Provexis plc
Annual report and accounts 2010
Company number 05102907
Contents
3
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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
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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