Ixico Regulatory News (IXI)

3 Dec 2009 07:00



Page 25

Audited information

Directors' detailed emoluments and compensation

Details of individual Directors' emoluments for the period are as follows:

	2009				2008
	Salary & fees	Monetary value of benefits	Total excluding pensions	Pension contributions	Total excluding pensions	Pension contributions
Executive	£	£	£	£	£	£
Mr A D Morrison (i)	102,500	1,396	103,896	-	-	-
Dr D D Rees (ii)	22,931	2,150	25,081	3,669	203,839	29,800
Mr P J Morgan (iii)	16,897	1,267	18,164	2,703	146,500	21,800
	142,328	4,813	147,141	6,372	350,339	51,600
Non-executive
Mr A H Taylor	37,500	-	37,500	-	36,250	-
Mr A D Morrison	27,500	248	27,748	-	26,423	-
Dr P R Blower	27,500	607	28,107	-	26,451	-
	92,500	855	93,355	-	89,124	-
Total	234,828	5,668	240,496	6,372	439,463	51,600

From 1 October 2008 

(i)  (ii)  (iii)

From 14 November 2008 to 30 September 2009 From 1 October 2008 to 12 November 2008  From 1 October 2008 to 12 November 2008

Details of the individual Directors' emoluments for the year ended 30 September 2009 have been adjusted by £33,000 to reflect the Remuneration Committee's decision not to award any bonus payments in respect of the year ended 30 September 2008. 

On 12 November 2008, the Company received notices of resignation as Directors of the Company with immediate effect and their subsequent termination of employment from Dr D D Rees and Mr P J Morgan. Subsequently Dr D D Rees and Mr P J Morgan were awarded payments in respect of their contractual notice periods and certain post termination payments. The cost to the Group for Dr D D Rees was £135,985 and Mr P J Morgan was £169,613. Neither of these amounts are included in the table presented above.

The Executive Directors may receive certain benefits in kind. The benefits provided to Dr D D Rees were the provision of a fully expensed company car, life insurance and private medical insurance. The benefits provided to Mr P J Morgan were the provision of a car allowance and life assurance. The benefit provided to Mr A D Morrison is the reimbursement of travel costs from home to work.

No Directors waived emoluments in the financial period ended 30 September 2009 (2008: nil).

There were no gains made by individual Directors from the exercise of share options for the period ended 30 September 2009 (2008: nil).

Page 26

 

Directors' interest in share options

Details of options over shares of the Company held by Directors, all of which have been granted at no cost to the Directors, are set out below:

	Number of options
	At 1 October 2008	Granted during the year	Exercised during the year	Lapsed during the year	At 30 September 2009	Note*	Exercise price	Date from which exercisable	Expiry Date
Dr D D Rees	350,000	-	-	(350,000)	-	1	£0.45	09/01/2010	08/01/2017
	224,606	-	-	(224,606)	-	2a	£0.445	03/08/2009	02/08/2017
	488,343	-	-	(488,343)	-	2b	£0.445	03/08/2009	02/08/2017
	19,585	-	-	(19,585)	-	4	£0.4825	01/10/2010	31/03/2011
	200,000	-	-	(200,000)	-	2d	£0.235	28/03/2011	27/03/2018
	1,282,534	-	-	(1,282,534)	-
Mr P J Morgan	250,000	-	-	(250,000)	-	1	£0.45	09/01/2010	08/01/2017
	19,585	-	-	(19,585)	-	4	£0.4825	01/10/2010	31/03/2011
	150,000	-	-	(150,000)	-	2d	£0.235	28/03/2011	27/03/2018
	419,585	-	-	(419,585)	-
Total	1,702,119	-	-	(1,702,119)	-

*Further details of the terms of the share option schemes are contained in note 25 to the financial statements under the note reference in the above table.

Directors' interests in long-term incentive plans

	Number of awards
	At 1 October 2008	Awarded during the year	Vested during the year	Lapsed during the year	At 30 September  2009	Note *	Market price at date of grant	Exercise price	Date from which vesting
Dr D D Rees
	106,025	-	-	(106,025)	-	3a	£0.445	£0.01	03/08/2009
	90,000	-	-	(90,000)	-	3b	£0.445	£0.01	03/08/2010
	150,000	-	-	(150,000)	-	3b	£0.2175	£0.01	30/05/2011
	346,025	-	-	(346,025)	-
Mr P J Morgan	65,000	-	-	(65,000)	-	3b	£0.445	£0.01	03/08/2010
	105,000	-	-	(105,000)	-	3b	£0.2175	£0.01	30/05/2011
	170,000	-	-	(170,000)	-
Total	516,025	-	-	(516,025)	-

*Further details of the terms of the share option schemes are contained in note 25 to the financial statements under the note reference in the above table.

The market price of the Company's shares at the end of the financial period was 5.13 pence (30 September 2008: 14.25 pence) and the range of market prices during the period was between 13.75 pence and 3.25 pence.

Approval

This report was approved by the Board of Directors and signed on its behalf by:

Dr P R Blower

Chairman of the Remuneration Committee

2 December 2009

Page 27

Corporate governance

The Combined Code

The Directors are accountable to shareholders for the good corporate governance of the Group and seek to uphold and report on compliance with current best practice in Corporate Governance.

See page 33 for the statement of Directors' responsibilities in respect of the Annual Report, the Directors' Remuneration Report and the financial statements.

Compliance statement

The Directors are satisfied that, unless disclosed otherwise within this report, the Group has complied throughout the period with the best practice provisions set out in section 1 of the 2008 FRC Combined Code on corporate governance in effect for the financial period to 30 September 2009. This report together with the Remuneration report of the Board of Directors sets out the manner in which the Group has applied all the principles contained in the 2008 Combined Code. A copy of the Combined Code is available at the FRC's website: www.frc.org

The principles set out in the Combined Code cover four areas: the Board, Directors' remuneration, accountability and audit and relations with shareholders. With the exception of Directors' remuneration (which is dealt with separately in the Remuneration Report) the following section sets out how the Board has applied such principles.

The Board 

The Board is chaired by Mr A H Taylor and met for regular business twelve times during the period under review. All meetings were attended by all the Directors appointed at the time of the meeting. In addition, further meetings are held when circumstances and urgent business dictate.

The Board has agreed a schedule of items that are specifically reserved for its consideration, which is reviewed on an annual basis. This schedule includes business strategy, financing arrangements, material acquisitions and divestments, approval of budgets, major capital expenditure projects, risk management, treasury policies, and establishing and monitoring internal controls. The Board is responsible for the overall direction and strategy of the Group and for securing the optimum performance from Group assets. At each meeting, the Board reviews strategy and progress of the Group towards its objectives, particularly in respect of research and development projects, and monitors financial progress against budget.

The Group's policy is that the Board of Directors would normally consist of two Executive and three independent Non-Executive Directors. Dr P R Blower is the Senior Non-Executive Director. Biographies of the Directors are set out on page 14. Details of the Directors' shareholdings are shown on page 24.

All Directors are required to retire and submit themselves for re-election at the first Annual General Meeting after appointment and, thereafter, at least every three years. Subject to their re-election and Companies Act provisions, the Non-Executive Directors are appointed for specified terms.

There is clear separation of the roles of Chairman and Chief Executive on terms which have been agreed and set out in writing by the Board and which are reviewed on an annual basis. The Chairman is responsible for overseeing the running of the Board, encouraging all Directors to participate fully in discussions with the aim of reaching a consensus and ensuring that the Non-Executive Directors are properly briefed on matters. The Chief Executive has responsibility for implementing the Board's strategy and managing day to day business activities of the Group with the Executive Directors and senior managers. The Company Secretary, through the Chairman, is responsible for advising the Board on all governance matters.

Page 28

The Board has agreed procedures to allow individual Directors to seek independent professional advice at the Company's expense for the furtherance of their duties, and all Directors have access to the services of the Company Secretary. The Company Secretary is accountable to the Board through the Chairman on governance matters. It is the responsibility of the Company Secretary to ensure that Board procedures are followed and all rules and regulations are complied with. Newly appointed Directors receive a comprehensive, formal and tailored introduction to the Group's business as well as information on their responsibilities and roles as a Director of the Company.

Board performance and appraisal

The Board is mindful of the requirement to undertake annual evaluation of its performance and that of its Committees and individual Directors. All Directors have conducted a self assessment of the performance of the Board during the period by reference to an evaluation checklist provided by the Group's external auditors. The results were compiled and analysed by the Company Secretary. Areas for improvement identified by the assessment will be addressed accordingly.

Board Committees

In accordance with best practice, the Company has established Audit, Remuneration and Nominations Committees with written terms of reference for each that deal with their authorities and duties. The full terms of reference of all the Committees have been published on the Company's website.

Audit committee

The Audit Committee comprises the independent Non-Executive Directors, Dr P R Blower and Mr A H Taylor, who the Board considers has recent and relevant financial experience, and is chaired by Dr P R Blower. The Committee met two times during the period under review, with the Group's external auditors and Executive Directors attending where appropriate. All meetings were fully attended. During the period under review, Mr A D Morrison has temporarily stepped down as a member of the Audit Committee whilst fulfilling the role of Acting Chief Executive Officer.

From 14 November 2008 to 30 September 2009, the committee did not consist of at least two independent Non-Executive Directors other than the Non-Executive Chairman as required under Section C.3.1 of the Combined Code 2008. Subsequent to the year end the Board intends to take steps to redress the structure of the Audit Committee.

The Committee assists the Board in ensuring that the Group's published financial statements give a true and fair view and in securing reliable internal financial information for decision making. The Committee reviews the findings of the external auditors and reviews key accounting policies and judgments. The Audit Committee is also responsible for monitoring the effectiveness of the external audit process and the independence of the external auditors, recommending audit fee proposals to the Board and considering the scale and nature of non-audit work. Non-audit services provided by the external auditors are discussed to ensure the Committee is satisfied regarding the objectivity and independence of the external audit, including any relevant safeguards. Any material non-audit fees are approved by the Committee before being committed.

The Committee assesses annually the qualification, expertise and resources, and independence of the external auditors and the effectiveness of the audit process. The assessment coves all aspects of the audit service provided by the audit firm.

The Group has a Quality Assurance manager but does not have an internal financial audit function. The Audit Committee considers that this is appropriate at this time given the size of the Group. The Audit Committee reviews the Group's Protected Disclosure policy and procedure on an annual basis to ensure that adequate arrangements are in place by which members of staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other areas. The Committee considers that appropriate arrangements are in place for the proportionate and independent investigation of such matters and for appropriate follow up action.

Page 29

The Audit Committee conducted a self-assessment of its performance during the period by reference to an evaluation checklist provided by the Group's external auditors. The results were compiled and analysed by the Company Secretary. Areas for improvement identified by the assessment will be addressed accordingly.

The terms of reference of the Audit Committee include the following responsibilities:

Remuneration Committee

The Remuneration Committee comprises the independent Non-Executive Directors Dr P R Blower and Mr A H Taylor and is chaired by Dr P R Blower. The Committee met six times during the period under review. All meetings were attended by all members. During the period under review, Mr A D Morrison has temporarily stepped down as a member of the Remuneration Committee whilst Acting Chief Executive Officer.

The Committee is responsible for making recommendations to the Board on remuneration policy for all members of staff and Executive Directors. The policy recommendations include setting salary scales, and approving the format and range of incentive payments and share option grants to all staff. Remuneration of Non-Executive Directors is under the control of the Chairman and the executive members of the Board.

The Remuneration Committee conducted a self-assessment of its performance during the period by reference to an evaluation checklist provided by the Group's external auditors. The results were compiled and analysed by the Company Secretary. Areas for improvement identified by the assessment will be addressed accordingly.

The terms of reference of the Remuneration Committee include the following responsibilities:

The remuneration report, which includes details of the Group's remuneration policy, is set out on pages 20 to 26.

Nomination Committee

The Nomination Committee comprises Dr P R Blower and Mr A H Taylor and is chaired by Dr P R Blower. The Committee met once during the period under review and the meeting was attended by all members. During the period under review, Mr A D Morrison has temporarily stepped down as a member of the Nomination Committee whilst Acting Chief Executive Officer.

The Committee is responsible to the Board for determining the qualities and experience required of the Company's Executive and Non-Executive Directors and for identifying suitable candidates. In appropriate cases, recruitment consultants assist in the process. The Committee is also responsible for succession planning.

Page 30

 

The terms of reference of the Nomination Committee include the following responsibilities:

Relationship with shareholders

The Group is committed to maintaining good relations with its institutional and private shareholders and reports formally to shareholders on a six monthly basis through the provision of interim and annual reports. In addition, the Group keeps shareholders informed of significant events for the Group during the period by issuing press releases which are immediately made available on the Group's website (www.phytopharm.com). The Group's website also provides an overview of the business including its strategy, products and objectives.

The Group also maintains communication by making presentations during the period to institutional shareholders on request and to all shareholders through the Group's website. This contains information on all of the Group's products and all financial reports and press releases issued by the Group. Details of the current share price and historic share price performance are also included.

The Board is kept up to date at its regular meetings with the views of shareholders and analysts by the Chairman and Chief Executive.

Annual general meeting

The principal forum for discussion with shareholders is the annual general meeting and their participation is encouraged. The Group endeavours to provide formal notification together with an explanation of each proposed resolution and to send these to shareholders at least twenty working days in advance of the meeting.

At the AGM the Board provides a summary of the period's events after which all the Directors are available to answer questions from shareholders.

In accordance with the Combined Code recommendations, the Company counts all proxy votes. On each resolution which is voted on a show of hands, the Company indicates the level of proxies lodged, the number of proxy votes for and against each resolution and the number of abstentions. The Chairs of the Audit, Remuneration and Nomination Committees attend to answer questions.

Corporate social responsibility

Details of the Group's activities in the area of corporate social responsibility are set out on pages 12 to 13.

 

Internal controls

The Board acknowledges that it is responsible for the Group's system of internal control and reviews its effectiveness at least annually. However, the Board acknowledges that such a system can only provide reasonable and not absolute assurance against material misstatement or loss, as it is designed to manage rather than eliminate the risk of failure to achieve business objectives.

The key procedures that the Board has established are designed to provide effective internal controls within the Group and comply with the Internal Control Guidance for Directors on the Combined Code (Turnbull Guidance 2005) issued by the Financial Reporting Council. There is an ongoing process for identifying, evaluating and managing significant risks faced by the Group and the effectiveness of all the Group's internal controls in effect during the period has been reviewed by the Board. This process has been in place throughout the period under review. The Board confirms that the necessary steps have been taken to rectify any significant failings or weaknesses identified through this process.

Page 31

The Group's key internal control procedures include the following:

Control environment

The Group's control environment is the responsibility of the Group's Directors and managers at all levels. The Group's organisational structure has clear lines of reporting and responsibility. Regular research and development programme reviews are held to review progress against plan for each programme. The information from these meetings is reported on a regular basis to a management group comprising the Executive Directors and key senior managers to compare progress against plan for the business as a whole. Overall control of the business rests with the Board of Directors.

Risk identification and evaluation

Regular assessments of ongoing risks facing the business are undertaken as part of the operational reviews and regular management group meetings in the key areas such as management of working capital, compliance, legal and operational issues.

Operational controls

Quality

Investigational medicinal products and the Group's marketed functional food product (Phytopica®) are manufactured on behalf of Phytopharm and are produced in accordance with Good Manufacturing Practice (GMP) to ensure that the products are manufactured consistently to the appropriate quality standards. The Group also has agreements with a number of plantations operating under the principles of Good Agricultural Practice (GAP) to ensure that raw material supply is consistently controlled and of appropriate quality.

Non-clinical studies.

Key non-clinical studies to determine the safety and efficacy of new products are conducted in accordance with Good Laboratory Practice (GLP) at contractors who operate under those regulations. Each contractor is audited to assess compliance with GLP prior to initiation of studies.

Clinical studies.

All clinical studies carried out by the Group are in accordance with Good Clinical Practice (GCP). This ensures that the health and well being of the subjects is carefully monitored during the study and that the data gathered is complete and reliable. All studies are audited for compliance under the management of Phytopharm's quality assurance group.

Financial controls

Financial reporting. 

Budgets and long term forecasts are normally prepared twice a year to allow management to monitor the key business and financial risks. Further, more frequent, forecasts are prepared if circumstances require. The budgets are reviewed and approved by the Board prior to adoption by the Group. Management accounts are prepared on a monthly basis and performance against budget is analysed in detail and reported on monthly.

Control procedures.

The Group has established detailed policies, and accounting and administrative procedures are in place covering all significant areas and key systems. These include formal authorisation procedures for the transfer of funds, capital expenditure and recruitment. Any commitment of expenditure requires documentary approval which is subject to prescribed limits of authority. Any major expenditure or commitment including the appointment of senior members of staff requires Board approval.

Page 32

Compliance

The Group has established policies and standard operating procedures (SOPs) that provide instruction on all aspects of the operation of the business. These SOPs are designed to ensure compliance with the quality management requirements of the Group and external regulations where appropriate. All SOPs are reviewed on a regular basis and updated where necessary.

Insurance

The Group has reviewed its portfolio of insurance policies with its insurance broker to ensure that the policies are appropriate to the Group's activities.

Announcements

All announcements are approved by the Board of Directors prior to issue. The Group also has internal and external checks to guard against unauthorised release of information.

Human resources

The Group endeavours to appoint employees with appropriate skills, experience and knowledge for the roles they undertake. The Group has a range of polices which are aimed at retaining and incentivising key staff. Employees have clear objectives based on the Group's business objectives.

The BioIndustry Association (BIA) Code of Practice.

Phytopharm is a member of the BIA who have published a code of eight principles which are broad statements of best practice for information communication and management for its members. The Group has complied with the Code for the period under review.

By order of the Board

Mr A H Taylor

Non-Executive Chairman

2 December 2009

Page 33

Statement of Directors' responsibilities in respect of the Annual Report, the Directors' remuneration report and the financial statements

The directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the Group and parent company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to:

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the directors, whose names and functions are listed in the Board of directors on page 14 confirm that, to the best of their knowledge:

By order of the Board

Mr A H Taylor

Non-Executive Chairman

Page 34

Independent auditors' report to the members of Phytopharm plc 

We have audited the financial statements of Phytopharm plc for the year ended 30 September 2009 which comprise the Consolidated income statement, the Consolidated and Company balance sheets, the Statements of changes in shareholders' equity, the Consolidated and Company cash flow statements and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

Respective responsibilities of directors and auditors 

As explained more fully in the Directors' Responsibilities Statement set out on page 33, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors. 

This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with Sections 495 to 497 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of the audit of the financial statements 

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group's and the parent company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.

Opinion on financial statements 

In our opinion: 

Page 35

Opinion on other matters prescribed by the Companies Act 2006 

In our opinion: 

Matters on which we are required to report by exception 

We have nothing to report in respect of the following: 

Under the Companies Act 2006 we are required to report to you if, in our opinion: 

Under the Listing Rules we are required to review: 

Mr Clive Birch (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

Cambridge

2 December 2009

Page 36

Consolidated income statement

for the year ended 30 September 2009

		Year ended	Year ended
		30 September	30 September
		2009	2008
	note	£	£
Revenue	2	867,426	2,623,433
Cost of sales		(186,761)	(168,609)
Gross profit		680,665	2,454,824
Other income	2	245,196	335,186
Net operating expenses	3	(5,306,748)	(5,534,348)
Before exceptional items		(4,900,531)	(5,534,348)
Exceptional items	4	(406,217)	-
Operating loss		(4,380,887)	(2,744,338)
Interest receivable and similar income	7	176,034	269,528
Loss on ordinary activities before taxation	8	(4,204,853)	(2,474,810)
Tax credit on loss on ordinary activities	9	294,165	200,108
Loss for the period		(3,910,688)	(2,274,702)
Basic and diluted loss per ordinary share (pence)	11	(4.1)	(3.0)

All revenues and expenses shown above were generated from continuing operations. All of the loss is attributable to the equity holders of the parent.

Page 37

Consolidated and Company balance sheets

at 30 September 2009

		Group		Company
		30 September	30 September	30 September	30 September
		2009	2008	2009	2008
	note	£	£	£	£
Non-current assets
Property, plant and equipment	12	102,366	204,220	-	-
Intangible assets	13	99,400	99,400	-	-
Investments	14	-	-	1,445,661	1,593,428
Amounts due from subsidiary undertaking	15	-	-	12,291,586	10,003,509
Non-current assets		201,766	303,620	13,737,247	11,596,937
Current assets
Inventories	16	249,474	400,231	-	-
Trade and other receivables	17	228,019	483,875	22,054	184,627
Current tax receivable	9	294,855	200,108	-	-
Money market investments	18	-	5,500,000	-	5,500,000
Cash and cash equivalents	19	3,910,117	1,607,067	3,683,802	736,950
Current assets		4,682,465	8,191,281	3,705,856	6,421,577
Current liabilities
Trade and other payables	20	(1,746,820)	(1,333,586)	(70,159)	(130,644)
Net current assets		2,935,645	6,857,695	3,635,697	6,290,933
Net assets		3,137,411	7,161,315	17,372,944	17,887,870
Equity
Share capital	24	945,484	945,484	945,484	945,484
Share premium		55,709,052	55,671,139	55,213,645	55,175,732
Other reserves (deficit)		(204,211)	(204,211)	-	-
Profit and loss account (deficit)		(53,312,914)	(49,251,097)	(38,786,185)	(38,233,346)
Shareholders' funds		3,137,411	7,161,315	17,372,944	17,887,870

The financial statements comprising the consolidated income statement, the consolidated and company balance sheets, the Group and company statements of changes in equity, the consolidated and company cash flow statements and the related notes, were approved by the Board of Directors and were signed on its behalf by:

Mr A D Morrison

Acting Chief Executive 

2 December 2009

Page 38

Statements of changes in shareholders' equity

Group	Share capital	Share premium	Other reserves (deficit)	Profit and loss account (deficit)	Total
	£	£	£	£	£
Balance at 1 October 2007	556,063	48,685,559	(204,211)	(46,236,749)	2,800,662
Issue of equity share capital	389,421	6,985,580	-	-	7,375,001
Purchase of shares in Phytopharm plc	-	-	-	(2,220)	(2,220)
Net income/(expense) recognised directly in equity	389,421	6,985,580	-	(2,220)	7,372,781
Loss for the period	-	-	-	(2,274,702)	(2,274,702)
Total recognised income and expense for the period	389,421	6,985,580	-	(2,276,922)	5,098,079
Equity share options charge	-	-	-	(737,426)	(737,426)
Balance at 30 September 2008	945,484	55,671,139	(204,211)	(49,251,097)	7,161,315
Balance at 1 October 2008	945,484	55,671,139	(204,211)	(49,251,097)	7,161,315
Recovery of share issue costs	-	37,913	-	-	37,913
Purchase of shares in Phytopharm plc	-	-	-	(3,361)	(3,361)
Net income/(expense) recognised directly in equity	-	37,913	-	(3,361)	34,552
Loss for the period	-	-	-	(3,910,688)	(3,910,688)
Total recognised income and expense for the period	-	37,913	-	(3,914,049)	(3,876,136)
Equity share options charge	-	-	-	(147,768)	(147,768)
Balance at 30 September 2009	945,484	55,709,052	(204,211)	(53,312,914)	3,137,411

Company		Share capital	Share premium	Profit and loss account (deficit)	Total
		£	£	£	£
Balance at 1 October 2007		556,063	48,190,152	(558,324)	48,187,891
Issue of equity share capital		389,421	6,985,580	-	7,375,001
Net income recognised directly in equity		389,421	6,985,580	-	7,375,001
Loss for the period		-	-	(36,937,596)	(36,937,596)
Total recognised income and expense for the period		389,421	6,985,580	(36,937,596)	(29,562,595)
Equity share options charge		-	-	(737,426)	(737,426)
Balance at 30 September 2008		945,484	55,175,732	(38,233,346)	17,887,870
Balance at 1 October 2008		945,484	55,175,732	(38,233,346)	17,887,870
Recovery of share issue costs		-	37,913	-	37,913
Net income recognised directly in equity		-	37,913	-	37,913
Loss for the period		-	-	(405,071)	(405,071)
Total recognised income and expense for the period		-	37,913	(405,071)	(367,158)
Equity share options charge		-	-	(147,768)	(147,768)
Balance at 30 September 2009		945,484	55,213,645	(38,786,185)	17,372,944

Page 39

Consolidated and Company cash flow statements

for the year ended 30 September 2009

	Group		Company
	Year ended	Year ended	Year ended	Year ended
	to 30 September	to 30 September	to 30 September	to 30 September
	2009	2008	2009	2008
	£	£	£	£
Cash flow from operating activities
Operating loss	(4,380,887)	(2,744,338)	(575,515)	(37,183,931)
Depreciation	100,975	90,439	-	-
Write down of Group debtor	-	-	-	36,384,471
Loss / (gain) on disposal of property, plant and equipment	8,740	(3,163)	-	-
Share option credit	(147,768)	(737,426)	-	-
	(4,418,940)	(3,394,488)	(575,515)	(799,460)
Changes in working capital
Decrease/(increase) in trade and other receivables	255,856	28,248	162,573	(134,279)
Increase/(decrease) in trade and other payables	413,234	(19,796)	(60,485)	34,037
Decrease in inventories	150,757	283,252	-	-
Cash used in operations	(3,599,093)	(3,102,784)	(473,427)	(899,702)
Taxation received	199,418	521,168	-	-
Net cash used in operating activities	(3,399,675)	(2,581,616)	(473,427)	(899,702)
Cash flows from investing activities
Purchase of property, plant and equipment	(42,261)	(100,638)	-	-
Sale of property, plant and equipment	34,400	8,974	-	-
Purchase of intangible assets	-	(99,400)	-	-
Investment in shares of Phytopharm plc	(3,361)	(2,220)	-	-
Interest received	176,034	269,528	170,443	246,335
Net cash generated from investing activities	164,812	76,244	170,443	246,335
Cash flows from financing activities
Issue of shares	-	8,564,390	-	8,564,390
Share issue costs	-	(1,192,898)	-	(1,192,898)
Share issue costs recovered	37,913	-	37,913	-
Change in financing of Group company	-	-	(2,288,077)	(2,461,732)
Movement in held to maturity financial assets	5,500,000	(5,500,000)	5,500,000	(5,500,000)
Net cash generated from financing activities	5,537,913	1,871,492	3,249,836	(590,240)
Movements in cash and cash equivalents in the period	2,303,050	(633,880)	2,946,852	(1,243,607)
Cash and cash equivalents at the beginning of the period	1,607,067	2,240,947	736,950	1,980,557
Cash and cash equivalents at end of period	3,910,117	1,607,067	3,683,802	736,950

Notes to the financial statements

Page 40

1 Accounting policies and basis of preparation

Phytopharm plc is a public limited company incorporated in England and Wales with a listing on the London Stock Exchange.

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to both periods presented.

Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU, IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared on a historical cost basis except for certain items which have been measured at fair value as detailed in the individual accounting policies.

Going concern

At 30 September 2009, the Group had cash resources of £3.91 million (30 September 2008: £7.11 million). On 2 December 2009, the Group approved its intention to raise approximately £24.1 million, net of expenses, by way of binding commitments and an underwritten Placing and Open Offer of, in aggregate, 252,129,042 new ordinary shares at 10 pence per ordinary share capital, conditional, inter alia, upon the passing by shareholders of the resolutions at a General Meeting on 29 December 2009.

After making enquiries and taking into account (i) management's estimate of future expenditure, (ii) management's expectation, based on the underwriting undertaking received, that the Group will secure sufficient equity funding in the proposed Placing and Open Offer and (iii) management's expectation that shareholder support for the relevant shareholder resolutions will be forthcoming at the General Meeting, the Directors have a reasonable expectation that the Group will have adequate financial resources to continue in operation for the foreseeable future. 

Accounting policies

Basis of consolidation

The acquisition by the Company's subsidiary, Phytotech Limited (formerly Phytopharm Limited), of Phytodevelopments Limited on 21 March 1996 has been accounted for as a merger in the consolidated financial statements, and all transactions between the two companies have been eliminated.

On 3 April 1996 the Group structure was reorganised and a new holding Company established by way of a share exchange. This has been accounted for as a merger in the consolidated accounts, and all transactions within the Group have been eliminated.

There has been no change to the basis set out as a result of the implementation of IFRS, as permitted by IFRS1.

Notes to the financial statements

Page 41

Accounting developments

The following standards and interpretations were issued during the year and had no material impact on the Group's results or assets or were not relevant:

Standards effective in the current period

Standards in issue but not yet effective

At the date of authorisation of these financial statements, the following standards and interpretations were in issue but not yet effective: 

The Directors do not anticipate the adoption of these standards will have a significant impact on the financial statements of the Group when they come in to effect for periods commencing on or after 1 October 2009.

None of these standards or interpretations have been endorsed by the EU and none are expected to have a significant impact on adoption.

Notes to the financial statements

Page 42

Critical accounting judgements

The preparation of the consolidated financial statements requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The main accounting judgements relate to the determination of going concern status, the carrying value of investments in subsidiaries, inventory valuation, the share option charge and the underlying assumptions. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods.

Revenue

Revenue, which excludes value added tax, represents the invoiced value of goods and services supplied, net of certain promotional activity.

Amounts received or receivable in respect of research and development contracts, collaborative research agreements, licence fees or milestone payments are recognised as revenue when the licence rights are granted or the specific conditions stipulated in the agreements have been satisfied. These amounts are shown gross of any withholding tax.

Amounts received or receivable in respect of collaborative research agreement payments are recognised as revenue when the specific conditions stipulated in the agreements have been satisfied.

Other income

Other income, which excludes value added tax, represents amounts received or receivable from charitable organisations.

Cost of sales and operating expenses

Cost of sales comprises the proportion of milestone and royalty income earned by the Group and due to third parties under licence agreements and the direct cost of goods sold, including distribution costs. All research and development costs, whether funded by third parties under licence and development agreements or not, are included within operating expenses and classified as research and development costs.

Research and Development expenditure

All on-going development expenditure is currently expensed in the period in which it is incurred. Due to the regulatory and other uncertainties inherent in the development of the Group's products, the criteria for development costs to be recognised as an asset, as prescribed by IAS 38 "Intangible assets", are not met until the product has been submitted for regulatory approval, such approval has been received, and it is probable that future economic benefits will flow to the Group. The Group does not currently have any such internal development costs that qualify for capitalisation as intangible assets.

Exceptional items

Exceptional items represent significant items of income or expense which due to their nature or the expected infrequency of the events giving rise to them, are presented separately on the face of the income statement to give a better understanding to shareholders of the elements of financial performance during the year. This disclosure will facilitate comparison with prior periods and enable the reader to better assess trends in financial performance.

Notes to the financial statements

Page 43

Share-based payments

The Group makes equity-settled share-based payments to its employees and Directors. Equity-settled share-based payments are measured at fair value at the date of grant and are expensed on a straight line basis over the vesting period of the award. At each balance sheet date, the Group revises its estimate of the number of options that are expected to become exercisable. The share-based payment (credit)/charge is allocated to research and development expenses and administrative expenses on the basis of staff numbers, with a corresponding adjustment to equity.

Employee benefits

All employee benefit costs, notably holiday pay and contributions to Group or personal defined contribution plans, are charged to the income statement on an accruals basis. The Group operates a defined contribution pension scheme. The assets of this scheme are held separately from those of the Group in independently administered funds. The Group does not offer any other post retirement benefits.

Operating leases

Costs in respect of operating leases are charged to the income statement on a straight line basis over the lease term. 

Property, plant & equipment

The cost of property, plant & equipment is its purchase cost, together with any incidental expenses of acquisition. Depreciation is calculated so as to write off the cost of property, plant & equipment, less its estimated residual value, on a straight line basis over the expected useful economic lives of the assets concerned.

The principal rates used for this purpose are:

Plant and machinery 20%

Computer equipment 33%

Fixtures and fittings 20%

Motor vehicles 25%

Leasehold improvements are amortised over the shorter of the lease term and the asset's useful economic life.

The assets' residual values and useful lives are reviewed, and adjusted if necessary at each balance sheet date.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within the operating loss.

Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. At each balance sheet date the Group reviews the carrying amount of its intangible assets to determine whether there is any indication that these assets have suffered an impairment loss.

Impairment of assets

Non-current assets are reviewed for impairment both annually and when there is an indication that an asset may be impaired (when events or changes in circumstances indicate that carrying value may not be recoverable). An impairment loss is recognised in the income statement for the amount by which the asset's carrying value exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less cost to sell and value in use.

Notes to the financial statements

Page 44

Investments in subsidiary

The investment in Phytotech Limited was originally recorded at the nominal value of the shares issued at the time of the share for share exchange on 3 April 1996. The fair value of the options granted after 7 November 2002 by Phytopharm plc to the employees of Phytotech Limited which had not vested by 1 September 2005 is now also included in the value of the investment. Investments in subsidiary undertakings are carried at cost less any impairment provision. Such investments are subject to an annual review, and any impairment is charged to the income statement.

Inventory

Inventory including raw materials, work in progress and finished goods is stated on a first in first out basis at the lower of cost and net realisable value. Cost represents direct materials and, where applicable production overheads. Where necessary, provision is made for obsolete, slow-moving or defective inventory.

Trade and other receivables

Trade receivables are non-interest bearing and are initially stated at their fair value, as reduced by appropriate allowances for estimated irrecoverable amounts.

Money market investments

Money market investments have fixed maturities that the Group's management has the positive intention to hold to maturity. These investments include short-term investments with an original maturity date of more than three months.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, bank deposits repayable on demand and other short-term highly liquid investments with original maturities at inception of 90 days or less.

Foreign currency translation

Transactions denominated in foreign currencies are translated into sterling, being the functional currency of the Group, at actual rates of exchange ruling at the date of transaction. Monetary assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange ruling at the end of the financial period. All foreign currency exchange differences are taken to the income statement in the period in which they arise.

Current tax

Current tax represents UK tax recoverable and is provided at amounts expected to be recovered using the tax rates and laws that have been enacted at the balance sheet date.

Deferred taxation

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements in accordance with IAS 12 "Income taxes". Deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither the accounting nor taxable profit or loss. A deferred tax asset is recognised only to the extent that it is probable that sufficient taxable profit will be available in future periods to utilise the temporary difference.

Trade and other payables

Trade payables are non-interest bearing and are initially stated at their fair value.

Notes to the financial statements

Page 45

Equity instruments

Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Employee share trust

The Company recognises the assets and liabilities of the trust in its own accounts and shares held by the trust are recorded at cost as a deduction at arriving at shareholders' funds until such time as the shares vest unconditionally to employees. The trust is a separately administered trust, funded by contributions from employees and Phytotech Limited, whose assets comprise shares in the Company.

Segmental information

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns which are different from those segments operating in other economic environments.

2 Business and geographical segments

The Group's development and other functions operate across both pharmaceutical products and functional foods, are managed centrally and are reported internally as a single business. This also applies to the Group's marketed products. Accordingly, the Directors consider that there is only one primary reporting segment. Geographic segments are secondary as neither geographical origin nor destination is central to management's assessment of risk and return.

	Year ended	Year ended
	30 September	30 September
	2009	2008
	£	£
Revenue
Europe	607,489	2,432,418
United Kingdom	136,506	180,606
Asia	118,935	10,409
South Africa	4,496	-
	867,426	2,623,433
Other income
USA (i)	245,196	335,186
	1,112,622	2,958,619

 

(i) Represents grant income recognised

 

All the Group's revenue, loss before taxation and net assets arose in the United Kingdom.

3 Net operating expenses

	Year ended	Year ended
	30 September	30 September
	2009	2008
	£	£
Continuing operations
Research and development	3,913,876	4,249,670
Administrative expenses	1,392,872	1,284,678
	5,306,748	5,534,348

Notes to the financial statements

Page 46

4 Exceptional items

Exceptional items represent significant items of income or expense which due to their nature or the expected infrequency of the events giving rise to them, are presented separately on the face of the income statement to assist the reader of the financial statements. Exceptional items in the period comprise the restructuring costs following the Group's business strategy review of £100,619 together with the costs of the contractual notice periods and certain post termination payments for the former CEO of £135,985 and the former CFO of £169,613. These exceptional items in the year included £130,992 of research and development costs and £275,225 of administrative expenses. There were no exceptional items for the year ended 30 September 2008.

5 Directors' emoluments

	Year ended	Year ended
	30 September	30 September
	2009	2008
	£	£
Aggregate emoluments	240,496	472,463
Contributions to money purchase pension schemes	6,372	51,600
	246,868	524,063

There were no gains made by individual Directors from the exercise of share options for the period ended 30 September 2009 (2008: nil).

Detailed disclosures of Directors' individual remuneration and share options are given in the report of the Board on remuneration on pages 20 to 26.

Two of the Executive Directors (2008: two) had retirement benefits accruing to them from money purchase pension schemes in respect of qualifying services.

6 Employee information

The average monthly number of persons (including Executive Directors) employed during the period was:

	Year ended	Year ended
	30 September	30 September
	2009	2008
	Number	Number
Administration	6	7
Research and development	21	23
	27	30
	Year ended	Year ended
	30 September	30 September
	2009	2008
	£	£
Staff costs (for the above persons):
Wages and salaries	1,209,052	1,367,782
Social security costs	92,759	155,503
Other pension costs	54,409	113,368
Share option credit	(147,768)	(737,426)
	1,208,452	899,227

Notes to the financial statements

Page 47

Key management compensation

	Year ended	Year ended
	30 September	30 September
	2009	2008
	£	£
Wages and salaries	632,506	752,644
Social security costs	80,961	96,338
Other pension costs	16,764	69,803
Share option (credit)/charge	(563,580)	116,876
	166,651	1,035,661

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including all Executive Directors and Non-Executive Directors. The number of management personnel whose remuneration is included above is 5 (2008: 8).

Included within wages and salaries is an amount of £223,290 paid in consultancy costs for the services of the Interim Chief Operating Officer, Keith Thomson. Of this £150,250 was paid to a third party consultancy company whilst £73,040 was paid to Thomson Business Consultancy Limited, of which Keith Thomson is a director.

The Company has no employees.

7 Interest receivable

Interest receivable represents interest from cash and cash equivalents and money market deposits

8 Loss on ordinary activities before taxation

		Year ended	Year ended
		30 September	30 September
		2009	2008
		£	£
Loss on ordinary activities before taxation is stated after charging/(crediting):
Depreciation charge for the period:
	Owned property, plant and equipment	100,975	90,439
Loss/(gain) on disposal of property, plant and equipment		8,740	(3,163)
Fees payable to the Company's auditors for the audit of the parent company
and consolidated financial statements		26,000	26,000
Fees payable for other services supplied pursuant to legislation		9,800	9,900
Fees payable for the audit of the Company's subsidiaries pursuant to legislation		6,000	6,000
Tax services		8,500	12,900
Other services pursuant to legislation - reporting accountant work		-	138,500
Foreign exchange loss		192,763	22,365
Operating lease charges:
	Plant and machinery	89	870
	Other assets	75,713	84,900

Notes to the financial statements

Page 48

9 Tax on loss on ordinary activities

	Year ended	Year ended
	30 September	30 September
	2009	2008
	£	£
Current tax:
UK corporation tax
Current UK corporation tax credit on loss for the year	294,855	200,108
Adjustment in respect of prior year	(690)	-
Current UK corporation tax credit on loss for the period	294,165	200,108

There is no corporation tax charge because of the incidence of tax losses (2008: £nil). The Company has taken advantage of the Research and Development corporation tax credits introduced in the Finance Act 2000 whereby a company may surrender corporation tax losses incurred on research and development expenditure for a corporation tax refund at the rate of 24 pence in the pound of actual spend to 31 July 2008 and 24.5 pence in the pound of actual spend from 1 August 2008.

Factors affecting the current tax credit for the year

	Year ended	Year ended
	30 September	30 September
	2009	2008
	£	£
Loss on ordinary activities before tax	(4,204,853)	(2,474,810)
Loss on ordinary activities multiplied by the standard rate for research and
development tax credits at 14% (2008: 15.56%)	(588,679)	(385,042)
Effect of:
Difference between depreciation and capital allowances	6,988	10,094
Expenses not deductible for tax purposes	99	137
Effect of share option credit	(20,688)	(114,732)
Enhanced research & development expenditure	(126,366)	(70,911)
Adjustment in respect of prior year	690	-
Carried forward losses	433,791	360,346
Tax credit for the period	(294,165)	(200,108)

10 Loss for the financial period

As permitted by section 408 of the Companies Act 2006 the parent Company's profit and loss account has not been included in these financial statements. The parent Company's loss for the period to 30 September 2009 was £405,071 (2008: £36,937,596).

ENDFR MGMGZGFFGLZG