2008

Financial Highlights

•	Loss after tax £3.0m reflecting reduced revenues from delay in field trial
•	R&D costs in line with management's expectations
•	Cash at bank of £2.6m at 31 December 2008
•	Continued support from shareholders with £1m (net) raised from a Placing in February 2009

Commenting on the future, Chairman, Gerry Musgrave, said:

"I am pleased to report further solid progress during 2008, as the Company has continued to develop its compressor technology in close collaboration with its partners. Our industrial air units have now completed several thousand hours of operation in factories in China, Taiwan and Austria. 

Our unique downhole gas compressors have been undergoing severe testing throughout the year at our Spadeadam facility in Cumbria as we look forward to deployment of these units in field trials. 

For further information:

Professor Gerry Musgrave
Corac Group plc	Tel: 01895 813463
Ivonne Cantu/Camilla Hume - Corporate Finance
Christian Hobart - Sales
Cenkos Securities plc	Tel: 020 7397 8900
Richard Darby/Ben Romney
Buchanan Communications Ltd	Tel: 020 7466 5000

NOTES TO EDITORS

Corac is an intellectual property, engineering and licensing group which holds many patents. It focuses on high speed electrical direct drive turbo machinery based on its unique expertise in gas bearings. Corac has created an innovative 'no oil' turbo compressor together with a unique gas seal, and is part of a joint industry programme for the downhole gas extraction industry. 

Further information on Corac is available on the internet at www.corac.co.uk 

  CHAIRMAN'S STATEMENT

Introduction

I am pleased to report further good progress during 2008, as the Company has continued to develop its compressor technology in close collaboration with its partners. Our industrial air units have now completed several thousand hours of operation in factories in China, Taiwan and Austria. Our unique downhole gas compressors (DGC) have been undergoing severe testing throughout the year at our Spadeadam facility in Cumbria as we look forward to deployment of these units in field trials. 

Financial Review

The Board has adopted International Financial Reporting Standards (IFRS) which has resulted in the previous year's figures being restated on an IFRS basis.

The financial results for the year ended 31 December 2008 show a loss after tax of £2.97 million (2007: £1.74 million). The increased loss was largely due to the delay associated with our field trial with Eni SpA ('Eni'), a Joint Industry Programme ('JIP') partner, as reported in December 2008. 

Following the year end, we considered it appropriate to raise £1 million net of expenses through a placing of 7.6 million shares at the then market price of 13.05 pence per Ordinary Share to strengthen the balance sheet and provide additional working capital. The Board believes that the additional financial resource together with our cash reserves of £2.6 million at 31 December 2008, will reduce the risk arising from the delay in the deployment of the DGC to field trial and strengthen our ability to fulfil further orders for turbo boosting machines from industrial air customers.

We anticipate that our cash reserves are sufficient for the Company's development through to the end of 2010, when we would expect further DGC opportunities and orders from our other partners to have been realised. 

At 31 December 2008, there were 86,549,322 ordinary shares of 10p each in issue, and pursuant to the placing in February 2009, there were 94,212,157 ordinary shares of 10p each in issue. 

Operational Highlights

Since January 2007, the DGC modules have been subjected to extensive trials in simulated downhole conditions in a flow loop test rig in Cumbria. Tests for reliability and performance targets with our three JIP partners continue to be very encouraging. 

In June 2008, Eni committed to the first field trial DGC unit to be deployed in one of their gas wells in Southern Italy. The delay in the field trial relating to additional safety equipment being supplied by third parties has now been resolved and we are working with partners towards deployment of the DGC. This will, of course, be the first time technology of this kind has been implemented in a gas well and there are inevitable hurdles to be overcome on an innovative project of this size. Our JIP partners continue to be supportive and, whilst general gas prices are lower in the short term, opportunities still abound for our technology in global energy supply and in realising strategic reserves that are otherwise considered depleted. The long term trend in gas prices is generally upwards and this only serves to increase the importance of our ability to recover more gas from reservoirs. Even with the very recent low gas prices, the business case for deployment of the DGC is excellent.

The Joint Development relationship with Baker Hughes in October 2008 came at a significant time in the DGC's development. Baker Hughes' experience of oil field operations and equipment has many parallels with gas extraction and their expertise in bespoke equipment, deployment and cabling is now being embedded into Corac's technology. Baker Hughes will also be key in our future marketing strategy and field support activities. 

As a result of our association with Baker Hughes and because of their established presence in the oil and gas environment, further opportunities are maturing for our technology. There is considerable interest from other gas majors in the DGC as our technology and engineering resource achieves greater recognition from our enhanced exposure through Baker Hughes and from a realisation that our ability to offer leading edge solutions for artificial gas lift is unique.

Our industrial air machines continue to perform well. Leobersdorfer Maschinenfabrik GmbH & Co. KG ('LMF') has trialled our industrial air units for the last two years and more recently a machine has been operating in a major international food and beverage company. As a result of these successful trials, LMF placed an order for a further four pre-production industrial air machines in December 2008 for the purposes of supercharging LMF's piston compressors used in high pressure applications.

The Joint Development Agreement with Fu Sheng is progressing with two turbo boosting machines operating and continuing to provide 18% efficiency gains against equivalent competitive systems. Further orders are anticipated for 2009. The overall efficiency improvement in our industrial machines indicates that in energy consumption alone, users can recover their initial costs within one year.

In December, we received a cash lump sum in lieu of royalties on our patented high pressure gas seals. In February 2007, we had announced an agreement to transfer our Intellectual Property Rights on our gas seals to AESSEAL plc, who would continue the engineering development, manufacture and sale of the product. The proceeds from this transaction have been used on our DGC and industrial air products.

Board Changes

Philip Newell was appointed to the Board in March 2008 as a full time Finance Director and Company Secretary replacing Tom Ivings, who stepped down as part time Finance Director. Sian Westerman was appointed to the Board in July 2008 as Non-Executive Director. Gerd Cromm retired from the Board in December 2008, but remains as a part-time consultant, with Corac retaining the benefit of his experience and contacts within the compressor industry. John Gunn, Non-Executive Director stepped down from the Board in December 2008. I take this opportunity of thanking John for his significant contribution to the development of the Company since his appointment in July 2000. 

Summary

We continue to be encouraged by the positive feedback that we receive from our customers regarding deployment of our Industrial Air units. Improvements in efficiency and energy savings are placing us in an excellent position commercially and the gas recovery capability of the DGC makes Corac a world leader to succeed and grow in the current economic environment. We have confidence in our products and our engineers to meet the needs of the market in the future. 

Professor G Musgrave

Executive Chairman

22 April 2009

  CONSOLIDATED INCOME STATEMENT 

For the year ended 31 December 2008

		Group
		2008		2007
	Note	£		£
Revenue	3	661,704		1,438,443
Cost of sales		(409,170)		(1,212,427)
Gross profit	3	252,534		226,016
Other income		46,349		117,224
Research and development costs		(2,536,031)		(1,554,047)
Administrative expenses		(1,449,981)		(1,282,235)
Operating loss	4	(3,687,129)		(2,493,042)
Finance income	6	210,812		147,923
Loss before income tax		(3,476,317)		(2,345,119)
Income tax credit	7	507,758		605,567
Loss for the year attributable
to shareholders		(2,968,559)		(1,739,552)
Loss per share expressed in pence per share		pence		pence
Basic and diluted loss per share	8	(3.5)		(2.3)

All results relate to continuing activities.

There were no recognised gains and losses in 2008 or 2007 other than those included in the consolidated income statement.

  CONSOLIDATED AND PARENT COMPANY BALANCE SHEET

As at 31 December 2008

		Group				Parent Company
		2008		2007		2008		2007
	Note	£		£		£		£
ASSETS
Non current assets
Property, plant and equipment	9	83,465		151,532		83,465		151,532
Amounts owed by EBT	11	-		-		300,000		300,000
		83,465		151,532		383,465		451,532
Current assets
Trade and other receivables	13	440,675		588,913		440,675		588,913
Taxation recoverable	7	520,000		510,000		520,000		510,000
Other short term financial assets	14	500,000		250,000		500,000		250,000
Cash and cash equivalents	15	2,121,363		4,999,765		2,058,900		4,970,316
		3,582,038		6,348,678		3,519,575		6,319,229
Total assets		3,665,503		6,500,210		3,903,040		6,770,761
LIABILITIES
Current liabilities
Trade and other payables	16	(584,267)		(386,503)		(589,258)		(391,804)
Net assets		3,081,236		6,113,707		3,313,782		6,378,957
EQUITY
Share capital	17	8,654,932		8,625,406		8,654,932		8,625,406
Share premium		4,332,769		4,249,513		4,332,769		4,249,513
Capital redemption reserve		575,000		575,000		575,000		575,000
Own shares held by the EBT		(551,226)		(280,722)		-		-
Share based payments reserve		184,153		236,189		108,560		61,980
Retained earnings		(10,114,392)		(7,291,679)		(10,357,479)		(7,132,942)
Total equity		3,081,236		6,113,707		3,313,782		6,378,957

.

CONSOLIDATED AND PARENT COMPANY STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2008

	Group
			Capital	Own shares	Share-based
	Share	Share	redemption	held by	payments	Retained
	capital	premium	reserve	EBT	reserve	earnings	Total
	£	£	£	£	£	£	£
Balance at 1 January 2007	7,442,970	858,351	575,000	(298,105)	150,539	(5,552,127)	3,176,628
Issue of shares	1,182,436	3,391,162	-	-	-	-	4,573,598
Shares transferred on exercise of options	-	-	-	17,383	-	-	17,383
IFRS 2 share option charge	-	-	-	-	85,650	-	85,650
Loss for the year, total recognised income and expense for the year	-	-	-	-	-	(1,739,552)	(1,739,552)
Balance at 31 December 2007	8,625,406	4,249,513	575,000	(280,722)	236,189	(7,291,679)	6,113,707
Issue of shares	29,526	83,256	-	-	-	-	112,782
Shares transferred on exercise of options	-	-	-	203,811	-	-	203,811
Purchase of own shares by EBT	-	-	-	(474,315)	-	-	(474,315)
IFRS 2 share option charge	-	-	-	-	93,810	-	93,810
Transfers on exercise of share options	-	-	-	-	(145,846)	145,846	-
Loss for the year, total recognised income and expense for the year	-	-	-	-	-	(2,968,559)	(2,968,559)
Balance at 31 December 2008	8,654,932	4,332,769	575,000	(551,226)	184,153	(10,114,392)	3,081,236

	Parent Company
			Capital	Share-based
	Share	Share	redemption	payments	Retained
	Capital	premium	reserve	reserve	earnings	Total
	£	£	£	£	£	£
Balance at 1 January 2007	7,442,970	858,351	575,000	16,229	(5,424,179)	3,468,371
Issue of shares	1,182,436	3,391,162	-	-	-	4,573,598
IFRS 2 share option charge	-	-	-	45,751	-	45,751
Loss for the year, total recognised income and expense for the year	-	-	-	-	(1,708,763)	(1,708,763)
Balance at 31 December 2007	8,625,406	4,249,513	575,000	61,980	(7,132,942)	6,378,957
Issue of shares	29,526	83,256	-	-	-	112,782
IFRS 2 share option charge	-	-	-	77,046	-	77,046
Transfers on exercise of share options	-	-	-	(30,466)	30,466	-
Loss for the year, total recognised income and expense for the year	-	-	-	-	(3,255,003)	(3,255,003)
Balance at 31 December 2008	8,654,932	4,332,769	575,000	108,560	(10,357,479)	3,313,782

  CONSOLIDATED AND PARENT COMPANY CASH FLOW STATEMENT

For the year ended 31 December 2008

		Group				Parent Company
		2008		2007		2008		2007
	Note	£		£		£		£
Operating activities
Loss before income tax		(3,476,317)		(2,345,119)		(3,762,761)		(2,314,330)
Adjustments for:
Profit on sale of property, plant and equipment		-		(750)		-		(750)
Depreciation		89,618		84,005		89,618		84,005
Finance income		(210,812)		(147,923)		(207,228)		(147,671)
Share based payment expense		93,810		85,650		77,046		45,751
Increase in impairment on loan to the EBT	11	-		-		300,000		-
Increase/(decrease) in trade and other receivables		148,238		(241,484)		148,238		(241,484)
Decrease/(increase) in trade and other payables		197,764		(925,644)		197,454		(925,644)
		(3,157,699)		(3,491,265)		(3,157,633)		(3,500,123)
Income tax received		497,758		518,567		497,758		518,567
Net cash used in operating activities		(2,659,941)		(2,972,698)		(2,659,875)		(2,981,556)
Investing activities
Finance income		210,812		147,923		207,228		147,671
Purchase of property, plant and equipment		(21,551)		(43,541)		(21,551)		(43,541)
Proceeds from sale of property, plant and equipment		-		750		-		750
Increase in loan to Employee Benefit Trust		-		-		(300,000)		-
Net cash from/(used in) investing activities		189,261		105,132		(114,323)		104,880
Financing activities
Proceeds from issue of shares	17	112,782		4,839,263		112,782		4,839,263
Expenses of issue of shares		-		(265,665)		-		(265,665)
Proceeds on exercise of employee share options granted by the EBT		203,811		17,383		-		-
EBT purchase of shares	18	(474,315)		-		-		-
Cash transferred to long term deposits		(250,000)		-		(250,000)		-
Net cash (used in)/from financing activities		(407,722)		4,590,981		(137,218)		4,573,598
Net (decrease)/increase in cash		(2,878,402)		1,723,415		(2,911,416)		1,696,922
and cash equivalents
Cash and cash equivalents at beginning of year		4,999,765		3,276,350		4,970,316		3,273,394
Cash and cash equivalents at end of year		2,121,363		4,999,765		2,058,900		4,970,316

.

NOTES TO THE FINANCIAL STATEMENTS

1. Nature of operations

The principal activities of Corac Group plc and its subsidiaries (the "Group") comprise the research and development of high speed, direct drive compressors based on its expertise in gas bearings and high speed shafts and motor drives for use in the extraction of gas from gas wells and for supercharging piston compressors used in factory applications.

The Group has three main applications being:

(a) Downhole gas compressors ("DGCs") for deployment at the bottom of gas wells to increase the potential rate of extraction of gas and the absolute volume of gas that can be economically extracted. Under a Joint Industry Programme ("JIP"), the research and development has in part been funded by three gas operating companies ("JIP Partners"). The Group is working towards deployment of a DGC in a field trial at a gas well which is targeted for the fourth quarter of 2009.

(b) Industrial Air Compressors for use in supercharging existing piston compressors used in factory applications. Machines are currently being trialled in customers' operations, including at a food and beverage company.

(c) High pressure, non contacting dry gas seals ("Seals"), specifically designed for turbo compressors. In February 2007 the Group transferred its intellectual property relating to seals to a third party in return for a cash lump sum and an ongoing royalty on sales. In December 2008 the Group received a cash lump sum in lieu of future royalties on gas seals.

Corac Group plc (the "Parent Company") is the Group's ultimate parent company which is incorporated and domiciled in the United Kingdom. The address of the Company is Brunel Science Park, Kingston Lane, Uxbridge, Middlesex UB8 3PQ. The Parent Company's shares are listed on the Alternative Investment Market ("AIM") of the London Stock Exchange.

2. Summary of significant accounting policies

2.1  Basis of preparation

The preliminary results for the year ended 31 December 2008 have been extracted from the audited accounts which have not yet been delivered to the Registrar of Companies. The financial statements set out in this announcement do not constitute statutory accounts for the year ended 31 December 2008 or 31 December 2007 within the meaning of Section 240 of the Companies Act 1985.

The report of the auditors for the year ended 31 December 2008 was unqualified and did not contain a statement under Section 237 of the Companies Act 1985.

The consolidated and Parent Company financial statements have been prepared in accordance with applicable International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board and as adopted by the European Union.

The financial statements have been prepared under the historical cost convention. The measurement bases and principal accounting policies of the Group and Parent Company are set out below.

Going concern

Based upon the results of their enquiries, the directors have a reasonable expectation that the Group and Parent Company have adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the consolidated and Parent Company financial statements.

In reaching this conclusion the directors have considered many factors, both within and outside their control, including:

detailed financial projections (including cashflow projections) which incorporate experience gained from historical budgeting and forecasts updated on a monthly basis.

dependence upon key partners, customers and staff in the development and validation of the Group's technology and products, in particular in respect of the validation of the DGC through field trials;

financial risk management including the Group's financial commitment to the development and delivery of products;

ability of the Group to manage and adapt to challenges, potential setbacks and potential delays in the development programme and subsequent roll out and changing customer requirements.

products and markets including the acceptance and adoption of the Group's technology and products by actual and potential customers and the level and rate of take up; and

exposure to contingent liabilities including potential claims relating to pre-production units under trial with customers.

The Group's management of liquidity risk is further discussed in note 19.

International Financial Reporting Standards

The Group and Parent Company are preparing their financial statements for the first time under IFRS, effective from the date of transition to IFRS of 1 January 2007 (the transition date). Comparative information has been restated in accordance with IFRSs. An explanation of how the transition to European Union adopted IFRS has affected the previously reported financial position, financial performance and cash flow of the Group and Parent Company is provided in notes 24 to 26, together with the reconciliation of opening balances. The accounting policies that have been applied in the opening balance sheet have, unless otherwise stated, also been consistently applied throughout all periods presented in the financial statements.

IFRS 1 "First Time Adoption of International Financial Reporting Standards" sets out the approach to be followed when IFRSs are applied for the first time. As a general principle, IFRS 1 requires that accounting policies are to be adopted retrospectively although IFRS 1 provides a number of optional exceptions including where the cost of compliance is deemed to exceed the benefits to users of the financial statements.

2.2   IFRS standards and interpretations not yet adopted

As at the date of approval of these financial statements, the following standards and interpretations were in issue but not yet effective for the accounting period commencing 1 January 2008:

IAS 1	Presentation of Financial Statements (revised 2007) (effective 1 January 2009)
IAS 23	Borrowing Costs (revised 2007) (effective 1 January 2009)
IAS 27	Consolidated and Separate Financial Statements (Revised 2008) (effective 1 July 2009)
IAS 32 (amendment)	Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation (effective 1 January 2009)
IAS 39 (amendment)	Financial Instruments: Recognition and Measurement - Eligible Hedged Items (effective 1 July 2009)
IFRS 1 (amendment)	First-time Adoption of International Financial Reporting Standards and IAS 27 Consolidated and Separate Financial Statements - Costs of Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective 1 January 2009)
IFRS 2 (amendment)	Share-based Payment - Vesting Conditions and Cancellations (effective 1 January 2009)
IFRS 3	Business Combinations (Revised 2008) (effective 1 July 2009)
IFRS 8	Operating Segments (effective 1 January 2009)
IFRIC 15	Agreements for the Construction of Real Estate (effective 1 January 2009)
IFRIC 16	Hedges of a Net Investment in a Foreign Operation (effective 1 October 2008)
IFRIC 17	Distributions of Non-cash Assets to Owners (effective 1 July 2009)
Improvements to IFRSs	(effective 1 January 2009 other than certain amendments effective 1 July 2009)

The directors do not anticipate that the adoption of these standards and interpretations in future reporting periods will have a material effect on the Group or Parent Company's results.

2.3  Significant management judgement in applying accounting policies 

The significant management judgements in applying the accounting policies of the Group and Parent Company that have the most significant effect on the financial statements are set out below.

(i) Recognition of revenue 

Revenue from the provision of research and development services is recognised when the outcome of the transaction can be estimated reliably using the criteria set out below in note 2.7 "Revenue". As a consequence of the nature of research and development services, this requires the exercise of judgement, estimates and assumptions which are subject to uncertainty. The estimation uncertainty with respect to revenues from research and development services is set out below.

(ii) Capitalisation of development costs

Development costs are capitalised when all of the conditions set out below in note 2.9 "Research and development" have been met. 

Significant judgement is required in distinguishing research from the development phase. Development costs are recognised as an asset when all of the criteria are met whereas research costs are expensed as incurred. It is the Group and Parent Company's accounting policy that the recognition of development costs as an asset be supported by a detailed forecast of sales or cost savings expected to be generated by the intangible asset as incorporated into the Group's overall budget forecast as the capitalisation of development costs commences.

The Group's management also continually monitors whether the recognition requirements for development costs have been met by any expenditure. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems, including after the time of recognition.

The Group and Parent Company have not yet capitalised any development costs as the criteria set out in IAS 38, "Intangible Assets", have not been met. Research and development costs expensed for the year ended 31 December 2008 were £2,536,031 (2007: £1,554,047). Had the criteria for the capitalisation of costs been met then, from that date, some but not all of these costs may have been capitalised and would not have been expensed. However this accounting treatment would not have affected reported revenues or cash balances.

(iii) Deferred tax assets

The assessment of the probability of future taxable income in which deferred tax can be utilised is based on the Group's latest budget forecast, which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. If a positive forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be used without time limit, that deferred tax asset is recognised in full.

2.4 Estimation uncertainty

When preparing the financial statements management undertakes a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses based on historical experience and other factors considered reasonable at the time. Actual outcomes are likely to differ from the judgements, estimates and assumptions made by management and actual results will seldom equal projected results.

Information about significant judgements, estimates and assumptions which have the most significant effect on the recognition and measurement of assets, liabilities, income and expenses are discussed below.

(i) Research and development tax credits ("R&D Tax Credits")

The definition of "qualifying" R&D expenditure for the purposes of R&D Tax Credits requires the exercise of judgement, estimates and assumptions which are subject to uncertainty.

R&D Tax Credits work by allowing companies to deduct up to 150% of qualifying expenditure on R&D activities when calculating profit for tax purposes. Companies meeting strict and specific criteria may, in certain circumstances, surrender this tax relief to claim payable tax credits in cash from the HM Revenue & Customs.

Qualifying R&D expenditure is defined by guidelines from the Department for Business Enterprise and Regulatory Reform (BERR, formerly the Department of Trade and Industry) which are subject to interpretations by HM Revenue & Customs. Certain expenditure will be qualifying R&D expenditure for tax purposes if the project seeks to achieve an advance in overall knowledge or capability in a field of science or technology, not a company's own state of knowledge or capability alone.

In 2008 the Group and Parent Company received a cash refund of £497,758 from HM Revenue & Customs in respect of R&D Tax Credits for qualifying R&D expenditure incurred in 2007.

The Group and Parent Company have recognised an R&D Tax Credit of £520,000 in respect of the year ended 31 December 2008 which is subject to submission to and acceptance by HM Revenue & Customs. The actual R&D Tax Credit which will be assessed and the resulting cash receipt from HM Revenue & Customs may be greater or less than this amount.

(ii) Recognition of revenue 

The revenue recognised from research and development services reflects management's best estimate about the contract's outcome and stage of completion. The Group's management addresses the contracts monthly, including the costs to completion which are subject to significant estimation uncertainty. As at 31 December 2008, Group and Parent Company revenues from research and development services of £35,000 (2007: £43,860) were recorded as revenue but invoiced or grant claims submitted after the balance sheet date.

(iii) Outcome and costs of completion of research and development contracts

The projected cost of and timescale for completion of research and development contracts, their anticipated technical success and subsequent commercialisation is based upon management's judgements, estimates and assumptions considered reasonable at the time. Some of these matters are influenced by external factors, many of which may be outside the immediate control and influence of the Group's management. Actual outcomes are likely to differ from current projections and expectations.

(iv) Establishment of provisions for trade receivables

The provision for impairment of trade and other receivables is based upon management's judgment and at 31 December 2008 Group and Parent Company trade receivables were £136,500 (2007: £129,081) and Parent Company receivables from the Employee Benefit Trust (net of impairment) were £300,000 (2007: £300,000).

(v) Other liabilities

The Group and Parent Company have not recognised a liability for repairs or other rectification work on products delivered or research and development services rendered to customers before the balance sheet date. Because of the nature of its research and development, the Group and Parent Company have limited past experience of the likelihood and costs of such liabilities and expectations of such liabilities arising in the future is subject to the exercise of judgement, estimates and assumptions which are subject to uncertainty.

(vi) Useful lives of depreciable assets

Management reviews the useful lives of depreciable assets at each reporting date. At 31 December 2008 management assesses that useful lives represent the expected utility of the assets to the Group and Parent Company. The carrying amounts are analysed in note 9. Actual results, however, may vary.

(vii) Share based payments

The calculation of the share-based payments expense utilises assumptions and estimates (e.g. share volatility, future exercise rates) which may differ from actual results. Details of the accounting policy are set out in note 2.18(i).

2.5 Basis of consolidation

The consolidated financial statements consolidate those of the Parent Company and all of its subsidiary undertakings (the "Group") and the Corac Employee Benefit Trust (see note 18). Subsidiary undertakings are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights.

The Group's operations are conducted by the parent company, Corac Group plc. There is no activity within its two wholly owned subsidiaries. The Corac Employee Benefit Trust, which is managed by an independent trustee, is an employee share scheme established for the benefit of and as an incentive for the employees of the Group.

Unrealised gains on transactions between the Group and its subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

The Parent Company has taken advantage of the exemption available under section 230 of the Companies Act 1985 and has not presented its profit and loss account. The Parent Company's result for the year was a loss of £3,255,003 (2007 loss of £1,708,763).

2.6 Segmental reporting

The Group has adopted IAS 14 Segment Reporting, for disclosure of segmental information. The Group intends to adopt IFRS 8 Operating Segments (which is effective for accounting periods from 1 January 2009) for future accounting periods.

In identifying its operating segments, management has followed the Group's principal activities and service lines being (i) downhole gas compressors (DGCs); (ii) industrial air compressors for supercharging piston compressors and (iii) royalty income relating to seals intellectual property. Costs and assets which are not directly attributable to the business activities of any operating segment have not been allocated to a segment. In the financial periods under review, this primarily applies to other income (being grant income), research and development costs which are not exclusive to any segment and administrative costs.

2.7 Revenue 

Revenue is measured by reference to the fair value of consideration received or receivable by the Group for goods supplied and services provided, excluding VAT and trade discounts. Revenue is recognised upon the performance of services or transfer of risk to the customer. 

(i) Sale of goods

Revenue from the sale of goods is recognised when all the following conditions have been satisfied:

the Group has transferred to the buyer the significant risks and rewards of ownership of the goods which is generally when the goods have been delivered to the customer;

the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

the amount of revenue can be measured reliably;

it is probable that the economic benefits associated with the transaction will flow to the Group; and

the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Full provision is made for losses on all contracts in the year in which the loss is first foreseen.

(ii) Rendering of services (including for research and development)

When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction is recognised by reference to the stage of completion of the transaction at the balance sheet date. The outcome of the transaction is deemed to be able to be estimated reliably when all the following conditions are satisfied:

the amount of revenue can be measured reliably;

it is probable that the economic benefits associated with the transaction will flow to the entity;

the stage of completion of the transaction at the balance sheet date can be measured reliably and is generally estimated by reference to the meeting of performance milestones as defined in the relevant agreement; and

the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

Where a contract for goods or services involves delivery of several different elements and is not fully delivered or performed by the year end, revenue is recognised based on the proportion of the fair value of the elements delivered to the fair value of the overall contract.

(iii) Licence fees

Revenue from licence fees is recognised in accordance with the above accounting policy for the rendering of services. Revenue from upfront licence fees is recognised on commencement of the licence in the event that Group has no further actual or contingent obligations in respect of the supply.

2.8 Royalties

Royalties are recognised on an accruals basis in accordance with the substance of the relevant agreement. Cash lump sums receivable by the Group and Parent Company in lieu of future royalties are recognised when contractually binding.

2.9 Research and development

Expenditure on research (or the research phase of an internal project) is recognised as an expense in the period in which it is incurred.

Development costs incurred on specific projects are capitalised when all the following conditions are satisfied:

completion of the intangible asset is technically feasible so that it will be available for use or sale;

the group intends to complete the intangible asset and use or sell it;

the group has the ability to use or sell the intangible asset;

the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits;

there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and

the expenditure attributable to the intangible asset during its development can be measured reliably.

Development costs not meeting the criteria for capitalisation are expensed as incurred.

The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Following initial recognition, the related asset is amortised over the period of the expected future sales with impairment reviews being carried out at least annually. The asset is carried at cost less any accumulated amortisation and impairment losses.

The Group has not yet capitalised any development costs as the criteria set out above have not been met. 

2.10 Finance income

Finance income represents interest earned on cash deposits which is allocated over the relevant period.

2.11 Property, plant and equipment 

Property, plant and equipment is stated at cost, net of depreciation and any provision for impairment. Depreciation is calculated to write down the cost less estimated residual value of all property, plant and equipment by equal annual instalments on a straight line basis over their estimated useful economic lives. The rates generally applicable are:

Computer equipment	33% per annum
Office furniture and fittings	20 % per annum
Plant and machinery	20% per annum

Short leasehold improvements are depreciated over the term of the lease.

Management reviews the useful lives of all depreciable assets at each reporting date. At 31 December 2008 management assesses that the useful lives represent the expected utility of the assets to the Group and Parent Company.

An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. To determine the recoverable amount, management estimates future cashflows from the asset based upon long term financial projections.

2.12 Inventories and work-in-progress

Inventories are stated at the lower of cost and net realisable value. Costs of ordinarily interchangeable items are assigned using the first in, first out cost formula. Costs principally comprise materials. Costs exclude direct labour and manufacturing overheads as the Group's focus is research and development and hence levels of activity are not typical for a manufacturing operation.

2.13 Operating leases

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases and rentals payable are charged to the income statement on a straight line basis over the term of the lease.

2.14 Taxation

Income tax recoverable in respect of research and development cash tax credits is recognised when the decision has been taken to claim such amounts in cash. Until such a decision is made, the potential tax benefit arising from research and development expenditure is included in tax losses carried forward. The income tax recoverable in respect of research and development cash tax credits is based upon management estimates, judgements and assumptions considered reasonable at the time but the actual income tax recoverable may differ from those estimates.

The charge for current income tax is based on the results for the period as adjusted for items that are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred income tax is provided in full, using the liability method, on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. A deferred income tax asset is recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. For management's assessment of the probability of future taxable income to utilise against deferred tax assets, see note 2.3(iii). 

2.15 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

2.16 Financial instruments

Financial assets and financial liabilities are recognised when the Group or Parent Company becomes a party to the contractual provisions of the financial instrument.

Financial assets are derecognised when the contractual right to the cashflows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

Financial assets and financial liabilities are measured initially at fair value plus transaction costs, except for financial assets and financial liabilities carried at fair value through profit or loss, which are measured initially at fair value.

Financial assets and financial liabilities are measured subsequently as described below.

(i) Financial assets

For the purpose of subsequent measurement, financial assets are classified into the following categories upon initial recognition:

Loans and receivables;

Financial assets at fair value through profit or loss;

Held to maturity investments; and

Available-for-sale financial assets.

The category determines subsequent measurement and whether any resulting income and expense is recognised in profit or loss or equity.

All financial assets except for those at fair value through profit or loss are subject to review for impairment at least at each reporting date. Financial assets are impaired when there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described below.

All income and expenses relating to financial assets that are recognised in profit or loss are presented within "Finance costs" or "Finance income" except for impairment of trade receivables which is presented within "Administrative expenses".

  Loans and receivables

The Group and Parent Company's cash and cash equivalents, trade and most receivables fall into this category of financial instruments.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition these are recognised at amortised cost using the effective interest rate method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial.

Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Impairment of trade receivables are presented within "Administrative expenses".

(ii) Financial liabilities

The Group and Parent Company's financial liabilities comprise trade and other payables.

Financial liabilities are measured subsequently at amortised cost using the effective interest rate method except for financial liabilities held for trading or designated at fair value through profit or loss, that are carried subsequently at fair value with gains or losses recognised in profit or loss. Discounting is omitted where the effect of discounting is immaterial.

2.17 Equity

Equity comprises the following:

"Share capital" which represents the nominal value of equity shares.

"Share premium" which represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.

"Capital redemption reserve" which constitutes a non distributable reserve which arose on the acquisition by the company of its own shares.

"Own shares held by Employee Benefit Trust" which represents the costs of purchasing own shares held by the Employee Benefit Trust.

"Share based payment reserve" which represents equity-settled share-based employee remuneration until such share options are exercised or lapse.

"Retained earnings" which represents retained profits and losses.

2.18 Employee benefits

Defined Contribution Pension Scheme

The Group and Parent Company operate a defined contribution pension scheme and a stakeholder pension scheme for employees. The assets of the scheme are held separately from those of the Group and Parent Company. The pension cost charged against profits represent the amounts payable by the Group or Parent Company and is expensed as it becomes payable.

(i) Share-based payment

All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2005 are recognised in the financial statements.

All equity-settled share-based payments are measured at fair value at the date of grant which is ultimately recognised as an expense in the income statement with a corresponding credit to reserves. Options granted before 2006 and in 2008 were valued using a Black-Scholes model. Options granted in 2006 and 2007 were valued using a Monte Carlo model.

 

If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the number of share options expected to vest. This estimate takes into account a number of factors including performance conditions applying to the relevant options. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period.

No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium.

(ii) Employee benefit trust

The assets and liabilities of the Employee Benefit Trust ("EBT") have been included in the Group accounts. Any assets held by the Employee Benefit Trust cease to be recognised on the Group balance sheet when the assets vest unconditionally in identified beneficiaries.

The costs of purchasing own shares held by the Employee Benefit Trust are shown as a deduction against consolidated equity. The proceeds from the sale of own shares held increase consolidated equity. Neither the purchase nor sale of own shares leads to a gain or loss being recognised in the Group income statement.

(iii) Short-term employee benefit costs

The undiscounted amount of short-term benefits attributable to services that have been rendered in the period are recognised as an expense, unless specifically required or permitted within the scope of IFRS reporting to be included in the cost of an asset. Any difference between the amount of cost recognised and cash payments made is treated as a liability or prepayment as appropriate.

2.19 Government grants

Government grants of a revenue nature are credited to the income statement (as other operating income) on a case-by-case basis over the periods necessary to match them with the related costs which they are intended to compensate, on a systematic basis. Grants are only recognised when there is a reasonable assurance that any conditions have been met and that the grants will be received.

2.20 Foreign currency translation

Foreign currency transactions are translated into pounds sterling (the functional currency of the Group and Parent Company) using the exchange rates prevailing at the dates of the transactions (spot exchange rates). Foreign currency gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items at year end exchange rates are recognised in profit or loss.

3. Segmental reporting

Business segments

The Group is organised into three main operating activities as set out in note 1 to the financial statements, being (i) the development of downhole gas compressors, (ii) the development of compressors for industrial air applications acting as superchargers for piston compressors and (iii) the licencing of intellectual property relating to high pressure dry gas seals.

These activities are based on common intellectual property relating to air and gas bearings, high speed shafts and motor drives which is applicable to high speed compressors used in the DGC and Industrial Air operations. However specialised compressors have been developed which are specific to the relevant business segment. Furthermore the customer bases of these business segments differ and require different sales and marketing approaches.

All activities are managed by one board and staff and operating costs are not exclusively assigned to any one activity. 

These activities are the basis on which the Group reports its primary segment information.

Revenues and gross profit for compressor activities are disclosed relating to the DGC, Industrial Air and Seals royalties. Significant research and development activities and costs are common to the DGC and Industrial Air activities. The analysis of these common costs by business segment is not readily available and the costs of obtaining would be excessive.

	Group - 2008
	DGC	Ind Air	Seals	Total
	£	£	£	£
Revenue	409,500	52,040	200,164	661,704
Gross profit	52,146	224	200,164	252,534
Other income				46,349
Research and development costs				(2,536,031)
Administrative expenses				(1,449,981)
Operating loss				(3,687,129)
Finance income				210,812
Income tax credit				507,758
Loss for the year				(2,968,559)

	Group - 2007
	DGC	Ind Air	Seals	Total
	£	£	£	£
Revenue	1,106,600	231,843	100,000	1,438,443
Gross profit	126,016	-	100,000	226,016
Other income				117,224
Research and development costs				(1,554,047)
Administrative expenses				(1,282,235)
Operating loss				(2,493,042)
Finance income				147,923
Income tax credit				605,567
Loss for the year				(1,739,552)

Revenue from DGC and Industrial Air segments is attributable to development projects.

Revenue from Seals in 2007 was generated from the transfer of its Intellectual Property Rights on its gas seals to a third party who continued its engineering development, manufacture and sale of the product in return for a royalty. In 2008 revenue from Seals principally comprised a cash lump sum in lieu of future royalties.

Segmental assets and liabilities

Segmental assets and liabilities principally relate to compressor research and development activities and are utilised by both DGC and Industrial Air activities. Segmental assets and liabilities relating to Seals activities are immaterial.

Geographical segments

The Group's operations are in the United Kingdom although many of the Group's revenues are to customers outside the UK. The Group's revenues from external customers are analysed into the following geographical areas:

	Group
	2008		2007
	£		£
United Kingdom	336,664		468,866
European Union	325,040		883,968
Rest of the world	-		85,609
	661,704		1,438,443

4. Operating loss

The Group operating loss for the year is stated after charging/(crediting) the following:

	Group
	2008		2007
	£		£
Staff costs
Wages and salaries	1,516,376		1,279,706
Social security costs	165,236		140,704
Other pension costs	90,162		84,648
Share based payments	93,810		85,650
	1,865,584		1,590,708
Depreciation of property, plant & equipment	89,618		84,005
Profit on disposal of fixed assets	-		(750)
Operating lease expense - rent	152,661		150,406

The Group operating loss for the year is stated after charging the following:

	Group
	2008		2007
	£		£
Auditor's remuneration
Fees payable to the Parent Company for the audit of the  Parent Company and consolidated financial statements	22,750		18,076
Non audit services	-		600
Tax services	4,900		8,315
All other services	7,340		2,998

Staff numbers

The average number of employees, including directors, employed by the Group was as follows:

	Group
	2008		2007
	number		Number
Engineering	24		21
Administration	7		7
	31		28

Pension costs

The Group and Parent Company operate a money purchase pension scheme and a group stakeholder pension scheme. The assets of these schemes are held separately from those of the Group in administered funds. The pension cost charge represents contributions payable by the Group to these funds and amounted to £90,162 (2007: £84,648). There were outstanding contributions of £842 (2007: £2,374) payable to these funds at the year end.  The nature of the Group's schemes is such that there is no possibility of a surplus or deficiency in funding arising from past service.

5. Directors' emoluments

	Group
	2008		2007
	£		£
Directors' remuneration was as follows:
Emoluments	553,668		468,858
Termination payments	16,500		-
Pension contributions	25,990		22,572
Share based payments	53,537		53,049
Gains made on the exercise of share options	-		113,800
	649,695		658,279

Five directors (2007: four) accrued benefits under the Group pension schemes during the year.  During the year no directors (2007: two) exercised share options.

Remuneration of the highest paid director included above is as follows:

	Group
	2008		2007
	£		£
Emoluments	150,000		130,596
Pension contributions	8,890		9,142
Share based payments	28,116		11,162
Gain made on the exercise of share options	-		13,900
	187,006		164,800

6. Finance income

	Group
	2008		2007
	£		£
Interest income on financial assets	210,812		147,923

7. Taxation

Credit to consolidated income statement

	Group
	2008		2007
	£		£
Corporation tax - research and development credit
Current year	520,000		510,000
Prior year (under)/over provision	(12,242)		95,567
	507,758		605,567

The tax credit for the period is lower than the standard rate of corporation tax in the UK of 28.5% (2007: 30%). The differences are explained as follows:

	Group
	2008		2007
	£		£
Loss on ordinary activities before taxation	3,476,317		2,345,119
Loss on ordinary activities multiplied by standard rate of corporation tax in the UK of 28.5% (2007 - 30%)	990,750		703,536
Effect of:
Expenses not deductible for tax purposes	(857)		(1,181)
Depreciation in excess of capital allowances	(26,772)		(16,196)
Share - based payments	57,266		66,096
Research and development enhanced relief	413,130		345,302
Surrender of tax losses for research and development credit	(468,094)		(446,250)
Trading losses carried forward	(445,423)		(141,307)
Adjustment in respect of prior years	(12,242)		95,567
Current tax credit for the year	507,758		605,567

Subject to agreement by HM Revenue & Customs, Corac Group plc has approximately £6,900,000 (2007: £5,600,000) of unrelieved tax losses.

 

Deferred taxation

A deferred tax asset is only recognised to the extent that it covers accelerated capital allowances and other temporary differences but has not been recognised due to the lack of certainty surrounding future utilisation of these losses.

	Group
	2008		2007
	£		£
Accelerated capital allowances and other temporary differences	3,859		414,321
Losses	(3,859)		(414,321)
	-		-

  8. Loss per share

The calculation of basic loss per share for the year ended 31 December 2008 is based upon a loss after tax of £2,968,559 (2007: loss of £1,739,552) and a weighted average number of shares of 85,156,760 (2007: 75,730,433). The weighted average number of shares has been reduced by the weighted average number of shares held by the Employee Benefit Trust.

The issue of additional shares on exercise of employee share options would decrease the basic loss per share and there is therefore no dilutive effect of employee share options.

9. Property, plant and equipment

	Group and Parent Company
	Short		Office
	leasehold	Computer	furniture	Plant &
	improvements	equipment	& fittings	machinery	Total
	£	£	£	£	£
Cost
At 1 January 2007	189,827	274,673	24,850	309,289	798,639
Additions	-	8,586	-	34,955	43,541
Disposals	-	-	-	(4,900)	(4,900)
At 1 January 2008	189,827	283,259	24,850	339,344	837,280
Additions	-	-	-	21,551	21,551
At 31 December 2008	189,827	283,259	24,850	360,895	858,831
Accumulated depreciation
At 1 January 2007	103,235	249,659	21,774	231,975	606,643
Charge for the year	25,175	15,542	1,611	41,677	84,005
Released on disposals	-	-	-	(4,900)	(4,900)
At 1 January 2008	128,410	265,201	23,385	268,752	685,748
Charge for year	22,098	9,407	821	57,292	89,618
At 31 December 2008	150,508	274,608	24,206	326,044	775,366
Net book value
At 1 January 2007	86,592	25,014	3,076	77,314	191,996
At 31 December 2007	61,417	18,058	1,465	70,592	151,532
At 31 December 2008	39,319	8,651	644	34,851	83,465

10. Investments in subsidiary undertakings

The Parent Company's investments comprise interests in group undertakings, details of which are as follows:

	Parent Company
	2008		2007
	£		£
Net book value	-		-

Name of undertaking	Country of incorporation	Description of shares held	Proportion of nominal value of shares held by the Parent Company
Compact Radial Compressors Limited	England & Wales	£0.0001 ordinary shares	100%
Corac Engineering Limited	England & Wales	£1.00 ordinary shares	100%

The above group undertakings have been dormant throughout 2007 and 2008.

11. Amounts owed by Employee Benefit Trust

	Group				Parent Company
	2008		2007		2008		2007
	£		£		£		£
Amounts owed by EBT	-		-		600,000		300,000
Less: impairment	-		-		(300,000)		-
	-		-		300,000		300,000

The loan to the Employee Benefit Trust is interest free and unsecured. Details of the Employee Benefit Trust are provided in note 18. The loan is repayable under the following circumstances:

From receipt of consideration from the sale of shares in the Parent Company purchased with the loan; and

Following any lapses in options granted by the Employee Benefit Trust over shares in the Parent Company, the Parent Company can force the sale of shares to repay the loan.

The loan is not expected to be fully repaid within the next 12 months.

Under the terms of the loan facility, should the Employee Benefit Trust be unable to repay the loan following disposal of all its assets then the loan shall be considered waived.

The impairment against the loan has been made as consequence of the decline in the open market value of the shares in the Parent Company held by the Employee Benefit Trust which could affect its ability to fund future loan repayments.

12. Financial assets and liabilities

The carrying amounts presented in the Consolidated and Parent Company balance sheets relate to the following categories of assets and liabilities:

	Group				Parent Company
	2008		2007		2008		2007
	£		£		£		£
Financial assets
Loans and receivables
Amounts owed by EBT (note 11)	-		-		300,000		300,000
Trade and other receivables (note 13)	212,921		246,747		212,921		246,747
Cash and cash equivalents (note 15)	2,121,363		4,999,765		2,058,900		4,970,316
	2,334,284		5,246,512		2,571,821		5,517,063
Financial assets at fair value through profit or loss
Other short term financial assets (note 14)	500,000		250,000		500,000		250,000
Financial liabilities
Financial liabilities measured at amortised cost (note 16)
Trade payables	253,507		120,088		253,507		120,088
Other payables	47,906		9,395		47,906		9,395
Amount owed to subsidiary undertakings	-		-		5,301		5,301
Accrued expenses	230,612		210,896		230,302		210,896
	532,025		340,379		537,016		345,680

See note 2.16 for a description of the accounting policies for each category of financial instruments. The fair values are presented in the related notes. A description of the Group's risk management and objectives for financial instruments is given in note 19.

  13. Trade and other receivables

	Group				Parent Company
	2008		2007		2008		2007
	£		£		£		£
Financial assets:
Trade receivables	136,500		129,081		136,500		129,081
Other receivables	76,421		117,666		76,421		117,666
	212,921		246,747		212,921		246,747
Non-financial assets:
Prepayments and other receivables	178,150		239,292		178,150		239,292
Other taxes	49,604		102,874		49,604		102,874
	440,675		588,913		440,675		588,913

The carrying value of trade and other receivables is considered a reasonable approximation of fair value due to their short term nature. There have been no provisions for impairments of receivables during 2008 (2007: £nil). Trade receivables comprises a balance of £136,500 (2007: £nil) which was 180 days past due.

Included within Prepayments and other receivables are recoverable property improvement costs of £25,000 (2007: £50,000) and a rent deposit of £39,340 (2007: £37,500) which are due after more than one year. All other amounts are short term.

14 Other short term financial assets

	Group				Parent Company
	2008		2007		2008		2007
	£		£		£		£
Other short term financial assets	500,000		250,000		500,000		250,000

Other short term financial assets comprise medium term certificates of deposit on fixed rates of interest held with banks meeting the Group's criteria in respect of credit ratings.

The fair value of the Group and Parent Company's investments has been determined by their open market value at the reporting date. See note 19 for information on the Group and Parent Company's exposure to credit risk. 

  15. Cash and cash equivalents

	Group				Parent Company
	2008		2007		2008		2007
	£		£		£		£
Cash and cash equivalents	2,121,363		4,999,765		2,058,900		4,970,316

The funds were placed on deposit as follows:

		Group				Parent Company
	Interest	2008		2007		2008		2007
	Rate type	£		£		£		£
Cash at bank and in hand	Floating	621,363		480,577		558,900		451,128
Short term deposits	Fixed	1,500,000		4,519,188		1,500,000		4,519,188
		2,121,363		4,999,765		2,058,900		4,970,316

16. Trade and other payables

	Group				Parent Company
	2008		2007		2008		2007
	£		£		£		£
Amounts falling due within one year
Financial liabilities:
Trade payables	253,507		120,088		253,507		120,088
Other payables	47,906		9,395		47,906		9,395
Amount owed to subsidiary undertakings	-		-		5,301		5,301
Accrued expenses	230,612		210,896		230,302		210,896
	532,025		340,379		537,016		345,680
Non-financial liabilities:
Other taxes and social security	52,242		46,124		52,242		46,124
	584,267		386,503		589,258		391,804

The carrying values of trade and other payables are considered to be a reasonable estimate of their fair values. All amounts are non interest bearing.

The maturity analysis of financial liabilities is as follows:

	Group				Parent Company
	2008		2007		2008		2007
	£		£		£		£
Less than 2 months	481,771		337,379		486,762		342,680
2 - 6 months	5,000		3,000		5,000		3,000
7 - 12 months	45,254		-		45,254		-
	532,025		340,379		537,016		345,680

17. Share capital

	Parent Company
	2008		2007
	£		£
Authorised
200,000,000 ordinary shares of 10p each	20,000,000		20,000,000
Allotted, called up and fully paid
86,549,322 (2007: 86,254,059) ordinary shares of 10p each	8,654,932		8,625,406
	Number		Number
At 1 January	86,254,059		74,429,700
Issued in respect of placing	-		11,222,160
Issued in respect of share option exercises	295,263		602,199
At 31 December	86,549,322		86,254,059

All shares are equally eligible to receive dividends and the repayment of capital and represent one vote at the shareholders' meeting of Corac Group plc.  None of the Parent Company shares are held by any company in the Group. The Employee Benefit Trust holds shares in the Parent Company as set out in note 18.

During the year the Parent Company issued 295,263 ordinary shares of 10p for cash at an average price of 38.2p each on the exercise of share options, generating cash of £112,782. The new shares issued in the year rank pari passu with all existing ordinary shares.

Options

The Group has two unapproved share option schemes and an Enterprise Management Incentive (EMI) scheme. Share options have been granted by both the Parent Company and the Corac Employee Benefit Trust (note 18) under the rules of these schemes. The share options granted by the Employee Benefit Trust have no dilutive effect on the Parent Company's share capital.

	Unapproved schemes		EMI scheme		Total
Number of options	Parent Company	EBT	Parent Company	EBT	Parent Company	EBT	Total
At 1 January 2008	2,564,303	582,987	2,142,301	934,348	4,706,604	1,517,335	6,223,939
Exercised during the year	(80,000)	(71,990)	(215,263)	(474,332)	(295,263)	(546,322)	(841,585)
Lapsed during the year	(160,000)	(60,997)	(95,000)	(92,341)	(255,000)	(153,338)	(408,338)
Granted during the year	-	126,100	545,000	738,900	545,000	865,000	1,410,000
At 31 December 2008	2,324,303	576,100	2,377,038	1,106,575	4,701,341	1,682,675	6,384,016

The exercise of options is generally subject to continued employment and to satisfaction of the applicable performance conditions. At 31 December 2008, performance conditions not satisfied relate to the market price of the ordinary shares of the Parent Company as quoted on the Alternative Investment Market ("AIM") of the London Stock Exchange.

The movement on the Group's share option schemes is summarised in the table below.

	2008	2008		2007	2007
		weighted			weighted
		average			average
	number	exercise		number	exercise
	of options	price (pence)		of options	price (pence)
As at 1 January	6,223,939	41.1		4,402,668	34.8
Exercised during the year	(841,585)	37.7		(687,197)	22.2
Lapsed during the year	(408,338)	45.9		(736,532)	34.2
Granted during the year	1,410,000	29.3		3,245,000	44.1
At 31 December	6,384,016	38.6		6,223,939	41.1
Exercisable at 31 December	2,898,982	40.0		2,270,591	36.9

The weighted average share price at the date of exercise for share options exercised during the year was 72.8p. The options outstanding at 31 December 2008 had exercise prices as shown in the following table and a weighted average remaining contractual life of 7.2 years.

At 31 December 2008 options over ordinary 10p shares together with the fair value per option granted and the assumptions used in the calculation of fair value for awards made after 7 November 2002, are set out in the table below.

All options expire 10 years after the date of grant.

The market price of the Parent Company's shares at 31 December 2008 was 16.75p and the range during the year was between 11.5p and 91.2p.

Expected volatility is a measure of the amount by which a share price is expected to fluctuate during a period. For options issued in 2008, expected volatility was based on the volatility of the Parent Company's shares during the previous 12 months. For options issued in early periods, the volatility of the Parent Company's share price was calculated as the average of annualised standard deviations of daily continuously compounded returns on the Parent Company's stock, calculated over 1,2 and 3 years back from the date of grant where possible.

The risk-free rate is the yield to maturity on the date of grant of a UK Gilt Strip, with term to maturity equal to the life of the option.

Date of grant	Number		Option price per share	Closing share price at grant	Exercise price	Expected volatility	Risk-free interest rate	Fair value per share
			Pence	Pence	Pence	%	%	Pence
2000	1,313,002		38.46
2001	34,668		38.46
2001	18,667		85.50
2001	3,334		86.50
2002	9,334	*	22.00	22.00	22.00	50.19	4.39	10.72
2002	100,000	*	22.00	22.00	22.00	50.19	4.38	10.71
2003	108,334	*	34.00	34.00	34.00	42.82	4.78	15.05
2004	48,334	*	33.00	33.00	33.00	37.69	4.50	13.28
2005	21,670	*	31.25	32.25	31.25	38.54	4.20	13.36
2006	530,003	*	37.50	36.50	37.60	38.26	4.30	11.41
2007	616,670		36.00	36.00	36.00	35.44	5.35	7.20
2007	855,000		39.00	38.50	39.00	35.04	5.30	9.45
2007	90,000		48.50	49.50	48.50	35.54	5.51	14.75
2007	550,000		51.50	51.50	51.50	29.32	4.58	10.10
2007	750,000		53.67	52.00	53.67	29.32	4.58	7.99
2008	300,000	*	69.00	74.64	69.0	32.2	5.01	17.40
2008	565,000	*	14.90	16.75	14.9	79.5	2.76	7.96
2008	470,000		14.90	16.75	14.9	79.5	2.76	7.96
	6,384,016

* These options were issued by the Employee Benefit Trust.

The dividend yield of 0% in all cases reflects the absence of dividends and of a clear dividend policy statement at the relevant dates of grant.

Options granted before 2006 and during 2008 were valued using a Black-Scholes model. Options granted in 2006 and 2007 were valued using the Monte Carlo model.

18. Employee Benefit Trust

On 8 November 2002 the Parent Company established the Corac Employee Benefit Trust, an employee benefit trust, as an employees' share scheme for the benefit of and as an incentive for the employees of the Group. The Corac Employee Benefit Trust is managed by an independent trustee.

At 31 December 2008 the Parent Company had loaned £600,000 (2007: £300,000) to the Corac Employee Benefit Trust. With this loan the Trustee purchased shares in the Parent Company and, at 31 December 2008, the Corac Employee Benefit Trust held 1,506,347 (2007: 1,372,669) ordinary shares in Corac Group plc with a book cost of £643,310 (2007: £280,722) which had a market value of £252,313 (2007: £754,968). As set out in note 2.18(ii), neither the purchase nor sale of shares in the Parent Company leads to a gain or loss being recognised in the Consolidated income statement but instead these are shown as movements on consolidated equity.

Options have been granted over 1,682,675 (2007: 1,517,335) shares to certain employees being: 9,334 exercisable at 22.0p per share until 17 December 2012, 100,000 at 22.0p per share until 19 December 2012, 108,334 at 34.0p per share until 11 December 2013, 48,334 at 33.0p per share until 15 December 2014, 21,670 at 31.25p per share until 28 December 2015, 530,003 at 37.5p per share until 27 July 2016, 300,000 at 69.0p per share until 20 July 2018 and 565,000 at 14.9p per share until 30 December 2018. These options are subject to performance conditions. At 31 December 2008, performance conditions not satisfied relate to the market price of the ordinary shares of the Parent Company as quoted on the Alternative Investment Market ("AIM") of the London Stock Exchange.

The Parent Company intends to fund any shortfall should the Employee Benefit Trust need to purchase more shares to fulfil its obligations to option holders.

Dividends on the shares owned by the Employee Benefit Trust, the purchase of which was funded by an interest free loan to the Employee Benefit Trust from the Parent Company, are waived on the condition that the Trustee shall not be liable for any losses to the Employee Benefit Trust as a result of the waiver.

19. Risk management objectives and policies

Liquidity risk

Until the Group achieves cashflow breakeven from the sale of its products and services, it will seek to finance its operations by raising equity financing on the Alternative Investment Market (AIM) and investing the proceeds on a short term basis as its development proceeds. The Group seeks to manage financial risk to ensure sufficient liquidity to meet foreseeable requirements until cashflow breakeven and to invest cash profitably and at low risk.

The Group holds investments in bank deposits as a liquid resource to fund its operations. The Group's strategy for managing cash is to maximise interest income whilst ensuring availability to match the profile of the Group's expenditure. Liquidity is further managed by tight controls over expenditure.

Credit risk

The Group's exposure to credit risk arises from holding cash and cash equivalents. The Group places funds in its own name via an external professional cash management company. Group credit policy limits deposits to an approved list of specific banks which is compiled taking into account various factors including credit ratings. 

The Group's exposure to credit risk is also attributable to its trade receivables which, as set out in note 13, at 31 December 2008 were £136,500 (2007: £129,081). The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group's management based on prior experience and their assessment of the current economic environment. 

Interest rate risk

A further risk arising from the Group's financial instruments is interest rate risk. The directors consider the principal element of risk directly arising from changes in interest rates relates to the level of interest income earned on bank deposits. Funds are invested to maintain a balance between accessibility of funds and competitive rates of return whilst investing funds safely.

The Group's fixed rate investments in pounds were held in sterling and during the year were placed with banks for between overnight and twelve months and earned interest at between 6.7% and 5.4%. Floating rate cash deposits earned interest based upon the relevant LIBOR equivalents and earned interest at between 6.1% and 0%. The weighted average interest rate received on all funds deposited during the year was 5.5 %. A change in the rate of 1% in interest rates would have impacted the finance income by £38,193 in the year ended 31 December 2008 (2007: £24,421).

It is, and has been throughout the period under review, the Group's policy that no trading in financial instruments shall be undertaken.

Foreign currency risk

The Group is based in the United Kingdom and the majority of its costs are denominated in pounds sterling. The Group has no long term commitments to purchase goods or services in foreign currencies. Purchases denominated in foreign currency are expensed at the exchange rate prevailing at the date of the transaction.

The Group has entered into a commitment for the supply of compressors in 2009 for which sales consideration will be denominated in Euros. The Group has also entered into a Joint Development Agreement whereby certain amounts denominated in United States dollars will become payable to the Group during 2009. The currency exposures arising from the fluctuation of exchange rates of these future receivables has not been hedged.  The Group keeps under review the extent of its exposure to currency fluctuations.

A 31 December 2008 and 2007 the Group's receivables (as shown in note 13) were all denominated in pounds sterling. There is no material difference between the fair values and carrying values of the Group's financial instruments.

The Group does not have an overdraft or a borrowing facility.

The amounts held on short term deposits are analysed in note 15. All financial liabilities were short term.

20. Financial commitments under operating leases

Future minimum lease payments under non-cancellable operating leases are as follows:

	Group and Parent Company
	2008		2007
	£		£
Land and buildings (as a lessee)
Within one year	157,551		150,000
From one year to five years	150,000		300,000
	307,551		450,000

The Group and Parent Company do not sub-lease any of their leased premises.

At 31 December 2008 the Group had no capital commitments (2007: £Nil).

21. Contingent liabilities

There is a contingent liability for the Group and Parent Company in respect of a rent deposit guarantee for £37,500 (2007: £37,500) in respect of a property lease.

22. Related party transactions

The following transactions took place between the directors and both the Group and Parent Company during the year and are included, net of expenses, in directors' emoluments:

(i) Fees of £23,000 (2007: £23,794) were invoiced by Greenwood Control Systems, a partnership of which Professor G Musgrave is a partner, in respect of director's services provided by Professor G Musgrave and certain expenses of which £nil was outstanding at the year end (2007: £4)

(ii) Fees of £24,504 (2007: 25,875) were invoiced by Scheidegg Ltd and Ludgate Investments Ltd., companies of which Mr J H Gunn is a director, in respect of services provided by Mr J H Gunn.

(iii) Fees of £68,310 (2007: £70,689) were invoiced by GCI Consulting GmbH a company of which Mr G W Cromm is a director, in respect of services provided by Mr G W Cromm and certain expenses of which £6,119 was outstanding at the year end (2007: £6,809).

(iv) Fees of £12,000 (2007: £nil) were invoiced by NM Rothschild & Sons Limited, a company of which Ms S E A Westerman is Managing Director in the Investment Banking Division, in respect of director's services provided by Ms S Westerman, of which £2,000 was outstanding at the year end. 

In addition, the following transactions took place between both the Group and Parent Company and other entities with common directorship or controlled by a related party. In each case, the director concerned did not benefit financially from the arrangement and was not involved in agreeing the terms which were negotiated on an arms-length basis: 

(i) Fees of £52,247 (2007: £90,274) were invoiced by Mechadyne plc, a company of which Professor G Musgrave is a director in respect of engineering services provided by various individuals.

(ii) Fees of £1,149 were invoiced by Bhive Advertising, a business controlled by a party related to Mr J O Reed.

23. Post balance sheet events

On 2 February 2009 the Parent Company announced the issue of 7,662,835 ordinary shares of nominal value 10p each for cash consideration of 13.05 pence per share by means of a private placing, generating cash of £1.0 million net of expenses. The cash consideration was received in full by 19 February 2009 on which date the new ordinary shares were issued and subsequently admitted to trading on AIM.

  24. Explanation of transition to International Financial Reporting Standards ("IFRS")

Financial statements were formerly prepared under applicable United Kingdom Generally Accepted Accounting Principles ("UK GAAP"). The Group and Parent Company are now preparing their financial statements for the first time under IFRS, effective from the date of transition to IFRS of 1 January 2007 (the transition date). Comparative information has been restated in accordance with IFRSs. An explanation of how the transition to IFRS has affected the previously reported financial position, financial performance and cash flow of the Group and Parent Company is set out below together with the reconciliation of opening balances. The accounting policies that have been applied in the opening balance sheet have, unless otherwise stated, also been consistently applied throughout all periods presented in the financial statements.

The changes to the financial statements of the Group arising from the adoption of IFRS are:

The recording of a holiday pay accrual; and

The consolidation of subsidiaries.

The changes to the financial statements of the Parent Company arising from the adoption of IFRS are:

The recording of a holiday pay accrual; and

The exclusion of the results of the Employee Benefit Trust which had been included in the Parent Company financial statements under UK GAAP. 

Details of changes

(i) IAS 19 "Employee Benefits"

Group and Parent Company financial statements

IAS 19 requires companies to make an accrual for holiday pay. For the Group and the Parent Company, at the date of the transition of 1 January 2007 a £5,000 holiday pay accrual was recognised with a corresponding adjustment being made to retained earnings.

(ii) IAS 27 "Consolidated and Separate Financial Statements"

Group financial statements

IAS 27 requires the Parent Company to prepare consolidated accounts.

Under UK GAAP the directors had determined that it was more appropriate not to prepare consolidated accounts since they believed that the amounts involved were not material and that greater clarity of presentation was provided by the presentation of accounts for the Parent Company as an individual undertaking. The directors therefore claimed exemption from producing group accounts under Section 229 of the Companies Act 1985.

Under IFRS the consolidated financial statements comprise financial statements of the Parent Company, all of its subsidiary undertakings and the Employee Benefit Trust.

Parent Company financial statements

The directors have presented the financial statements of the Parent Company under IFRS. Under UK GAAP, the Parent Company financial statements included the results of the Employee Benefit Trust. Under IFRS, the Parent Company financial statements must be presented excluding the results of the Employee Benefit Trust. 

25. Reconciliations between UK GAAP and IFRS - Group

(i) Reconciliation of the balance sheet as at 1 January 2007 (being the date of transition to IFRS)

The table below shows the impact of IFRS adoption on the consolidated balance sheet at 1 January 2007.

		Group
		Effect of transition to IFRS
	UK GAAP	Employee	Consolidate
	previously	benefits	subsidiaries
	reported	IAS 19	IAS 27	IFRS
	£	£	£	£
ASSETS
Non current assets
Property, plant and equipment	191,996	-	-	191,996
Current assets
Trade and other receivables	347,429	-	-	347,429
Taxation recoverable	423,000	-	-	423,000
Other short term financial assets	250,000	-	-	250,000
Cash and cash equivalents	3,276,350	-	-	3,276,350
	4,296,779	-	-	4,296,779
Total assets	4,488,775	-	-	4,488,775
LIABILITIES
Current liabilities
Trade and other payables	(1,312,448)	(5,000)	5,301	(1,312,147)
Net assets	3,176,327	(5,000)	5,301	3,176,628
EQUITY
Share capital	7,442,970	-	-	7,442,970
Share premium	858,351	-	-	858,351
Capital redemption reserve	575,000	-	-	575,000
Own shares held by Employee Benefit Trust	(298,105)	-	-	(298,105)
Share based payments reserve	150,539	-	-	150,539
Retained earnings	(5,552,428)	(5,000)	5,301	(5,552,127)
Total equity	3,176,327	(5,000)	5,301	3,176,628

(ii) Reconciliation of the balance sheet at 31 December 2007

The table below shows the impact of IFRS adoption on the consolidated balance sheet at 31 December 2007.

		Group
		Effect of transition to IFRS
	UK GAAP	Employee	Consolidate
	previously	benefits	subsidiaries
	reported	IAS 19	IAS 27	IFRS
	£	£	£	£
ASSETS
Non current assets
Property, plant and equipment	151,532	-	-	151,532
Current assets
Trade and other receivables	588,913	-	-	588,913
Taxation recoverable	510,000	-	-	510,000
Other short term financial assets	250,000	-	-	250,000
Cash and cash equivalents	4,999,765	-	-	4,999,765
	6,348,678	-	-	6,348,678
Total assets	6,500,210	-	-	6,500,210
LIABILITIES
Current liabilities
Trade and other payables	(379,804)	(12,000)	5,301	(386,503)
Net assets	6,120,406	(12,000)	5,301	6,113,707
EQUITY
Share capital	8,625,406	-	-	8,625,406
Share premium	4,249,513	-	-	4,249,513
Capital redemption reserve	575,000	-	-	575,000
Own shares held by Employee Benefit Trust	(280,722)	-	-	(280,722)
Share based payments reserve	236,189	-	-	236,189
Retained earnings	(7,284,980)	(12,000)	5,301	(7,291,679)
Total equity	6,120,406	(12,000)	5,301	6,113,707

(iii) Reconciliation of the impact of IFRS on the income statement for the year ended 31 December 2007

(the date of the last financial statements prepared under UK GAAP)

The table below shows the impact of IFRS adoption on the Group consolidated income statement for the year ended 31 December 2007.

		Group
		Effect of transition to IFRS
	UK GAAP	Employee	Consolidate
	previously	benefits	subsidiaries
	reported	IAS 19	IAS 27	IFRS
	£	£	£	£
Continuing operations
Revenue	1,438,443	-	-	1,438,443
Cost of sales	(1,210,427)	(2,000)	-	(1,212,427)
Gross profit	228,016	(2,000)	-	226,016
Other income	117,224		-	117,224
Research and development costs	(1,549,047)	(5,000)	-	(1,554,047)
Administrative expenses	(1,282,235)	-	-	(1,282,235)
Operating loss	(2,486,042)	(7,000)	-	(2,493,042)
Finance income	147,923			147,923
Loss before income tax	(2,338,119)	(7,000)	-	(2,345,119)
Income tax credit	605,567	-	-	605,567
Loss for the year attributable
to shareholders	(1,732,552)	(7,000)	-	(1,739,552)
Loss per share expressed in pence per share	pence
Basic and diluted loss per share	(2.3)	-	-	(2.3)

(iv) Explanation of material adjustments to the cash flow statement

Income taxes received of £518,567 in the year to 31 December 2007 are classified as part of operating cash flows under IAS 7 but were previously included in a separate category of Taxation under UK GAAP.

Cash and cash equivalents include short term deposits under IFRSs. Under UK GAAP movements in short term deposits were included under a separate management of liquid resources category.

There are no other material differences between the cash flow statement presented under IFRSs and the cash flow statement presented under UK GAAP.

26. Reconciliations between UK GAAP and IFRS - Parent Company

(i) Reconciliation of the balance sheet as at 1 January 2007 (being the date of transition to IFRS)

The table below shows the impact of IFRS adoption on the Parent Company at 1 January 2007.

		Parent Company
		Effect of transition to IFRS
	UK GAAP	Employee	Exclude
	previously	benefits	EBT
	reported	IAS 19	IAS 27	IFRS
	£	£	£	£
ASSETS
Non current assets
Property, plant and equipment	191,996	-	-	191,996
Amounts owed by EBT	-	-	300,000	300,000
	191,996	-	300,000	491,996
Current assets
Trade and other receivables	347,429	-	-	347,429
Taxation recoverable	423,000	-	-	423,000
Other short term financial assets	250,000	-	-	250,000
Cash and cash equivalents	3,276,350	-	(2,956)	3,273,394
	4,296,779	-	(2,956)	4,293,823
Total assets	4,488,775	-	297,044	4,785,819
LIABILITIES
Current liabilities
Trade and other payables	(1,312,448)	(5,000)	-	(1,317,448)
Net assets	3,176,327	(5,000)	297,044	3,468,371
EQUITY
Share capital	7,442,970	-	-	7,442,970
Share premium	858,351	-	-	858,351
Capital redemption reserve	575,000	-	-	575,000
Own shares held by Employee Benefit  Trust	(298,105)	-	298,105	-
Share based payments reserve	150,539	-	(134,310)	16,229
Retained earnings	(5,552,428)	(5,000)	133,249	(5,424,179)
Total equity	3,176,327	(5,000)	297,044	3,468,371

(ii) Reconciliation of the balance sheet at 31 December 2007

The table below shows the impact of IFRS adoption on the Parent Company balance sheet at 31 December 2007.

		Parent Company
		Effect of transition to IFRS
	UK GAAP	Employee	Exclude
	previously	benefits	EBT
	reported	IAS 19	IAS 27	IFRS
	£	£	£	£
ASSETS
Non current assets
Property, plant and equipment	151,532	-	-	151,532
Amounts owed by EBT	-	-	300,000	300,000
	151,532	-	300,000	451,532
Current assets
Trade and other receivables	588,913	-	-	588,913
Taxation recoverable	510,000	-	-	510,000
Other short term financial assets	250,000	-	-	250,000
Cash and cash equivalents	4,999,765	-	(29,449)	4,970,316
	6,348,678	-	(29,449)	6,319,229
Total assets	6,500,210	-	270,551	6,770,761
LIABILITIES
Current liabilities
Trade and other payables	(379,804)	(12,000)	-	(391,804)
Net assets	6,120,406	(12,000)	270,551	6,378,957
EQUITY
Share capital	8,625,406	-	-	8,625,406
Share premium	4,249,513	-	-	4,249,513
Capital redemption reserve	575,000	-	-	575,000
Own shares held by Employee Benefit  Trust	(280,722)	-	280,722	-
Share based payments reserve	236,189	-	(174,209)	61,980
Retained earnings	(7,284,980)	(12,000)	164,038	(7,132,942)
Total equity	6,120,406	(12,000)	270,551	6,378,957

(iii) Reconciliation of the impact of IFRS on the loss for the year ended 31 December 2007

(the date of the last financial statements prepared under UK GAAP)

	Parent Company
Loss attributable to shareholders	£
UK GAAP previously reported	(1,732,552)
Effect of transition to IFRS - Employee benefits IAS 19	(7,000)
Disaggregation of results of EBT	30,789
IFRS	(1,708,763)

(iv) Explanation of material adjustments to the cash flow statement

Income taxes received of £518,567 in the year to 31 December 2007 are classified as part of operating cash flows under IAS 7 but were previously included in a separate category of Taxation under UK GAAP.

Cash and cash equivalents include short term deposits under IFRSs. Under UK GAAP movements in short term deposits were included under a separate management of liquid resources category.

There are no other material differences between the cash flow statement presented under IFRSs and the cash flow statement presented under UK GAAP.

ENDFR IFFFISAIFFIA

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