Anpario Regulatory News (ANP)

26 Apr 2007 07:02

Kiotech International plc26 April 2007 26 April 2007 Kiotech International plc (Kiotech) Aim:KIO www.kiotech.com Kiotech, which supplies high-performance natural feed additives to enhancehealth, growth and sustainability in aquaculture and agriculture is pleased toannounce its preliminary results for the year ended 31 December 2006. Key points: Financial • Acquired Agil for total consideration of £5.5 million in November 2006 • Raised £5.295 million, before expenses, to fund acquisition • Cash balance of £1.3 million at year end • Pre tax loss cut to £287,000 (2005: £697,000, restated as £602,000) • Central costs reduced through outsourcing services Key points: Operations • Trials of Kiotech's Aquatice fish attractant in China and Thailand produce very encouraging results for Tilapia and White Shrimp • Results demonstrate that Aquatice can significantly increase fish production under commercial conditions and benefit both the fish farmer and the environment • Aquatice registration underway in China and EU • Agil is ideal partner for Kiotech, bringing international marketing and product development skills • Plans already underway to increase investment in Agil through expanding the product development programme, promoting the brand and broadening further its international network of distributors and agents • Agil's technical expertise in chemical blending coupled with its record of cash generation will form a central part of Kiotech's development strategy Commenting on the results, Richard Rose, Chairman of Kiotech, said: "The company is trading profitably and the current year has startedsatisfactorily with a significantly strengthened balance sheet. The exciting potential of Kiotech's fish attractant technology has been borneout in our successful trials in China and Thailand. The results have generatedsignificant interest from Agil's network of distributors and from fish farmersand the aquaculture industry. We expect to make solid progress with Agil, by introducing new ideas andproducts and establishing new territories. Agil is a sound, well-establishedbusiness and will play a key role in driving Kiotech's development and marketingstrategy" -------------------------- Contacts: Kiotech International plc Richard Rose Chairman 07836 250474Spiro Financial Anthony Spiro Press 020 8336 6196J M Finn & Co Charles Cunningham Nomad 020 7997 8471 KIOTECH INTERNATIONAL PLC CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 We are pleased to report that the year to 31 December 2006 has seen encouragingprogress in the development and trialling of Kiotech's innovative performanceproducts. The commercialisation of this technology will be significantlyenhanced as a result of the acquisition of Agil, with its well-establishedinternational marketing network. In November 2006, Kiotech purchased the business and assets of the Agil Divisionof Lawrence Plc for a total consideration of £5.5 million. Agil operatesworldwide in the animal feed market selling natural additives, which target arange of animal infections; the business also supplies products to improvebiosecurity on the farm. Agil provides the enlarged group with an establishedroute to market through its existing distribution network and relationshipswithin the aquaculture industry. The purchase consideration was satisfied by the payment of £4,695,000 in cashand the issue to Lawrence Plc of 8,333,334 new ordinary Kiotech shares. Kiotechhas held back £555,000 of the consideration pending receipt of certain bookdebts due to Agil. The acquisition was financed through a placing of 176,500,000new ordinary Kiotech shares at three pence per share to raise £5,295,000 (beforethe deduction of expenses and VAT). The acquisition was approved by Kiotechshareholders at an Extraordinary General Meeting on 27 November 2006. Agil's technical expertise in chemical blending coupled with its record of cashgeneration will form a central part of Kiotech's development strategy. In theyear to 31 March 2006, Agil generated a profit before interest and tax of£755,000 on sales of £5,235,000. Although we have only owned Agil for a relatively short time we have beenencouraged by the underlying potential of the business. Agil is a leader in itsfield and makes an ideal partner for Kiotech bringing international marketingand product development skills. Plans are already underway to increaseinvestment in Agil through expanding the product development programme,promoting the brand and broadening further its international network ofdistributors and agents. Results Trading for the year to 31 December 2006, which includes a contribution fromAgil for just the short month of December, saw sales of £421,636, compared with£159,049 in the equivalent period last year. The loss before and after taxfor the year was reduced significantly to £287,085 from last year's level of£697,171 (restated loss of £601,998 in respect of the prior year adjustment dueto the change in accounting policy of the Research and Development expenditurewhich has been capitalised under SSAP13), and demonstrates the success ofmanagement's focus on keeping costs under tight control. Sales for the original Kiotech business were £89,480, reflecting the earlystages of the sports fishing distribution arrangement signed with Rapala VMCCorporation in late 2005. The acquisition of Agil has transformed Kiotech'sbalance sheet, which at the year end had a positive cash balance of over £1.3million. Agil Feed additives are crucial to the improved efficiency of the animal productionindustry. Agil's ranges of natural feed additives improve food conversion andefficiency of feeds for both poultry and pigs, which allow farmers andintegrators to increase their profits. Agil has built a strong reputation inthe organic acidifiers market, helped by Salkil one of its key products, used toreduce the likelihood of salmonella and E.Coli in the animal digestive system. The banning of antibiotic growth promoters (AGPs) for use in production animalsacross Europe offers a number of opportunities for Agil. As no single productcan satisfactorily replace AGP's, Agil is promoting a range of products, whichimprove health in the animal and also offer a biosecure environment in the watersupply. Credence, a water disinfectant product, has been launched in the UK andmore recently in other countries and is selling well to poultry integrators. Anumber of different applications for Credence are being considered, which maylead to new opportunities in other animal markets such as beef farming andaquaculture. Agil's range of mineral pesticides for grain storage and application onto livebirds and pets for control of mites, beetles and weevils is proving popular in avariety of markets including garden centres and the horticulture sector and isgaining acceptance worldwide. Our sales to meat producers in Latin America, particularly in Brazil andArgentina, were boosted by the weak currency in those countries, which enabledlocal food producers to increase their exports to European markets. Goodprogress has also been made expanding sales to Central and Eastern Europe wherewe see good growth opportunities. Management intends to register products forsale in other major food producing markets including China, Russia and Vietnam. Agil's profitability has been affected in recent years by the increase in rawmaterial prices as a result of the higher oil price. Management is respondingthrough a programme to raise the efficiency of the cost base and improve thegross margin. Following the acquisition, management has reviewed and re-energised the productdevelopment process and a number of new products and product extensions arealready close to launch. In addition, Agil is also reviewing its marketingliterature and putting additional resource on gaining trial data, which play asignificant role in the sales process. Kiotech Aquaculture Kiotech's attractant technology has three principal objectives: 1. In the short term, to increase the feeding activity of farmed fish andtherefore the uptake of existing fish-based feeds within the aquacultureindustry with the aim of reducing the amount of waste from uneaten feed, whichresults in significant environmental damage. 2. In the longer term to permit the use of more sustainable forms of proteins infeeds, not fish based ingredients. This will protect wild fish populations fromfurther depletion and satisfy the increased demands expected from theaquaculture sector. 3. In all cases to increase the commercial returns available to farmers throughthe lower feed intake and higher growth rates of fish. In the year under review, Kiotech moved from successful laboratory trials toassessing the efficacy of its Aquatice range of fish feeding attractants, infull-scale commercial situations. Aquatice trials were undertaken in China andThailand at commercial fish farms under the supervision of the UK Governmentagency CEFAS (the Centre for Environment, Fisheries & Aquaculture Science). Theresults are very encouraging and have highlighted the fact that the Aquaticeproducts can significantly increase production under commercial conditions andbenefit both the fish farmer and the environment. The principal findings fromthe commercial trials were: Tilapia (Oreochromis niloticus) The trial was conducted in Zhouhai, China over a 6-month period. The applicationof the Tilapia Aquatice product produced a 17% increase in the average weight ofthe Tilapia compared to the control pond. Aquatice also increased the growthrate of the Tilapia allowing the farmer to start harvesting three weeks earlierthan the control pond. In addition, it was noted that in the Aquatice treatedpond the fish appeared healthier, the water quality was better and the secondarycrop of White Shrimp was significantly higher with less incidence of disease.Overall, the farmer received a 50% higher income from the Aquatice treated pondthan the control. White Shrimp (Litopenaeus vannamei) The trial was conducted in Tradt, south east Thailand over a three month period.The White Shrimp Aquatice product was applied coated to the commercial shrimpfeed. The application of feed coated with the Aquatice product produced Shrimp,which were 30% larger on average than the control Shrimp. In addition, less feedwas required in the Aquatice pond probably due to increased feeding by theShrimp, which was reflected in a lower Food Conversion Rate at harvest than thecontrol pond. As a result of these trials Kiotech and CEFAS, consider that suitable productsfor Tilapia and White Shrimp have been successfully developed for application inthe aquaculture industry. Kiotech is using these results and other research fromCEFAS to register the products for use in China, the European Union andelsewhere. We expect final registration approvals for China to be granted withinthe next two years. Kiotech and CEFAS are actively collaborating with Tokyo Marine University tohelp meet our objective of allowing the aquaculture industry to move fromreliance on the non-sustainable use of wild fish based oils and proteins. Thisco-operation will form the basis for further developments and testing on acommercial scale and a wide range of fish species such as tilapia and rainbowtrout. Commercial Fishing As the traditional fisheries for the shallow water and continental shelfspecies, such as cod, decline, new alternative fisheries need to be developedwithin a sustainable and managed framework. This will require the developmentof new approaches to the selective capture and harvesting of target species insuch a way as to conserve non-target stocks, wild populations of fish and theaquatic ecosystems. To that effect, Kiotech and CEFAS have been developingtheir technology for use in commercial long-line fishing. By using specificattractants only the target species is selected, significantly reducing the by-catch of non-quota fish. Furthermore, the use of attractants within commercialtraps and pots for shellfish and crustacean will provide an alternative to fish-based baits, further conserving the declining populations of wild fish. Kiotech and CEFAS will continue the work started in late 2006 with Marukyu, theJapanese bait manufacturer, in targeting the oceanic tuna industry. Registration China represents the largest market for Kiotech's products. During the yearextensive discussions were held with Chinese regional and national governmentofficials together with leading government scientists involved in thesustainable development of aquaculture. The purpose of these discussions was tohighlight our technology and to obtain the assistance of key individuals inregistering and commercialising Aquatice in China. As a result, Kiotech andCEFAS will be working in close collaboration on trials and registration with theChinese Academy of Fisheries Science. Kiotech is greatly encouraged by the positive and enthusiastic response of theChinese authorities towards its work. Kiotech's management is examining a numberof possible structures to allow the registration and commercialisation processto proceed in the most efficient and cost effective manner. Sports Fishing Ultrabite, launched by Kiotech in 2001, is a fishing attractant aimed at theglobal sports and leisure market. In order to consolidate our activities inthis market and maximize the sales potential, in 2005 Kiotech signed anexclusive worldwide distributor agreement with Rapala VMC Corporation ofFinland. Rapala has an extensive development programme, which is focusing onthe establishment of a range of products incorporating Kiotech technology andwill be launching the new range through its global network of distributors. Management Nicholas Scott and David Gyle-Thompson resigned as directors on 6 July 2006; theBoard would like to record the Company's appreciation of the contribution madeby both over the last five years. On 1 December following the acquisition ofAgil, Richard Edwards joined the Board of Kiotech as Chief Executive. Richardhas extensive general management experience gained in the sales and distributionsector both in the UK and internationally. Outlook The company is trading profitably and the current year has startedsatisfactorily with a significantly strengthened balance sheet. The exciting potential of our technology has been borne out in our successfultrials in China and Thailand. The results have generated significant interestfrom Agil's network of distributors and from fish farmers and the aquacultureindustry. We are optimistic that good progress will be made in gainingregistrations for Aquatice although the timing of regulatory approvals is out ofour hands. We expect to make solid progress with Agil, by introducing new ideas andproducts and establishing new territories. Agil is a sound, well-establishedbusiness and will play a key role in driving Kiotech's development and marketingstrategy. Richard Rose Chairman 25 April 2007 KIOTECH INTERNATIONAL PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2006 2006 2005 As restated Notes £ £ Turnover 2Continuing operations 89,480 159,049Acquisition 332,156 - ------- ------- 421,636 159,049 Cost of sales (306,901) (329,733) ------- -------Gross profit/(loss) 114,735 (170,684) Administrative expenses (472,942) (470,491) ------- -------Operating loss (358,207) (641,175)Continuing operations (384,740) (641,175)Acquisitions 26,533 - ------- ------- (358,207) (641,175) Other interest receivable and 71,122 39,247similar incomeInterest payable and similar 5 - (70)charges ------- -------Loss on ordinary activities (287,085) (601,998)before taxation Tax on loss on ordinary 6 - -activities ------- -------Loss on ordinary activities (287,085) (601,998)after taxation ------- ------- Basic loss per share (pence) 6 0.34 1.38Diluted loss per share 6 0.32 1.33(pence) 2006 2005 £ £ Loss for the financial year (287,085) (601,998)Prior year adjustment 8 - (95,173) ------- -------Total recognised gains and losses relating to the year (287,085) (697,171) ------- ------- KIOTECH INTERNATIONAL PLC BALANCE SHEETS AS AT 31 DECEMBER 2006 Group Company 2006 2005 2006 2005 as restated as restated Notes £ £ £ £Fixed assetsIntangible assets 11 3,742,419 95,173 3,742,419 -Tangible assets 12 367,904 2,140 367,904 -Investments 13 - - 1,054 1,054 ------- ------- ------- ------- 4,110,323 97,313 4,111,377 1,054 ------- ------- ------- -------Current assetsStocks 14 444,241 30,901 444,241 -Debtors 15 2,578,149 94,545 2,578,099 2,100Cash at bank and in hand 1,346,758 1,785,290 1,346,707 1,729,270 ------- ------- ------- ------- 4,369,148 1,910,736 4,369,047 1,731,370Creditors: amounts falling due within one year 16 (1,716,776) (145,941) (1,716,776) (3,467) ------- ------- ------- -------Net current assets 2,652,372 1,764,795 2,652,271 1,727,903 ------- ------- ------- -------Total assets less current liabilities 6,762,695 1,862,108 6,763,648 1,728,957 ------- ------- ------- -------Capital and reservesCalled up share capital 19 4,351,862 2,503,529 4,351,862 2,503,529Share premium account 20 9,844,198 6,504,675 9,844,198 6,504,675Other reserves 20 147,317 147,500 147,317 147,500Profit and loss account 20 (7,580,682) (7,293,596) (7,579,729) (7,426,747) ------- ------- ------- -------Shareholders' funds 21 6,762,695 1,862,108 6,763,648 1,728,957 ------- ------- ------- ------- KIOTECH INTERNATIONAL PLC CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 2006 2005 £ £ £ £ Net cash outflow from operating activities (1,667,157) (541,433) Returns on investments and servicing of financeInterest received 71,121 39,247Interest paid - (70) ------- ------- Net cash inflow for returns on investments and servicing of finance 71,121 39,177 Capital expenditurePayments to acquire intangible assets (3,659,850) -Payments to acquire tangible assets (370,502) - ------- ------- Net cash inflow/(outflow) for capital expenditure (4,030,352) - ------- -------Net cash outflow before management of liquid resources and financing (5,626,388) (502,256) FinancingIssue of ordinary share capital 5,545,000 2,215,991Cost of share issue (357,144) (405,397) ------- ------- Issue of shares 5,187,856 1,810,594 ------- ------- Net cash inflow from financing 5,187,856 1,810,594 ------- -------(Decrease)/Increase in cash in the year (438,532) 1,308,338 ------- ------- KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006 1 Accounting policies 1.1 Compliance with accounting standards The financial statements are prepared in accordance with applicable United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), which have been applied consistently (except as otherwise stated). 1.2 Basis of preparation The financial statements have been prepared under the historical cost convention and in accordance with applicable United Kingdom Accounting Standards. The principal accounting policies of the group are set out below, and have been applied consistently in dealing with items which are considered material in relation to the group's financial statements. 1.3 Basis of consolidation The consolidated financial statements comprise the accounts of the company and it's subsidiaries drawn up to 31 December 2006. Profit or losses on intra-group transactions are eliminated in full on consolidation. 1.4 Turnover Turnover represents amounts receivable for goods and services net of VAT and trade discounts. 1.5 Goodwill Acquired goodwill is written off in equal annual instalments over its estimated useful economic life. 1.6 Patents Patents are valued at cost less accumulated amortisation. Amortisation is calculated to write off the cost in equal annual instalments over their estimated useful lives. 1.7 Research and development Research expenditure is written off to the profit and loss account in the year in which it is incurred. Development expenditure is written off in the same way unless the directors are satisfied as to the technical, commercial and financial viability of individual projects. In this situation, the expenditure is deferred and amortised over the period during which the company is expected to benefit. This represents a change in accounting policy. The previous policy was to write-off all development costs as they were incurred. To reflect this change a prior year adjustment has been made and this is reflected in note 8 to the accounts. 1.8 Tangible fixed assets and depreciation Tangible fixed assets are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows: Land and buildings Leasehold over the life of the lease Plant and machinery 3 years Computer equipment 3 years Fixtures, fittings & equipment 3 years 1 Accounting policies (continued) 1.9 Leasing Rentals payable under operating leases are charged against income on a straight line basis over the lease term. 1.10 Investments Fixed asset investments are stated at cost less provision for diminution in value. 1.11 Stock Stock is valued at the lower of cost and net realisable value. 1.12 Deferred taxation Deferred taxation is provided in full in respect of taxation deferred by timing differences between the treatment of certain items for taxation and accounting purposes where the directors feel it is probable the deferred tax asset or liability will be realised in the future. The deferred tax balance has not been discounted. 1.13 Foreign currency translation Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All differences are taken to profit and loss account. 1.14 Changes in accounting policy This is the first accounting period in which the group and company have adopted the Financial Reporting Standard 20 "Share-based Payment". The adoption of FRS20 and the effect on the financial statements is stated in note 18 of this report . FRS20 requires the group to reflect in its profit or loss and financial position the effects of share based payment transactions, including expenses associated with transactions in which share options are granted to employees. 1.15 Share-based payments For equity-settled share-based payment transactions, the group, in accordance with FRS20 (effective from 1 January 2006) measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted. The fair value of those equity instruments shall be measured at grant date, using the trinomial method. The expense is apportioned over the vesting period of the financial instrument and is based on the number which are expected to vest and the fair value of those financial instruments at the date of grant. If the equity instruments granted vest immediately, the expense is recognised in full. KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 2 Turnover The total turnover of the group for the year has been derived from its principal activity. Segmental analysis by geographical area The analysis by geographical area of the group's turnover is set out as below: 2006 2005 £ £ Geographical segment Europe 71,287 72,003 Rest of the World 350,344 87,046 -------- -------- 421,631 159,049 -------- -------- 3 Cost of sales and net operating expenses The total figures for continuing operations in 2006 include the following amounts relating to acquisitions: cost of sales £187,856, distribution costs £36,782, administrative expenses £80,985 . 4 Operating loss 2006 2005 Operating loss is stated after charging: £ £ Depreciation of Intangible assets 12,606 7,456 Depreciation of tangible assets 4,735 1,621 Loss on foreign exchange transactions 2,989 472 Research and development 32,005 25,167 Audit services 14,000 20,855 Operating lease rentals 2,396 - Remuneration of auditors for non-audit work 3,396 1,521 and after crediting: Profit on disposal of tangible assets (300) 5 Interest payable 2006 2005 £ £ On bank loans and overdrafts - 70 -------- -------- KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 6 Taxation 2006 2005 Current tax charge - - -------- -------- Factors affecting the tax charge for the year Loss on ordinary activities before taxation (287,085) (601,998) -------- -------- Loss on ordinary activities before taxation multiplied by standard rate of UK corporation (86,126) (180,599) tax of 30.00% (2005 - 30.00%) -------- -------- Effects of: Non deductible expenses 14,106 16,906 Capital allowances (4,833) (4,161) Tax losses utilised 76,853 196,406 Adjustments to previous periods - (28,552) -------- -------- 86,126 180,599 -------- -------- Current tax charge - - -------- -------- 7 Loss per share The calculation of the basic loss per share is based on the loss for the year being £287,085 (2005: restated £601,998) divided by the weighted average number of shares in issue during the year, being 83,462,714 (2005: 50,546,959) shares. The calculation of diluted loss per share is based on the basic loss per share, adjusted to allow for the issue of shares, on the assumed conversion of all dilutive options and other dilutive potential ordinary shares. 8 Loss for the financial year As permitted by section 230 of the Companies Act 1985, the holding company's profit and loss account has not been included in these financial statements. The loss for the financial year is made up as follows: 2006 2005 £ £ Holding company's loss for the financial year (152,981) (587,383) -------- -------- KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 9 Prior year adjustment Changes in accounting policy The prior year adjustment made as a result of the change in accounting policy which is reported in the Statement of Total Recognised Gains and Losses and adjusted to opening reserves in note is analysed as follows: 2005 £ SSAP13 - Research and development expenditure Capitalisation of expenditure 102,629 Amortisation charge (7,456) ------- 95,173 ------- KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 10 Fair value adjustment Acquisition of the trade, assets and liabilities of AGIL from Lawrence plc. On 27th November 2006 the company purchased the trade, assets and liabilities of AGIL. The book values and fair values of the assets and liabilities purchasedwere as follows: Book value Fair value Fair value adjustment Patent intangible assets 16,181 - 16,181 Fixed assets 200,324 169,410 369,734 Stock 437,989 - 437,989 Trade debtors 2,399,708 - 2,399,708 Prepayments 60,757 - 60,757 Other debtors 5,852 - 5,852 Trade creditors (791,559) - (791,559) Other creditors (849) - (849) Accruals (24,662) - (24,662) Cash 80 - 80 Purchased goodwill - - 3,884,511 The fair values of the assets and liabilities were deemed to be equal to their carrying value except for the property within fixed assets. The fair value of the property was deemed to be £325,000 which was £169,410 higher than its carrying value. The consideration paid was £5.5m which was made up of £5.25m in cash and £250,000 in 1p shares (8,333,334 shares). Of the £5.25m in cash, £555,000 has been held back until certain purchased debts have been settled. The pre-acquisition results of AGIL are: 1.3.2006 to Year to 27.11.2006 31.3.2006 Turnover 3,593,165 5,234,998 Operating profit 505,304 777,680 Profit before and after tax 495,222 755,924 The accounting policies of Kiotech International plc and Lawrence plc were the same for the accounting periods above. KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 11 Intangible fixed assets Group Patents Goodwill Development Total Costs £ £ £ £ Cost At 1 January 2006 - - 102,629 102,629 Additions 16,181 3,548,194 95,477 3,659,852 ------ --------- ------- -------- At 31 December 2006 16,181 3,548,194 198,106 3,762,481 ------ --------- ------- -------- Amortisation At 1 January 2006 - - 7,456 7,456 Charge for the year 67 - 12,539 12,606 ------ --------- ------- -------- At 31 December 2006 67 - 19,995 20,062 ------ --------- ------- -------- Net book value At 31 December 2006 16,114 3,548,194 178,111 3,742,419 ------ --------- ------- -------- At 31 December 2005 - - 95,173 95,173 ------ --------- ------- -------- Intangible fixed assets Company Patents Goodwill Development Total Costs £ £ £ £ Cost At 1 January 2006 - - - - Additions 16,181 3,548,194 190,650 3,755,025 ------ --------- ------- -------- At 31 December 2006 16,181 3,548,194 190,650 3,755,025 ------ --------- ------- -------- Amortisation At 1 January 2006 - - - - Charge for the year 67 - 12,539 12,606 ------ --------- ------- -------- At 31 December 2006 67 - 12,539 12,606 ------ --------- ------- -------- Net book value At 31 December 2006 16,114 3,548,194 178,111 3,742,419 ------ --------- ------- -------- KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 12 Tangible fixed assets Group Land and Plant and Fixtures, Total buildings machinery fittings Leasehold & equipment £ £ £ £ Cost At 1 January 2006 - 1,709 5,101 6,810 Additions 325,000 16,109 29,393 370,502 ------ --------- ------- -------- At 31 December 2006 325,000 17,818 34,494 377,312 ------ --------- ------- -------- Depreciation At 1 January 2006 - 618 4,052 4,670 Charge for the year - 3,110 1,628 4,738 ------ --------- ------- -------- At 31 December 2006 - 3,728 5,680 9,408 ------ --------- ------- -------- Net book value At 31 December 2006 325,000 14,090 28,814 367,904 ------ --------- ------- -------- At 31 December 2005 - 1,091 1,049 2,140 ------ --------- ------- -------- KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 Tangible fixed assets Company Land and Plant and Fixtures, Total buildings machinery fittings Leasehold & equipment £ £ £ £ Cost At 1 January 2006 - - - - Additions 325,000 17,818 34,494 377,312 ------ --------- ------- -------- At 31 December 2006 325,000 17,818 34,494 377,312 ------ --------- ------- -------- Depreciation At 1 January 2006 - - - - Charge for the year - 3,728 5,680 9,408 ------ --------- ------- -------- At 31 December 2006 - 3,728 5,680 9,408 ------ --------- ------- -------- Net book value At 31 December 2006 325,000 14,090 28,814 367,904 ------ --------- ------- -------- KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 13 Fixed asset investments Company Unlisted investments £ Cost At 1 January 2006 & at 31 December 2006 1,054 ------ At 31 December 2005 1,054 ------ Holdings of more than 20% The company holds more than 20% of the share capital of the following companies: Company Country of registration Shares held or incorporation Class % Subsidiary undertakings Kiotech Limited England and Wales Ordinary 100 Ultrabite Limited England and Wales Ordinary 100 Boditech Diagnostics Limited England and Wales Ordinary 100 Agil Limited England and Wales Ordinary 100 The principal activity of these undertakings for the last relevant financial year was as follows: Principal activity Kiotech Limited Dormant Ultrabite Limited Dormant Boditech Diagnostics Limited Dormant Agil Limited Dormant On the 1st January 2006 the trades of Ultrabite Limited and Kiotech Limited were transferred to Kiotech International plc. 14 Stocks Group Company 2006 2005 2006 2005 £ £ £ £ Raw materials and consumables 289,334 - 289,334 - Finished goods and goods for resale 154,907 30,901 154,907 - -------- ------- ------- ------- 444,241 30,901 444,241 - -------- ------- ------- ------- KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 15 Debtors Group Company 2006 2005 2006 2005 £ £ £ £ Trade debtors 2,345,415 10,729 2,345,415 - Corporation tax 1,977 1,976 1,977 - Other debtors 122,782 61,407 122,732 - Prepayments and accrued income 107,975 20,433 107,975 2,100 -------- ------- ------- ------- 2,578,149 94,545 2,578,099 2,100 -------- ------- ------- ------- 16 Creditors : amounts falling due within one year Group Company 2006 2005 2006 2005 £ £ £ £ Other creditors 704,185 2,045 704,185 999 Trade creditors 941,530 117,290 941,530 2,468 Taxes and social security costs 16,294 - 16,294 - Accruals and deferred income 54,767 26,606 54,767 - -------- ------- ------- ------- 1,716,776 145,941 1,716,776 3,467 -------- ------- ------- ------- KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 17 Financial instruments The disclosures in this note deal with the financial assets and financial liabilities defined in Financial Reporting Standard 25 Financial Instruments: Disclosure and presentation (FRS25). Certain financial assets, such as investment in subsidiary companies are excluded from the scope of these disclosures. The group's financial instruments comprise cash, trade debtors and trade creditors that arise directly from its operations. The group's circumstances and operations do not require the use of complex financial instruments. Short term debtors and creditors. As permitted by FRS25, short-term debtors and creditors have been excluded from these disclosures, other than currency disclosures. Currency Risk The group operates in overseas markets and is subject to currency exposures on transactions undertaken during the year. The group does not hedge any transactions, and foreign exchange differences on retranslation of foreign assets and liabilities are taken to the profit and loss account of the group companies and the group. The group held the following financial assets at 31 December 2006 and 31 December 2005 2006 2005 £ £ Cash at bank and in hand 1,346,757 1,785,290 KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 18 Share-based payments The group has issued the following share options: Outstanding at the beginning of 5,325,883 the period Granted during the period 15,403,934 Forfeited during the period (3,700,000) Exercised during the period 0 Expired during the period (30,000) Outstanding at the period end 16,999,817 Exercisable at the end of the 13,803,934 period The fair value of services received in return for share options granted are measured by reference to the fair value of the share options granted. The estimate of fair value received is calculated based on the trinomial model. The assumptions used in this model are as follows: Grant date 12-Jul-06 28-Nov-06 28-Nov-06 28-Nov-06 Grant price (p) 5.25 4 4 4 Exercise price (p) 5.38 3 6 9 Vesting period (years) 2 immediate immediate immediate Option expiry (years) 12 10 10 10 Expected volatility of he 30% 30% 30% 30% share price Dividends expected on the 0.00% 0.00% 0.00% 0.00% shares Risk free rate 4.62% 4.42% 4.42% 4.42% Employee exercise multiple 2 2 2 2 Fair value (p) 2.05 1.56 0.66 0.42 The expense is apportioned over the vesting period and is based on the number of financial instruments which are expected to vest and the fair value of those financial instruments at the date of grant. The charge for the year, included in administation expenses, in respect of share options granted amounts to £147,317, less the reserve brought forward of £147,500 which has been written-off during the year. Under the transition rules of FRS20, the standard has not been applied retrospectively to share options granted before the effective date (1st January 2006) which had vested by this date. At the date of valuation little historical share price data for Kiotech existed in order to assist with arriving at an appropriate volatility. The directors have therefore had regard to the volatilities of those quoted companies that we consider to show some degree of comparability with Kiotech. FRS20 requires the group to take account of the fact that volatilities tend to revert towards a long term average level. consequently the directors consider that over the life of the options, it is reasonable to expect the volatility to revert towards a long term average level of around 30%. The directors have therefore applied a volatility of 30% for the options issued. Consistent with requirements of FRS20, the directors have assumed that the volatility will tend towards a lower longer term mean over time. KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 19 Share capital 2006 2005 £ £ Authorised 2,000,000,000 Ordinary shares of 1p each 20,000,000 20,000,000 1,859,672 'A' shares of 99p each 1,841,075 1,841,075 ---------- ---------- 21,841,075 21,841,075 ---------- ---------- Allotted, called up and fully paid 251,078,700 Ordinary shares of 1p each 2,510,787 662,454 1,859,672 'A' shares of 99p each 1,841,075 1,841,075 ---------- ---------- 4,351,862 2,503,529 ---------- ---------- On 28 November 2006 184,833,334 shares were issued to part fund the acquisition of the Agil Division of Lawrence plc . The issue price was 3p and the difference between the total consideration received of £5,545,000 and the total nominee value of £1,848,334 has been credited to the share premium account (net of costs). The 'A' shares carry no voting, dividend or other rights, including no right to return of assets on liquidation or otherwise. KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 20 Statement of movements on reserves Group Share Other Profit and premium reserves loss account (see account below) £ £ £ Balance at 1 January 2006 6,504,675 147,500 (7,388,770) Prior year adjustment - - 95,173 --------- ------- --------- Restated balance at 1 January 2006 6,504,675 147,500 (7,293,597) Loss for the year - - (287,085) Premium on shares issued during the year 3,696,667 - - Share premium - other movements (357,144) - - Movement during the year - (183) - --------- ------- --------- Balance at 31 December 2006 9,844,198 147,317 (7,580,682) --------- ------- --------- The movement on the share premium account is net of costs which were £357,144 Other reserves Reserves provided for by the Articles of Association Balance at 1 January 2006 147,500 Other reserve movement (183) ------- Balance at 31 December 2006 147,317 ------- The company does not present its profit and loss account as it is exempt from doing so under section 230 of the Companies Act 1985. The loss for the year of the company was £152,981 (2005: £587,383). Other reserves relate to shares to be issued under outstanding share options. KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 21 Reconciliation of movements in shareholders' funds 2006 2005 Group £ £ As restated Loss for the financial year (287,085) (601,998) Proceeds from issue of shares 5,545,000 - Cost of share options granted (183) 35,000 Cost of share issue written off to share premium account (357,144) - --------- -------- Net addition to/(depletion in) shareholders' funds 4,900,588 (566,998) Opening shareholders' funds 1,862,108 2,429,106 --------- -------- Closing shareholders' funds 6,762,695 1,862,108 --------- -------- 2006 2005 Company £ £ Loss for the financial year (152,981) (587,382) Proceeds from issue of shares 5,545,000 - Cost of share options granted (183) 35,000 Cost of share issue written off to share premium account (357,144) - --------- -------- Net addition to/(depletion in) shareholders' funds 5,034,692 (552,382) Opening shareholders' funds 1,728,957 2,281,339 --------- -------- Closing shareholders' funds 6,763,648 1,728,957 --------- -------- 22 Contingent liabilities There were no contingent liabilities at 31 December 2006 and 31 December 2005 KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 23 Financial commitments At 31 December 2006 the group had annual commitments under non-cancellable operating leases as follows: Land and buildings 2006 2005 £ £ Expiry date: Within one year 37,500 - Between two and five years 112,500 - --------- -------- 150,000 - --------- -------- 24 Capital commitments The group had no authorised capital commitments as at 31 December 2006 or 31 December 2005. 25 Directors' emoluments 2006 2005 £ £ The highest paid director 41,400 39,996 Emoluments for qualifying services 111,073 104,971 Compensation for loss of office 90,000 - --------- -------- 201,073 - --------- -------- 26 Employees Number of employees The average monthly number of employees (including directors) during the year was: 2006 2005 Number Number 2 4 --------- -------- Employment costs 2006 2005 £ £ Wages and salaries 266,933 200,455 Social security costs 20,169 17,089 --------- -------- 287,102 217,544 --------- -------- KIOTECH INTERNATIONAL PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 27 Related party transactions Group Lawrence plc has an accounting management agreement with the group for which it receives £37,500 per annum (2005: £20,000). Work done by certain employees of Lawrence plc in connection with the marketing and development of the chemosensory attractants was charged. Peter Lawrence, chairman of Lawrence plc, is also a non executive director of the Company and £20,000 (2005: 20,000) was paid to Lawrence plc in respect of his services end expenses. Richard Edwards received £53,370 (2005: nil) in respect of consultancy fees between July and November 2006 while negotiating the acquisition of the Agil Division of Lawrence plc on behalf of the company prior to his appointment as a director on 1st December 2006. END This information is provided by RNS The company news service from the London Stock Exchange