13th Mar 2008 07:00
Futura Medical PLC13 March 2008 For immediate release 13 March 2008 Futura Medical plc ("Futura" or "the Group" or "the Company") Final Results for the year ended 31 December 2007 Futura Medical plc (AIM: FUM), the pharmaceutical group that develops innovativeproducts for consumer healthcare, is pleased to announce its final results forthe year ended 31 December 2007. Operational Highlights •Substantial progress across the Company as it moves closer to regulatory approval of its first condom product, CSD500 •CSD500 - Statistically significant clinical trial results reinforcing the product's commercial potential •MED2002 - Global development, marketing and licensing agreement signed with SSL International plc for the Company's topically applied gel for erectile dysfunction •TPR100 - Exclusivity agreement signed with GlaxoSmithKline Consumer Healthcare for the evaluation of Futura's topical formulations for pain relief and the negotiation of global distribution rights •PET500 - Exciting new application of our DermaSys(R) technology for the treatment of premature ejaculation. Phase I study to commence shortly Financial Highlights •South East England Development Agency ("SEEDA") grant awarded of up to £200,000 •Funding raised of £1.00 million with further £1.00 million equity funding facility arranged •Net loss of £2.25 million (2006: net loss of £1.78 million) •Cash of £2.64 million at 31 December 2007 (2006: £3.78 million including medium term deposits) James Barder, Futura's Chief Executive, said: "We expect 2008 to be anotherexciting year for Futura with the initial focus being on gaining regulatoryapproval for the Durex(R) branded condom CSD500 and the subsequent launchprogramme by SSL. In addition, we anticipate making significant progress acrossour product portfolio including completing the pivotal study for MED2002, theextended TPR100 optimisation programme, and the first trials on PET500." For any further information please contact: Futura Medical plcJames Barder, Chief Executive Tel: +44 (0) 1483 685 670 mail to: [email protected] Adams Ryan Gaffney / Adria Da Breo Tel: +44 (0) 20 7050 6500 For any media enquiries please contact: Buchanan CommunicationsMark Court / Rebecca Skye Dietrich Tel: +44 (0) 20 7466 5000 Chairman's Statement Futura is pleased to announce its full year results for the year ended 31December 2007. The year saw another period of substantial progress for theCompany with advances across the portfolio. Our product closest to launch is our lead condom product CSD500 which ispartnered with SSL International plc ("SSL"). We remain confident of commercialsuccess following our CSD500 user study, which reinforced the market potentialof this product. Of those who expressed a preference compared to using a normalcondom, firmer erections were reported by both men and women, increased penilesize by men and a longer lasting sexual experience by women. This is supportedby our intellectual property position with the continuing success of our patentapplications. We have also progressed with our second condom product, FLD500,which has been further refined to improve our intellectual property and reducedevelopment risk. We are delighted to have strengthened our commercial relationship with SSL,through the signing in September of a global development, marketing anddistribution agreement for MED2002, our topically applied gel for the treatmentof erectile dysfunction. We believe SSL, which now holds distribution rights toa total of three of our products and as owner of the innovative, global andmarket leading Durex(R) product range, is an excellent partner for MED2002. Weexpect MED2002 to become the world's first non-prescription treatment forerectile dysfunction. In our newer therapeutic area of pain relief, we have built a team of expertsand advanced our pre-clinical and clinical studies for TPR100 and entered intoexclusive discussions with GlaxoSmithKline Consumer Healthcare ("GSK"). We areundertaking a study to evaluate the drug delivery from topical formulationsdeveloped by us. We were also awarded a grant to support the conduct of aspecific project in our development pipeline. In addition, we progressed afurther application of our DermaSys(R) technology with our premature ejaculationproduct, PET500, which we anticipate will commence clinical studies during 2008. On the financial side we completed a fund-raising in November with a furtherfacility available to enable us to maintain the momentum of product development.Nevertheless we continue to be fiscally prudent with a small core team of only14 and a flexible network of consultants and advisers. I would personally liketo take this opportunity to thank this highly effective group of dedicated andhard working professionals who continue to drive the Company forward. Notwithstanding progress elsewhere, our key focus remains the attainment ofregulatory approval for CSD500 which will herald the most exciting phase so farin the Company's evolution by placing the Company on track to becoming a revenuegenerating business with a recurring royalty income stream. Momentum continues into 2008 and we will keep our shareholders and otherstakeholders informed of our progress as we look to the future with everincreasing confidence. Dr William D Potter Executive Chairman 12 March 2008 Chief Executive's Statement The Directors present their report and the audited financial statements ofFutura Medical plc for the year ended 31 December 2007. Overview It has been another year of significant commercial and operational progressacross our entire product portfolio. We have continued to enhance our expertisein sexual healthcare and to develop our position in pain relief management. Weare poised to become revenue generating as a result of the imminently expectedcompletion of the regulatory approval process and subsequent launch of our firstcommercial product CSD500. We have steadfastly worked towards the key milestone of achieving regulatoryapproval for CSD500 and we are pleased to report that we have coupled this withour continued progress across the product range. Product updates CSD500: Condom safety device Working closely with SSL, the manufacturer of Durex(R) condoms, we madeconsiderable progress with CSD500, our condom product that helps healthy menmaintain a full erection whilst wearing a condom. Much of our effort during theyear was directed at the successful completion of a clinical study comprising108 couples, funded equally by SSL and Futura, the positive results from whichwere announced on 9 August 2007. Of those who expressed a preference asignificant proportion of both men and women reported improvements in thefirmness of the man's erection during intercourse when using CSD500, compared tousing a normal condom, a result that was highly statistically significant.Furthermore, of those who expressed a preference, a significant proportion ofboth men and women also felt that CSD500 increased the penis size and asignificant proportion of women reported a longer lasting sexual experience withCSD500. The quality of the study results has reinforced our confidence thatCSD500 has significant commercial potential. The results have been submitted tothe EU regulatory authorities and we patiently await the outcome of their reviewprocess. Prior to the commercial launch of CSD500, we have protected the product's uniqueintellectual property position with patents now granted, or proceeding to grant,in more than 30 countries throughout the world, including the principal consumermarkets within Europe, the US and Canada. Futura will receive royalty basedpayments from all future sales of the condom for the lifetime of the patents. SSL is currently carrying out the detailed preparatory work for CSD500's EUmarketing launch, including the selection of the product's brand name within theDurex(R) portfolio and the product's logo and packaging. We have been delightedby the commitment and enthusiasm shown for CSD500 from SSL, which providesfurther endorsement of the commercial potential of the product. MED2002: Treatment for erectile dysfunction MED2002 is our topically applied gel for the treatment of men with erectiledysfunction. This product was initially licensed to GSK but in May 2007 theyreturned the rights to Futura as current priorities within GSK meant they wereunlikely to approve a marketing agreement within the near future. Given thecommercial potential of MED2002 we were confident of securing a new agreement onfavourable commercial terms and were delighted to announce, on 17 September2007, that a global development, marketing and distribution agreement had beensigned with SSL. Under the terms of this agreement, Futura will receive an undisclosed royalty onMED2002's future sales along with milestone payments of up to £18 million,subject to regulatory approvals and the achievement of sales targets. SSL andFutura will jointly manage the completion of the clinical development ofMED2002, which is currently expected to cost up to £3.8 million, of which SSLwill contribute 65% and Futura 35%. Once launched, MED2002 is expected to become the world's first non-prescriptionpharmaceutical treatment for men with erectile dysfunction, a condition thataffects, to some degree, 50% of men aged 45 or over(1). This would be animportant step forward as it is estimated that only 15% of men with erectiledysfunction seek treatment(2) due to the perceived embarrassment of having toconsult a doctor to be prescribed one of the current treatments. A double blind placebo controlled pivotal study for over 200 men with erectiledysfunction is shortly to commence in Germany and Greece. The study has beenpowered to give statistically significant efficacy data as well as safety dataand the preliminary results are expected by the end of 2008. (1) Massachusetts Male Ageing Study (MMAS), J Urol 1994 Jan; ISI (1): pp 54-61 (2) Prog Urol February 2003, Vol. 13 part 1, pp 85-91 FLD500: Female lubrication device FLD500 is our condom product designed to improve natural female lubricationduring sexual intercourse. In FLD500 the active compound is on the outside ofthe condom and is used at a much lower dose level than in CSD500, where it isinside the condom. We have previously reported positive clinical data fromFLD500 and have since been working on achieving a commercially optimised shelflife for the product and refining the manufacturing process. We have developed anew prototype of the product which will simplify the manufacturing process andso far in pilot stability studies has shown a significantly improved shelf life.In common with CSD500, FLD500 is licensed to SSL. We are determining themarketing and regulatory strategy for the product with SSL prior to initializingformal stability studies. Our previously reported clinical data in healthy female volunteers showed thatFLD500 was safe, well tolerated and had the potential to promote the vascularchanges seen in women during clitoral stimulation and sexual arousal. This datawill form part of the regulatory submission for FLD500, although our experiencewith CSD500 has demonstrated how the value of further clinical work can reduceregulatory risk and support strong marketing claims. Once CSD500 and FLD500 gain regulatory approval, there is potential for acombination product embracing both CSD500 and FLD500. Such a product couldimprove natural lubrication for women and give men a firmer erection duringprotected sexual intercourse. TPR100: Topical pain relief One of Futura's key proprietary assets is its highly efficient, trans-dermaldelivery system, DermaSys(R), which is used in the Group's sexual healthcareportfolio but which has the potential to have much broader utility across othertherapeutic areas. A particular application of DermaSys(R), owing to its abilityto provide rapid transfer of active ingredients through the skin, has shownsignificant potential in the provision of pain relief through our productTPR100. In April 2007, we entered into an exclusivity agreement with GSK, whilstwe undertook a study to evaluate the drug delivery from topical TPR100formulations developed by Futura. Pending the outcome of Futura's study and thesubsequent completion of commercial negotiations, GSK will have the opportunityto acquire global distribution rights. On 23 August 2007 we announced the appointment of Professor Robert Moore DSc. tojoin our team of expert consultants in the therapeutic area of pain relief.Professor Moore's extensive knowledge of pain relief, from both academic andcommercial perspectives, is already proving to be of great value in thedevelopment of TPR100. PET500: Premature ejaculation treatment We continue to make progress on our early stage portfolio, particularly with ourpotential treatment for premature ejaculation, PET500, which uses our DermaSys(R) delivery system and is now ready to enter into clinical studies. We expectto start a Phase I study shortly to evaluate the product's characteristics. Early stage product evaluation We continue to evaluate the commercial and development potential of otherproduct concepts using our DermaSys(R) technology and our medical deviceexpertise. For the time being, we do not intend to report on FSD500 or any otherindividual product which is at this evaluation stage, as our focus is on themore advanced stage products including the recent addition of PET500 to theclinical programme. As our later stage products complete the regulatory processand move into their commercial phase we anticipate being able to introducefurther exciting products into the development portfolio at the appropriatetime. Outlook We expect 2008 to be another exciting year for Futura with the initial focusbeing on gaining regulatory approval for the Durex(R) branded condom CSD500 andthe subsequent launch programme by SSL. In addition, we anticipate makingsignificant progress across our product portfolio including completing thepivotal study for MED2002, the extended TPR100 optimisation programme, and thefirst trials on PET500. We were delighted by the support from both new and existing shareholders for the£1.00 million placing which we completed on 15 November 2007 and this included afurther equity funding facility of up to £1.00 million which we can draw onshould we so choose. These funds enable us to maintain the momentum of productdevelopment at Futura. We will continue to keep our shareholders and other stakeholders informed of ourstrategy and progress and look forward to being able to discuss the launch ofCSD500 in our next Annual Report. James Barder Chief Executive 12 March 2008 Financial Review The Group finished the year with a comfortable cash position, costs remainingfirmly under control, an expanded development portfolio and the prospect ofrecurring revenues moving closer. International Financial Reporting Standards The Financial Review should be read in conjunction with the financial statementsand the notes to the financial statements. This is the first annual report for the Group presented under InternationalFinancial Reporting Standards as adopted by the European Union ("IFRS"). Thecomparative figures have also been restated to reflect this. There has been nosignificant impact on the Group in either the current year results or therestated historic results. An explanation, including the impact of transition toIFRS, is included in the notes to the Group financial statements. The financialstatements of the Company continue to be prepared in accordance with UnitedKingdom Generally Accepted Accounting Practice ("UK GAAP"). Revenue Group revenue for the year ended 31 December 2007 was £15,000 (2006: £301).Grant income for the year ended 31 December 2007 was £96,172 (2006: £nil). In accordance with our revenue accounting policy, the £150,000 already receivedfrom GSK in respect of the TPR100 exclusivity agreement has been included asdeferred income within current liabilities on the balance sheet and will berecognised as revenue when the relevant conditions of the agreement are met. Losses The Group continues to maintain a focus on tight control of all expenditure. The Group's loss after taxation for the year ended 31 December 2007 was £2.25million (2006: £1.78 million). The Group's operating loss for the year ended 31December 2007 was £2.62 million (2006: £2.11 million). Loss per share for the year ended 31 December 2007 was 4.1 pence (2006: 3.4pence). No dividends were paid and none are proposed by the Directors (2006: £nil). Financial instruments The financial instruments held by the Group are disclosed in note 13. Group research and development costs The Group aims to achieve cost effective research and development and to bringproducts to market through licensing partners as soon as is practicable. Group research and development costs each year reflect the number of productsbeing developed, the stage of development reached for each and the impact ontheir progress of external factors. Such factors during the year ended 31December 2007 included pending decisions of regulatory bodies and finalisationof joint development arrangements. Research and development ("R&D") costs of £1,508,269 have increased compared tothe previous year, and to a level similar to that of 2005, largely due to theutilisation of external laboratory facilities and phase I development costs forTPR100. The table below shows the trend in our historic research and development costsand other administrative costs over the past five reporting periods: Year ended Year ended Year ended Year ended 11 months ended 31 31 December 31 December 31 December 31 December December 2007 2006 2005 2004 2003 IFRS £ IFRS £ UK GAAP £ UK GAAP £ UK GAAP £Research and development 1,508,269 1,079,986 1,553,056 971,043 632,062costsOther administrative 1,227,320 1,029,075 805,161 754,725 885,888costsTotal operating costs 2,735,589 2,109,061 2,358,217 1,725,768 1,517,950R&D ratio 55% 51% 66% 56% 42% The figures for the years 2005 and prior, prepared under UK GAAP, have not beenrestated for the holiday pay accrual under IAS 19 as the figures are notmaterially different. The R&D ratio is the percentage of research and development costs relative tototal operating expenses. The Board is mindful to keep a sensible balance asreflected in this ratio. Total research and development spend since formation ofthe business in 1997 totals £7.72 million (remaining at 55% of total operatingcosts as reported last year). During the year, the sole subsidiary FuturaMedical Developments Limited continued to incur this research and developmentexpenditure which has been accounted for as explained in accounting policy note1.5 of the Notes to the Consolidated Financial Statements and has been writtenoff as incurred for all reporting periods prior to and including the year ended31 December 2007. The Board considers that this overall total research and development spendrelative to its pipeline of later stage products and emerging new productsdistinguishes the Group's lower funding requirements and risk profile from moretypical businesses in the wider pharmaceutical industry. The Group's strategy isto focus on medical devices and pharmaceutical drugs that offer the potentialfor a significant return on the costs of development. As well as progressing itsexisting research and development programme, the Group continues to seek newopportunities for potential products to add to its portfolio. Other administrative costs Other administrative costs for the year ended 31 December 2007 were £1,227,320(2006: £1,029,075). These comprise all other operating costs excluding thoserelating to product development and associated intellectual property. The mainconstituents and their relative proportions were: Year ended Year ended 31 December 31 December 2007 2006Wages and salaries 53% 52%Legal and professional advisers 22% 23%Office costs and staff expenses 13% 14%Licensing negotiations 12% 11% 100% 100% The principal reasons for the increase in other administrative costs relate tocommercial and negotiation costs in respect of the development and licensing ofMED2002 and the expansion of our small core team with the addition of two newsupport staff. These were recruited in 2007 to support increased activity levelsas the Group moves towards revenue generation and seeks further productdevelopment opportunities internally and externally. This completes the currentexpansion of the central administrative functions of the Group as the platformfor the next phase of the growth strategy. Supplier payment policy The Group's policy concerning the payment of its trade creditors is to pay onthe basis of the agreed terms of payment established with each supplier,providing that all terms and conditions have been complied with and are inaccordance with the Group's financial control procedures. The average credit period (expressed as creditor days) during the year ended 31December 2007 was 18 days (2006: 30 days) for the Group. At the year end theCompany had trade creditors totalling £2,697 (2006: £5,521) giving rise to theaverage credit period for the year ended 31 December 2007 of 9 days (2006: 11days). Charitable and political contributions No political donations were made during either year. Charitable donations of£236 were made during the year (2006: £nil). Taxation A research and development tax credit of £208,717 (2006: £196,133) in respect ofresearch and development expenditure incurred has been recognised in thefinancial statements. The increase compared with the prior year reflects theincreased research and development spend in the year. Capital structure and funding The Group remains funded primarily by equity capital. This reflects thedevelopment status of its products. Cash held by the Group at 31 December 2007 totalled £2.64 million. Thiscomprised cash and cash equivalents and medium term deposits with originalmaturities of more than three months, shown below at each period end: 31 December 31 December 31 December 31 December 31 December 2007 2006 2005 2004 2003 £m £m £m £m £mMedium term deposits - 1.04 - - -Cash and cash 2.64 2.74 1.81 3.67 2.40equivalentsTotal cash 2.64 3.78 1.81 3.67 2.40 The Group did not have any bank borrowings at 31 December 2007 (2006: £nil). The Group was pleased to announce, on 27 July 2007, that it had been awarded anR&D grant of up to £200,000, from the South East England Development Agency(SEEDA), to support the conduct of a specific project that forms part of theoverall development programme of a product that uses a particular application ofthe Group's DermaSys(R) technology. This award followed a thorough review bySEEDA. Of the grant income recognised in the income statement for the year of£96,172, the Group had received £80,662 by the year end. On 15 November 2007, the Group raised £1.00 million, net of costs, following aprivate placing at 48.56 pence (2006: net receipts from a private placing andthe exercise of share options was £3.69 million). The funds raised are forworking capital, including the support of the ongoing development of productswithin our existing pipeline and initial development of selected newopportunities generated by our research initiatives. This brings the total cash raised from share issues by the Group from formationof the business in 1997 until 31 December 2007 to £14.53 million, net of costs. In addition, as announced on 15 November 2007, there is a further equity fundingfacility in place of up to £1.00 million which, if used, would involve the issueof new ordinary shares at a price per share set at a 10 per cent discount to theaverage mid-price of the Company's shares during the five trading days prior tothe agreement to issue the tranche of shares. Other significant sources of funding received for the Group from formation ofthe business until 31 December 2007 comprised research and development taxcredits of £1.04 million, bank interest of £0.73 million and R&D grants of £0.16million. Anthony L Clayden Finance Director 12 March 2008 The financial information set out below does not constitute the Company's fullstatutory accounts for the year ended 31 December 2007 for the purposes ofsection 240 of the Companies Act 1985, but it is derived from those accountsthat have been audited. Statutory accounts for 2006 have been delivered to theRegistrar of Companies. The independent auditors have reported on thoseaccounts; their report was unqualified and did not include an emphasis of matterstatement. The independent auditor's report did not contain statements under theCompanies Act 1985, s237 (2) or (3). Consolidated Income Statement For the year ended 31 December 2007 Year ended Year ended 31 December 31 December 2007 2006 Notes £ £Revenue 1.3 15,000 301Grant income 4 96,172 -Research and development costs (1,508,269) (1,079,986)Administrative costs (1,227,320) (1,029,075)Operating loss 5 (2,624,417) (2,108,760)Finance income 8 161,291 136,114Loss before tax (2,463,126) (1,972,646)Taxation 9 208,717 196,133 Loss for the year attributable to equity holders 19 (2,254,409) (1,776,513)of the parent companyBasic and diluted loss per share (pence) 10 (4.1p) (3.4p) All amounts relate to continuing activities. Consolidated Statement of Changes in Equity For the year ended 31 December 2007 Share Share Other Retained Total capital premium reserve losses equity reserve Notes £ £ £ £ £At 1 January 2006 97,877 8,560,987 1,152,165 (7,832,392) 1,978,637Loss for the year 19 - - - (1,776,513) (1,776,513)Share-based payment - - - 43,374 43,374Shares issued during 17 12,730 3,836,420 - - 3,849,150the yearCost of share issues 19 - (146,132) - - (146,132)At 1 January 2007 110,607 12,251,275 1,152,165 (9,565,531) 3,948,516Loss for the year 19 - - - (2,254,409) (2,254,409)Share-based payment - - - 64,651 64,651Shares issued during 17 4,631 1,111,869 - - 1,116,500the yearCost of share issues 19 - (101,768) - - (101,768) At 31 December 2007 115,238 13,261,376 1,152,165 (11,755,289) 2,773,490 The loss for the year represents the total recognised income and expense for theyear. Consolidated Balance Sheet As at 31 December 2007 As at As at 31 December 31 December 2007 2006 Notes £ £AssetsNon-current assetsPlant and equipment 11 35,415 20,109Total non-current assets 35,415 20,109 Current assetsInventories 12 23,344 32,648Trade and other receivables 14 183,283 1,196,024Income tax asset 9 208,717 195,034Cash and cash equivalents 15 2,637,892 2,740,767Total current assets 3,053,236 4,164,473 LiabilitiesCurrent liabilitiesTrade and other payables 16 (315,161) (236,066)Total liabilities (315,161) (236,066) Total net assets 2,773,490 3,948,516 Capital and reserves attributable to equity holders of the parent companyShare capital 17 115,238 110,607Share premium reserve 19 13,261,376 12,251,275Other reserve 19 1,152,165 1,152,165Retained losses 19 (11,755,289) (9,565,531)Total equity 2,773,490 3,948,516 The financial statements from which this final results announcement is derivedwere approved and authorised for issue by the Board on 12 March 2008 and weresigned on its behalf by James H Barder, Director. Consolidated Cash Flow Statement For the year ended 31 December 2007 Year ended Year ended 31 December 31 December Notes 2007 2006 £ £Cash flows from operating activitiesLoss before tax (2,463,126) (1,972,646)Adjustments for:Depreciation 11 15,194 10,630Finance income 8 (161,291) (136,114)Loss on sale of plant and equipment 5 - 6Share-based payment charge 18 64,651 43,374Cash flows from operating activities before changes in (2,544,572) (2,054,750)working capital Decrease/(increase) in inventories 12 9,304 (692)Increase in trade and other receivables - excluding 14 (21,147) (76,067)medium term depositsIncrease/(decrease) in trade and other payables 16 79,095 (2,616)Cash used in operations (2,477,320) (2,134,125) Income tax received 195,034 282,636Net cash used in operating activities (2,282,286) (1,851,489) Cash flows from investing activitiesPurchase of plant and equipment 11 (30,500) (5,418)Sale of plant and equipment - 44Disposal/(acquisition) of medium term deposits 14 1,039,031 (1,039,031)Interest received 156,148 124,730Cash generated by/(absorbed in) investing activities 1,164,679 (919,675) Cash flows from financing activitiesIssue of ordinary shares 17 1,016,500 3,849,150Expenses paid in connection with share issues 19 (1,768) (146,132)Cash generated by financing activities 1,014,732 3,703,018 (Decrease)/increase in cash and cash equivalents 15 (102,875) 931,854Cash and cash equivalents at beginning of year 15 2,740,767 1,808,913Cash and cash equivalents at end of year 15 2,637,892 2,740,767 The notes below form part of the financial statements from which this finalresults announcement is derived. Notes to the Consolidated Financial Statements For the year ended 31 December 2007 1. Accounting policies 1.1 Basis of preparation The Group financial statements have been prepared in accordance withInternational Financial Reporting Standards as adopted by the European Union("IFRS") for the first time, having previously been prepared in accordance withUK Generally Accepted Accounting Practice ("UK GAAP"). The disclosures requiredby IFRS 1 'First-time Adoption of International Financial Reporting Standards'concerning the transition from UK GAAP to IFRS are given in note 23. The preparation of the consolidated financial statements in accordance with IFRSresulted in changes to the accounting policies compared with the most recentGroup financial statements prepared under UK GAAP. The accounting policies areset out below have been applied to all periods presented in these Groupfinancial statements and are in accordance with IFRS, as adopted by the EuropeanUnion, and International Financial Reporting Interpretations Committee ("IFRIC")interpretations that were applicable for the year ended 31 December 2007. The Group has elected to make use of the exemptions available in IFRS 1 asfollows: • IFRS 2 'Share-based Payment' has been applied to all grants ofemployee options after 7 November 2002 that were unvested at 1 January 2006. • IFRS 3 'Business Combinations' has not been applied retrospectively tobusiness combinations that occurred before 1 January 2006 which were accountedfor using the merger method of accounting under UK GAAP. The Group has made estimates under IFRS as at 1 January 2006, the date oftransition, which are consistent with those estimates made at the same dateunder UK GAAP and there is no objective evidence that those estimates were inerror. The following new standards, amendments to standards and interpretations havebeen issued, are not effective for the financial year ending 31 December 2007and have not been adopted early as the Directors do not expect these standardsand interpretations to be relevant to the Group and will have no effect on thefinancial statements: • IFRS 8 'Operating Segments' effective 1 January 2009. • IFRIC 11 'IFRS 2 - Group and Treasury Share Transactions' effective 1 January 2008. • IFRIC 13 'Customer Loyalty Programmes' effective 1 January 2009. • IFRIC 14 'IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction' effective 1 January 2008. • IAS 23 'Borrowing Costs (revised)' effective 1 January 2009. 1.2 Basis of consolidation Where the Company has the power, either directly or indirectly, to govern thefinancial and operating policies of another entity or business, so as to obtainbenefits from its activities, it is classified as a subsidiary. The consolidatedfinancial information presents the results of the Company and its solesubsidiary Futura Medical Developments Limited ("FMDL") as if they formed asingle entity ("the Group"). Intra group transactions and balances areeliminated in preparing the financial statements. 1.3 Revenue Revenue comprises the fair value received or receivable for exclusivityarrangements, consultancy fees, milestone income and royalties, net of valueadded tax. The accounting policies for the principal revenue streams of the Group are asfollows: (i) Exclusivity arrangements and similar agreements are recognised as revenue inthe accounting period in which the related services, or required activities, areperformed or specified conditions are fulfilled in accordance with the terms ofcompletion of the specific transaction. (ii) Consultancy fees are recognised as revenue in the year in which the revenuebecomes receivable. (iii) Royalty income relating to the sale by a licensee of licensed product isrecognised on an accruals basis in accordance with the substance of the relevantagreement and based on the receipt from the licensee of the relevant informationto enable calculation of the royalty due. (iv) Non-refundable milestone income is recognised on achieving the milestones.If any milestone income is creditable against royalty payments then it isdeferred and released to the income statement over the period in which theroyalties would otherwise be receivable. 1.4 Leased assets Leases, which contain terms whereby the Group does not assume substantially allthe risks and rewards incidental to ownership of the leased item are classifiedas operating leases. Operating lease rentals are charged to the income statementon a straight line basis over the lease term. The Group does not hold any assetsunder finance leases. 1.5 Intangible assets Research and development Certain Group products are in the research phase and others are in thedevelopment phase. Expenditure incurred on the development of internallygenerated products is capitalised if it can be demonstrated that: • it is technically feasible to develop the product for it to be sold; • adequate resources are available to complete the development; • there is an intention to complete and sell the product; • the Group is able to sell the product; • sale of the product will generate future economic benefits; and • expenditure on the project can be measured reliably. Capitalised development costs are amortised over the periods in which the Groupexpects to benefit from selling the products developed. The amortisation expenseis included in research and development costs recognised in the incomestatement. The useful life and the value of the capitalised development cost areassessed for impairment at least annually. The value is written down immediatelyif impairment has occurred and the unimpaired cost amortised over the reduceduseful life. The Directors consider that the criteria to capitalise developmentexpenditure are not met for a product prior to receiving regulatory approval forsale in at least one country. Development expenditure, not satisfying the above criteria, and expenditure onthe research phase of internal projects are included in research and developmentcosts recognised in the income statement as incurred. Patents and trademarks The costs incurred in establishing patents and trademarks are either expensed orcapitalised in accordance with the corresponding treatment of the developmentexpenditure for the product to which they relate. 1.6 Plant and equipment Plant and equipment is initially recognised at cost, and subsequently at costless accumulated depreciation and any accumulated impairment losses. Costincludes expenditure that is directly attributable to the acquisition of theitems. Depreciation is charged to the income statement at rates calculated towrite off the cost, less estimated residual value, of each asset on a straightline basis over their estimated useful lives. The assets' residual values and useful lives are determined by the Directors andreviewed and adjusted if appropriate at each balance sheet date. 1.7 Impairment of non-financial assets Assets that are subject to depreciation are reviewed for impairment on a halfyearly basis and when events or circumstances suggest that the carrying amountmay not be recoverable. For the purpose of assessing impairment, assets aregrouped at the lowest levels for which there are separately identifiable cashflows (cash generating units). An impairment loss is recognised immediately inthe income statement for the amount by which the asset's carrying amount exceedsits recoverable amount. Recoverable amount is the higher of fair value, less costs to sell, and value inuse. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to theasset. Where an impairment loss subsequently reverses, the carrying amount of the assetis increased to the revised estimate of its recoverable amount, but so that theincreased carrying amount does not exceed the carrying amount that would havebeen determined had no impairment loss been recognised for the asset in priorperiods. A reversal of an impairment loss is recognised immediately in theincome statement. 1.8 Inventories Inventories are materials and supplies to be consumed in the course of researchand development and are initially recognised at cost, and subsequently at thelower of cost and net realisable value. Cost includes materials, relatedcontract manufacturing costs and other direct costs. Cost is calculated usingthe first-in first-out method. Net realisable value is based on estimatedselling price, less further costs expected to be incurred to completion anddisposal. A provision is recognised immediately in the income statement in respect ofobsolete, slow-moving or defective items where appropriate. 1.9 Financial instruments Financial assets The Group classifies its financial assets in the category of loans andreceivables. They are recognised initially at fair value and subsequently atamortised cost using the effective interest rate method. The Group's loans and receivables comprise 'trade and other receivables' (notes1.10 and 14) and 'cash and cash equivalents' (notes 1.11 and 15). The Group assesses at each balance sheet date whether there is objectiveevidence that a financial asset is impaired. Financial liabilities The Group's financial liabilities comprise trade and other payables (notes 1.12and 16) recognised initially at fair value and subsequently at amortised costusing the effective interest rate method. 1.10 Trade and other receivables Trade and other receivables are financial assets and are recognised initially atfair value and subsequently measured at amortised cost using the effectiveinterest method, less an estimate made for impairment based on a review of allpast due amounts at the year end. A provision for impairment of trade and otherreceivables is established when there is objective evidence that the Group willnot be able to collect all amounts due. If an impairment loss is required thecarrying amount of the trade or other receivable is reduced through the use ofan allowance account and the amount of the loss recognised immediately in theincome statement in administrative costs. Included in trade and other receivables are medium term deposits, comprisingsterling fixed rate deposits, with original maturities of more than threemonths. 1.11 Cash and cash equivalents Cash and cash equivalents are financial assets and comprise cash in hand andsterling fixed rate deposits with original maturities of three months or lesswhich are held by the Group so as to be available to meet short-term cashcommitments. 1.12 Trade and other payables Trade and other payables are financial liabilities and are initially recognisedat fair value and subsequently measured at amortised cost using the effectiveinterest rate method. 1.13 Government grants Government grants are recognised at fair value where there is a reasonableassurance that the grant will be received and the Group will comply with allattached conditions. Government grants relating to costs defrayed are accruedand recognised in the income statement over the period required to match themwith the costs that they reimburse. 1.14 Taxation Income tax is recognised or provided at amounts expected to be recovered or tobe paid using the tax rates and tax laws that have been enacted or substantivelyenacted at the balance sheet date. Research and development tax credits arerecognised on an accruals basis and are included as an income tax credit undercurrent assets. Deferred tax assets and liabilities are recognised where the carrying amount ofan asset or liability on the balance sheet differs from its tax base, except fordifferences arising on: • the initial recognition of an asset or liability in a transactionwhich is not a business combination and at the time of the transaction affectsneither accounting or taxable profit; and • investments in subsidiaries and jointly controlled entities where theGroup is able to control the timing of the reversal of the difference and it isprobable that the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it isprobable that taxable profits will be available against which the difference canbe utilised. The amount of the asset or liability is determined using tax rates that havebeen enacted or substantively enacted by the balance sheet date and are expectedto apply when the deferred tax liabilities/(assets) are settled/(recovered).Deferred tax balances are not discounted. Deferred tax assets and liabilities are offset when the Group has a legallyenforceable right to offset current tax assets and liabilities and the deferredtax assets and liabilities relate to taxes levied by the same tax authority oneither: • the same taxable group company; or • different group entities which intend to settle current tax assets andliabilities on a net basis, or to realise the assets and settle the liabilitiessimultaneously, on each future period in which significant amounts of deferredtax assets or liabilities are expected to be settled or recovered. 1.15 Foreign currency translation Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at period end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement in theperiod in which they arise. 1.16 Employee benefits (i) Defined contribution plans The Group provides retirement benefits to all employees and Executive Directors(except the Chairman) who wish to participate in defined contribution pensionschemes. The assets of these schemes are held separately from those of the Groupin independently administered funds. Contributions made by the Group are chargedto the income statement in the period in which they become payable. (ii) Accrued holiday pay Provision is made at each balance sheet date for holidays accrued but not takenat the salary of the relevant employee at that date. The expected cost ofcompensated short term absence (i.e. holidays) is charged to the incomestatement on an accruals basis. (iii) Share-based payment transactions The Group operates an equity-settled, share-based compensation plan. Where shareoptions are awarded to employees and others providing similar services on orafter 7 November 2002, the fair value of the options at the date of grant ischarged to the income statement over the vesting period. Non-market vestingconditions are taken into account by adjusting the number of equity instrumentsexpected to vest at each balance sheet date so that, ultimately, the cumulativeamount recognised over the vesting period is based on the number of options thateventually vest. Market vesting conditions are factored into the fair value ofthe options granted. As long as all other vesting conditions are satisfied, acharge is made irrespective of whether the market vesting conditions aresatisfied. The cumulative charge is not adjusted for failure to achieve a marketvesting condition. If the terms and conditions of options are modified beforethey vest, the change in the fair value of the options, measured immediatelybefore and after the modification, is also charged to the income statement overthe remaining vesting period. The proceeds received when options are exercised, net of any directlyattributable transaction costs, are credited to share capital (nominal value)and the remaining balance to share premium account. 1.17 National insurance on share options All employee option holders enter into a HM Revenue & Customs joint election totransfer the employers' national insurance contribution potential liability tothe employee, therefore no asset or liability arises. 1.18 Finance income Interest income is recognised on a time-proportion basis using the effectiveinterest rate method. 1.19 Critical accounting estimates and judgements Critical accounting estimates, assumptions and judgements are continuallyevaluated by management based on available information and experience. As theuse of estimates is inherent in financial reporting, actual results could differfrom these estimates. Judgements (i) Revenue recognition The fee received in respect of the TPR100 exclusivity agreement has not beenrecognised as revenue but is shown as deferred income as the relevant conditionsof the agreement had not all been met at the relevant balance sheet date. (ii) Intangible asset recognition The Directors consider that the criteria to capitalise development expenditureare not met for a product prior to receiving regulatory approval for sale in atleast one country. (iii) Deferred tax recognition The Directors consider that, given the current stage of development of thebusiness, deferred tax assets should not be recognised before the Group isgenerating significant revenue. Estimates and assumptions (iv) Useful lives of plant and equipment Plant and equipment is amortised or depreciated over its useful life. Usefullives are based on the Directors' estimates of the periods over which the assetswill be used in developing revenue generating products and the estimates arereviewed annually for continued appropriateness. The estimated useful lives arebetween 2 and 5 years for computer equipment and between 3 and 10 years forfurniture and fittings. Changes to estimates can result in significantvariations in the carrying value and amounts charged to the consolidated incomestatement in specific periods. (v) Fair value of financial instruments The Group determines the fair value of financial instruments using valuationtechniques which can be significantly affected by the assumptions used,including interest and discount rates and estimates of future cash flows. (vi) Inventories The Group reviews the net realisable value of its inventories on a half yearlybasis to provide assurance that recorded inventories are stated at the lower ofcost or net realisable value. Factors that could impact realisable value includethe timing and success of future technological innovations in relation toproduct research and development, competitor and Government actions, supplierprices and economic trends. (vii) Share-based payments The Group operates an equity-settled, share-based compensation plan. Employeeand similar services received, and the corresponding increase in equity, aremeasured by reference to the fair value of the equity instruments at the date ofgrant. 1.20 Provisions A provision is recognised in the balance sheet when the Group has a presentlegal or constructive obligation as a result of a past event, and it is probablethat an outflow of economic benefits will be required to settle that obligation.Provisions are measured at the Directors' best estimate of the expenditurerequired to settle the obligation at the balance sheet date, and are discountedto present value where the effect is material. 2. Financial risk management 2.1 Financial risk factors The Group's activities expose it to a variety of financial risks: market risk(including foreign exchange risk, cash flow interest rate risk and fair valueinterest rate risk), credit risk and liquidity risk. It is Group policy not to enter into speculative positions using complexfinancial instruments. The Group's primary treasury objective is to minimiseexposure to potential capital losses whilst at the same time securing favourablemarket rates of interest on Group cash deposits using money market deposits withbanks. Cash balances used to settle the liabilities from operating activitiesare also maintained in current accounts which earn interest at variable rates. (i) Market risk Foreign exchange risk The Group primarily enters into supplier contracts which are to be settled insterling. However, some contracts involve other major world currencies includingthe US Dollar and the Euro. Where large supplier contracts of more than £100,000total value are to be settled in foreign currencies consideration is given tosettling the sums to be paid through conversion of sterling deposits to theappropriate foreign currency holdings at the outset of the contract to minimisethe risk of adverse currency fluctuations. For contracts with smaller values the foreign currency risk is not consideredsufficient to require the establishment of foreign currency bank accounts unlessspecific circumstances are identified which warrant this. At 31 December 2007 the Group had trade payables denominated in US dollars of£6,611. If the US dollar exchange rate at 31 December 2007 had weakened/strengthened against the UK pound by 5% the post-tax loss for the year and netassets would have been £156 lower / £524 higher. At 31 December 2006 the Group had trade payables denominated in US dollars of£17,373. If the US dollar exchange rate at 31 December 2006 had weakened/strengthened against the UK pound by 5% the post-tax loss for the year and netassets would have been £1,913 lower / £1,140 lower. Cash flow interest rate risk and fair value interest rate risk The Group's interest rate risk arises from medium term and short term moneymarket deposits. Deposits which earn variable rates of interest expose the Groupto cash flow interest rate risk. Deposits at fixed rates expose the Group tofair value interest rate risk. The Group analyses its interest rate exposure on a dynamic basis. The impact inthe year ended 2007, of a defined interest rate shift of a 1% higher/lower rateof interest earned per annum applied to the term deposits over the period of thedeposit, on the post-tax loss for the year and net assets would have been£25,534 lower/higher (2006: £22,880 lower/higher). (ii) Credit risk Credit risk arises from cash and cash equivalents and deposits with banks andfinancial institutions as well as credit exposure in relation to outstandingreceivables. Group policy is to spread deposits over at least two institutionswith investment grade A2 or better (Moody's credit rating) and deposits are madein sterling only. The Group does not expect any losses from non-performance bythese institutions. (iii) Liquidity risk Liquidity risk arises from the Group's management of working capital. It is therisk that the Group will encounter difficulty in meeting its financialobligations as they fall due. Prudent liquidity risk management impliesmaintaining sufficient cash and cash equivalents and management monitors rollingforecasts of the Group's liquidity reserve on the basis of expected cash flow. The Group had trade and other payables at the balance sheet date of £315,161(2006: £236,066) as disclosed in note 16. 2.2 Capital risk management The Group's objectives when managing capital are to safeguard the Group'sability to continue as a going concern in order to provide returns for equityholders of the Company and benefits for other stakeholders and to maintain anoptimal capital structure to reduce the cost of capital. 2.3 Fair value estimation The Group uses amortised cost, using the effective interest rate method, todetermine subsequent fair value after initial recognition, for its financialinstruments. 3. Segment reporting The Group is organised and operates as one business segment, being thedevelopment of pharmaceutical drugs and medical devices and their commercialexploitation. The main area of research and development continues to be in thefield of innovative products for the consumer healthcare market with the mainfocus being on sexual health. The Group manages any overseas research and development from the UK, the primarybusiness segment. Segment revenue is based on the geographical location of theGroup's customers which at this stage is solely the UK. Since there is currentlyonly one business segment and one geographical segment, no separate segmentreporting has been prepared. 4. Government grants Year ended Year ended 31 December 31 December 2007 2006 £ £SEEDA R&D grant income recognised in income 96,172 -statement SEEDA R&D grant accrued income (note 14) 15,510 - There were no unfulfilled conditions attaching to the government grant incomethat has been recognised. 5. Operating loss Year ended Year ended 31 December 31 December 2007 2006Operating loss is stated after charging £ £ Depreciation of plant and equipment 15,194 10,630Loss on sale of fixed assets - 6Inventories consumed in research and 12,121 12,256developmentRealised exchange losses 2,774 153Wages and salaries (note 6) 1,050,056 909,561Operating lease costs (note 21) 75,132 70,752 The fees of the Group's auditor, BDO Stoy Hayward LLP, for services provided areanalysed below: Year ended Year ended 31 December 31 December 2007 2006Audit services £ £Parent company 25,800 30,160Subsidiary 6,050 5,720Tax servicesParent company 850 1,200Subsidiary 4,250 4,150Other servicesParent company - interim review 6,000 4,000Parent company - IFRS conversion review 6,500 -Subsidiary 1,350 500 Total fees 50,800 45,730 6. Wages and salaries The average monthly number of persons (including all Directors) employed by theGroup during the year was 14 (by category: R&D 5, administration 9), (2006 bycategory: R&D 5, administration 7) and their aggregate emoluments were: Year ended Year ended 31 December 31 December 2007 2006 £ £Wages and salaries 799,892 710,008Social security costs 94,427 84,888Other pension and insurance benefits costs 87,031 69,902Total cash settled emoluments 981,350 864,798Accrued holiday pay 4,055 1,389Share-based payment remuneration charge (note 18) 64,651 43,374Total emoluments 1,050,056 909,561 All employees of the Group are employed by Futura Medical Developments Limited. 7. Directors' emoluments Year ended Year ended 31 December 31 December 2007 2006 £ £Aggregate emoluments 481,929 477,529Company pension contributions 37,877 34,423 Emoluments disclosed above include the following amounts in respect of thehighest paid Director: Year ended Year ended 31 December 31 December 2007 2006 £ £Aggregate emoluments 162,461 163,256Company pension contributions 14,717 13,725 During the year, three Directors (2006: three Directors) participated in aprivate money purchase (defined contribution) pension scheme. 8. Finance income Year ended Year ended 31 December 31 December 2007 2006 £ £Interest receivable on medium term deposits 41,757 15,721Interest receivable on bank deposits 119,534 120,393 161,291 136,114 9. Taxation Current tax Year ended Year ended 31 December 31 December 2007 2006 £ £ UK corporation tax credit on loss for the year 208,717 195,033Adjustment for under-provision in prior year - 1,100Total income tax expense 208,717 196,133 The tax assessed for the year is different from the standard rate of corporationtax in the UK. The differences are explained below: Year ended Year ended 31 December 31 December 2007 2006 £ £Loss on ordinary activities before tax 2,463,126 1,972,646Loss on ordinary activities at the averagestandard rate of corporation tax in the UK of19.75% (31 December 2006: 19%) 486,467 374,803Expenses not deductible for tax purposes (1,075) (2,634)Difference between depreciation and capital (3,001) (2,264)allowancesOther short-term timing differences (13,195) (8,626)Unutilised tax losses (319,591) (400,704)Schedule 23 deduction for share options 3,061 176,501Additional relief attaching to tax credit 56,051 57,957claimsAdjustment for under-provision in prior year - 1,100 Total tax credit for the year 208,717 196,133 The Group has tax losses of approximately £8,932,703 (2006: £7,289,771)available for offset against future taxable profits. Deferred tax Deferred tax assets amounting to £1,996,394 (2006: £1,404,565) have not beenrecognised on the basis that their future economic benefit is not certain.Assuming a prevailing tax rate of 22% (2006: 19%) when the timing differencesreverse, the unrecognised deferred tax asset comprises: Year ended Year ended 31 December 31 December 2007 2006 £ £Depreciation in excess of capital allowances 5,401 1,575Other short term timing differences 25,798 20,774Unutilised tax losses 1,965,195 1,382,216 1,996,394 1,404,565 10. Loss per share The calculation of the loss per share is based on a loss of £2,254,409 (2006:loss of £1,776,513) and on a weighted average number of shares in issue of55,603,121 (2006: 52,299,053). The loss attributable to equity holders of the parent company for the purpose ofcalculating the diluted loss per share is identical to that used for calculatingthe basic loss per share. The exercise of share options, details of which aredisclosed in note 18, or the issue of shares under the long term incentivescheme, would have the effect of reducing the loss per share and is thereforeanti-dilutive under the terms of IAS 33 'Earnings per Share'. 11. Plant and equipment Computer Furniture and equipment fittings TotalCost £ £ £At 1 January 2007 33,796 45,037 78,833Reclassifications (50) (25) (75)Additions 22,468 8,032 30,500At 31 December 2007 56,214 53,044 109,258DepreciationAt 1 January 2007 20,573 38,151 58,724Reclassifications (50) (25) (75)Charge for year 10,248 4,946 15,194At 31 December 2007 30,771 43,072 73,843Net book valueAt 31 December 2007 25,443 9,972 35,415At 31 December 2006 13,223 6,886 20,109 Computer Furniture and equipment fittings TotalCost £ £ £At 1 January 2006 31,192 42,353 73,545Additions 2,604 2,814 5,418Disposals - (130) (130)At 31 December 2006 33,796 45,037 78,833DepreciationAt 1 January 2006 13,275 34,900 48,175Charge for year 7,298 3,332 10,630Disposals - (81) (81)At 31 December 2006 20,573 38,151 58,724Net book valueAt 31 December 2006 13,223 6,886 20,109At 31 December 2005 17,917 7,453 25,370 All fixed assets of the Group are held in Futura Medical Developments Limited. 12. Inventories 31 December 31 December 2007 2006 £ £Raw materials and consumables 23,344 32,648 13. Financial instruments by category The accounting policies for financial instruments have been applied to the lineitems below: Assets as per balance sheet 31 December 31 December 2007 2006Loans and receivables £ £Trade and other receivables 183,283 1,196,024Cash and cash equivalents 2,637,892 2,740,767Total loans and receivables 2,821,175 3,936,791 31 December 31 DecemberLiabilities as per balance sheet 2007 2006 £ £Total trade and other payables 315,161 236,066 14. Trade and other receivables 31 December 31 December 2007 2006Amounts receivable within one year: £ £Trade receivables 81,967 -Other receivables 31,764 34,819Medium term deposits - 1,039,031Prepayments and accrued income 69,552 122,174 183,283 1,196,024 Trade receivables that are under three months past due are not consideredimpaired. As of 31 December 2007, trade receivables of £49,492 were past due but notimpaired (2006: £nil). These relate to a single independent establishedhealthcare group for whom there is no history of default. The ageing analysis ofthe past due trade receivables is: 31 December 31 December 2007 2006 £ £Under three months past due 49,492 - The other classes within trade and other receivables do not contain impairedassets. The Group does not hold any collateral as security and the maximumexposure to credit risk at the reporting date is the fair value of each class ofreceivable. 15. Cash and cash equivalents 31 December 31 December 2007 2006 £ £Cash in hand 263,183 80,767Sterling fixed rate deposits of up to three months 2,374,709 2,660,000maturity 2,637,892 2,740,767 16. Trade and other payables 31 December 31 December 2007 2006 £ £Trade payables 99,243 123,070Social security and other taxes 38,147 36,685Accrued expenses 27,771 76,311Deferred income 150,000 - 315,161 236,066 17. Share capital Authorised 31 December 31 December 31 December 31 December 2007 2006 2007 2006 No. No. £ £Ordinary shares of 0.2 500,000,000 500,000,000 1,000,000 1,000,000pence each Allotted, called up and 31 December 31 December 31 December 31 Decemberfully paid 2007 2006 2007 2006 No. No. £ £Ordinary shares of 0.2 57,618,840 55,303,601 115,238 110,607pence each The number of issued ordinary shares as at 1st January 2006 was 48,938,601. During the year ended 31 December 2006 the Company issued shares of 0.2 penceeach as follows: Month Reason for issue Gross Shares issued consideration £ No. January 2006 Exercise of share options 165,500 350,000February 2006 Exercise of share options 200,400 380,000July 2006 Private placing at 78 pence per 2,652,000 3,400,000 shareJuly 2006 Exercise of share options 831,250 2,235,000 3,849,150 6,365,000 During the year ended 31 December 2007, the Company issued shares of 0.2 penceeach as follows: Month Reason for issue Gross Shares issued consideration £ No.January 2007 Exercise of share options 16,500 50,000November 2007 Private placing at 48.56 pence per 1,000,000 2,059,308 shareNovember 2007 Placing arrangement fee 100,000 205,931 1,116,500 2,315,239 The arrangement fee, in connection with the placing which took place on 15November 2007, was not settled in cash but by the issue of 205,931 shares at theplacing price of 48.56 pence per share. The further equity funding facility would if called upon by the Company involvethe issue of new ordinary shares at a price per share set at a 10 per centdiscount to the average mid-price of the Company's shares during the fivetrading days prior to the agreement to issue the tranche of shares. The calloption may only be exercised in respect of multiples of £0.50 million and inrespect of a maximum aggregate amount of £1.00 million and may be exercised atany time prior to 20 May 2009. 18. Share options At 31 December 2007, the number of ordinary shares of 0.2 pence each subject tooptions granted under the Group's Approved and Unapproved Share Option Schemeswere: Exercise price At 1 Grants At 31Exercise Period per January during Options Options December share 2007 year expired exercised 2007 p No. No. No. No. No. 1 August 2004 - 31 33 165,000 - 115,000 50,000 -January 20071 August 2004 - 31 50 10,000 - 10,000 - -January 20071 August 2005 - 31 July 70 410,000 - 410,000 - -20071 October 2006 - 30 Sept. 70 150,000 - - - 150,00020081 April 2007 - 31 March 76 425,000 - - - 425,00020091 February 2008 - 31 74.50 350,000 - - - 350,000January 20131 February 2009 - 31 56.25 - 350,000 - - 350,000January 2014 1,510,000 350,000 535,000 50,000 1,275,000 The options outstanding at 31 December 2007 represent 2.2% of the issued sharecapital as at that date (2006: 2.7%) and the weighted average remaining life ofthe options was 42 months (2006: 38 months), with a weighted average remainingexercise price of 69.46p (2006: 66.24p). The options exercised during the year would otherwise have expired on 31 January2007. In respect of the options exercised during the year, the weighted averageshare price at the date of exercise was 64p. On 9 July 2007, 350,000 options over new ordinary shares were granted toemployees (not Directors) and a consultant. The Group's share option scheme rules apply to 1,175,000 of the optionsoutstanding at 31 December 2007 and include a rule regarding forfeiture of theunexercised options by a director or employee upon the cessation of theiremployment (except in specific circumstances). There were no market conditions within the terms of the grant of the options. The Black-Scholes-Merton formula is the option pricing model applied to thegrants of all options made on or after 7 November 2002 in respect of calculatingthe fair value of the options. 31 December 31 DecemberInputs to option pricing model 2007 2006Grant date 9 July 2007 8 July 2006Number of shares under option 350,000 350,000Share price at date of grant 55.30p 75.00pOption exercise price 56.25p 74.50pExpected life of options - based on previous 3 years 3 yearsexercise historyExpected volatility - based on 30 day annualised 39.23% 25.70%historyDividend yield - no dividends assumed 0% 0%Risk free rate - yield on treasury stock at date of 5.76% p.a. 4.75% p.a.grant Outputs generated from option pricing model 31 December 31 December 2007 2006Fair value per share under option 18p 18pTotal expected charge over the vesting period £63,000 £63,000 Recognised in the income statement for the year 31 December 31 December 2007 2006The share-based remuneration charge (note 6)comprises:Share-based payments £64,651 £43,374 19. Reserves Share Other Retained premium reserve losses reserve £ £ £At 1 January 2006 8,560,987 1,152,165 (7,832,392)Retained loss for the year - - (1,776,513)Share-based payment - - 43,374Shares issued during the year 3,836,420 - -Cost of share issues (146,132) - -At 1 January 2007 12,251,275 1,152,165 (9,565,531) Retained loss for the year - - (2,254,409)Share-based payment - - 64,651Shares issued during the year 1,111,869 - -Cost of share issues (101,768) - -At 31 December 2007 13,261,376 1,152,165 (11,755,289) The share premium reserve represents amounts subscribed for share capital inexcess of nominal value less the related costs of share issues. The other reserve represents the reserve arising on the acquisition of FuturaMedical Developments Limited on 6 June 2001 via a share for share exchangeaccounted for as a group reconstruction using merger accounting under UK GAAP. Retained losses represent cumulative net losses recognised in the consolidatedincome statement. 20. Pension costs The pension charge represents contributions payable by the Group toindependently administered funds which during the year ended 31 December 2007amounted to £67,258 (2006: £55,273). Pension contributions payable but not yetpaid at 31 December 2007 totalled £nil in respect of pension contributionentitlements where employees had not yet provided details of the funds to whichthe contributions should be made (2006: £2,125). In addition, pensioncontributions payable one month in arrears at 31 December 2007 totalled £2,258(2006: £2,027). All unpaid contributions are included in accrued expenses at therelevant balance sheet date. 21. Commitments At 31 December 2007 the Group had operating lease commitments in respect ofproperty leases cancellable on one month's notice of £6,014 (2006: £5,896). 22. Related party transactions Related parties, as defined by IAS 24 'Related Party Disclosures', are thewholly owned subsidiary company, Futura Medical Developments Limited, and theBoard. Transactions between the Company and the subsidiary company have beeneliminated on consolidation and are not disclosed in this note. W D Potter, a Director of the Company, provides consulting services to thewholly owned subsidiary, Futura Medical Developments Limited, through StaplefordScientific Services Limited. Of the total fees and expenses, excluding VAT,invoiced during the year of £79,668 (2006: £79,479), the amount outstanding at31 December 2007 including VAT was £7,651 (2006: £7,680). Key management compensation The Directors' represent the key management personnel. Details of theircompensation and share options are given in note 7. 23. Explanation of transition to IFRS This is the first year that the Group has presented its full consolidatedfinancial information under IFRS. The transition to IFRS has had no impact onthe Group cash flow statement, other than on the layout. The requirements ofFinancial Reporting Standard 20 'Share-based Payment' were applied for the firsttime for the year ended 31 December 2006 (on the same basis as apply under IFRS2 'Share-based Payment'). The last financial statements under UK GAAP were forthe year ended 31 December 2006 and the date of full transition to IFRS wastherefore 1 January 2006. The following disclosures are required in the year oftransition. Reconciliation of Group equity at 1 January 2006 (date of transition to IFRS) Note UK GAAP IFRS IFRS Restatement £ £ £Plant and equipment 25,370 - 25,370Inventories 31,956 - 31,956Trade and other receivables 69,543 - 69,543Income tax asset 281,536 - 281,536Cash and cash equivalents 1,808,913 - 1,808,913Total assets 2,217,318 - 2,217,318Trade and other payables (i) (237,147) (1,534) (238,681)Total net assets 1,980,171 (1,534) 1,978,637 Share capital 97,877 - 97,877Share premium reserve 8,560,987 - 8,560,987Other reserve 1,152,165 - 1,152,165Retained losses (ii) (7,830,858) (1,534) (7,832,392)Total equity 1,980,171 (1,534) 1,978,637 Note (i): Holiday pay provision IAS 19 'Employee Benefits' requires the creation of an accrued holiday payprovision. This was not required under UK GAAP. Note (ii): Retained losses The impact of (i) is a charge to retained earnings of £1,534 at the date oftransition. 23. Explanation of transition to IFRS (continued) Reconciliation of Group equity at 31 December 2006 Note UK GAAP IFRS IFRS Restatement £ £ £Plant and equipment 20,109 - 20,109Inventories 32,648 - 32,648Trade and other receivables (i) 156,993 1,039,031 1,196,024Income tax asset 195,034 - 195,034Cash and cash equivalents 3,779,798 (1,039,031) 2,740,767Total assets 4,184,582 - 4,184,582Trade and other payables (ii) (233,143) (2,923) (236,066)Total net assets 3,951,439 (2,923) 3,948,516 Share capital 110,607 - 110,607Share premium reserve 12,251,275 - 12,251,275Other reserve 1,152,165 - 1,152,165Retained losses (iii) (9,562,608) (2,923) (9,565,531)Total equity 3,951,439 (2,923) 3,948,516 Note (i): Trade and other receivables IFRS 7 'Financial Instruments: Disclosures' requires reclassification of mediumterm deposits. Note (ii): Holiday pay provision IAS 19 'Employee Benefits' requires the creation of an accrued holiday payprovision. This was not required under UK GAAP. Note (iii): Retained losses The impact of (i) is a charge to retained earnings (ii) of £2,923 at 31 December2006. Reconciliation of consolidated income statement for year ended 31 December 2006 Note UK GAAP IFRS IFRS Restatement £ £ £Revenue 301 - 301Research and development costs (i) (1,077,312) (2,674) (1,079,986)Administrative costs (i) (1,030,360) 1,285 (1,029,075)Operating loss (2,107,371) (1,389) (2,108,760)Finance income 136,114 - 136,114Loss before tax (1,971,257) (1,389) (1,972,646)Taxation 196,133 - 196,133Loss for the year attributable toequity holders of the company (1,775,124) (1,389) (1,776,513) Note (i): Holiday pay provision IAS 19 'Employee Benefits' requires the creation of an accrued holiday payprovision. This was not required under UK GAAP. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Futura Medical