Futura Medical Regulatory News (FUM)

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Futura Medical plc

("Futura" or "the Company")

Preliminary Results for the year ended 31 December 2013

Futura Medical plc (AIM: FUM), the innovative healthcare company focused on advanced transdermal technology, is pleased to announce its preliminary results for the year ended 31 December 2013.

Highlights

§ CSD500 - Significant commercial, technical and regulatory progress:

Multiple licensing deals signed, covering key geographic areas including North America, key European countries, Middle East and North Africa, the Nordic region and China

Formal award of CE mark from EU regulators

Formal award of ISO 13485 certification of quality management system

Major product and supply chain improvements to increase shelf life and reduce cost of goods

§ PET500 - Launched in the USA by Ansell under the brand name EPIC®

§ Pain Relief - Two new products added to the portfolio

§ Net loss of £2.21 million (2012: net loss of £2.18 million) with net cash outflow in year of £1.83 million (2012: net cash inflow of £0.23 million)

§ Cash resources of £0.99 million at 31 December 2013 (31 December 2012: £2.82 million); tax credit receivable £0.31 million at 31 December 2013 (31 December 2012: £0.26 million)

§ Successful post year end fundraising of £12.0 million (before expenses) to provide additional working capital and build greater value in our product pipeline

James Barder, Futura's Chief Executive, commented: "After a year of solid progress across our product portfolio, 2014 will be a landmark year for Futura during which we expect to receive our first recurring revenues. We already have our first product PET500 (brand name EPIC®) on the market in the USA and expect the launch of CSD500 on a multi-country basis later this year. Following our recent fundraising, we are ideally positioned to drive value for the Company and to generate returns for shareholders."

The annual report and accounts are available on the Company's website at www.futuramedical.com.

For further information please contact:

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

Chairman's and Chief Executive's Review

2013 was a year of significant progress in the development of the business.

We made major progress in the commercialisation of our lead product, the novel condom CSD500. In the first quarter of 2013, we licensed marketing rights to the major US consumer products group Church & Dwight, whose condom brand Trojan® is the market leader in the USA. This licensing deal covers North America and key European countries and is in line with a strategy we implemented last year of licensing the product on a territorial basis to leading brands in geographic territories worldwide. During the year, we also licensed CSD500 to commercial partners with leading brands and strong distribution capabilities in territories including Scandinavia, Middle East and North Africa, and China.

As a further evolution of our strategy we intend, as announced in March 2014, to launch CSD500 in at least one European country under a Futura owned brand name. Distribution will be outsourced to an established European condom distributor thereby maintaining Futura's outsourced strategy. This approach where appropriate will add a further route to market for CSD500 and will broaden our experience, and options, as we continue to commercialise our product pipeline.

We expect the initial launches of CSD500 to take place in the second half of 2014 in MENA and at least one European country followed by further launches in 2015. We are continuing in negotiations for the licensing of CSD500 in a number of territories, including South America, creating the possibility of further launches during the current year.

2013 was an important year for PET500, our innovative spray for enhanced sexual control, licensed worldwide to Ansell. The launch of PET500 is being carefully managed by Ansell and, following the early distribution in some trade channels of the product under the LifeStyles® range during 2013, PET500 is now being made available in stores and online throughout the USA under the brand name EPIC®.

We also made considerable progress during 2013 in our earlier stage pain relief portfolio, which has been expanded to three products that have generated considerable interest from potential licensees and commercial partners.

As a vindication of the increasing momentum in our business, we were successful in raising £12.0 million (before expenses) in an equity fundraising announced on 7 March 2014. This fundraising will enable us to build greater value in our product pipeline by allowing us to fund clinical and regulatory work and then to out-license products at a later stage in their development. This optimises the speed of development, reduces clinical and regulatory risk for potential distributors and should enhance shareholder value.

The fundraising also allows us to actively progress the development of MED2002, our treatment for erectile dysfunction. MED2002 is a topical gel that shares the same active ingredient as CSD500, and we believe it presents a substantial commercial opportunity. Futura retains the worldwide rights to the product and intends to begin a pivotal clinical study later this year. We also intend to adopt a similar strategy for our pain relief portfolio by completing the remaining clinical work to build greater value in the products prior to a licensing decision.

Whilst the recent fundraising has improved our cash position, we will maintain our tight fiscal strategy. We intend to increase clinical development spend but will continue to run our business prudently and to manage our cash resources accordingly.

Portfolio updates - Sexual healthcare

CSD500: Condom containing an erectogenic gel

CSD500 benefits from three marketing claims, clinically proven and approved by the regulatory authorities: the maintenance of a firmer erection, maximised 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 in 37 countries.

In August 2012, we announced that we had regained the worldwide rights to CSD500 from Reckitt Benckiser. Regaining the rights allowed us to relicense the product at a more advanced stage in its development. It also gave us the opportunity to license the product on a territorial basis to strong brands in different geographic regions. The considerable progress we have made with CSD500 since regaining the rights has highlighted the benefits of retaining greater control of our products as we advance them through the development and commercialisation process.

To date we have licensed rights to CSD500 as follows:

Discussions are ongoing in connection with further territories.

In addition to re-licensing the product, we also took control of the manufacturing process by appointing a contract condom manufacturer in Europe and seeking European Union ("EU") regulatory approval. On 17 October 2013 we announced the award of the CE mark, which granted marketing authorisation to the product in all EU territories and in a number of non-EU territories that recognise the CE mark process.We also expect a further contract condom manufacturer to gain regulatory approval later this year, adding greater flexibility and robustness to the supply chain for our licensing partners.

Our manufacturing strategy is designed to enable licensees to get CSD500 to market in the shortest time possible, although licensees might decide to transfer manufacture to their own facilities, which would be subject to a supplementary application to add a new manufacturing site under the exisiting CE mark approval, depending on their requirements.

During the year, we also improved the technical and commercial specifications of CSD500. These improvements are expected to extend the shelf life of the product and significantly reduce the cost of goods for the shared benefit of Futura and its licensing partners. A patent relating to these changes was filed in March 2013, giving us the potential to extend CSD500's patent protection beyond the current patent expiry date in 2023.

In addition to this intellectual property protection, Futura is also seeking to develop the global brand awareness of the novel erectogenic gel in CSD500 by giving it the brand name Zanifil® and stipulating that the Zanifil® logo appears on the outer packaging of all condoms produced by our licensing partners.

During 2014 we expect to announce further distribution agreements as we build the global distribution platform for CSD500. Precise launch timings and brand positioning remain commercially sensitive to our respective licensees and we therefore ask shareholders to be mindful of the restrictions we have to comply with in connection with launch information.

MED2002: Treatment for erectile dysfunction

MED2002, which uses our DermaSys® drug delivery system, is our topical gel for the treatment of men with erectile dysfunction ("ED"). We regained worldwide rights to the product at the same time as regaining the rights to CSD500, with which it shares the same active ingredient.

ED is a condition that affects, to some degree, as many as 52% of men aged 40 or over1. During the year, we received the results of market research we commissioned into the potential opportunity that MED2002 represents in ED.

This market research highlighted the potential benefits of MED2002 when compared with PDE5 inhibitors, the class of drugs that includes Viagra®. The potential benefits of MED2002 were shown to include: a faster onset of action, a favourable safety profile, a 30 minute duration of action and the product's suitability for all men, including the estimated 7.5% of ED sufferers who would not be prescribed any of the PDE5 inhibitors due to contra-indications of other medications taken by them. The research found that up to 68% of men are dissatisfied with their PDE5 inhibitors and that MED2002 could potentially capture as much as a 30% share of ED patients.

The fundraising allows us to actively progress the development of MED2002 which we believe presents a substantial commercial opportunity. There is considerable clinical overlap between MED2002 and CSD500 as both products share the same active ingredient. This will be of benefit as we progress the product's clinical development. Futura intends to begin a pivotal clinical study later this year.

Note1Massachusetts Male Aging Study (MMAS), J Urol. 1994 Jan; I5I (1): 54-61

PET500: Enhanced sexual control

PET500 is a topical spray that combines our highly efficient DermaSys® AquaFree delivery system with a well-known mild topical anaesthetic. PET500 is licensed to Ansell, one of the world's major sexual health companies, who have worldwide rights to the product and have launched the product in the USA under the name EPIC® as part of their well-known LifeStyles® brand. Under the terms of the licensing agreement Futura will receive a significant royalty rate on sales.

EPIC® is designed to take effect rapidly and to delay male ejaculation, thereby offering enhanced sexual control. Ansell distributed the product early in some trade channels during 2013 and EPIC® is now available in stores throughout the USA and online.

Ansell is also developing a combination product, called UPHORIA™, in which EPIC® will be packaged with an existing product, LifeStyles EXCITE™, a personal lubricant designed to promote enhanced stimulation and sensitivity for women.

2014 is the first year during which Futura will receive revenues from EPIC®. It is therefore an exciting year for the Company, and we look forward to providing updates on the product's sales growth in due course. In conjunction with Ansell we are also beginning to explore the commercialisation of the product in other countries worldwide.

Portfolio updates - Pain relief management

Topical pain relief

During the year we made significant progress with our pain relief portfolio, culminating in the addition of two new compounds to complement TPR100. The two new compounds, TIB200 and SPR300, use ibuprofen and methyl salicylate respectively as their active ingredients.

In vitro studies have shown that very high levels of skin permeation were achieved with each of ibuprofen and methyl salicylate when using Futura's transdermal delivery system, DermaSys®. This rapid skin permeation offers potential benefits including: improved speed of onset, greater depth of penetration and longer duration of pain relief.

The two new programmes complement TPR100, which uses DermaSys® with the non-steroidal anti-inflammatory drug ("NSAID") diclofenac as its active ingredient.

Together the three programmes present a portfolio opportunity for a potential licensing partner and an advisory firm was appointed in the year to assist in exploiting the commercial potential of this product group. To date at least 15 companies have expressed interest in the portfolio and elements of the portfolio for various territories worldwide. Our recent fundraising has strengthened our position for the remaining Phase III clinical development of our pain relief portfolio. It is our intention to build greater value in the portfolio prior to making a licensing decision.

The pain relief portfolio comprises:

TPR100: Topical pain relief

A topical gel combining the NSAID diclofenac with the DermaSys® delivery system. TPR100 has been shown to achieve in excess of eight times higher permeation through human skin and 35 times greater bioavailability than achieved by the UK's best-selling topically applied diclofenac-based pain relief product, Voltarol® Emulgel.

Graphs showing the superior skin penetration of TPR100 and the two new pain relief programmes are available by following the link: www.futuramedical.com/archive/painreliefclinicalgraphs.pdf.

TIB200: Topical ibuprofen

A topical gel combining the well-known analgesic ibuprofen with the DermaSys® delivery system. TIB200 has been shown to achieve in excess of twenty times higher permeation through isolated human skin compared with the UK's best-selling topically applied ibuprofen-based topical pain relief product, Nurofen® gel.

SPR300: Sensory pain relief

A topical gel combining methyl salicylate and menthol with the DermaSys® delivery system. SPR300 has been shown to achieve in excess of four times higher permeation through isolated human skin compared with the UK's best-selling topically applied methyl salicylate/menthol-based topical pain relief product, Deep Heat®.

In addition SPR300 was directly compared with the best-selling over-the-counter topically applied gels sold in the USA, Icy Hot® and Bengay®, and showed similarly improved permeation rates.

No further clinical work is required to obtain regulatory approval for SPR300 in the USA or Canada. We are currently in discussions with potential commercial partners for these major territories and will update shareholders in due course. In the meantime we are completing the development work required in order to obtain regulatory clearances and prepare the product for launch in the USA and Canada.

Early Stage Product 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

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

Outlook

After a year of solid progress across our product portfolio, 2014 will be a landmark year for Futura during which we will receive our first recurring revenues. We already have our first product PET500 (brand name EPIC®) on the market in the USA and expect the launch of CSD500 on a multi-country basis later this year. Following our recent fundraising, we are ideally positioned to drive value for the Company and to generate returns for shareholders.

The financial information set out below does not constitute the Company's full statutory accounts for the year ended 31 December 2013 (or year ended 31 December 2012) but it is derived from those accounts that have been audited. Statutory accounts for 2012 have been delivered to the Registrar of Companies and those for 2013 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 2013

Group Statement of Changes in Equity

For the year ended 31 December 2013

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 2013

Group Statement of Cash Flows

For the year ended 31 December 2013

Notes to the Group Financial Information

For the year ended 31 December 2013

1. Accounting policies

1.1 Basis of preparation

The Group financial information has 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 the Group financial information 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 2013.

1.2 Going concern

The Group had cash balances of £0.99 million at 31 December 2013, with a net cash outflow of £1.83 million in the year.

The Group raised £12.0 million (before expenses) following a placing of 21,052,632 shares at 57 pence per share with existing and new institutional investors, approved by shareholders in a general meeting held on 25 March 2014, demonstrating that the Group has access to finance. The Directors have considered the cash flow requirements for the Group for a period including 12 months from the date of approval of the financial information which includes an assessment of research and development expenditure. Based on these projections, the Directors consider that both the Company and the Group will have sufficient cash resources during this period to pay all of its liabilities as they fall due and therefore consider it appropriate to continue to prepare the accounts on a going concern basis.

The Group financial information has been prepared on the going concern basis which assumes that the Group will continue in operational existence for the foreseeable future. The Group financial information does 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 have been issued and are effective for the year ended 31 December 2013, however, the Directors do not expect them to have a material effect on the Group financial information:

· IFRS 10 'Consolidated Financial Statements'

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

· IAS 19 (Amended) 'Employee Benefits'

· IAS 24 'Related Party Disclosures' (revised)

· IAS 27 'Separate Financial Statements' (revised)

· IFRS 12 ' Disclosure of Interests in Other Entities'

· IFRS 13 'Fair Value Measurement'

The following new standard, which is not yet effective and has not been adopted early in the financial information, will or may have an effect on the Group's future financial information:

· IFRS 9 'Financial Instruments'

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 information.

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-license 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 plan

The Group operates a long-term incentive plan for staff, the Executive Directors and the Chairman. The quantum of any awards receivable 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 2013 the Group had trade payables of £40,215 denominated in a foreign currency

(31 December 2012: £36,294).

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 2013, 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 £21,608 reduction/increase (2012: £19,898 reduction/increase).

The impact in the year ended 2013, 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 £11,149 increase/reduction (2012: £14,813 increase/reduction).

(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 A1 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 £477,998 (2012: £334,953) as disclosed in note 15, which fall due 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. The main area of R&D continues to be in the field of innovative products for consumer healthcare using the Group's advanced proprietary transdermal technology.

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), (2012:10, 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, two Directors exercised share options under the Group share option scheme and realised a combined gain of £19,182 (2012: three Directors, realised gain £128,380).

In respect of the highest paid Director the realised gain was £nil (2012: £52,475).

During the year, three Directors (2012: three Directors) participated in a private money purchase

defined contribution pension scheme.

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 £15,500,889 (2012: £14,304,768) available for offset against future taxable profits.

Deferred tax

Deferred tax assets amounting to £3,249,939 (2012: £2,926,896) have not been recognised on the basis that their future economic benefit is not certain. Assuming a prevailing tax rate of 20% (2012: 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 £2,208,332 (2012: loss of £2,176,649) and on a weighted average number of shares in issue of 77,591,370 (2012: 74,746,320).

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, disclosed in note 17, or the issue of shares under the long-term incentive plan, 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 any 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 2012 was 73,223,391.

During the year ended 31 December 2012, the Company issued shares of 0.2 pence each as follows:

The number of issued ordinary shares as at 1 January 2013 was 77,447,946.

During the year ended 31 December 2013, the Company issued shares of 0.2 pence each as follows:

17. Share options

At 31 December 2013, the number of ordinary shares of 0.2 pence each subject to share options granted under the Company's Approved and Unapproved Share Option Schemes were:

On 23 September 2013 share options over 950,000 new ordinary shares were granted to employees and a consultant (including Directors).

Details of share options exercised by employees in 2013, given in note 16, generated additional funds of £151,038 for the Group.

The share options outstanding at 31 December 2013 represented 4.8% of the issued share capital as at that date (2012: 4.2%) and would generate additional funds of £2,087,900 (2012: £1,669,588) if fully exercised. The weighted average remaining life of the share options was 59 months (2012: 60 months), with a weighted average remaining exercise price of 55.90 pence (2012: 51.30 pence).

The share options exercisable at 31 December 2013 totalled 1,924,741 (2012: 2,364,279) with an average exercise price of 45.71 pence (2012: 47.47 pence) and would have generated additional funds of £879,750 (2012: £1,122,238) if fully exercised.

The Group's share option scheme rules apply to 3,029,741 of the share options outstanding at 31 December 2013 (31 December 2012: 2,679,279) 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 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 2013 amounted to £86,746 (2012: £106,714). Pension contributions payable one month in arrears at 31 December 2013 included in accrued expenses at the relevant Group Statement of Financial Position date totalled £2,748 (2012: £4,109).

19. Commitments

At 31 December 2013 the Group had operating lease commitments in respect of property leases cancellable on one month's notice of £5,714 (2012: £5,714).

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.

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 27 January 2014 share options over 120,000 new ordinary shares were exercised generating additional funds of £67,500 for the Group.

The Group raised £12.0 million (before expenses) following a placing of 21,052,632 shares at 57 pence per share on 7 March 2014 and approved by shareholders in a general meeting on 25 March 2014.