Pyxis Tankers
Annual Report 2010

Plain-text annual report

Provexis plc Annual report and accounts 2010 Company number 05102907 Contents 3 4 5 6 9 11 17 22 24 25 26 27 28 52 53 58 Corporate statement Key highlights Chairman’s statement Chief Executive’s statement Directors’ report – financial review Directors’ report – business overview Directors’ report – remuneration report Independent auditor’s report Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of changes in equity Notes to the consolidated financial statements Parent company balance sheet Notes to the parent company financial statements Company information Corporate statement The Provexis strategy is the discovery, development and licensing of scientifically-proven functional food, medical food and dietary supplement technologies, with five areas of focus: • Collaborating with leading research institutes to identify and develop proprietary technologies • Developing credible scientific proof to demonstrate efficacy and support product claims • Gaining regulatory and safety clearances in relevant global markets • Implementing global IP strategies, underpinned by strong patent portfolios • Commercialising technologies through collaboration and licensing with global brand owners and ingredients corporations. Provexis plc Annual report and accounts 2010 3 Key highlights Long-term Alliance Agreement with DSM Nutritional Products to commercialise Fruitflow® heart-health technology in all major global markets, in existing formats and pioneering new and significant applications. Significant funding secured during the period to advance product pipeline and support potential acquisitions: • £7.1m, before costs, from two share placings • Equity Financing Facility with Evolution Securities of up to £25m Fruitflow® gained first ever Article 13(5) health claim approval from the European Commission, authorising the use of “Helps maintain normal platelet aggregation, which contributes to healthy blood flow.” Clinical trial for NSP#3G for Crohn’s disease patients commenced in December 2009. Long-term collaboration with Institute of Food Research commenced in April 2010 to commercialise novel extracts for the reduction of cardiovascular inflammation and the reduction of risk of certain cancers. Key financial results Loss attributable to owners of the parent £1,648,180 (2009: £4,570,506). Cash balance £7,049,134 (2009: £1,678,263). Loss per share 0.18p (2009: 0.71p). Provexis plc Annual report and accounts 2010 4 Chairman’s statement The year saw strong progress from the Company, with its first major commercial agreement signed and a substantial strengthening of its balance sheet. Today we announced a long-term Alliance Agreement for our Fruitflow® heart-health technology with our strategic partner DSM Nutritional Products. This agreement will see the partners collaborate on the development of Fruitflow® in all major global markets, with DSM bringing technical, manufacturing and marketing expertise, together with global selling scale. The partners will share profits from the Alliance on an agreed basis. We raised £7.1m (before costs) of new capital in September and December 2009, which substantially strengthened our balance sheet and, in addition, in March 2010 we entered into an Equity Financing Facility of up to £25m to give flexibility in our funding options. The Board and executive team are working to identify acquisitions that will further strengthen the business given the access to the funding in place. We are assessing both revenue-generating businesses in the consumer healthcare area and new technology candidates for our pipeline. We made very strong progress on the regulatory and research fronts. Indeed, gaining the first ever Article 13(5) health claim approval from the EC for our Fruitflow® technology, was a major milestone. We have now commenced the clinical trial for our NSP#3G technology for Crohn’s disease and intend to report on progress later in the year. In addition, we added an important new technology for the reduction of cardiovascular inflammation to our pipeline as part of a long-term collaboration with the renowned Institute of Food Research. We believe that we are well positioned to take advantage of opportunities in the functional food and dietary supplement sectors, given our proven scientific and regulatory capability. With medical foods in strong growth, the team will bring focus to bear on pipeline technologies to serve this sector. On behalf of the Board I would like to thank our staff and scientific advisors for their expertise, dedication and commitment throughout the year. Dawson Buck Chairman 1 June 2010 Provexis plc Annual report and accounts 2010 5 Chief Executive’s statement Strategy This was a year of important progress in a number of areas which positions the Company strongly to capitalise on opportunities in the coming year. The two key events during the year were the first commercial deal for our lead Fruitflow® heart-health technology and a substantial strengthening of our balance sheet. We completed two fund-raisings in September and December 2009, raising £7.1m in total before costs. In March we signed an Equity Financing Facility of up to £25m with Evolution Securities Ltd via its appointed representative, Darwin Capital, which together with our cash reserves gives us flexibility in funding options for seeking growth opportunities. The Company continues to execute its strategy of discovery, development and licensing of functional foods, medical foods and dietary supplements. To this end, with a commercial deal in place and a second technology in clinical trial, the executive team is seeking to extend the Company’s growth platform through the acquisition of a revenue generating business in the consumer healthcare area and through acquisitions of novel pipeline technologies. Accordingly, the Company is in exploratory talks with a number of targets. With a growing product pipeline, we continue to strengthen our R&D operations to ensure that we can quickly take advantage of existing and new technology opportunities. As part of this process, we are expanding our presence in the North West of England and have recently moved into a new laboratory facility in Liverpool, focused on gastrointestinal health. We have appointed an experienced R&D Director to develop this new facility and intend to strengthen the scientific team further. Our existing facility at the University of Aberdeen will maintain its focus on cardiovascular health. The functional food sector continues to be somewhat fragile, given the increased regulatory burden in relation to health claims, which is causing uncertainty across the industry. This, together with the still tentative approach to innovation by major brand owners as a result of economic factors and the regulatory issues, leads us to maintain our cautious outlook. Saying that, we believe that we have sufficiently strong foundations in place together with our proven scientific and regulatory capability, to ensure that we continue to make progress. The medical food sector is looking increasingly robust on a short and long-term view thereby steering us towards accelerating technology products in this sector. Fruitflow® Today we announced a long-term Alliance Agreement with DSM Nutritional Products, which will see the partners collaborate to develop Fruitflow® in all major global markets, through an effective commercialisation of current formats and pioneering new and significant applications. DSM will be responsible for: manufacturing; marketing; and selling via its substantial sales force. Provexis will be responsible for contributing scientific expertise necessary for successful commercialisation. Profits from the Alliance will be shared by the parties on an agreed basis, linked to various performance milestones. All other commercial terms of the Alliance remain confidential between the two parties. We are currently developing with DSM a launch plan to market Fruitflow® worldwide for application in both food and dietary supplement formats. Fruitflow® enjoyed significant acclaim during the year. In May 2009 Fruitflow® became the first product to receive scientific approval from the European Food Safety Authority under Article 13(5) of Regulation EC 1924/2006 for proprietary and emerging science. In December 2009 the European Commission authorised the health claim “Helps maintain normal platelet aggregation, which contributes to healthy blood flow”. Fruitflow® continues to be the only product to receive Article 13(5) approval to date. In March 2010, we announced the headline results of a human trial comparing the effects of Fruitflow® to aspirin. The results were positive, with Fruitflow® showing a reduction in platelet aggregation of up to 30% in each of three different biological pathways, while aspirin caused up to 60% reduction predominantly in a single pathway. There were no negative interactions. Provexis plc Annual report and accounts 2010 6 Chief Executive’s statement continued Fruitflow® (continued) As to existing use of Fruitflow®, Multiple Marketing, owners of the Sirco juice brand which contains Fruitflow®, continue to market and sell the product in major multiple and high street outlets in the UK, including Waitrose and Holland & Barratt. As well as a one-litre pack, a 250ml pack suitable for high street and convenience outlets will be launched in the coming year. Provexis receives royalties from sales of Sirco, although these are non-material at this stage in the development of the brand. NSP#3G The first 20 patients (of a total target of 72) are now in clinical trials to establish the effectiveness of an NSP#3G medical food format in keeping Crohn’s disease in remission. The trial is running in two centres in the North West of England and we are seeking to extend into two further centres in the UK in order to accelerate the trial. The market for Crohn’s disease products is forecast to be worth $1.7bn by 2013 and the medical food market is in strong growth, led by Abbott, Nestlé and Danone. Once recruited, each patient’s participation in the trial is scheduled to run for 12 months and estimated completion is in mid-2011, with an update on progress later in 2010. The Company intends to commence commercial discussions with potential partners by the end of 2010. With investment in the team and facilities in our Liverpool operation, the team will be accelerating work on the potential NSP#3G application for the prevention and treatment of significant pathogens including C.difficile, the so-called hospital ‘super bug’. Isothiocyanates The Company announced on 26 April 2010 a long-term collaboration with the Institute of Food Research (“IFR”). Provexis has been granted exclusive access to a portfolio of potentially high-value intellectual property related to the treatment and reduction of systemic inflammation, from which it intends to develop commercial products. Professor Richard Mithen of IFR has developed a substantial body of work over twenty years in the area of isothiocyanates for the reduction of risk of certain major cancers. More recent work, some in collaboration with Provexis, has led to the discovery of a broader effect in other areas of systemic inflammation, including cardiovascular inflammation. The partners will collaborate to develop the science, with major areas including clinical trials, extract development, further IP development, regulatory clearances and commercialisation. The first phase of the project gives Provexis the exclusive option to license the technology and if successful in this phase, Provexis intend to fully in-license the technology rights. Initially the Company, supported by IFR’s substantial research, will focus on developing commercial products targeting the reduction of cardiovascular inflammation. A longer-term objective is to develop technologies designed to mitigate the risk of certain major cancers. Pipeline We are collaborating with our strategic partner DSM Nutritional Products to establish if there are further candidates within DSM’s portfolio that may provide a good fit with our strategic goals and where we can use our scientific and regulatory expertise to accelerate technologies to commercial readiness. The option to license Helicobacter pylori intellectual property from the University of Manchester will not be extended after reaching an amicable termination agreement with the University. Provexis plc Annual report and accounts 2010 7 Chief Executive’s statement continued Outlook The coming year looks promising as we focus on three major goals: a successful commercial launch of Fruitflow® with our strategic partner DSM; progressing our NSP#3G technology through clinical trial and exploratory commercial discussions and; strengthening the business by acquisition of appropriate businesses or technologies. We believe that our operating environment will continue to be challenging in the year ahead, given the tightening food regulation framework and the still tentative approach to innovation by brand owners. However we are well positioned to overcome these challenges via our collaborations with other parties, diversity of activities and demonstrable commercial abilities. Stephen Moon Chief Executive 1 June 2010 Provexis plc Annual report and accounts 2010 8 Directors’ report – financial review International Financial Reporting Standards The Financial Review should be read in conjunction with the consolidated financial statements and the notes to the financial statements set out on pages 24 to 51. The Group financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union (“adopted IFRS”) and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements of the Company continue to be prepared in accordance with United Kingdom Generally Accepted Accounting Practice (“UK GAAP”) and are set out on pages 52 to 57. Revenue and grant income Revenue for the year ended 31 March 2010 was £14,767 (2009: £5,400). Grant income for the year ended 31 March 2010 was £80,000 (2009: £20,000), being the final part of a £100,000 grant which was awarded to the Group in January 2009 by The Northwest Regional Development Agency (NWDA). Research and development costs Research and development (“R&D”) costs for the year ended 31 March 2010 were £718,468 (2009: £651,301), including £20,646 capitalised under IAS 38 (2009: £16,690), reflecting an increase in R&D activity for the Fruitflow® project, and the commencement of the clinical trial for the Group's NSP#3G technology for Crohn’s disease. R&D expenditure comprises in-house costs (staff, R&D consumables, intellectual property, facilities and depreciation of R&D assets) and external costs (preclinical studies, manufacturing, regulatory affairs and clinical trials). The Group’s R&D team continues to research further claim areas for the Group’s technologies. The Group aims to achieve cost effective research and development and to bring products to market through licensing partners as soon as is practicable. Administrative costs Administrative costs for the year relating to continuing operations were £1,184,859 (2009: £967,111), which includes a share-based payment charge of £225,909 (2009: £112,630). Net of the share-based payment charge administrative costs for the year were £958,950, a £104,469 increase from the net £854,481 incurred in 2009. The Group’s cost base and its resources have been and will continue to be tightly managed. Taxation A research and development tax credit of £54,408 (2009: £50,000) in respect of research and development expenditure incurred has been recognised in the financial statements and is shown as a debtor at 31 March 2010. Losses and dividends The loss for the year ended 31 March 2010 was £1,648,180 (2009: £4,570,506) and the loss per share from continuing operations was 0.18p (2009: 0.71p). The adjusted overall loss for the year ended 31 March 2009, net of the £3,099,328 non-cash goodwill impairment charge, was £1,471,178 and the adjusted loss per share net of goodwill impairment, was 0.23p. The directors do not recommend the payment of a dividend (2009: £Nil). Financial instruments Information about the use of financial instruments by the Group is disclosed in notes 1 and 2. Provexis plc Annual report and accounts 2010 9 Directors’ report – financial review continued Capital structure and funding The group is funded entirely by equity funding. On 30 September 2009 the Company raised £1.024m gross from the first tranche of a £5.0m gross new share subscription to provide working capital and funding for pipeline development. The net proceeds of the first tranche of the share subscription were £0.956m after share issue costs. On 16 October 2009 the Company raised £3.976m gross from the second tranche of the £5.0m gross new share subscription. The net proceeds of the second tranche of the share subscription were £3.793m after share issue costs. The £5.0m gross subscription involved the issue of 200,000,000 new ordinary shares at 2.5p per share. Full details of the subscription were provided in a circular to shareholders on 28 September 2009. The circular is available to download from the Company’s website www.provexis.com. On 3 December 2009 the Company announced that it proposed to raise up to a further £2.130m gross from an open offer to shareholders, with an excess application facility, involving the issue of up to 85,211,664 new ordinary shares at 2.5p per share. Full details of the open offer were provided in a circular to shareholders on 3 December 2009, which is available to download from the Company’s website www.provexis.com. On 22 December 2009 the Company announced that: • Qualifying shareholders had applied for 48,335,151 open offer shares under their basic pro rata entitlement, representing 56.7 per cent. of the total number of offer shares available; • The number of open offer shares applied for by qualifying shareholders under the excess application facility amounted to 336,326,065 shares, which meant that excess applications had to be scaled back on a pro rata basis, in proportion to the total number of excess shares applied for. The Company therefore issued 36,876,513 open offer shares under the excess application facility. The net proceeds of the open offer were £1.980m after share issue costs. On 31 March 2010 the Company announced that it had secured a 3 year Equity Financing Facility of up to £25m (the “EFF”) with Evolution Securities Limited (“Evolution”). The EFF has been arranged by Darwin Strategic Limited (“Darwin”), an appointed representative of Evolution. The EFF agreement, which is dated 30 March 2010, provides the Company with a facility which (subject to certain limited restrictions) can be drawn down at any time over the 3 years ending on 29 March 2013. The timing and amount of any draw down is at the discretion of Provexis. Provexis is under no obligation to make a draw down and may make as many draw downs as its wishes, up to the total value of the EFF, by way of issuing subscription notices to Evolution. Following delivery of a subscription notice, Evolution will subscribe and Provexis will allot to Evolution new ordinary shares of 0.1p each (“Ordinary Shares”). The subscription price for any Ordinary Shares to be subscribed by Evolution under a subscription notice will be at a 7.5% discount to an agreed reference price determined during 5, 10 or 15 trading days following delivery of a subscription notice (the “Pricing Period”). The length of the Pricing Period is at the discretion of Provexis and is set at each relevant subscription notice. Provexis is also obliged to specify in each subscription notice a minimum price below which Ordinary Shares will not be issued. In consideration of Evolution agreeing to provide the EFF the Company has entered into a warrant agreement dated 30 March 2010 for the grant to Evolution of warrants to subscribe for up to ten million Ordinary Shares, such warrants to be exercisable at a price of 20 pence per share and to be exercisable at any time prior to the expiry of 36 months following the date of the warrant agreement. The Directors are of the opinion that at 1 June 2010, the Company's liquidity and capital resources are adequate to deliver the current strategic objectives and 2010/11 business plan and that the Company meets going concern criteria. See also note 1 to the consolidated financial statements on page 28. Cash at bank at 31 March 2010 was £7,049,134 (31 March 2009: £1,678,263). Provexis plc Annual report and accounts 2010 10 Directors’ report – business overview Principal activities Provexis plc is a life sciences-driven enterprise that discovers, develops and licenses scientifically-proven technologies for the global functional food, medical food and dietary supplement sectors. Provexis plc has two wholly owned subsidiaries, Provexis Nutrition Limited (“PNL”) and Provexis Natural Products Limited (“PNP”) each of which is registered in England and Wales. Provexis plc also owns 75% of Provexis (IBD) Limited (“IBD”) which is also registered in England and Wales. Group strategy The Provexis strategy is the discovery, development and licensing of functional food, medical food and dietary supplement technologies, with five areas of focus: • Collaborating with leading research institutes to identify and develop proprietary technologies • Developing credible scientific proof to demonstrate efficacy and support product claims • Gaining regulatory and safety clearances in relevant global markets • Implementing global IP strategies, underpinned by strong patent portfolios • Commercialising technologies through collaboration and licensing with global brand owners and ingredients corporations. Review of the performance of the business and future developments The Chairman’s Statement on page 5, the Chief Executive’s Statement on pages 6 to 8 and the Financial Review on pages 9 and 10 report on the Group’s performance during the year ended 31 March 2010, its position at that date and its likely future development. Key performance indicators The executive management and Directors utilise a balanced scorecard of key activities including R&D project progress, commercial milestones and regulatory activities to monitor and measure the performance of the business. These are measures of the progress of the business towards its strategic target of revenue generation and profitability, and are considered by the Board to be the key non-financial performance indicators used to determine achievement of Group strategy and are discussed in the Chief Executive’s statement. The balanced scorecard is reviewed regularly by the executive team and the Directors. The Directors consider Group cash and the absolute values of, and the ratio between, research and development costs and other administrative overhead costs as being the Group’s key financial performance indicators. The cost related indicators assist in monitoring financial control to reduce the hurdle to achieving the key future financial milestone of monthly break-even. The monitoring of cash gives due consideration to anticipated future spend required to prioritise development opportunities and to plan the resources required to achieve the goals of the business. The table below shows the Group’s cash position at 31 March 2010 and 31 March 2009: Cash at bank and in hand 31 March 2010 £ 7,049,134 7,049,134 31 March 2009 £ 1,678,263 1,678,263 Provexis plc Annual report and accounts 2010 11 Directors’ report – business overview continued Key performance indicators (continued) The table below shows the Group’s R&D ratio for the two years ended 31 March 2010. The R&D ratio is the percentage of research and development costs relative to total operating expenses. Research and development costs Administrative costs before goodwill impairment Total operating costs before goodwill impairment R&D ratio 31 March 2010 £ 697,822 1,184,859 1,882,681 37% 31 March 2009 £ 634,611 967,111 1,601,722 40% The decrease in the R&D ratio for the year is primarily due to an increase of £113,279 in the share-based payment charge, a constituent part of administrative costs, which rose from £112,630 in 2009 to £225,909 in 2010. Post balance sheet events On 1 June 2010 the Company announced a long-term Alliance Agreement with DSM Nutritional Products, which will see the Company collaborate with DSM to develop Fruitflow® in all major global markets. DSM will invest substantially in the manufacture, technology development, marketing and sale of Fruitflow® in the coming years. Provexis will continue to contribute scientific expertise and will collaborate in areas such as cost of goods optimisation and regulatory matters. The financial model is based upon the division of profits between the two partners on an agreed basis, linked to certain revenue targets, following the deduction of the cost of goods and a fixed level of overhead from sales. The Company is working closely with DSM in various areas related to launch planning. See also note 23 to the consolidated financial statements on page 51. Principal risks and uncertainties The Directors consider that the key risks of the Group are as set out below: The Group’s success will depend in part on its ability to obtain and maintain rigorous patent protection for its technologies both in the UK and internationally. The Group cannot give definitive assurance that pending or future patent applications will be granted or that patents granted will not be challenged, invalidated or held unenforceable. The Group cannot assure that its intellectual property rights are sufficiently broad to prevent third parties from producing competing functional food, medical food and dietary supplement technologies similar in nature to its own. The Group also relies on protection of trade secrets, know-how and confidential and proprietary information. To mitigate this, the Group enters into non-disclosure agreements with employees, consultants and prospective commercial partners but cannot assure that such agreements will provide complete safeguards against unauthorised disclosure of confidential information. The Group’s commercial success will also depend in part on avoiding infringement of other third parties’ patents or proprietary rights and the breach of any licences in connection with the pursuit of its technologies. Management is of the opinion that it does not infringe third parties’ patents or other rights and is not aware of any such infringements but cannot assure that it will not be found in the future to infringe such rights. The Group has a limited pipeline of new technologies and new indications for technologies already in development. As a result of regulatory and competitive uncertainties and the unpredictability of successful outcomes to new research and development, the Group cannot provide assurance that it will be able to develop and license these new technologies. The Group continues to pursue acquisitions as part of its growth strategy. Such acquisitions may not realise expected benefits. Provexis plc Annual report and accounts 2010 12 Directors’ report – business overview continued Principal risks and uncertainties (continued) The Group currently employs nine people, excluding Non-executive Directors, and has a very small management team. Should it lose any key management resources and be unable to attract replacements of equivalent calibre to continue implementation of its business plan, future development and commercial activities could be materially adversely affected. The Group relies on potential license partners to meet certain commercial and development milestones and their failure to achieve this, or other delays or cancellation of projects due to internal or market factors affecting potential license partners could affect the execution of the Group’s business plan, with a material adverse effect on the business. In these circumstances the Group would look to raise additional funding through the issue of additional equity through rights issues, share placing and the exercise of share options but no assurance can be given regarding the successful outcome of such financing initiatives. Policy on the payment of creditors It is the policy of the Group to pay creditors and suppliers in accordance with their normal terms of business. Creditor days outstanding for the Group at 31 March 2010 amounted to 33 days compared to 28 days at 31 March 2009. Board of Directors The Board of Directors has overall responsibility for the Group. The Board comprises a Non-executive Chairman, three additional Non-executive Directors, two of whom are independent, and three further Executive Directors. The Board continues to be satisfied that it has an appropriate mix of independence and experience in its Non-executive Directors. The roles of Chairman and Chief Executive are and will remain separate and it is not permissible for the same individual to be appointed to both roles simultaneously. The Chairman provides strategic and operational guidance and also oversees the duties performed by the Chief Executive and ensures that they are in line with Board expectations. The Chief Executive manages the day-to-day running and strategic direction of the Group in line with policy decisions agreed with the Board and shareholder expectations. The Board retains full control of the Group with day-to-day operational control delegated by the Board to the Executive Directors. The full Board meets every two months, and on any other occasions it considers necessary. The Board is responsible for approving interim and annual financial statements, formulating and monitoring Group strategy and approving financial plans and reviewing performance, as well as complying with legal, regulatory and corporate governance matters. There is a schedule of matters reserved for the Board. Board papers are circulated in advance of each Board meeting. The Directors of the Company during the year are shown below. Executive Directors S N Moon S N Morrison I Ford Non-executive Directors C D Buck N C Bain K Rietveld J B Diggines (resigned 17 September 2009) A qualifying third-party indemnity provision as defined in Section 234 of the Companies Act 2006 is in force for the benefit of each of the Directors in respect of liabilities incurred as a result of their office, to the extent permitted by law. In respect of those liabilities for which Directors may not be indemnified, the Company maintained a Directors’ and officers’ liability insurance policy throughout the financial year. Provexis plc Annual report and accounts 2010 13 Directors’ report – business overview continued Audit Committee The Audit Committee comprises two Non-executive Directors, and is chaired by Neville Bain as Senior Independent Non-executive Director. It meets as required and specifically to review the Interim Report and Annual Report and to consider the suitability and monitor the effectiveness of the internal control processes. There were three Audit Committee meetings during the year. The Audit Committee reviews the findings of the external auditors and reviews accounting policies and material accounting judgements. The independence of the auditors is considered by the Audit Committee. The Audit Committee (with no Executive Director present) meets at least once per calendar year with the auditors to discuss their objectivity and independence, the Annual Report, any audit issues arising, internal control processes and any other appropriate matters. As well as providing audit related services, the auditors provide taxation advice and undertake work in relation to the interim report. The fees in respect of the non-audit services provided are £25,000 for the year ended 31 March 2010 (2009: £18,000). Further, the overall fees paid to the auditors are not deemed to be of such significance to them as to impair their independence. The Audit Committee considers that the objectivity and independence of the auditors is safeguarded. The current terms of reference of the Audit Committee are set out in the governance pages on the Group’s website www.provexis.com. Internal control The Directors are responsible for establishing and maintaining the Group’s system of internal control and for reviewing its effectiveness. The system of internal control is designed to manage, rather than eliminate, the risk of failure to the achievement of business objectives and can only provide reasonable but not absolute assurance against material misstatement or loss. The Audit Committee continues to monitor and review the effectiveness of the system of internal control and report to the Board when appropriate with recommendations. There have been no significant changes to the system of internal control throughout the year. The annual review of internal control and financial reporting procedures did not highlight any issues warranting the introduction of an internal audit function. It was again concluded, given the current size and transparency of the operations of the Group, that an internal audit function was still not required. The main features of the internal control system are outlined below: ● A control environment exists through the close management of the business by the Executive Directors. The Group has a defined organisational structure with delineated approval limits. Controls are implemented and monitored by the Executive Directors. ● The Board has a schedule of matters expressly reserved for its consideration and this schedule includes acquisitions and disposals, major capital projects, treasury and risk management policies and approval of budgets. ● The Group utilises a detailed budgeting and forecasting system. Detailed budgets are prepared annually by the Executive Directors before submission to the Board for approval. Forecasts are regularly updated at least quarterly to reflect changes in the business and are monitored by the Board including future cash flow projections. Actual results are monitored against annual budgets regularly and at least quarterly, with variances highlighted for the Board. ● Financial risks are identified and evaluated for each major transaction for consideration by the Board. ● Standard financial control procedures operate throughout the Group to ensure that the assets of the Group are safeguarded and that proper accounting records are maintained. ● A risk review process is in operation whereby the Chief Executive and Finance Director present a report to the Board each year on the key business risks. Provexis plc Annual report and accounts 2010 14 Directors’ report – business overview continued Going concern The Directors have a reasonable expectation that the Group and the Company will continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Group’s financial statements. See also note 1 to the consolidated financial statements on page 28. Employees The Executive Directors keep staff informed of the progress and development of the Group regularly through formal and informal meetings and employee feedback is encouraged. The Company has a policy of offering share options to all eligible employees, subject to availability under the option plan rules and with due consideration to the level of dilution to shareholders. The Group does not discriminate between employees and prospective employees on grounds of age, race, religion or gender. Every effort is made to provide the same opportunities to disabled persons as to others. The Board recognises its obligation towards its employees to provide a safe and healthy working environment. The Group complies with health and safety legislation including conducting regular inspections and risk assessments. Environmental, social and community matters As a result of the size and nature of the Group’s operations, the impact of the Group’s operations on the local community and the environment is not considered to be significant. Recycling of office supplies is undertaken where possible. Charitable and political contributions No political or charitable donations were made during the year (2009: £Nil). Relationship with shareholders The Directors seek to build a mutual understanding of objectives between the Company and its shareholders. The Group reports formally to shareholders in its interim and annual reports setting out details of its activities. In addition, the Group keeps shareholders informed of events and progress through the issue of regulatory news in accordance with the AIM rules of the London Stock Exchange. The Chief Executive and Finance Director seek to meet with significant shareholders following interim and final results. The Group also maintains investor relations pages and other information regarding the business, its products and activities on its website www.provexis.com. Where possible the Annual Report is sent to shareholders at least 20 working days before the Annual General Meeting. Directors are required to attend Annual General Meetings of the Company unless unable to do so for personal reasons or due to pressing commercial commitments. Shareholders are given the opportunity to vote on each separate issue. The Company counts all proxy votes and will indicate the level of proxies lodged on each resolution, after it has been dealt with by a show of hands. Adequacy of information supplied to auditors Each Director has taken all reasonable steps to make himself aware of any information needed by the Company’s auditors for the purpose of their audit and to establish that the auditors are aware of that information. The Directors are not aware of any relevant audit information of which the auditors are unaware. During the year BDO Stoy Hayward LLP changed their name to BDO LLP. BDO LLP have expressed their willingness to continue in office. Under the Companies Act 2006 section 487(2) they will be automatically re- appointed as auditors 28 days after these accounts are sent to the members, unless the members exercise their rights under the Companies Act 2006 to prevent their re-appointment. Provexis plc Annual report and accounts 2010 15 Directors’ report – business overview continued Directors’ responsibilities The directors are responsible for preparing the directors’ report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group for that period. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • • • state whether the group financial statements have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; state whether the company financial statements have been prepared in accordance with applicable UK Accounting Standards, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Website publication The directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the company's website is the responsibility of the directors. The directors' responsibility also extends to the ongoing integrity of the financial statements contained therein. By order of the Board Ian Ford Secretary 1 June 2010 Provexis plc Annual report and accounts 2010 16 Directors’ report – remuneration report Remuneration Committee: composition and terms of reference The Group’s Remuneration Committee during the year ended 31 March 2010 comprised two independent Non-executive Directors and was chaired by Dawson Buck. The purpose of the Remuneration Committee is to ensure that the Executive Directors are fairly rewarded for their individual contribution to the overall performance of the Company. The Committee considers and recommends to the Board the remuneration of the Executive Directors and is kept informed of the remuneration packages of senior staff and invited to comment on these. Policy on Executive Directors’ remuneration Executive remuneration packages are designed to attract and retain executives of the necessary skill and calibre to run the Company successfully but avoiding paying more than is necessary. Direct benchmarking of remuneration is not possible given the specialised nature and size of the Company. The Remuneration Committee recommends to the Board remuneration packages by reference to individual performance and uses the knowledge and experience of the Non-executive Directors and published surveys relating to AIM Directors, and market changes generally. The Remuneration Committee has responsibility for recommending any long term incentive schemes. The full Board determines whether or not Executive Directors are permitted to serve in roles with other companies. Such permission is only granted where a role is on a strictly limited basis, where there are no conflicts of interest or competing activities and providing there is not an adverse impact on the commitments required to the Group. Earnings from such roles are not disclosed nor paid to the Group. There are four main elements of the remuneration package for Executive Directors and senior staff: (i) Basic salaries and benefits in kind Basic salaries are recommended to the Board by the Remuneration Committee, taking into account the performance of the individual and the rates for similar positions in comparable companies. Benefits in kind comprising private medical insurance are available to all senior staff and Executive Directors. (ii) Share option scheme The Company operates a share option scheme which was established in June 2005 (”the Provexis 2005 share option scheme”) to motivate the Executive Directors and employees through equity participation in the Company. Options granted pursuant to the Provexis 2005 share option scheme may take the form of either unapproved share options or tax favoured EMI options. Exercise of options under the scheme is subject to specified exercise periods and compliance with the AIM rules of the London Stock Exchange. The scheme is overseen by the Remuneration Committee which recommends to the Board all grants of share options based on the Committee’s assessment of personal performance and specifying the terms under which eligible individuals may be invited to participate. In June 2005 the Company undertook a reverse takeover of Provexis Natural Products Limited (“PNP”, formerly Provexis Limited) through a share for share exchange. Prior to the takeover the Company and PNP had granted EMI options and unapproved options. Options granted by the Company prior to the takeover remain subject to the same terms as contained in the individual share option contracts under which they were originally granted. The PNP EMI options and unapproved options were rolled over into options over the Company’s ordinary shares, and these replacement options remain subject to the same terms as contained in the individual PNP share option contracts under which they were originally granted. The Combined Code refers to the requirement for the performance-related elements of remuneration to form a significant proportion of the total remuneration package of Executive Directors and should be designed to align their interests with those of shareholders. In the development phase of the Group and during the early stages of revenue generation, the Remuneration Committee currently considers that the best alignment of these interests is through continued use of incentives for performance through the award of share options or other share-based arrangements. Provexis plc Annual report and accounts 2010 17 Directors’ report – remuneration report continued Policy on Executive Directors’ remuneration (continued) (iii) Bonus scheme The Company has an established discretionary non-pensionable bonus scheme for Executive Directors, which is subject to the achievement of agreed goals and targets that are designed to incentivise Directors to perform at the highest levels, and align Directors’ interests with those of the shareholders. For the Executive Directors the performance-related annual bonus potential is up to 15% of basic salary. The Remuneration Committee approved bonuses of 15% of salary for 2010 based on the achievements in 2010. In 2009 no annual bonuses were paid. (iv) Pension contributions The Group pays a defined contribution to the pension scheme of Executive Directors and employees. The individual pension schemes are private and their assets are held separately from those of the Group. Salaries and benefits were reviewed in April 2009 and October 2009 to cover the year from 1 April 2009 to 31 March 2010. Future reviews will continue to be undertaken on an annual basis each April to enable the Group’s performance over the preceding financial year and the strategy for the forthcoming year to be considered. Service contracts The Chief Executive is employed under a service contract requiring twelve months’ notice by either party, and the Chief Operating Officer and Finance Director are employed under service contracts requiring three months’ notice. All Non-executive Directors receive payments under appointment letters which are terminable by three months’ notice from either party. Policy on Non-executive Directors’ remuneration The Non-executive Directors and the Chairman each receive a fee for their services as a director, which is approved by the Board, mindful of the time commitment and responsibilities of their roles and of current market rates for comparable organisations and appointments. Non-executive Directors are reimbursed for travelling and other minor expenses incurred. Neville Bain, Non-executive Director, received 330,300 share options prior to the Group joining AIM, and he exercised these options on 12 February 2010. However, to maintain independence, the Non-executive Directors do not participate in any incentive or share option arrangements. Gains made on exercise of directors’ share options 2010 options exercised Exercise date Options exercised N C Bain - exercise of share options granted on 17 June 2004 12-Feb-10 330,300 Gain Year ended 31 March 2010 £ Year ended 31 March 2009 £ 20,082 20,082 — — Provexis plc Annual report and accounts 2010 18 Directors’ report – remuneration report continued Details of directors’ remuneration The emoluments of the individual Directors for the year were as follows: Executive Directors S N Moon S N Morrison (appointed 1 October 2008) I Ford Non-executive Directors C D Buck N C Bain J B Diggines (resigned 17 September 2009) K Rietveld (appointed 29 August 2008) Year ended 31 March 2010 Benefits in kind Bonus payments Pension Total Year ended 31 March 2009 Total £ £ £ £ £ Salary and directors’ fees £ 157,794 117,888 97,158 852 1,554 1,553 24,523 18,115 15,207 7,980 191,149 5,894 143,451 4,948 118,866 162,486 61,061 101,053 42,500 17,500 7,500 — 440,340 — — — — 3,959 — — — — 57,845 — — — — 42,500 17,500 7,500 — 18,822 520,966 31,458 16,459 15,000 — 387,517 The above fees and emoluments exclude reimbursed expenditure incurred in the conduct of Group business. Share-based payment expense The share-based payment expenses of the individual Directors recognised for the year were as follows: Executive Directors S N Moon S N Morrison (appointed 1 October 2008) I Ford Non-executive Directors C D Buck N C Bain J B Diggines (resigned 17 September 2009) K Rietveld (appointed 29 August 2008) Year ended 31 March 2010 £ Year ended 31 March 2009 £ 107,303 36,870 41,651 - - - - 185,824 83,726 9,665 19,104 - - - - 112,495 On 4 August 2008 C D Buck, N C Bain and The RisingStars Growth Fund, which is connected to J B Diggines, advanced bridging loans to the Company totalling £50,000. The bridging loans were repaid by the Company on 28 August 2008. Bridging loan inducement fees totalling £10,000 were paid to C D Buck, N C Bain and The RisingStars Growth Fund, see note 8 on page 37 for further details. Share re-organisation A share re-organisation was carried out on 28 August 2008, sub dividing each of the 401,724,366 issued existing ordinary shares with a nominal value of 1p each in the capital of the Company into one new ordinary share with a nominal value of 0.1p and one Deferred Share with a nominal value of 0.9p. The aggregate nominal value of the Company’s authorised share capital was not affected by these changes. The rights attached to the new ordinary shares are substantially the same as the rights attached to the original, pre placing ordinary shares. The Deferred Shares have very limited rights which are deferred to the new ordinary shares. Holders of the Deferred Shares will not be entitled to receive notice of, attend or vote at general meetings of the Company; nor be entitled to receive any dividends or any payment on a return of capital until at least £10,000,000 has been paid on each new ordinary share. The Deferred Shares effectively carry no value as a result, on which basis the Directors’ interests in Deferred Shares have not been disclosed. See also note 17 to the consolidated financial statements on page 44. Provexis plc Annual report and accounts 2010 19 Directors’ report – remuneration report continued Directors’ interests in shares S N Moon S N Morrison I Ford C D Buck N C Bain Ordinary shares of 0.1 pence each Ordinary shares of 0.1 pence each Beneficial interests 31 March 2010 1 April 2009 1,540,000 1,668,333 1,668,333 11,271,359 5,608,416 21,756,441 7,540,000 1,540,000 1,540,000 10,404,332 5,177,000 26,201,332 Other than as shown in the table and as further disclosed above in respect of Deferred Shares, no Director had any interest in the shares of the Company or its subsidiary companies at 31 March 2010. Directors’ interests in share options The Board uses share options to align Directors and employees interests with those of shareholders in order to provide incentives and reward them based on improvements in Company performance. On 1 September 2008 the Company announced that further to an announcement on 1 August 2008 the Company's Remuneration Committee had approved the grant of options over 44,166,575 ordinary shares of 0.1p each to certain Directors and employees of the Company. As a condition of the grant of options, certain Directors surrendered 19,089,110 existing options and an additional 3,709,384 existing options were surrendered by other existing employees. On 15 October 2009 the Company’s Remuneration Committee modified the Performance Period and Performance Target of share options over 42,000,000 ordinary shares of 0.1p each held by the Executive Directors of the Company. Following the changes agreed to the Performance Period and Performance Target, share options over 21,000,000 ordinary shares of 0.1p each held by the Executive Directors of the Company vested on 15 October 2009. Share options over 21,000,000 ordinary shares of 0.1p each held by certain Directors of the Company will vest on 1 April 2011. The share options held by the Directors and not exercised at 31 March 2010 are summarised below. Neville Bain, Non-executive Director, received options prior to the Group joining AIM. S N Moon S N Morrison I Ford N C Bain Number of options over shares At 1 April 2009 Options exercised in year At 31 March 2010 21,117,620 12,000,000 10,000,000 330,300 43,447,920 — — — (330,300) (330,300) 21,117,620 12,000,000 10,000,000 — 43,117,620 The unapproved share options at 31 March 2010 of the Directors who served during the year are set out below: Grant date Number awarded Exercise price/share Earliest exercise date Expiry date S N Moon August 2008 7,324,520 7,324,520 0.900p April 2011 August 2018 Provexis plc Annual report and accounts 2010 20 Directors’ report – remuneration report continued Directors’ interests in share options (continued) The EMI share options at 31 March 2010 of the Directors who served during the year are set out below: Grant date Number awarded Exercise price/share Earliest exercise date Expiry date S N Moon S N Moon S N Moon S N Morrison S N Morrison I Ford I Ford August 2008 August 2008 August 2008 October 2008 October 2008 August 2008 August 2008 1,117,620 2,675,480 10,000,000 6,000,000 6,000,000 5,000,000 5,000,000 35,793,100 1.000p 0.900p 0.900p 0.900p 0.900p 0.900p 0.900p August 2008 April 2011 October 2009 April 2011 October 2009 April 2011 October 2009 August 2018 August 2018 August 2018 October 2018 October 2018 August 2018 August 2018 All options were granted with an exercise price at or above market value on the date of grant. The Company carried out a share re-organisation on 28 August 2008, which is further detailed on page 19, and in note 17 to the consolidated financial statements on page 44. Share options which had been granted prior to 28 August 2008 over existing ordinary shares with a nominal value of 1p each in the capital of the Company became options over new ordinary shares with a nominal value of 0.1p each in the capital of the Company. The options remain subject to the same terms as contained in the individual option contracts under which they were originally granted. Share options issued after 28 August 2008 are options over new ordinary shares with a nominal value of 0.1p each in the capital of the Company. Dawson Buck Chairman of the Remuneration Committee 1 June 2010 Provexis plc Annual report and accounts 2010 21 Independent auditor’s report to the members of Provexis plc To the members of Provexis plc We have audited the financial statements of Provexis plc for the year ended 31 March 2010 which comprise the consolidated statement of financial position and company balance sheet, the consolidated statement of comprehensive income, the consolidated statement of cash flows, the consolidated statement of changes in equity and the related notes The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion: • • • • the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 31 March 2010 and of the group’s loss for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company’s financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Provexis plc Annual report and accounts 2010 22 Independent auditor’s report to the members of Provexis plc continued Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • • the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Christopher Pooles (senior statutory auditor) For and on behalf of BDO LLP, statutory auditor Reading United Kingdom 1 June 2010 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127) Provexis plc Annual report and accounts 2010 23 Consolidated statement of comprehensive income Revenue Grant income Research and development costs Administrative costs before impairment of goodwill Impairment of goodwill Total administrative costs Loss from operations Finance income Finance costs Loss before tax Taxation Loss and total comprehensive expense for the year Attributable to: Owners of the parent Minority interest Notes 1,3 4 12 5 8 8 9 19 Year ended 31 March 2010 £ 14,767 80,000 (697,822) (1,184,859) — (1,184,859) (1,787,914) 85,326 — (1,702,588) 54,408 (1,648,180) Year ended 31 March 2009 £ 5,400 20,000 (634,611) (967,111) (3,099,328) (4,066,439) (4,675,650) 65,161 (10,017) (4,620,506) 50,000 (4,570,506) (1,648,180) — (1,648,180) (4,570,506) — (4,570,506) Loss per share to owners of the parent Basic and diluted – pence 10 0.18 0.71 All amounts relate to continuing operations. Provexis plc Annual report and accounts 2010 24 Consolidated statement of financial position Company number 05102907 Non-current assets Goodwill Other intangible assets Plant and equipment Total non-current assets Current assets Trade and other receivables Corporation tax asset Cash and cash equivalents Total current assets Liabilities Current liabilities Trade and other payables Total liabilities Total net assets Capital and reserves attributable to owners of the parent company Share capital Share premium reserve Warrant reserve Merger reserve Retained earnings Total equity As at 31 March 2010 £ 3,802,685 57,933 61,182 3,921,800 As at 31 March 2009 £ 3,802,685 37,287 66,941 3,906,913 274,638 111,844 7,049,134 7,435,616 76,942 103,651 1,678,263 1,858,856 (295,498) (295,498) (233,973) (233,973) 11,061,918 5,531,796 4,723,601 14,527,277 115,980 6,273,909 (14,578,849) 11,061,918 4,434,907 7,979,558 — 6,273,909 (13,156,578) 5,531,796 Notes 11,12 11 13 14 9 15 16 17 19 17 19 19 These consolidated financial statements were approved and authorised for issue by the Board on 1 June 2010. The notes on pages 28 to 51 form part of these consolidated financial statements. Stephen Moon Director Ian Ford Director On behalf of the Board of Provexis plc 1 June 2010 Provexis plc Annual report and accounts 2010 25 Consolidated statement of cash flows Cash flows from operating activities Loss after tax Adjustments for: Depreciation Impairment of goodwill Net finance income Taxation Share-based payment charge Operating cash outflow before changes in working capital (Increase) / decrease in trade and other receivables Increase / (decrease) in trade and other payables Cash used in operations Tax credits received Net cash outflow from operating activities Cash flows from investing activities Purchase of plant and equipment Purchase of intangible assets Interest received Cash generated by investing activities Cash flows from financing activities Proceeds from issue of share capital – share placings and open offer Expenses paid on share issues Proceeds from exercise of share options Interest paid Cash generated by financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 15 15 Year ended 31 March 2010 £ Notes Year ended 31 March 2009 £ (1,648,180) (4,570,506) 20,908 — (85,326) (54,408) 225,909 (1,541,097) (66,737) 61,525 (1,546,309) 46,215 (1,500,094) (15,149) (20,646) 70,347 34,552 7,130,293 (401,779) 107,899 — 6,836,413 5,370,871 1,678,263 7,049,134 20,917 3,099,328 (55,144) (50,000) 112,630 (1,442,775) 147,435 (127,523) (1,422,863) 83,123 (1,339,740) (13,764) (16,690) 61,770 31,316 2,714,812 (250,689) — (10,017) 2,454,106 1,145,682 532,581 1,678,263 Provexis plc Annual report and accounts 2010 26 Consolidated statement of changes in equity Share Share Warrant Merger Retained to owners of Minority capital premium reserve reserve earnings the parent interests £ £ £ £ £ £ £ Total equity £ Total equity attributable At 31 March 2008 4,017,244 5,992,212 — 6,273,909 (8,698,702) 7,584,663 — 7,584,663 Share-based charges — — Issue of shares – placing 28 August 2008 Issue of shares – placing 2 October 2008 Reduction of premium on share issue 386,894 1,883,229 30,769 163,231 — (59,114) Total comprehensive expense for the year — — — — — — — — 112,630 112,630 — 112,630 — — — — 2,270,123 — 2,270,123 — 194,000 — 194,000 — (59,114) — (59,114) — (4,570,506) (4,570,506) — (4,570,506) At 31 March 2009 4,434,907 7,979,558 — 6,273,909 (13,156,578) 5,531,796 — 5,531,796 Share-based charges — — Issue of shares - exercise of share options 3,482 104,417 Issue of shares - subscription 30 September 2009 40,969 915,185 Issue of shares - subscription 16 October 2009 159,031 3,633,544 Issue of shares - open offer 22 December 2009 85,212 1,894,573 — — — — — Issue of warrants - equity financing facility 30 March 2010 Total comprehensive expense for the year — — — 115,980 — 225,909 225,909 — 225,909 — — — — — — 107,899 — 107,899 — 956,154 — 956,154 — 3,792,575 — 3,792,575 — 1,979,785 — 1,979,785 — 115,980 — 115,980 — — — (1,648,180) (1,648,180) — (1,648,180) At 31 March 2010 4,723,601 14,527,277 115,980 6,273,909 (14,578,849) 11,061,918 — 11,061,918 The total comprehensive expense for the year represents the total recognised income and expense for the year. Provexis plc Annual report and accounts 2010 27 Notes to the consolidated financial statements 1. Accounting policies General information Provexis plc is a public limited company incorporated and domiciled in the United Kingdom (registration number 05102907). The address of the registered office is Thames Court, 1 Victoria Street, Windsor, Berkshire SL4 1YB, UK. As described in the Directors’ Report, the main activities of the Group are those of discovering, developing and licensing scientifically-proven technologies for the global functional food, medical food and dietary supplement sectors. Basis of preparation The Group financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union (“adopted IFRS”). The Company has elected to prepare its parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (“UK GAAP”), and these are set out on pages 52 to 57. The accounting policies set out below have been applied to all periods presented in these Group financial statements and are in accordance with IFRS, as adopted by the European Union, and International Financial Reporting Interpretations Committee (“IFRIC”) interpretations that were applicable for the year ended 31 March 2010. The following new standards, amendments to standards and interpretations, applied for the first time from 1 April 2009, have had an effect on the consolidated financial statements. IAS 1 (Revised) ‘Presentation of Financial Statements’ has been adopted. The revised standard prohibits the presentation of items of income and expense in the statement of changes in equity, requiring non- shareholder changes in equity to be presented separately from shareholder changes in equity. All non- shareholder changes in equity are required to be presented in a performance statement. IAS 1 (Revised) permits a choice between presenting a single performance statement (being a Statement of Comprehensive Income) or two statements (being an Income Statement and a Statement of Comprehensive Income). The Group has elected to present a single statement. IFRS 8 ‘Operating Segments’ has been adopted. This standard replaces IAS 14 ‘Segment Reporting’ and effectively requires segmental information reported to be based on that which the Group’s Board, which is considered the Group’s chief operating decision maker, uses internally for the purposes of evaluating the performance of the Group’s operating segments. Revenue, net assets and results are wholly attributable to the principal activity of the Group and arise solely within the United Kingdom, therefore no segmental analysis has been reported. The following new standards, amendments to standards and interpretations have been issued but are not effective for the year ended 31 March 2010. The new standards, amendments to standards and interpretations will be relevant to the Group but have not been adopted early as the Directors do not expect these standards and interpretations to have a material effect on the consolidated financial statements: • • • • IFRS 3 (Revised) ‘Business Combinations’ effective for periods beginning on or after 1 July 2009; IAS 27 (Amendment) ‘Consolidated and Separate Financial Statements’ effective for periods beginning on or after 1 July 2009; Improvements to IFRSs (2009) effective for periods beginning on or after 1 January 2010; and IFRS 2 (Amendment) ‘Share-based Payment: Group Cash-settled Share-based Payment Transactions’ effective for periods beginning on or after 1 January 2010. There are a number of standards, interpretations and amendments to published accounts not listed above which the Directors consider not to be relevant to the Group. Provexis plc Annual report and accounts 2010 28 Notes to the consolidated financial statements continued 1. Accounting policies (continued) Going concern The Group’s business activities together with the factors likely to affect its future development are set out in the Business Overview on pages 11 to 16. The financial position of the Group, its cash flows and liquidity position are set out in the Financial Review on pages 9 and 10. In addition note 2 to the financial statements includes the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and its exposure to credit and liquidity risk. The Group made a loss for the year of £1,648,180 (2009: £4,570,506) and expects to make a further loss during the year ending 31 March 2011. The loss for the prior year ended 31 March 2009 included a £3,099,328 non-cash goodwill impairment charge (2010: £Nil), and the adjusted loss for the prior year net of the goodwill charge was £1,471,178 (2010: £1,648,180). At 31 March 2010 the Company had cash balances of £7,049,134 (2009: £1,678,263). The directors have prepared projected cash flow information for a period including twelve months from the date of approval of these financial statements and have reviewed this information as at the date of these financial statements. Based on the level of existing cash, projected income and expenditure and other sources of funding, the Directors are satisfied that the Company and the Group have adequate resources to continue in business for the foreseeable future. Accordingly the going concern basis has been used in preparing the financial statements. Basis of consolidation Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The consolidated financial information presents the results of the Company and its subsidiaries, Provexis Nutrition Limited, Provexis Natural Products Limited and Provexis (IBD) Limited as if they formed a single entity ("the Group"). All subsidiaries share the same reporting date, 31 March, as Provexis plc. All intra group balances are eliminated in preparing the financial statements. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. Revenue Revenue comprises the fair value received or receivable for exclusivity arrangements, collaboration agreements, royalties and sales of the Group’s Fruitflow® product net of value added tax. The accounting policies for the principal revenue streams of the Group are as follows: (i) Exclusivity arrangements and similar agreements are recognised as revenue in the accounting period in which the related services, or required activities, are performed or specified conditions are fulfilled in accordance with the terms of completion of the specific transaction. (ii) Royalty income relating to the sale by a licensee of licensed product is recognised on an accruals basis in accordance with the substance of the relevant agreement and based on the receipt from the licensee of the relevant information to enable calculation of the royalty due. (iii) Sales of the Group’s Fruitflow® product are recorded net of value added tax when the significant risks and rewards of ownership have been transferred to the buyer. Provexis plc Annual report and accounts 2010 29 Notes to the consolidated financial statements continued 1. Accounting policies (continued) Leased assets Leases, which contain terms whereby the Group does not assume substantially all the risks and rewards incidental to ownership of the leased item are classified as operating leases. Operating lease rentals are charged to the statement of comprehensive income on a straight line basis over the lease term. The Group does not hold any assets under finance leases. Intangible assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets acquired. Goodwill on acquisition of subsidiaries is included in ‘intangible assets’. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. An impairment loss is recognised within administrative expenses in the consolidated statement of comprehensive income for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Research and development Certain Group products are in the research phase and others are in the development phase. Expenditure incurred on the development of internally generated 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. The value of the capitalised development cost is assessed for impairment annually. The value is written down immediately if impairment has occurred. Development costs are not being amortised as income has not yet been realised from the underlying technology. Development expenditure, not satisfying the above criteria, and expenditure on the research phase of internal projects is recognised in the statement of comprehensive income as incurred. Patents and trademarks The costs incurred in establishing patents and trademarks are either expensed or capitalised in accordance with the corresponding treatment of the development expenditure for the product to which they relate. Plant and equipment Plant and machinery, fixtures, fittings and computer equipment and laboratory equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is charged to the statement of comprehensive income on all plant and equipment at rates calculated to write off the cost or valuation, less estimated residual value, of each asset on a straight line basis over their estimated useful lives, which is 3 years for plant and machinery, fixtures, fittings and computer equipment and 5 years for laboratory equipment. The assets’ residual values and useful lives are determined by the Directors and reviewed and adjusted if appropriate at each balance sheet date in accordance with the Group policy for impairment of assets. Provexis plc Annual report and accounts 2010 30 Notes to the consolidated financial statements continued 1. Accounting policies (continued) Impairment of assets Assets that have a finite useful life but that are not yet in use and are therefore not subject to amortisation or depreciation are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment annually and when events or circumstances suggest that the carrying amount may not be recoverable, an impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in the statement of comprehensive income, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods. A reversal of an impairment loss is recognised immediately in the statement of comprehensive income, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Inventories Inventories are materials and supplies to be consumed in the course of research and development and are stated at the lower of cost and net realisable value. Cost includes materials, related contract manufacturing costs and other direct costs. Cost is calculated using the first-in first-out method. Net realisable value is based on estimated selling price, less further costs expected to be incurred to completion and disposal. Provision is made for obsolete, slow-moving or defective items where appropriate. Financial instruments Financial assets The Group’s financial assets are comprised of ‘trade and other receivables’ and ‘cash and cash equivalents’. They are recognised initially at their fair value and subsequently at amortised cost. The Group will assess at each balance sheet date whether there is objective evidence that the financial asset is impaired. If an asset is judged to be impaired the carrying amount of the asset will be adjusted to its impaired valuation. Financial liabilities The Group’s financial liabilities comprise ‘trade and other payables’ and ‘borrowings’. These are recognised initially at fair value and subsequently at amortised cost. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand. Government grants Government grants are recognised when there is reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants are recognised in the statement of comprehensive income in the same period to which the costs that they are intended to compensate are expensed. Taxation Current tax is provided at amounts expected to be recovered or to be paid using the tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. When research and development tax credits are claimed they are recognised on an accruals basis and are included as a taxation credit. Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability on the balance sheet differs from its tax base, except for differences arising on: • The initial recognition of goodwill • The initial recognition of an asset or liability in a transaction which is not a business combination and at • the time of the transaction affects neither accounting or taxable profit; and Investments in subsidiaries where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. Provexis plc Annual report and accounts 2010 31 Notes to the consolidated financial statements continued 1. Accounting policies (continued) Taxation (continued) Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profits will be available against which the difference can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to 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 legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: • The same taxable Group Company; or • Different Group entities which intend to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, on each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. Foreign currency translation Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. Employee benefits (i) Defined contribution plans The Group provides retirement benefits to all employees and Executive Directors. The assets of these schemes are held separately from those of the Group in independently administered funds. Contributions made by the Group are charged to the statement of comprehensive income in the period in which they become payable. (ii) Accrued holiday pay Provision has been made at the balance sheet date for holidays accrued but not taken at the salary of the relevant employee at that date. (iii) Share-based payment transactions The Group operates an equity-settled, share-based compensation plan. Vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. Where share options are awarded to employees and others providing similar services, the fair value of the options at the date of grant is charged to the statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options when granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative charge is not adjusted for failure to achieve a market vesting condition. If market related terms and conditions of options are modified before they vest, the change in the fair value of the options, measured immediately before and after the modification, is also charged to the statement of comprehensive income over the remaining vesting period. If non-market related terms and conditions of options are modified before they vest, the number of instruments expected to vest at each balance sheet date, and therefore the cumulative charge, is therefore amended accordingly. Where equity instruments are granted to persons other than employees and others providing similar services, the statement of comprehensive income is charged with the fair value of goods and services received. The proceeds received when options are exercised, net of any directly attributable transaction costs, are credited to share capital (nominal value) and the remaining balance to share premium. National insurance on share options All employee option holders sign statements that they will be liable for any employers national insurance arising on the exercise of share options. Provexis plc Annual report and accounts 2010 32 Notes to the consolidated financial statements continued 1. Accounting policies (continued) Interest income Interest income is recognised on a time-proportion basis using the effective interest rate method. Warrants The Group has issued warrants to Evolution Securities Limited as part of the Equity Financing Facility. These are considered to be outside the scope of share-based employee remuneration, and hence out of the scope of IFRS 2. These warrants have been measured at fair value at the date of grant using an appropriate options pricing model. This fair value has been held on the balance sheet within prepayments and in the warrants reserve within equity. The prepayment will be released against share premium as the equity financing facility is utilised. The warrants reserve will be released to share premium when the warrants are exercised. If the warrants lapse then the reserve is transferred to retained earnings. Critical accounting estimates and judgements The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and judgements are continually made and are based on historic experience and other factors, including expectations of future events that are believed to be reasonable in the circumstances. As the use of estimates is inherent in financial reporting, actual results could differ from these estimates. The Directors believe the following to be the key areas of estimation and judgement: (i) Research and development Under IAS 38 Intangible Assets, development expenditure which meets the recognition criteria of the standard must be capitalised and amortised over the useful economic lives of intangible assets from product launch. The Directors consider that the criteria to capitalise development expenditure were met in 2007 for one of the Group’s products and have continued to be met since. (ii) Share-based payments The Group operates an equity-settled, share-based compensation plan. Employee and similar services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments at the date of grant, which is based upon certain assumptions over the future performance of the share price. (iii) Goodwill and impairment The recoverable amount of goodwill is determined based on value in use calculations, and the Group’s activities are treated as a single cash-generating unit. The value in use calculations have used post-tax cash flow projections for ten years using data from the Group’s latest internal forecasts. The forecasts are extrapolated beyond ten years at growth rates of between 2% and 7% (2009: between 2% and 7%). The results of the value in use calculations are reviewed by the Board. The key assumptions for the value in use calculations are those regarding discount rates, revenue commencement dates, growth rates and expected changes in margins and costs. Management estimate discount rates using post-tax rates that reflect the current market assessment of the time value of money and the risks specific to the cash-generating unit. Changes in selling prices and direct costs are based on past experience and expectations of future changes in the market. Post-tax cash flow projections are discounted to calculate value in use using a post-tax discount rate. The post-tax discount rate is based on a number of factors including the risk-free rate in the UK, the Group's estimated market risk premium, and a premium to reflect the inherent risk of the forecast income streams included in the Group’s cash flow projections, which remain subject to contracts being agreed with prospective customers. Further information is given in note 12 to these consolidated financial statements. Provexis plc Annual report and accounts 2010 33 Notes to the consolidated financial statements continued 2. Financial risk management 2.1 Financial risk factors The Group’s activities inevitably expose it to a variety of financial risks: market risk (including currency risk, cash flow interest rate risk and fair value interest rate risk), credit risk and liquidity risk. It is Group policy not to enter into speculative positions using complex financial instruments. The Group’s primary treasury objective is to minimise exposure to potential capital losses whilst at the same time securing favourable market rates of interest on Group cash deposits using money market deposits with banks. Cash balances used to settle the liabilities from operating activities are also maintained in current accounts which earn interest at variable rates. (a) Market risk Foreign exchange risk The Group primarily enters into contracts which are to be settled in UK pounds. However, some contracts involve other major world currencies including the US Dollar and the Euro. Where large contracts of more than £50,000 total value are to be settled in foreign currencies consideration is given to converting the appropriate amounts to or from UK pounds at the outset of the contract to minimise the risk of adverse currency fluctuations. The Group incurred minimal expenditure in foreign currencies during the year, and the prior year, and consequently there is no material exposure to foreign currency rate risk. Cash flow and fair value interest rate risk The Group’s interest rate risk arises from medium term and short term money market deposits. Deposits which earn variable rates of interest expose the Group to cash flow interest rate risk. Deposits at fixed rates expose the Group to fair value interest rate risk. The Group analyses its interest rate exposure on a dynamic basis throughout the year. (b) Credit risk Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions as well as credit exposure in relation to outstanding receivables. Group policy is to place deposits with institutions with investment grade A2 or better (Moody’s credit rating) and deposits are made in sterling only. The Group does not expect any losses from non-performance by these institutions. Management believes that the carrying value of outstanding receivables and deposits with banks represents the Group’s maximum exposure to credit risk. (c) Liquidity risk Liquidity risk arises from the Group’s management of working capital, it is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents and management monitors rolling forecasts of the Group’s liquidity on the basis of expected cash flow. The Group had trade and other payables at the statement of financial position date of £295,498 (2009: £233,973) as disclosed in note 16 on page 43. 2.2 Capital risk management The Group considers its capital to comprise its ordinary share capital, share premium, warrant reserve, merger reserve and accumulated retained earnings as disclosed in the consolidated statement of financial position on page 25. The Group remains funded primarily by equity capital which reflects the development status of its products. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for equity holders of the Company and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. 2.3 Fair value estimation The Group uses amortised cost, using the effective interest rate method, to determine subsequent fair value after initial recognition, for its financial instruments. Provexis plc Annual report and accounts 2010 34 Notes to the consolidated financial statements continued 3. Segmental reporting Revenue, net assets and results are wholly attributable to the principal activity of the Group and arise solely within the United Kingdom, therefore no segmental analysis has been reported. 4. Grant income NWDA R&D grant income recognised in consolidated statement of comprehensive income 5. Operating loss Operating loss is stated after charging: Impairment of goodwill Depreciation of plant and equipment Operating lease costs – land and buildings Equity-settled share based payment expense Defined contribution pension expense Year ended 31 March 2010 £ Year ended 31 March 2009 £ 80,000 80,000 20,000 20,000 Year ended 31 March 2010 £ Year ended 31 March 2009 £ — 20,908 102,875 225,909 31,581 3,099,328 20,917 98,709 112,630 31,726 The total fees of the Group’s auditor, BDO LLP, for services provided are analysed below: Audit services Parent company Subsidiaries Tax services – compliance Parent company Subsidiaries Other services Tax advisory services Parent company – share option scheme advice Subsidiary – NWDA grant Year ended 31 March 2010 £ Year ended 31 March 2009 £ 12,600 31,900 3,600 8,400 2,000 8,000 3,000 12,600 29,400 3,600 8,400 — 6,000 — Total fees 69,500 60,000 Provexis plc Annual report and accounts 2010 35 Notes to the consolidated financial statements continued 6. Wages and salaries The average monthly number of persons (including all Directors) employed by the Group during the year was as follows: Administrative staff Research and development staff Directors Their aggregate emoluments were: Wages and salaries Social security costs Other pension and insurance benefits costs Total cash settled emoluments Accrued holiday pay Share-based payment remuneration charge: equity settled Total emoluments 7. Directors’ emoluments Directors Aggregate emoluments Company pension contributions Share based payment remuneration charge: equity settled Gains made on exercise of directors’ share options Year ended 31 March 2010 Year ended 31 March 2009 — 7 6 13 1 7 6 14 Year ended 31 March 2010 £ Year ended 31 March 2009 £ 733,879 71,980 38,266 844,125 1,600 225,909 1,071,634 688,713 65,919 38,640 793,272 15,078 112,630 920,980 Year ended 31 March 2010 £ Year ended 31 March 2009 £ 502,144 18,822 185,824 20,082 372,030 15,487 112,495 — Emoluments disclosed above include the following amounts in respect of the highest paid Director: Aggregate emoluments Company pension contributions Share based payment remuneration charge: equity settled Year ended 31 March 2010 £ Year ended 31 March 2009 £ 183,169 7,980 107,303 154,701 7,785 83,726 During the year, three Directors (2009: three Directors) participated in defined contribution pension schemes. Directors’ emoluments include amounts attributable to benefits in kind comprising private medical insurance on which the directors are assessed for tax purposes. The amounts attributable to benefits in kind are stated at cost to the Group, which is also the tax value of the attributable benefits. Further details of Directors’ emoluments are included in the Remuneration report on pages 17 to 21. Provexis plc Annual report and accounts 2010 36 Notes to the consolidated financial statements continued 8. Finance income and costs Bank interest receivable Finance costs payable Year ended 31 March 2010 £ Year ended 31 March 2009 £ 85,326 — 85,326 65,161 (10,017) 55,144 In respect of the year ended 31 March 2009, finance costs payable include a £10,000 inducement fee for the advancement of bridging loans which were provided to the Company on 4 August 2008, and repaid by the Company on 28 August 2008 as follows: RisingStars Growth Fund (RSGF) C D Buck N C Bain Bridging loans Advanced 4 August 2008 Repaid 28 August 2008 Amount of loan £ 25,000 15,000 10,000 50,000 Inducement fee payable £ 5,000 3,000 2,000 10,000 The loans were effected by the issue by the Company to the Lenders of loan notes. The loan notes were unsecured and were not transferable by the relevant holders. The Company was obliged to pay interest on the principal sum for the period until it was repaid at the rate of 20 per cent per annum, but the loan note holders waived their entitlement to interest when the loan notes were repaid, on 28 August 2008. The RisingStars Growth Fund is managed by Enterprise Ventures Limited. The Chief Executive of Enterprise Ventures Limited is J B Diggines, a Non-executive Director of the Company who resigned on 17 September 2009. C D Buck and N C Bain are currently Non-executive Directors of the Company. Provexis plc Annual report and accounts 2010 37 Notes to the consolidated financial statements continued 9. Taxation Current tax income United Kingdom corporation tax research and development credit Adjustment in respect of prior period United Kingdom corporation tax research and development credit Taxation credit Year ended 31 March 2010 £ Year ended 31 March 2009 £ 50,000 4,408 54,408 61,844 (11,844) 50,000 The tax assessed for the year is different from the standard rate of corporation tax in the UK. The differences are explained below: Loss on ordinary activities before tax Loss on ordinary activities before tax multiplied by the standard rate of corporation tax in the UK of 28% (2009: 28%) Effects of: Expenses not deductible for tax purposes Difference between depreciation and capital allowances Other short-term timing differences Unutilised tax losses and other deductions arising in the year Tax deduction for share options exercised Additional deduction for R&D expenditure Surrender of tax losses for R&D tax credit refund Adjustments in respect of prior years Total tax credit for the year Year ended 31 March 2010 £ Year ended 31 March 2009 £ 1,702,588 4,620,506 476,725 1,293,742 3,540 (5,854) (63,255) (442,056) 80,900 50,000 (50,000) 4,408 54,408 (892,032) (1,785) (27,444) (302,556) — 51,221 (59,302) (11,844) 50,000 At 31 March 2010 the Group UK tax losses to be carried forward are estimated to be £13,398,578 (2009: £11,307,528). Deferred tax Deferred tax assets amounting to £4,391,974 (2009: £3,217,536) have not been recognised on the basis that their future economic benefit is not certain. Assuming a prevailing tax rate of 28% when the timing differences reverse, the unrecognised deferred tax asset comprises: Depreciation in excess of capital allowances Other short term timing differences Unutilised tax losses Share-based payments Income tax asset receivable within one year Corporation tax recoverable Year ended 31 March 2010 £ Year ended 31 March 2009 £ 16,903 — 3,639,702 735,369 4,391,974 31 March 2010 £ 111,844 111,844 11,049 — 3,166,108 40,379 3,217,536 31 March 2009 £ 103,651 103,651 Provexis plc Annual report and accounts 2010 38 Notes to the consolidated financial statements continued 10. Loss per share Basic and diluted loss per share amounts are calculated by dividing the loss attributable to owners of the parent by the weighted average number of ordinary shares in issue during the period. There are 62,471,648 share options in issue (2009: 65,954,117) that are all currently anti-dilutive and have therefore been excluded from the calculations of the diluted loss per share. Basic and diluted loss per share amounts are in respect of all activities. Adjusted basic and diluted loss per share amounts exclude goodwill impairment. Loss – £ Year ended 31 March 2010 Year ended 31 March 2009 1,648,180 4,570,506 Weighted average number of shares 937,060,783 644,794,819 Basic and diluted loss per share – pence 0.18 0.71 Loss for the year attributable to owners of the parent - £ 1,648,180 4,570,506 Adjustment Impairment of goodwill (note 12) Adjusted loss for the year attributable to owners of the parent - £ — (3,099,328) 1,648,180 1,471,178 Adjusted basic and diluted loss per share - pence 0.18 0.23 No shares have been issued after the year end in relation to the Equity Financing Facility. Share re-organisation A share re-organisation was carried out in the year ended 31 March 2009 on 28 August 2008 sub dividing each of the 401,724,366 issued existing ordinary shares with a nominal value of 1p each in the capital of the Company into one new ordinary share with a nominal value of 0.1p and one Deferred Share with a nominal value of 0.9p. The aggregate nominal value of the Company’s authorised share capital was not affected by these changes. The rights attached to the new ordinary shares are substantially the same as the rights attached to the original, pre placing ordinary shares. The Deferred Shares have very limited rights which are deferred to the new ordinary shares. Holders of the Deferred Shares will not be entitled to receive notice of, attend or vote at general meetings of the Company; nor be entitled to receive any dividends or any payment on a return of capital until at least £10,000,000 has been paid on each new ordinary share. The Deferred Shares effectively carry no value as a result, and they do not form part of the loss per share calculations. The weighted average number of shares used for the loss per share calculations represents the existing ordinary shares with a nominal value of 1p each in the capital of the Company for the period up to 28 August 2008, and the new ordinary shares with a nominal value of 0.1p each in the capital of the Company for the period thereafter. See also note 17 to the consolidated financial statements on page 44. Provexis plc Annual report and accounts 2010 39 Notes to the consolidated financial statements continued 11. Intangible assets Cost At 1 April 2009 Additions At 31 March 2010 Amortisation and impairment At 1 April 2009 At 31 March 2010 Net book value At 31 March 2010 At 31 March 2009 Cost At 1 April 2008 Additions At 31 March 2009 Amortisation and impairment At 1 April 2008 Impairment of goodwill charge At 31 March 2009 Net book value At 31 March 2009 At 31 March 2008 Goodwill £ Development costs £ 37,287 20,646 57,933 7,265,277 — 7,265,277 3,462,592 3,462,592 Total £ 7,302,564 20,646 7,323,210 — — 3,462,592 3,462,592 3,802,685 3,802,685 57,933 37,287 3,860,618 3,839,972 7,265,277 — 7,265,277 363,264 3,099,328 3,462,592 20,597 16,690 37,287 — — — 7,285,874 16,690 7,302,564 363,264 3,099,328 3,462,592 3,802,685 6,902,013 37,287 20,597 3,839,972 6,922,610 Development costs represent costs incurred in registering patents that meet the capitalisation criteria set out in IAS 38, see also note 1. Provexis plc Annual report and accounts 2010 40 Notes to the consolidated financial statements continued 12. Goodwill and impairment Goodwill arising on consolidation represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary at the date of acquisition. Goodwill arose on 23 June 2005 when the Company acquired the entire issued share capital of Provexis Natural Products Limited (formerly Provexis Limited), a private company engaged in research and development. Provexis Natural Products Limited has been consolidated using the purchase method and its results have been incorporated in the Group results from the date of acquisition. Goodwill arising on business combinations is not amortised but is reviewed for impairment on an annual basis or more frequently if there are indications that goodwill may be impaired. The recoverable amount of goodwill is determined based on value in use calculations, and the Group’s activities are treated as a single cash-generating unit. The key assumptions for the value in use calculations are those regarding discount rates, revenue commencement dates, growth rates and expected changes in margins and costs. Management estimate discount rates using pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the cash-generating unit. Changes in selling prices and direct costs are based on past experience and expectations of future changes in the market. The value in use calculations have used post-tax cash flow projections for ten years using data from the Group’s latest internal forecasts. The forecasts are extrapolated beyond ten years at growth rates of between 2% and 7% (2009: between 2% and 7%). The results of the value in use calculations are reviewed by the Board. The value in use calculations have been prepared for a period of greater than five years on account of the expected lives of the Group’s primary patents. The values used in the Group’s internal forecasts reflect anticipated market developments, following discussions with prospective customers and suppliers. The values used in the Group’s internal forecasts are also based on estimates of revenue commencement dates and expected changes in margins and costs. An element of the risk inherent in the forecast income streams, which remain subject to contracts being agreed with prospective customers, has been incorporated in the Group’s post-tax cash flow projections. Post-tax cash flow projections have been discounted to calculate value in use using a post-tax discount rate of 23% (2009: 23%), and no impairment charge was required in the year (2009: a goodwill impairment charge was required of £3,099,328). The post-tax discount rate is based on a number of factors including the risk-free rate in the UK, the Group's estimated market risk premium, and a premium to reflect the inherent risk of the forecast income streams included in the Group’s cash flow projections, which remain subject to contracts being agreed with prospective customers. Value in use calculations are sensitive to changes in short and medium term revenue and cost growth assumptions, long term growth rates and post-tax discount rates. The Group has conducted further goodwill impairment sensitivity analysis to include varying growth rates and margins, changes to the Group’s cost base, varying revenue commencement dates and other strategic options for the business. At a post-tax discount rate of 23%, either a 10% reduction in forecast revenues or a 17% increase in forecast costs would result in a goodwill impairment charge at 31 March 2010. Delays in the forecast revenue commencement dates of one year would result in an impairment of goodwill charge at 31 March 2010, although this could be mitigated in part by cost savings. The post-tax discount rate would need to increase to 25.2% for the carrying value of goodwill to be equal to the calculated value in use. Provexis plc Annual report and accounts 2010 41 Notes to the consolidated financial statements continued 13. Plant and equipment Cost At 1 April 2009 Additions At 31 March 2010 Depreciation At 1 April 2009 Charge for year At 31 March 2010 Net book value At 31 March 2010 At 31 March 2009 Cost At 1 April 2008 Additions At 31 March 2009 Depreciation At 1 April 2008 Charge for year At 31 March 2009 Net book value At 31 March 2009 At 31 March 2008 Fixtures, fittings and computer equipment £ Laboratory equipment Total £ £ 41,433 8,351 49,784 34,549 4,702 39,251 10,533 6,884 Fixtures, fittings and computer equipment £ 38,113 3,320 41,433 28,204 6,345 34,549 6,884 9,909 79,169 6,798 85,967 19,112 16,206 35,318 50,649 60,057 Laboratory equipment 120,602 15,149 135,751 53,661 20,908 74,569 61,182 66,941 Total £ £ 68,725 10,444 79,169 4,540 14,572 19,112 60,057 64,185 106,838 13,764 120,602 32,744 20,917 53,661 66,941 74,094 Provexis plc Annual report and accounts 2010 42 Notes to the consolidated financial statements continued 14. Trade and other receivables Amounts receivable within one year: Trade receivables Other receivables Total loans and receivables Prepayments and accrued income 31 March 2010 £ 31 March 2009 £ — 48,529 48,529 226,109 274,638 6,210 25,995 32,205 44,737 76,942 The Directors consider that the carrying amount of these receivables approximates to their fair value. All amounts shown under receivables fall due for payment within one year. 15. Cash and cash equivalents Cash at bank and in hand 16. Trade and other payables Trade payables Other taxes and social security Accruals Total financial liabilities measured at amortised cost 31 March 2010 £ 31 March 2009 £ 7,049,134 7,049,134 1,678,263 1,678,263 31 March 2010 £ 87,409 72,972 135,117 295,498 31 March 2009 £ 59,663 30,415 143,895 233,973 The Directors consider that the carrying amount of these liabilities approximates to their fair value. All amounts shown fall due within one year. Provexis plc Annual report and accounts 2010 43 Notes to the consolidated financial statements continued 17. Share capital On 30 September 2009 the Company raised £1.024m gross from the first tranche of a £5.0m gross new share subscription to provide working capital and funding for pipeline development. The net proceeds of the first tranche of the share subscription were £0.956m after share issue costs. On 16 October 2009 the Company raised £3.976m gross from the second tranche of the £5.0m gross new share subscription. The net proceeds of the second tranche of the share subscription were £3.793m after share issue costs. The £5.0m gross subscription involved the issue of 200,000,000 new ordinary shares at 2.5p per share. Full details of the subscription were provided in a circular to shareholders on 28 September 2009. The circular is available to download from the Company’s website www.provexis.com. On 3 December 2009 the Company announced that it proposed to raise up to a further £2.130m gross from an open offer to shareholders, with an excess application facility, involving the issue of up to 85,211,664 new ordinary shares at 2.5p per share. Full details of the open offer were provided in a circular to shareholders on 3 December 2009, which is available to download from the Company’s website www.provexis.com. On 22 December 2009 the Company announced that: • Qualifying shareholders had applied for 48,335,151 open offer shares under their basic pro rata entitlement, representing 56.7 per cent. of the total number of offer shares available; • The number of open offer shares applied for by qualifying shareholders under the excess application facility amounted to 336,326,065 shares, which meant that excess applications had to be scaled back on a pro rata basis, in proportion to the total number of excess shares applied for. The Company therefore issued 36,876,513 open offer shares under the excess application facility. The net proceeds of the open offer were £1.980m after share issue costs. Warrant reserve On 31 March 2010 the Company announced that it had secured a 3 year Equity Financing Facility of up to £25m (the “EFF”) with Evolution Securities Limited (“Evolution”). The EFF was arranged by Darwin Strategic Limited (“Darwin”), an appointed representative of Evolution. The EFF agreement, which is dated 30 March 2010, provides the Company with a facility which (subject to certain limited restrictions) can be drawn down at any time over the 3 years ending on 29 March 2013. The timing and amount of any draw down is at the discretion of Provexis. Provexis is under no obligation to make a draw down and may make as many draw downs as its wishes, up to the total value of the EFF, by way of issuing subscription notices to Evolution. Following delivery of a subscription notice, Evolution will subscribe and Provexis will allot to Evolution new ordinary shares of 0.1p each (“Ordinary Shares”). The subscription price for any Ordinary Shares to be subscribed by Evolution under a subscription notice will be at a 7.5% discount to an agreed reference price determined during 5, 10 or 15 trading days following delivery of a subscription notice (the “Pricing Period”). The length of the Pricing Period is at the discretion of Provexis and is set at each relevant subscription notice. Provexis is also obliged to specify in each subscription notice a minimum price below which Ordinary Shares will not be issued. In consideration of Evolution agreeing to provide the EFF the Company entered into a warrant agreement dated 30 March 2010 for the grant to Evolution of warrants to subscribe for up to ten million Ordinary Shares, such warrants to be exercisable at a price of 20 pence per share and to be exercisable at any time prior to the expiry of 36 months following the date of the warrant agreement. The warrants were measured at fair value at the date of grant using a Black-Scholes model, with the following assumptions: Date of grant Exercise price Number of warrants pence Share price at grant date pence Expected volatility Risk free rate Expected life years Fair value per share under warrant pence 30-Mar-10 20.0 10,000,000 6.3 70% 1.77% 3 1.1598 Provexis plc Annual report and accounts 2010 44 Notes to the consolidated financial statements continued 17. Share capital (continued) Warrant reserve (continued) An expected dividend yield of 0% was used in the above valuation. The assumption made for the expected life of the warrants is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. The total fair value of the warrants, £115,980, has been held on the balance sheet within prepayments and in the warrants reserve within equity. The prepayment will be released against share premium as the equity financing facility is utilised. The warrants reserve will be released to share premium when the warrants are exercised. If the warrants lapse then the reserve is transferred to retained earnings. Evolution or the Company may terminate the EFF in specified circumstances. The issue of subscription notices is subject to specified pre-conditions. The Company has provided warranties and indemnities to Evolution and affiliated persons. If the aggregate price paid for the Ordinary Shares allotted under the EFF by the second anniversary of the EFF is not equal to or more than five million pounds (subject to certain exceptions), or if the EFF is terminated by Evolution in certain circumstances, then the Company will be required to pay a fee to Evolution amounting to 1% of the value of the facility in cash or by an issue of fully paid ordinary shares at the Company’s discretion. Share re-organisation In August 2008, to facilitate a share placing, the company undertook a share re-organisation when It was agreed to sub-divide: • each of the 401,724,366 then issued existing ordinary shares of 1p each in the capital of the Company into one new ordinary share of 0.1p and one Deferred Share of 0.9p; and • each of the 148,275,634 unissued ordinary shares of 1p each into 10 new ordinary shares of 0.1p each, The share re-organisation was approved at an EGM on 26 August 2008. The rights attached to the new ordinary shares are substantially the same as the rights attached to the original, pre placing ordinary shares. The Deferred Shares have very limited rights which are deferred to the new ordinary shares and effectively carry no value as a result. Accordingly, the holders of the Deferred Shares are not entitled to receive notice of, attend or vote at general meetings of the Company; nor be entitled to receive any dividends or any payment on a return of capital until at least £10,000,000 has been paid on each new ordinary share. No application will be made for the Deferred Shares to be admitted to trading on AIM. No certificates for the Deferred Shares will be issued. Full details of the share re-organisation were provided in a circular to shareholders on 1 August 2008. The circular is available to download from the Company’s website www.provexis.com. Authorised Ordinary 0.1p shares number Deferred 0.9p shares number Total number At 31 March 2010 and 31 March 2009 1,884,480,706 401,724,366 2,286,205,072 Ordinary 0.1p shares £ Deferred 0.9p shares £ Total £ At 31 March 2010 and 31 March 2009 1,884,481 3,615,519 5,500,000 Authorised Ordinary 1p shares number Ordinary 0.1p shares number Deferred 0.9p shares number Total number At 31 March 2008 Sub-division of shares At 31 March 2009 550,000,000 (550,000,000) — — 1,884,480,706 1,884,480,706 — 401,724,366 401,724,366 550,000,000 1,736,205,072 2,286,205,072 Provexis plc Annual report and accounts 2010 45 Notes to the consolidated financial statements continued 17. Share capital (continued) At 31 March 2008 Sub-division of shares At 31 March 2009 Allotted, called up and fully paid Ordinary 1p shares £ Ordinary 0.1p shares £ Deferred 0.9p shares £ 5,500,000 (5,500,000) — — 1,884,481 1,884,481 — 3,615,519 3,615,519 Ordinary 0.1p shares number Deferred 0.9p shares number Total £ 5,500,000 — 5,500,000 Total number At 31 March 2009 Issued on exercise of share options Issued on subscription Issued on open offer At 31 March 2010 819,387,796 3,482,469 200,000,000 85,211,664 1,108,081,929 401,724,366 — — — 401,724,366 1,221,112,162 3,482,469 200,000,000 85,211,664 1,509,806,295 At 31 March 2009 Issued on exercise of share options Issued on subscription Issued on open offer At 31 March 2010 Allotted, called up and fully paid Ordinary 0.1p shares £ Deferred 0.9p shares £ 819,388 3,482 200,000 85,212 1,108,082 3,615,519 — — — 3,615,519 Ordinary 1p shares number Ordinary 0.1p shares number Deferred 0.9p shares number Total £ 4,434,907 3,482 200,000 85,212 4,723,601 Total number At 31 March 2008 Sub-division of shares Share placing 28 August 2008 Share placing 2 October 2008 At 31 March 2009 401,724,366 (401,724,366) — — — — 401,724,366 386,894,230 30,769,200 819,387,796 — 401,724,366 — — 401,724,366 401,724,366 401,724,366 386,894,230 30,769,200 1,221,112,162 At 31 March 2008 Sub-division of shares Share placing 28 August 2008 Share placing 2 October 2008 At 31 March 2009 Ordinary 1p shares £ Ordinary 0.1p shares £ Deferred 0.9p shares £ 4,017,244 (4,017,244) — — — — 401,725 386,894 30,769 819,388 — 3,615,519 — — 3,615,519 Total £ 4,017,244 — 386,894 30,769 4,434,907 Provexis plc Annual report and accounts 2010 46 Notes to the consolidated financial statements continued 17. Share capital (continued) During the year ended 31 March 2010 the Company issued ordinary shares of 0.1p each as follows: Date Reason for issue 04.09.09 11.09.09 30.09.09 16.10.09 22.12.09 19.02.10 Exercise of share options Exercise of share options Share subscription Share subscription Open offer Exercise of share options Shares issued £ Number 1,768 1,384 40,969 159,031 85,212 330 288,694 1,768,180 1,383,989 40,969,390 159,030,610 85,211,664 330,300 288,694,133 During the year ended 31 March 2009 the Company issued ordinary shares of 0.1p as follows: Date Reason for issue 28.08.08 02.10.08 Placing Placing Shares issued £ Number 386,894 30,769 417,663 386,894,230 30,769,200 417,663,430 18. Share options In June 2005 the Company adopted a new share option scheme for employees (”the Provexis 2005 share option scheme”). Under the scheme, options to purchase ordinary shares are granted by the Board of Directors, subject to the exercise price of the option being not less than the market value at the grant date. The options typically vest after a period of 3 years and the vesting schedule is subject to predetermined overall company selection criteria. In the event that the option holder’s employment is terminated, the option may not be exercised unless the Board of Directors so permits. The options expire 10 years from the date of grant. The Company undertook a reverse takeover of Provexis Natural Products Limited (“PNP”, formerly Provexis Limited) in June 2005 through a share for share exchange. Prior to the takeover the Company and PNP had granted EMI options and unapproved options. Options granted by the Company prior to the takeover remain subject to the same terms as contained in the individual share option contracts under which they were originally granted. The PNP EMI options and unapproved options were rolled over into options over the Company’s ordinary shares, and these replacement options remain subject to the same terms as contained in the individual PNP share option contracts under which they were originally granted. On 1 September 2008 the Company announced that further to an announcement on 1 August 2008 the Company's Remuneration Committee had approved the grant of options over 44,166,575 ordinary shares of 0.1p each to certain Directors and employees of the Company. As a condition of the grant of options, certain Directors surrendered 19,089,110 existing options and an additional 3,709,384 existing options were surrendered by other existing employees. On 15 October 2009 the Company’s Remuneration Committee modified the Performance Period and Performance Target of share options over 42,000,000 ordinary shares of 0.1p each held by the Executive Directors of the Company. Following the changes agreed to the Performance Period and Performance Target, share options over 21,000,000 ordinary shares of 0.1p each held by the Executive Directors of the Company vested on 15 October 2009. Share options over 21,000,000 ordinary shares of 0.1p each held by certain Directors of the Company will vest on 1 April 2011. Provexis plc Annual report and accounts 2010 47 Notes to the consolidated financial statements continued 18. Share options (continued) At 31 March 2010 the number of ordinary shares subject to options granted over the 2005 and prior option schemes were: EMI options 31 March 2010 31 March 2009 Weighted average exercise price (pence) Number Weighted average exercise price (pence) Number Outstanding at the beginning of the year Granted during the year Exercised during the year Cancelled during the year Outstanding at the end of the year 1.15 — 2.75 — 1.07 54,198,000 — (2,645,969) — 51,552,031 3.72 10,274,255 0.91 51,727,855 — — 3.18 (7,804,110) 1.15 54,198,000 The exercise price of EMI options outstanding at the end of the year ranged between 0.9p and 6.28p (2009: 0.9p and 6.28p) and their weighted average contractual life was 8.3 years (2009: 9.3 years). Of the total number of EMI options outstanding at the end of the year, 23,709,976 (2009: 5,355,945) had vested and were exercisable at the end of the year. Their weighted average exercise price was 1.8 pence (2009: 3.4 pence). Unapproved options 31 March 2010 Weighted average exercise price (pence) Number 31 March 2009 Number Weighted average exercise price (pence) Outstanding at the beginning of the year Granted during the year Exercised during the year Cancelled during the year Outstanding at the end of the year — 4.20 — 1.39 11,756,117 — (836,500) — 1.18 10,919,617 2.70 0.90 — 2.81 1.39 24,199,121 7,324,520 — (19,767,524) 11,756,117 The exercise price of unapproved options outstanding at the end of the year ranged between 0.9p and 6.28p (2009: 0.9p and 6.28p) and their weighted average contractual life was 7.3 years (2009: 8.2 years). Of the total number of unapproved options outstanding at the end of the year, 3,595,097 (2009: 4,431,597) had vested and were exercisable at the end of the year. Their weighted average exercise price was 1.7 pence (2009: 2 pence). Provexis plc Annual report and accounts 2010 48 Notes to the consolidated financial statements continued 18. Share options (continued) Grant of options The fair values of the options have been estimated at the date of grant using a Black-Scholes model, using the following assumptions: Tranche Date of grant Exercise price Number of options pence 1 2 3 4 06-Jun-07 29-Nov-07 26-Aug-08 01-Oct-08 3.38 2.875 17,304,347 2,751,479 0.9 44,166,575 0.9 12,000,000 Share price at grant date pence 2.75 3.00 0.87 0.725 Expected volatility Risk free rate Expected life Fair value per share under option 78% 65% 65% 65% 4.44% 3.77% 4.45% 4.39% years pence 10 10 10 10 1.42 1.06 0.585 0.485 An expected dividend yield of 0% has been used in all of the above valuations. The expected life of the options is based on historical data and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. total charge The (2009: £112,630) all of which related to equity settled share-based payment transactions. to employee share-based payment plans was £225,909 the year relating for Share re-organisation A share re-organisation was carried out on 28 August 2008, sub dividing each of then issued existing ordinary shares with a nominal value of 1p each in the capital of the Company into one new ordinary share with a nominal value of 0.1p and one Deferred Share with a nominal value of 0.9p. the 401,724,366 The rights attached to the new ordinary shares are substantially the same as the rights attached to the original, pre placing ordinary shares. The Deferred Shares have very limited rights which are deferred to the new ordinary shares, and effectively carry no value as a result. Share options which had been granted prior to 28 August 2008 over existing ordinary shares with a nominal value of 1p each in the capital of the Company became options over new ordinary shares with a nominal value of 0.1p each in the capital of the Company. The options remain subject to the same terms as contained in the individual option contracts under which they were originally granted. Share options issued after 28 August 2008 are options over new ordinary shares with a nominal value of 0.1p each in the capital of the Company. See also note 17 to the consolidated financial statements on page 44. Provexis plc Annual report and accounts 2010 49 Notes to the consolidated financial statements continued 19. Reserves At 1 April 2008 Loss for the year Share-based charges Issue of shares – placing Reduction of premium on share issue At 31 March 2009 Loss for the year Share-based charges Issue of shares - exercise of share options Issue of shares - subscription Issue of shares - open offer Warrants issued during the year - equity financing facility At 31 March 2010 Share premium reserve £ 5,992,212 — — 2,046,460 (59,114) 7,979,558 — — 104,417 4,548,729 1,894,573 Warrant reserve Merger reserve Retained earnings Total £ — — — — — — — — — — — £ £ £ 6,273,909 — — — — 6,273,909 — — — — — (8,698,702) (4,570,506) 112,630 — 3,567,419 (4,570,506) 112,630 2,046,460 — (13,156,578) (1,648,180) 225,909 (59,114) 1,096,889 (1,648,180) 225,909 — — — 104,417 4,548,729 1,894,573 — 14,527,277 115,980 115,980 — 6,273,909 — (14,578,849) 115,980 6,338,317 The following describes the nature and purpose of each reserve within total equity: Share capital Share premium Warrant reserve Merger reserve Retained earnings Amount subscribed for share capital at nominal value. Amount subscribed for share capital in excess of nominal value. The warrant reserve arose in March 2010 when the Group issued warrants to Evolution Securities Limited as part of the Equity Financing Facility (see Note 17). The merger reserve arose on the reverse takeover in 2005 of Provexis Natural Products Limited (formerly Provexis Limited) by Provexis plc through a share for share exchange. Cumulative net gains and losses recognised in the consolidated statement of comprehensive income. 20. Pension costs The pension charge represents contributions payable by the Group to independently administered funds which during the year ended 31 March 2010 amounted to £31,581 (2009: £31,726). Pension contributions payable but not yet paid at 31 March 2010 totalled £16,368, in respect of pension contribution entitlements where employees had not yet provided details of the funds to which the contributions should be made (2009: £12,450). In addition, pension contributions payable in arrears at 31 March 2010 totalled £1,189 (2009: £9). All unpaid contributions are included in accrued social security costs at the balance sheet date. 21. Operating lease commitments Future minimum rentals payable under non-cancellable operating leases are as follows: Due within 1 year 31 March 2010 £ 86,500 86,500 31 March 2009 £ 82,875 82,875 Operating lease payments represent rentals payable by the Group for various offices. The leases have various terms, escalation clauses and renewal rights typical of lease agreements for the class of asset. Provexis plc Annual report and accounts 2010 50 Notes to the consolidated financial statements continued 22. Related party transactions On 12 February 2010 the Company announced that it had entered into a Letter of Intent (“LOI”) for its Fruitflow® technology with DSM Nutritional Products (“DSM”). The LOI provided a framework for the parties to develop a long-term Alliance Agreement (the “Agreement”), giving DSM exclusive global rights to Fruitflow®. On 1 June 2010 the Company signed a long-term Alliance Agreement with DSM Nutritional Products, which will see the Company collaborate with DSM to develop Fruitflow® in all major global markets. DSM is classified as a related party of the Group in accordance with IAS 24 as it holds shares in the Group. Further, K Rietveld is a director of the Company, and a senior employee of DSM. The directors of Provexis (the "Directors"), having consulted with Evolution Securities Limited ("Evolution Securities"), the Company's nominated adviser, consider that the terms of the letter of intent and the Alliance Agreement are fair and reasonable insofar as Provexis's shareholders are concerned. In providing advice to the Directors, Evolution Securities has taken into account the Directors' commercial assessments. On 4 August 2008 C D Buck, N C Bain and The RisingStars Growth Fund, which is connected to J B Diggines, advanced bridging loans to the Company totalling £50,000. The bridging loans were repaid by the Company on 28 August 2008. Bridging loan inducement fees totalling £10,000 were paid to C D Buck, N C Bain and The RisingStars Growth Fund, see note 8 on page 37 for further details. Transactions between the Company and its subsidiaries have been eliminated on consolidation. Key management compensation The Directors represent the key management personnel. Details of their compensation and share options are given in note 7 and within the Remuneration report on pages 17 to 21. 23. Post balance sheet events On 1 June 2010 the Company announced a long-term Alliance Agreement with DSM Nutritional Products, which will see the Company collaborate with DSM to develop Fruitflow® in all major global markets. DSM will invest substantially in the manufacture, technology development, marketing and sale of Fruitflow® in the coming years. Provexis will continue to contribute scientific expertise and will collaborate in areas such as cost of goods optimisation and regulatory matters. The financial model is based upon the division of profits between the two partners on an agreed basis, linked to certain revenue targets, following the deduction of the cost of goods and a fixed level of overhead from sales. The Company is working closely with DSM in various areas related to launch planning. It is not possible to determine the financial impact of the Alliance Agreement at this time. Provexis plc Annual report and accounts 2010 51 Parent company balance sheet Company number 05102907 Fixed assets Investments Current assets Debtors - due within one year Debtors - due after one year Cash and cash equivalents Total current assets Net current assets Total net assets Capital and reserves Share capital Share premium reserve Warrant reserve Retained earnings Equity shareholders’ funds As at 31 March 2010 £ As at 31 March 2009 £ Notes 3 4 4 5 7 8 8 8 9 1,117,336 1,117,336 115,980 5,285,050 6,979,011 12,380,041 — 3,537,113 1,664,626 5,201,739 12,380,041 5,201,739 13,497,377 6,319,075 4,723,601 14,527,277 115,980 (5,869,481) 13,497,377 4,434,907 7,979,558 — (6,095,390) 6,319,075 These financial statements were approved and authorised for issue by the Board on 1 June 2010. The notes on pages 53 to 57 form part of these parent company financial statements. Stephen Moon Director Ian Ford Director On behalf of the Board of Provexis plc 1 June 2010 Provexis plc Annual report and accounts 2010 52 Notes to the parent company financial statements 1. Accounting policies The parent company financial statements have been prepared under the historical cost convention and in accordance with UK GAAP. Share-based employee remuneration The Company has no employees however the Company will issue shares to satisfy share awards made by its subsidiary companies. The Company records a management charge equivalent to the fair value of the share-based payment incurred by its subsidiaries as disclosed in note 8 on page 56. Taxation Current tax, including UK corporation tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the balance sheet date, except that the recognition of deferred tax assets is limited to the extent that the Company anticipates making sufficient taxable profits in the future to absorb the reversal of the underlying timing differences. Deferred tax balances are not discounted. Valuation of investments Investments are stated at cost less any provision for impairment. Profits or losses arising from disposals of fixed asset investments are treated as part of the result from ordinary activities. Warrants The Group has issued warrants to Evolution Securities Limited as part of the Equity Financing Facility. These are considered to be outside the scope of share-based employee remuneration, and hence out of the scope of FRS20. These warrants have been measured at fair value at the date of grant using an appropriate options pricing model. This fair value has been held on the balance sheet within prepayments and in the warrants reserve within equity. The prepayment will be released against share premium as the equity financing facility is utilised. The warrants reserve will be released to share premium when the warrants are exercised. If the warrants lapse then the reserve is transferred to retained earnings. 2. Profit attributable to shareholders As permitted by Section 408 of the Companies Act 2006 no separate Company profit and loss account has been included in these financial statements. The Group loss for the year includes a loss after tax of £Nil (2009: £10,003) which is dealt with in the financial statements of the Company. The total fees of the Group’s auditor, BDO LLP, for services provided are analysed in note 5 to the consolidated financial statements on page 35. Total fees for the year were £69,500 (2009: £60,000). The parent company did not have any employees in the year and therefore there were no payroll costs or pension costs (2009: Nil). Provexis plc Annual report and accounts 2010 53 Notes to the parent company financial statements continued 3. Investments Cost Provision for impairment Net book value 31 March 2010 £ 1,382,919 (265,583) 1,117,336 31 March 2009 £ 1,382,919 (265,583) 1,117,336 At 31 March 2010 the Company owned the following material subsidiary undertakings: Share of issued ordinary share capital, and voting rights Country of incorporation and operation Business activity Provexis Nutrition Limited 100% England and Wales Provexis Natural Products Limited 100% England and Wales Provexis (IBD) Limited 75% England and Wales Functional food, medical food and dietary supplement technologies Functional food, medical food and dietary supplement technologies Functional food, medical food and dietary supplement technologies Altucea Limited, previously a dormant material subsidiary undertaking, was dissolved on 1 September 2009. There are no significant restrictions on the ability of subsidiary undertakings to transfer funds to the parent, other than those imposed by the Companies Act 2006. 4. Debtors Debtors falling due within one year Prepayments and accrued income Total debtors falling due within one year Debtors falling due after one year Amounts owed by subsidiaries Total debtors falling due after one year Total debtors 5. Cash and cash equivalents Cash at bank and in hand 31 March 2010 £ 115,980 115,980 5,285,050 5,285,050 5,401,030 31 March 2010 £ 6,979,011 6,979,011 31 March 2009 £ — — 3,537,113 — 3,537,113 31 March 2009 £ 1,664,626 1,664,626 Provexis plc Annual report and accounts 2010 54 Notes to the parent company financial statements continued 6. Deferred tax Deferred tax assets amounting to £153,128 (2009: £72,229) have not been recognised on the basis that their future economic benefit is not certain. 7. Share capital Authorised Ordinary 0.1p shares number Deferred 0.9p shares Number Total number At 31 March 2010 and 31 March 2009 1,884,480,706 401,724,366 2,286,205,072 Ordinary 0.1p shares £ Deferred 0.9p shares £ Total £ At 31 March 2010 and 31 March 2009 1,884,481 3,615,519 5,500,000 Authorised Ordinary 1p shares number Ordinary 0.1p shares number Deferred 0.9p shares Number Total number At 31 March 2008 Sub-division of shares At 31 March 2009 550,000,000 (550,000,000) — — 1,884,480,706 1,884,480,706 — 401,724,366 401,724,366 550,000,000 1,736,205,072 2,286,205,072 At 31 March 2008 Sub-division of shares At 31 March 2009 Allotted, called up and fully paid At 31 March 2009 Issued on exercise of share options Issued on subscription Issued on open offer At 31 March 2010 At 31 March 2009 Issued on exercise of share options Issued on subscription Issued on open offer At 31 March 2010 Ordinary 1p shares £ Ordinary 0.1p shares £ Deferred 0.9p shares £ 5,500,000 (5,500,000) — — 1,884,481 1,884,481 — 3,615,519 3,615,519 Ordinary 0.1p shares number Deferred 0.9p shares Number Total £ 5,500,000 — 5,500,000 Total number 819,387,796 3,482,469 200,000,000 85,211,664 1,108,081,929 401,724,366 — — — 401,724,366 1,221,112,162 3,482,469 200,000,000 85,211,664 1,509,806,295 Ordinary 0.1p shares £ Deferred 0.9p shares £ 819,388 3,482 200,000 85,212 1,108,082 3,615,519 — — — 3,615,519 Total £ 4,434,907 3,482 200,000 85,212 4,723,601 Provexis plc Annual report and accounts 2010 55 Notes to the parent company financial statements continued 7. Share capital (continued) Allotted, called up and fully paid Ordinary 1p shares number Ordinary 0.1p shares number Deferred 0.9p shares Number Total number At 31 March 2008 Sub-division of shares Share placing 28 August 2008 Share placing 2 October 2008 At 31 March 2009 401,724,366 (401,724,366) — — — — 401,724,366 386,894,230 30,769,200 819,387,796 — 401,724,366 — — 401,724,366 401,724,366 401,724,366 386,894,230 30,769,200 1,221,112,162 At 31 March 2008 Sub-division of shares Share placing 28 August 2008 Share placing 2 October 2008 At 31 March 2009 Ordinary 1p shares £ Ordinary 0.1p shares £ Deferred 0.9p shares £ 4,017,244 (4,017,244) — — — — 401,725 386,894 30,769 819,388 — 3,615,519 — — 3,615,519 Total £ 4,017,244 — 386,894 30,769 4,434,907 Details of the share subscriptions, share placings, the share re-organisation carried out and the shares issued by the Company during the two years ended 31 March 2010 are given in note 17 to the consolidated financial statements on pages 44 to 47. Details on the share option scheme and share based payment charge for the year are given in note 18 to the consolidated financial statements on page 47 to 49. 8. Reserves Share premium reserve £ Warrant reserve Retained earnings £ £ At 1 April 2009 Retained loss for the year Share-based charges Shares issued during the year - exercise of share options Shares issued during the year - subscription Shares issued during the year - open offer Warrants issued during the year - equity financing facility At 31 March 2010 7,979,558 — — 104,417 4,548,729 1,894,573 — 14,527,277 — — — — — — 115,980 115,980 (6,095,390) — 225,909 — — — — (5,869,481) 9. Shareholders’ funds Reconciliation of movement in shareholders’ funds. Loss for year Share-based payment charge (note 17 – page 44) Shares issued during the year Premium on shares issued Reduction of premium on share issue Warrants issued during the year - equity financing facility Net additions to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 31 March 2010 £ — 225,909 288,694 6,547,719 — 115,980 7,178,302 6,319,075 13,497,377 31 March 2009 £ (10,003) 112,630 417,663 2,046,460 (59,114) — 2,507,636 3,811,439 6,319,075 Provexis plc Annual report and accounts 2010 56 Notes to the parent company financial statements continued 10. Related party transactions The Company has taken advantage of the exemption conferred by Financial Reporting Standard 8 “Related party disclosures” not to disclose transactions with 100% owned members of the Group headed Provexis plc on the grounds that 100% of the voting rights of the Company are controlled within that Group and the Company is included in the consolidated financial statements. Provexis (IBD) Limited is 75% owned by Provexis plc and 25% owned by Ulive Enterprises Limited. Ulive Enterprises Limited is 75% owned by The University of Liverpool. Provexis plc wholly owns Provexis Nutrition Limited and Provexis Natural Products Limited. Provexis Nutrition Limited, Provexis Natural Products Limited and Provexis (IBD) Limited are under the common control of Provexis plc. The Company did not trade with Provexis (IBD) Limited during the year ended 31 March 2010 (2009: Nil). At 31 March 2010 the Company was owed £5,509 by Provexis (IBD) Limited (31 March 2009: owed £5,509). Provexis (IBD) Limited does not have a bank account, and all its cash accounting transactions during the year were processed by Provexis plc, Provexis Nutrition Limited and Provexis Natural Products Limited (“Provexis group companies”). Amounts transacted by Provexis (IBD) Limited with Provexis group companies are charged through inter company accounts and the net amount transacted during the year was £380,094 (2009: £325,932). Provexis (IBD) Limited owed Provexis group companies a total of £880,755 at 31 March 2010 (31 March 2009: owed £500,661). During the year ended 31 March 2009 the Company received and repaid £50,000 of bridging loans in August 2008 from certain directors and connected parties, and it paid an inducement fee of £10,000 to those parties for the bridging loans. See also note 8 to the consolidated financial statements on page 37. Details of a related party transaction with DSM are given in note 22 to the consolidated financial statements on page 51. 11. Post balance sheet events Details of post balance sheet events are given in note 23 to the consolidated financial statements on page 51. Provexis plc Annual report and accounts 2010 57 Company information Company number 05102907 Directors Audit committee Remuneration committee Registrars Secretary and registered office C D Buck N C Bain K Rietveld S N Moon S N Morrison I Ford N C Bain C D Buck C D Buck N C Bain K Rietveld Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA I Ford Thames Court 1 Victoria Street Windsor Berkshire SL4 1YB Nominated adviser and broker Evolution Securities Limited 100 Wood Street London EC2V 7AN Principal solicitors Auditors Shoosmiths Apex Plaza Forbury Road Reading Berkshire RG1 1SH BDO LLP Kings Wharf 20–30 Kings Road Reading Berkshire RG1 3EX Provexis plc Annual report and accounts 2010 58 

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