Futura Medical Regulatory News (FUM)

Futura Medical plc

("Futura" or "the Company")

Preliminary Results for the year ended 31 December 2011

Futura Medical plc (AIM: FUM), the pharmaceutical group that develops innovative products for consumer healthcare, is pleased to announce its preliminary results for the year ended 31 December 2011.

Highlights

§ Significant progress across the Company and in particular with two products, CSD500 and PET500

§ CSD500 - CE mark awarded in August 2011 clearing the regulatory hurdle to allow for product launch by Reckitt Benckiser as a Durex® branded condom

§ PET500 - Worldwide rights licensed to Ansell Limited in February 2011 with upcoming US launch under the LifeStyles® brand

§ TPR100-Rx - Prescription pain relief product with key territory rights under evaluation with pharmaceutical group

§ CRF100 - New cellulite treatment product opportunity under evaluation

§ John Clarke appointed as Non-Executive Chairman to lead the next stages in the Company's development

§ Further in-house new product opportunities identified and currently under evaluation

§ Net loss of £1.81 million (2010: Net loss of £1.09 million)

§ Placing of 4,737,402 new ordinary shares at 67.50 pence per share in March 2011 raised £3.20 million (£3.07 million net of expenses), strengthening Futura's capital resources

§ Cash resources of £2.58 million at 31 December 2011 (31 December 2010: £0.82 million), tax credit receivable £0.26 million at 31 December 2011 (31 December 2010: £0.15 million)

James Barder, Futura's Chief Executive, commented: "2011 was a landmark year for Futura with the award of CE mark approval for CSD500, our innovative condom to help healthy men maintain a firmer erection. CSD500 is the first product that Futura has conceived, developed and guided through the regulatory process to approval. In addition, we made considerable progress with other products in our pipeline and strengthened our Board with the appointment of John Clarke as Chairman, to lead the Company through the next stages in its corporate development."

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Notes to Editors

Futura Medical plc

Futura Medical is a pharmaceutical group that develops innovative products for consumer healthcare. The Company is developing a portfolio of products and its strategy is to license their manufacture and distribution to major pharmaceutical and healthcare groups.

Futura is based in Guildford, Surrey, and its shares trade on the AIM market of the London Stock Exchange.

www.futuramedical.com

Chief Executive's Review

2011 was a landmark year for Futura in that we received CE mark approval for CSD500, our innovative condom to help healthy men maintain a firmer erection. CSD500 is the first product that Futura has conceived, developed and guided through the regulatory process to approval. In addition, we made considerable progress with other products in our pipeline and strengthened our Board with the appointment of John Clarke as Chairman, to lead the Company through the next stages in its corporate development.

I would like at this point to convey my profound thanks to Bill Potter, the Company's former Chairman, and to acknowledge his pivotal role in the evolution of Futura to date. I am delighted that Bill's invaluable counsel and scientific expertise will continue to be available to Futura in his new role as Chief Scientific Officer.

John Clarke, the former President of GlaxoSmithKline's Consumer Healthcare division, joined as Chairman in February 2012. He was attracted to Futura because of the Company's untapped potential and opportunity for growth through innovation.

David Davies, Futura's Product Development Director, became Chief Development Officer in November 2011, reflecting the Company's increasing emphasis on its product pipeline.

Futura's prime objective is to become profitable with income streams from multiple products and the expectation of the launch this year of two of its products will be significant progress towards this objective.

An important part of Futura's strategy is licensing its products to major global companies who are best placed to commercialise them. Futura demonstrated continued success with its licensing strategy during the year when in February 2011 we announced an exclusive worldwide agreement with Ansell Limited, one of the world's major sexual health companies, for PET500, our innovative spray for enhanced sexual control.

Futura now has commercial relationships with three global companies: Reckitt Benckiser, GlaxoSmithKline and Ansell. In addition, we recently entered into an evaluation agreement with a pharmaceutical company in connection with TPR100-Rx, our prescription-strength topical pain relief product. We continue to be in discussion with potential partners interested in our other products.

With two products close to launch, we placed an increased emphasis during the year on building up our early stage product opportunities. We have generated a number of potential new products. One of these, CRF100 for the treatment of cellulite, has already successfully completed formulation development and has exciting commercial potential.

CRF100, which uses our highly efficient transdermal delivery system, DermaSys®, is a cosmoceutical. We believe that CRF100 presents an interesting commercial opportunity, which will be developed in line with the robust scientific principles applied throughout the Company's portfolio of products.

Our business model continues to be based on a modest cash burn and at the end of the year we had cash resources of £2.6 million. In March 2011 we strengthened our financial position through a placing that raised £3.1 million (net of expenses). A further £0.5 million was raised in the year through the issue of shares to employees following share option exercises and the subscription for shares awarded and accrued under the long-term incentive scheme.

We expect our first recurring income to commence during the current financial year, as the Company moves towards its key objective of becoming a profitable R&D company at the forefront of topical drug innovation.

We continue to manage our financial resources carefully, we work only on projects where the commercial and clinical opportunities are compelling and we own the intellectual property rights to all our products, hence protecting and maximising the potential commercial and shareholder return.

Portfolio updates - Sexual healthcare

CSD500: Condom safety device

The formal award of the CE mark for CSD500 took place in August 2011, authorising CSD500 to be marketed in 29 European territories and in a number of other non-European territories that recognise the CE mark process.

CSD500 represents the biggest innovation in the condom industry since the advent of latex condoms. We are in discussions with Reckitt Benckiser in connection with launch timing and we will update our shareholders as soon as we are able to do so.

CSD500 benefits from three marketing claims, clinically proven and approved by the regulatory authorities: the maintenance of a firmer erection, increased penile size and a longer lasting sexual experience for women. These claims were established in a statistically significant user study involving 108 couples.

The product's unique intellectual property position has been protected throughout the world including the principal consumer markets within Europe, the USA and Canada through patents now granted or proceeding to grant in 35 countries with one application pending.

As previously reported, the results of our own market research reinforce the commercial potential of CSD500 for men and women who already use condoms as well as for men and women who do not currently use condoms. Market research, conducted by an internationally recognised research company, showed that 88% of existing condom users would be interested in purchasing CSD500 and that 49% of non-condom users would be interested in purchasing the product. The research also showed that 46% of men had experienced some loss of sensitivity when using a condom during sexual intercourse, which can lead to loss of erection. This is one reason why some men avoid condoms, thereby increasing the risks of unwanted pregnancies and contracting or spreading sexually transmitted infections.

MED2002: Treatment for erectile dysfunction

MED2002, our topical gel for the treatment of men with erectile dysfunction, is also licensed to Reckitt Benckiser and shares the same active ingredient as CSD500. MED2002 has the potential to become the world's first non-prescription pharmaceutical treatment for erectile dysfunction, a condition that affects, to some degree, as many as 52% of men aged 40 or over¹.

As previously reported, initial discussions have taken place with regulators to identify the most appropriate regulatory pathway. We look forward to providing a further update in due course.

Note¹ Massachusetts Male Aging Study (MMAS), J Urol. 1994 Jan; I5I (1): 54-61

PET500: Enhanced sexual control

PET500 is a topical spray that combines our DermaSys® AquaFree delivery system with a well-known mild topical anaesthetic. It is designed to delay male ejaculation and to take effect rapidly.

In February 2011 we were delighted to announce that Ansell Limited, one of the world's major sexual health companies, had signed an exclusive worldwide agreement to commercialise PET500. Under the terms of the agreement with Ansell, Futura will receive a significant royalty rate on sales under the terms of this agreement.

PET500 was designed to comply with the current USA Food and Drug Administration ("FDA") monograph for male genital desensitisers. The product can therefore be marketed in the USA without any further regulatory approval or clinical data. Futura will work closely with Ansell on the successful completion of any clinical work in territories where regulators require additional data.

PET500 will be marketed as part of Ansell's LifeStyles® brand and it is expected that it will be launched from July in a phased roll-out throughout the USA. We expect recurring royalty income to begin to flow this year but as the launch is phased the initial royalties are likely to be relatively modest.

Our commercial agreement with Ansell precludes further comment but we look forward to updating shareholders at the appropriate time.

Portfolio updates - Pain relief management

TPR100: Topical pain relief

TPR100 uses our highly efficient transdermal delivery system, DermaSys®, for the delivery of a non-steroidal anti-inflammatory drug ("NSAID"). As previously announced, clinical tests carried out by Futura have shown that TPR100 achieves approximately 35 times higher bioavailability than that achieved by the market-leading product. TPR100's speed of permeation brings potential benefits including the rapid onset of action of pain relief.

Futura has a development agreement for TPR100 with GlaxoSmithKline Consumer Healthcare ("GSK") under which GSK is responsible for all clinical and regulatory development including its funding. GSK is also making modest annual payments to Futura whilst development work proceeds.

Development work is progressing well. As previously reported TPR100 will begin its pivotal clinical programme in 2012, which is expected to complete towards the end of 2013. Assuming satisfactory clinical outcomes and regulatory approval both parties expect to enter into a commercial distribution agreement.

TPR100-Rx: Higher strength topical pain relief for prescription based indications

TPR100-Rx contains a higher dose of the same NSAID as TPR100. This will require it to be regulated as a prescription product for the treatment of more profound pain associated with conditions such as osteoarthritis and rheumatic pain. Its targeted delivery through the skin has the potential benefit of avoiding the systemic side-effects seen in the use of oral NSAIDs.

We are pleased to announce that we have entered into an evaluation agreement with a pharmaceutical company in connection with the development and commercialisation of the product in certain key territories. We look forward to providing an update on this evaluation agreement in due course.

Discussions are also continuing with other potential partners.

CRF100: Topical treatment for cellulite

CRF100 is a topically applied cream for the treatment of cellulite, the condition characterised by dimpled skin, which we added to our early stage pipeline in December 2011. It comprises a well-characterised chemical species (an alkaloid) within Futura's DermaSys® delivery system. The alkaloid is already used by a number of major cosmetics companies in the treatment of cellulite and its use, at levels sufficient to produce a physiological effect, is supported by a growing body of scientific literature.

We intend to develop CRF100 using robust scientific principles and we were therefore delighted to have appointed Professor Anthony Rawlings, a Visiting Professor at the London School of Pharmacy and expert in the science of cosmetics, as an adviser to assist in the product's clinical development.

CRF100 has been shown in vitro to achieve at least an eight-fold improvement in delivery of the alkaloid through the skin compared with a number of market-leading comparator products. It is intended that CRF100 will be a cosmetic product and will be licensed at an appropriate time to a major global company for commercialisation. A number of patent applications are in various stages of grant or prosecution and further applications may be considered pending the achievement of successful clinical outcomes.

We are currently using Raman spectroscopy to define the absorption profile of the active through the skin to ensure that it can be delivered successfully in appropriate quantities to the target site and to have the desired cosmetic effect. Once this work is completed we intend to conduct a placebo-controlled clinical trial which is scheduled to commence in the first half of 2012 with the integrated report available during the second half of 2012. This trial would be carried out by an experienced contract research organisation in continental Europe, and has been designed under the guidance of Professor Rawlings to be conducted in accordance with Futura's robust scientific principles.

RAD100: Rapid anaesthetic delivery

RAD100 is designed to achieve rapid topical anaesthesia of the skin prior to injection, vaccination or cannulation. In early in vitro work, as previously reported, we have shown a 250% increase in the rate of permeation of a topical anaesthetic across the skin using RAD100 when compared with an established product.

Our objective is to create a product with a substantially increased speed of onset of skin desensitisation compared with current treatments (which take at least 30 to 45 minutes to provide anaesthesia). We do not believe that the current formulation of RAD100 is optimised to give a sufficiently rapid speed of onset to be commercially attractive so the product is being redesigned with the objective of achieving an onset of action of less than 15 minutes. We will advance the product only if this speed of onset can be achieved.

Early Stage Product Development

We have a rigorous approach to vetting potential new products and our interest is contingent upon robust evidence-based outcomes. Our initial evaluation includes five key criteria: performance, aesthetics, stability, defensible intellectual property and commercial potential. Unless a new opportunity gives a clear indication of meeting these criteria then the product concept will not progress to the next stage of development.

Futura's highly efficient DermaSys® delivery system is a versatile asset and we are currently working on a number of potential products at various stages. We look forward to providing further updates as appropriate.

People

I would like to offer my sincere thanks to all of our staff, scientific advisers and commercial partners for their contribution to the development of the Company throughout the year.

Outlook

During 2012 Futura expects to make a transformational step in its development by receiving its first recurring income. We also expect to continue to make progress during the year with our product pipeline. We look forward to the future with confidence.

James Barder

Chief Executive

Chairman's Statement

It is a pleasure to write my inaugural Chairman's Statement just a few weeks after joining Futura.

Firstly, I would like to convey my sincere thanks on behalf of everyone at Futura to Bill Potter, the Company's former Chairman, and to acknowledge his pivotal role in the development of the Company. I am delighted that Bill's scientific and technical expertise will continue to be available to Futura in his new role as Chief Scientific Officer.

I would also like to take this opportunity to outline why I was attracted to the Chairmanship of Futura and to give my assessment of the Company's potential.

I joined Futura after more than 35 years at GlaxoSmithKline, most recently as the President of its Consumer Healthcare division. My executive career has given me considerable experience of the consumer healthcare sector, which I believe is reliant on one thing: innovation.

Futura is a company with innovation at its core. It also has a great team of people, which it is a privilege for me to join. Its DermaSys® delivery system is at the forefront of transdermal drug delivery, a delivery route that is particularly appealing for OTC products. DermaSys® creates the opportunity for Futura to develop organically into a substantial business.

It is my intention to help Futura realise the full potential of its market opportunities whilst also using my experience of global companies to assist in its licensing strategy.

2012 promises to be a very exciting year for Futura with two products close to launch and a pipeline of further opportunities at various stages of development. I look forward to contributing to the Company's success.

John Clarke

Chairman

Financial Review

The Group ended the year with costs firmly under control, a more advanced and diverse development portfolio and the prospect of recurring royalty revenues.

Revenue

Group revenue for the year ended 31 December 2011 was £158,055 (2010: £125,000).

Losses

The Group continues to maintain a focus on tight control of all expenditure.

The Group's operating loss for the year ended 31 December 2011 was £2.10 million (2010: £1.34 million).

The Group's loss after taxation for the year ended 31 December 2011 was £1.81 million (2010: £1.09 million).

Loss per share for the year ended 31 December 2011 was 2.53 pence (2010: 1.61 pence).

No dividends were paid and none are proposed by the Board of Directors ("the Board") (2010: £nil).

Financial instruments

The financial instruments held by the Group are disclosed in note 12 of the Notes to the Preliminary Announcement. The Group policy on exposure to financial risk is disclosed in note 2 of the Notes to the Preliminary Announcement.

Group research and development costs

The Group aims to achieve cost effective research and development ("R&D") and to bring products to market through licensing partners as soon as is practicable.

Group R&D costs each year reflect the number of products being developed, the stage of development reached for each and the impact on their progress of external factors.

R&D costs of £1,480,774 (2010: £760,637) were higher compared to 2010, due largely to an increase in early stage development evaluation following the completion of the fundraising in March. The 2011 figure also includes costs of £197,204 in respect of the settlement of awards under the long-term incentive scheme (2010: £nil).

The table below shows the trend in our R&D costs and other administrative costs over the past five years ended 31 December:

The R&D ratio is the percentage of R&D costs relative to total operating costs. The Board monitors this ratio closely. Total R&D spend since the formation of the business in 1997 totals £12.24 million (55.8% of total cumulative operating costs). During the year, the sole subsidiary, Futura Medical Developments Limited continued to incur this R&D expenditure which has been accounted for as explained in accounting policy note 1.7 of the Notes to the Preliminary Announcement and has been written off as incurred for all reporting periods prior to and including the year ended 31 December 2011.

The Board considers that this overall total R&D spend relative to its pipeline of later stage products and emerging new products distinguishes the Group's lower funding requirements and risk profile from more typical businesses in the wider pharmaceutical industry. The Group's strategy is to focus on medical devices and pharmaceutical drugs that offer the potential for a significant return on the costs of development. As well as progressing its existing R&D programme, the Group continues to seek new opportunities for potential products to add to its portfolio.

Other administrative costs

Other administrative costs for the year ended 31 December 2011 were £776,154 (2010: £700,399). These comprised all other operating costs excluding those relating to product development and associated intellectual property. The main constituents and their relative proportions were:

Supplier payment policy

The Group's policy concerning the payment of its trade payables is to pay on the basis of the agreed terms of payment established with each supplier, providing that all terms and conditions have been complied with and are in accordance with the Group's financial control procedures.

The average credit period for the Group (expressed as creditor days) during the year ended 31 December 2011 was 33 days (2010: 45 days). At the year end the Company had trade creditors totalling £19,513 (2010: £19,107) giving rise to an average credit period for the year ended 31 December 2011 of 54 days (2010: 90 days).

Charitable and political contributions

No political donations were made during either year. Charitable donations of £70 were made during the year (2010: £162).

Taxation

A tax credit of £259,704 (2010: £225,731) in respect of R&D expenditure incurred has been recognised in the Group financial statements. The increase compared to 2010 reflects a widening of the scope of qualifying indirect activities included in the level of R&D expenditure undertaken.

Capital structure and funding

The Group remains funded primarily by equity share capital. Equity funding (net of expenses) received since the formation of the business until 31 December 2011 totalled £20.48 million.

Cash held by the Group at 31 December 2011 totalled £2.58 million. This comprised cash and cash equivalents shown below at each year ended 31 December:

The Group had no bank borrowings at 31 December 2011 (2010: £nil).

On 10 March 2011, the Group raised £3.20 million (£3.07 million net of expenses) by way of a placing of 4,737,402 new ordinary shares at 67.50 pence per share. The net proceeds raised were for general corporate and research and development purposes.

During the year the following sums were raised following the issue of shares under the employee share option scheme:

On 28 September 2011 the Group raised £306,993 following the issue of 417,678 shares to four Directors at 73.50 pence per share under the long-term incentive scheme.

Other significant sources of funding received for the Group from formation of the business until 31 December 2011 comprised: R&D tax credits £1.73 million, bank interest £0.90 million and R&D grants £0.28 million.

Derek Martin

Secretary

The financial information set out below does not constitute the Company's full statutory accounts for the year ended 31 December 2011 (or year ended 31 December 2010) but it is derived from those accounts that have been audited. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered after the forthcoming Annual General Meeting. The independent auditors have reported on those accounts; their report was unqualified, did not include an emphasis of matter statement and did not contain any statements under section 498 of the Companies Act 2006.

Group Statement of Comprehensive Income

For the year ended 31 December 2011

All amounts relate to continuing activities.

Group Statement of Changes in Equity

For the year ended 31 December 2011

Share premium represents amounts subscribed for share capital in excess of nominal value, less the related costs of share issues.

Merger reserve represents the reserve arising on the acquisition of Futura Medical Developments Limited in 2001 via a share for share exchange accounted for as a group reconstruction using merger accounting under UK GAAP.

Retained losses represent cumulative net losses recognised in the Group Statement of Comprehensive Income. The total comprehensive loss for the year represents the total recognised income and expense for the year.

Group Statement of Financial Position

As at 31 December 2011

The Group financial statements from which this preliminary results announcement is derived were approved and authorised for issue by the Board on 12 March 2012 and were signed on its behalf by James Barder, Chief Executive.

Group Statement of Cash Flows

For the year ended 31 December 2011

Notes to the Preliminary Announcement

For the year ended 31 December 2011

1. Accounting policies

1.1 Basis of preparation

The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union.

The accounting policies set out below, have been applied to all periods presented in these Group financial statements and are in accordance with IFRSs as adopted by the European Union, and International Financial Reporting Interpretations Committee ("IFRIC") interpretations that were applicable for the year ended 31 December 2011.

1.2 Going concern

The Group raised £3.20 million (£3.07 million net of expenses) following a private placing of 4,737,402 shares at 67.50 pence per share on 11 March 2011 and had cash balances of £2.58 million at 31 December 2011, with a net cash inflow of £1.76 million in the period.

The Group financial statements have been prepared on the going concern basis which assumes that the Group will continue in operational existence for the foreseeable future. The Group financial statements do not reflect any adjustments that would be required if they were to be prepared on a basis other than the going concern basis.

1.3 Accounting developments

The following new standards, amendments to standards or interpretations, effective for the first time from 1 January 2011, have not had a material effect on the Group financial statements:

·; 'Annual Improvements to IFRSs 2010'

·; IAS 24 (Revised) 'Related Party Disclosures'

The following new standards, amendments to standards or interpretations have been issued but are not effective for the year ended 31 December 2011 and have not been adopted early as the Directors do not expect them to have a material effect on the Group financial statements:

·; IFRS 10 'Consolidated Financial Statements'

·; IAS 1 (Amended) 'Presentation of Financial Statements'

·; IAS 19 (Amended) 'Employee Benefits'

1.4 Basis of consolidation

Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business, so as to obtain benefits from its activities, it is classified as a subsidiary. The Group financial statements present the results of the Company and its sole subsidiary Futura Medical Developments Limited as if they formed a single entity ("the Group"). Intra-group transactions and balances are eliminated in preparing the Group financial statements.

1.5 Revenue

Revenue comprises the fair value received or receivable for: exclusivity arrangements, consultancy fees, milestone income or royalties, 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) Consultancy fees are recognised as revenue in the accounting period in which the revenue becomes receivable.

(iii) Non-refundable milestone income is recognised as revenue in the accounting period in which the milestones are achieved. If any milestone income is creditable against royalty payments then it is deferred and released to the Group Statement of Comprehensive Income over the accounting periods in which the royalties would otherwise be receivable.

(iv) 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.

1.6 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 Group Statement of Comprehensive Income on a straight-line basis over the lease term. The Group does not hold any assets under finance leases.

1.7 Intangible assets

Research and development ("R&D")

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 out-licence or sell the product;

● sale of the product will generate future economic benefits; and

● expenditure on the project can be measured reliably.

Capitalised development costs are amortised over the periods in which the Group expects to benefit from selling the products developed but not exceeding five years. The amortisation expense is included in R&D costs recognised in the Group Statement of Comprehensive Income. The useful life and the value of the capitalised development cost are assessed for impairment at least annually. The value is written down immediately if impairment has occurred and the unimpaired cost amortised over the reduced useful life. The Directors consider that the criteria to capitalise development expenditure are not met for a product prior to that product being commercially launched in at least one country.

Development expenditure, not satisfying the above criteria, and expenditure on the research phase of internal projects are included in R&D costs recognised in the Group 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.

1.8 Plant and equipment

Plant and equipment is initially recognised at cost, and subsequently at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is charged to the Group Statement of Comprehensive Income at rates calculated to write off the cost, less estimated residual value, of each asset on a straight-line basis over their estimated useful lives.

The assets' residual values and useful lives are determined by the Directors and reviewed and adjusted if appropriate at each Group Statement of Financial Position date.

1.9 Impairment of non-financial assets

Assets that are subject to depreciation are reviewed for impairment on a half-yearly basis and when events or circumstances suggest that the carrying amount may not be recoverable. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). An impairment loss is recognised immediately in the Group Statement of Comprehensive Income for the amount by which the asset's carrying amount exceeds its recoverable amount.

Recoverable amount is the higher of fair value, less disposal costs, and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

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 Group Statement of Comprehensive Income.

1.10 Inventories

Inventories are materials and supplies to be consumed in the course of R&D and are initially recognised at cost, and subsequently 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.

A provision is recognised immediately in the Group Statement of Comprehensive Income in respect of obsolete, slow-moving or defective items, where appropriate.

1.11 Financial instruments

Financial assets

The Group classifies its financial assets in the category of loans and receivables, comprising 'trade and other receivables' and 'cash and cash equivalents'. They are recognised initially at fair value and subsequently at amortised cost using the effective interest rate method.

Trade and other receivables are recognised initially at fair value and are subsequently measured at amortised cost using the effective interest rate method, less an estimate made for impairment based on a review of all past due amounts at the year end. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due. If an impairment loss is required the carrying amount of the trade or other receivable is reduced through the use of an allowance account and the amount of the loss recognised immediately in the Group Statement of Comprehensive Income in administrative costs.

Medium-term deposits, comprising sterling fixed rate deposits, with original maturities of more than three months are included in trade and other receivables.

Cash and cash equivalents are financial assets and comprise cash in hand and sterling fixed rate short-term deposits with original maturities of three months or less which are held by the Group so as to be available to meet short-term cash commitments.

The Group assesses at each Statement of Financial Position date whether there is objective evidence that a financial asset is impaired.

Financial liabilities

The Group's financial liabilities comprise 'trade and other payables' recognised initially at fair value and subsequently at amortised cost using the effective interest rate method.

1.12 Government grants

Government grants are recognised at fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs defrayed are accrued and recognised in the Group Statement of Comprehensive Income over the period required to match them with the costs which they reimburse.

1.13 Taxation

Income tax is recognised or 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 Group Statement of Financial Position date. R&D tax credits are recognised on an accruals basis and are included as an income tax credit under current assets.

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability on the Group Statement of Financial Position date differs from its tax base, except for differences arising on:

·; the initial recognition of an asset or liability in a transaction which is not a business combination and which at the time of the transaction affects neither accounting profit nor taxable profit; and

·; investments in subsidiaries and jointly controlled entities 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.

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 Group Statement of Financial Position 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.

1.14 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 Group Statement of Comprehensive Income in the period in which they arise.

1.15 Employee benefits

(i) Defined contribution plans

The Group provides retirement benefits to all employees and Executive Directors who wish to participate in defined contribution pension schemes. 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 Group Statement of Comprehensive Income in the period in which they become payable.

(ii) Accrued holiday pay

Provision is made at each Group Statement of Financial Position date for holidays accrued but not taken at the salary of the relevant employee at that date. The expected cost of compensated short-term absence (i.e. holidays) is charged to the Group Statement of Comprehensive Income on an accruals basis.

(iii) Share-based payment transactions

The Group operates an equity-settled share-based compensation plan. For all share options awarded to employees, and others providing similar services, the fair value of the share options at the date of grant is charged to the Group 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 Group Statement of Financial Position date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of share options that eventually vest. There are no market vesting conditions. If the terms and conditions of share options are modified before they vest, the change in the fair value of the share options, measured immediately before and after the modification, is also charged to the Group Statement of Comprehensive Income over the remaining vesting period.

The proceeds received when share options are exercised, net of any directly attributable transaction costs, are credited to share capital (nominal value) and the remaining balance to share premium. All employee share option holders enter into an HM Revenue & Customs joint election to transfer the employers' national insurance contribution potential liability to the employee, therefore no Group asset or liability arises.

(iv) Long-term incentive scheme

The Group operates a long-term incentive scheme for the Executive Directors. The quantum of any awards receivable by the Executive Directors will depend on the Group achieving set milestones and the share price at the time relative to targets set in advance. The Group can exercise discretion in settling any award in equity or in cash.

1.16 Finance income

Interest income is recognised on a time-proportion basis using the effective interest rate method.

1.17 Critical accounting estimates and judgements

Critical accounting estimates, assumptions and judgements are continually evaluated by the Directors based on available information and experience. As the use of estimates is inherent in financial reporting, actual results could differ from these estimates.

Judgements

(i) Revenue recognition

Fees invoiced in respect of non-refundable milestones have been recognised as revenue in the Group Statement of Comprehensive Income in the period as all criteria for revenue recognition have been met.

(ii) Intangible asset recognition

The Directors consider that the criteria to capitalise development expenditure are not met for a product prior to that product being commercially launched in at least one country.

(iii) Deferred tax recognition

The Directors consider that, given the current stage of development of the business, deferred tax assets should not be recognised before the Group is generating recurring royalty revenue.

Estimates and assumptions

(iv) Useful lives of plant and equipment

Plant and equipment is amortised or depreciated over its useful life. Useful lives are based on the Directors' estimates of the periods over which the assets will be used in developing revenue generating products and the estimates are reviewed annually for continued appropriateness. The estimated useful lives are between two and five years for computer equipment and between three and ten years for furniture and fittings. Changes to estimates can result in significant variations in the carrying value and amounts charged to the Group Statement of Comprehensive Income in specific periods.

(v) Fair value of financial instruments

The Group determines the fair value of financial instruments using valuation techniques which can be significantly affected by the assumptions used, including interest and discount rates and estimates of future cash flows.

(vi) Inventories

The Group reviews the net realisable value of its inventories on a half-yearly basis to provide assurance that recorded inventories are stated at the lower of cost or net realisable value. Factors that could impact realisable value include: the timing and success of future technological innovations in relation to product R&D, competitor and Government actions, supplier prices and economic trends.

(vii) Share-based payments

The Group operates an equity-settled share-based compensation plan as detailed in note 17. Employee (and similar) services received and the corresponding increase in equity are measured by reference to the fair value of the equity instruments as at the date of grant.

2. Financial risk management

2.1 Financial risk factors

The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange rate 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.

(i) Market risk

Foreign exchange rate risk

The Group primarily enters into supplier contracts which are to be settled in sterling. However, some contracts involve other currencies including the US Dollar and the Euro. Where supplier contracts of more than £100,000 total value are to be settled in foreign currencies consideration is given to settling the sums to be paid through conversion of sterling deposits to the appropriate foreign currency holdings at the outset of the contract to minimise the risk of adverse currency fluctuations.

For contracts with smaller values the foreign exchange rate risk is not considered sufficient to require the establishment of foreign currency accounts unless specific circumstances are identified which warrant this.

At 31 December 2011 the Group had no trade payables denominated in a foreign currency (31 December 2010: £nil).

Cash flow interest rate risk and fair value interest rate risk

The Group's interest rate risk arises from 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.

The impact in the year ended 2011, of a defined interest rate shift of a 1% higher rate of interest earned per annum applied to the term deposits over the period of the deposit, on the post-tax loss for the year and net assets would have been £22,164 lower/higher (2010: £12,501 lower/higher).

The impact in the year ended 2011, of a defined interest rate shift of a 1% lower rate of interest earned per annum applied to the term deposits over the period of the deposit, on the post-tax loss for the year and net assets would have been £18,403 higher/lower (2010: £12,281 higher/lower).

(ii) 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. The Group policy is to spread deposits over at least two institutions with investment grade A+ or better (Standard & Poor's credit rating) and deposits are made in sterling only. The Group does not expect any losses from non-performance by these institutions.

 (iii) 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 involves maintaining sufficient cash and cash equivalents and the monitoring of rolling forecasts of the Group's liquidity reserve on the basis of expected cash flow.

The Group had trade and other payables at the Group Statement of Financial Position date of £194,316 (2010: £152,755) as disclosed in note 15, which mature within one year.

2.2 Capital risk management

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 minimise 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.

3. Segment reporting

The Group is organised and operates as one business segment, being the development of pharmaceutical drugs and medical devices and their commercial exploitation. The main area of R&D continues to be in the field of innovative products for the consumer healthcare market with the focus being on sexual healthcare and pain relief management.

The Group manages any overseas R&D from the UK, the primary business segment. Segment revenue is based on the geographical location of the Group's customers. Since there is currently only one business segment and one geographical segment, no separate segment reporting has been prepared.

4. Operating loss

The fees of the Group's auditor, BDO LLP, for services provided are analysed below:

5. Wages and salaries

The average monthly number of persons (including all Directors) employed by the Group during the year was 10 (by category: R&D 4, administration 6), (2010:10, by category: R&D 4, administration 6) and their aggregate emoluments were:

All employees of the Group are employed by Futura Medical Developments Limited.

6. Directors' emoluments

Emoluments disclosed above include the following amounts in respect of the highest paid Director:

During the year, three Directors (2010: three Directors) participated in a private money purchase

defined contribution pension scheme.

During the year, one Director (2010: no Directors) exercised share options under the Company

share option scheme and realised a gain of £21,928.

Emoluments for individual Directors are disclosed within the Directors' Report: Remuneration Report on page 30.

7. Finance income

8. Taxation

Current tax

The tax assessed for the year is different from the standard rate of corporation tax in the UK.

The differences are explained below:

The Group has tax losses of £12,708,661 (2010: £11,649,224) available for offset against future taxable profits.

Deferred tax

Deferred tax assets amounting to £2,722,826 (2010: £2,436,068) have not been recognised on the basis that their future economic benefit is not certain. Assuming a prevailing tax rate of 20% (2010: 20%) when the timing differences reverse, the unrecognised deferred tax asset comprises:

9. Loss per share (pence)

The calculation of the loss per share is based on a loss of £1,814,960 (2010: loss of £1,091,040) and on a weighted average number of shares in issue of 71,769,963 (2010: 67,563,969).

The loss attributable to equity holders of the Company for the purpose of calculating the fully diluted loss per share is identical to that used for calculating the basic loss per share. The exercise of share options, details of which are disclosed in note 17, or the issue of shares under the long-term incentive scheme, would have the effect of reducing the loss per share and is therefore anti-dilutive under the terms of IAS 33 'Earnings per Share'.

10. Plant and equipment

All fixed assets of the Group are held in Futura Medical Developments Limited.

11. Inventories

12. Financial instruments by category

The accounting policies for financial instruments have been applied to the line items below:

13. Trade and other receivables

Trade and other receivables do not contain impaired assets. The Group does not hold any collateral as security and the maximum exposure to credit risk at the Group Statement of Financial Position date is the fair value of each class of receivable.

14. Cash and cash equivalents

15. Trade and other payables

16. Share capital

The number of issued ordinary shares as at 1 January 2010 was 67,483,311.

During the year ended 31 December 2010, the Company issued shares of 0.2 pence each as follows:

The number of issued ordinary shares as at 1 January 2011 was 67,643,311.

During the year ended 31 December 2011, the Company issued shares of 0.2 pence each as follows:

17. Share options

At 31 December 2011, the number of ordinary shares of 0.2 pence each subject to share options granted under the Group's Approved and Unapproved Share Option Schemes were:

On 28 September 2011 share options over 890,000 new ordinary shares were granted to employees (including Directors).

Details of share options exercised by employees in 2011 are given in note 16, these generated additional funds of £192,062 for the Company.

The share options outstanding at 31 December 2011 represented 4.0% of the issued share capital as at that date (2010: 3.6%) and would generate additional funds of £1,257,025 (2010: £946,238) if fully exercised. The weighted average remaining life of the share options was 62 months (2010: 63 months), with a weighted average remaining exercise price of 43.35 pence (2010: 38.86 pence).

The share options exercisable at 31 December 2011 totalled 1,170,000 (2010: 630,000) with an average exercise price of 35.38 pence (2010: 59.05 pence) and would generate additional funds of £413,975 (2010: £372,025) if fully exercised.

The Group's share option scheme rules apply to 2,725,000 of the share options outstanding at 31 December 2011 (31 December 2010: 2,260,000) and include a rule regarding forfeiture of unexercised share options by a Director or employee upon the cessation of their employment (except in specific circumstances).

There were no market vesting conditions within the terms of the grant of the share options.

The Black-Scholes-Merton formula is the option pricing model applied to the grants of all share options made in respect of calculating the fair value of the share options.

18. Pension costs

The pension charge represents contributions payable by the Group to independently administered funds which during the year ended 31 December 2011 amounted to £318,133 (2010: £98,180). Pension contributions payable one month in arrears at 31 December 2011 totalled £3,496 (2010: £3,433) and are included in accrued expenses at the relevant Group Statement of Financial Position date.

19. Commitments

At 31 December 2011 the Group had operating lease commitments in respect of property leases cancellable on one month's notice of £5,575 (2010: £5,412).

20. Related party transactions

Related parties, as defined by IAS 24 'Related Party Disclosures', are the wholly owned subsidiary company, Futura Medical Developments Limited, and the Board. Transactions between the Company and the wholly owned subsidiary company have been eliminated on consolidation and are not disclosed in this note.

Bill Potter, a Director of the Company until 31 January 2012, provides consulting services to the wholly owned subsidiary, Futura Medical Developments Limited, through Stapleford Scientific Services Limited. Of the total fees and expenses, excluding VAT, invoiced during the year of £85,081 (2010: £86,317), the amount outstanding at 31 December 2011 including VAT was £8,424 (2010: £8,186), which has since been settled in cash. The amount invoiced during the year is considered to be a related party transaction disclosable under Rule 19 of the AIM Rules for Companies as it exceeds 0.25 % in the relevant class tests.

Key management compensation

The Directors represent the key management personnel. Details of their compensation and share options are given in note 6.

21. Events after statement of financial position date

On 10 January 2012 the Group raised £119,000 following the issue of 490,721 shares to three Executive Directors at 24.25 pence per share under the employee share option scheme.

On 31 January 2012 Bill Potter resigned as Executive Chairman of the Company but he will continue to play a key role as Futura's Chief Scientific Officer and adviser to the Board providing consulting services to the wholly owned subsidiary, Futura Medical Developments Limited, through Stapleford Scientific Services Limited.

On 1 February 2012 John Clarke was appointed as Non-Executive Chairman of the Company.