Plethora Solutions Holdings Plc Regulatory News (PLE)

29 March 2012

Plethora Solutions Holdings plc

("Plethora" or "the Company")

Preliminary Results for the year ended 31 December 2011

The Company announces its unaudited preliminary results for the year ended 31 December 2011.

Operational Highlights

§ Regained operational control of PSD502 for the treatment of premature ejaculation in Europe and RoW (ex USA & Japan). Addressable market estimated in G5 European territories to have annual revenue potential in excess of £300m;

§ Secured multiple product acquisitions for The Urology Co: Multi-Gyn, Multi-Mam and Gepan-Instill each driving revenue growth;

§ Increased revenues by The Urology Co: £181,000 (2010: £33,000) of which £120,000 in Q4 2011;

§ Strengthened the balance sheet through two financings of £2.91 million. Conversion of £1.66m of convertible loan notes resulting in a reduction in borrowings from £3.46 million to £2.65 million; and

§ Board & Management changes: Ronald Openshaw appointed CEO, Richard Horsman appointed non-executive director, Jim Mellon appointed non-executive director and became a 10% shareholder. 

Financial Highlights

§ Total income for the year was £214,000 (2010: £1,194,000). Loss for the year (excluding non cash exceptional item) of £3,120,000 (2010: £1,403,000); and

§ Cash resources at 31 December £985,000 (2010: £756,000). Total borrowings were £2.65 million (2010: £3.46 million).  

Outlook

As we progress into 2012 we are encouraged by the progress made to date and we set out recent successes and near term objectives in respect of PSD502 and The Urology Co.  

§ PSD502

§ Preparation of the dossier for PSD502 is well underway and submission to the European Medicines Agency expected in H1 2012.

§ The Pre-Submission Meetings have confirmed the quality of dossier. As a result we are increasingly confident that approval will be granted after submission.

§ Key objective is to secure a major pharmaceutical company to launch the product. Discussions have commenced with multiple parties.

§ The Urology Co

§ Q1 2012 revenues to show approximately 25% growth from £120,000 in Q4 2011 to £150,000 in Q1 2012.

§ Over the course of 2012 our business development team will continue to seek to secure additional products to drive revenue growth and in due course profitability.

Ronald Openshaw, CEO said:

"2011 was a challenging year during which we made significant progress. We regained control of PSD502, raised money in difficult conditions and secured Multi-Gyn, Multi-Mam and Gepan driving The Urology Co's growth. We can report that 2012 has started well. The Company remains on track to file PSD502 on schedule in H1 2012 - and the results of the Pre-Submission Meetings give us confidence for the future. As we close Q1 we can clearly see the tangible growth we were anticipating from The Urology Co. We achieved this with our shareholders' support and are grateful for their commitment. We hope that shareholders will benefit further as we move the regulatory processes for PSD502 forwards and deliver further growth in The Urology Co."

Enquiries:

A copy of the preliminary results announcement will be available on the Company's website at www.plethorasolutions.co.uk.

About Plethora:

Plethora is focussed on the development and marketing of products for the treatment of urological disorders. The Company isfocussed on: (i) driving the development of its speciality sales and marketing business, The Urology Company; and (ii) seeking to increase the value of its development assetsthe most advanced of which is PSD502 for the treatment of premature ejaculation.

Plethora's subsidiary, The Urology Company Limited, established in 2009, markets and distributes a range of pharmaceutical products, pharmaceutical specials, medical devices and nutritional supplements for the treatment of urology, sexual health, gynaecology and reproductive health conditions. Its products fall into two categories (i) Professional - where a physician, nurse or other healthcare professional makes a prescribing decision and include Striant® SR, Urolieve®, Hyalofemme® and Dianatal®; and (ii) Consumer - where the consumer/patient makes a buying decision and include Hyalofemme®, Multi-Gyn®, Multi-Mam® and hI-Cran®.

The Company is headquartered in the UK and is listed on the London Stock Exchange (AIM: PLE.L). Further information is available at www.plethorasolutions.co.uk and www.theurologyco.com

Plethora Solutions Holdings plc

("Plethora" or "the Company")

Preliminary Results for the year ended 31 December 2011

CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT 

Summary

Over the course of 2011, Plethora has made significant progress towards its strategic objective of becoming a leading urology and sexual health speciality pharmaceutical company and we are pleased to report that this progress has continued into 2012.

The key highlights of 2011 include: 

§ Regaining operational control of PSD502 for the treatment of premature ejaculation in Europe and RoW; 

§ Securing multiple product acquisitions for The Urology Co;

§ Delivering increased revenues by The Urology Co;

§ Strengthening the balance sheet; and

§ Completing certain Board & Management changes. 

PSD502 for the treatment of premature ejaculation 

Introduction

In September 2011, the Company announced that it had entered into an agreement with Shionogi to regain operational and economic control of PSD502. Plethora now controls the commercialisation of PSD502 in Europe and the Rest of the World (excluding the USA, South America, Japan, Korea, China and Taiwan).

Plethora has commenced the process to obtain the regulatory approval of PSD502 with the European Medicines Agency. 

As a result the value attributed to PSD502 has, in the board's opinion, increased substantially.  

Background

PSD502 is a novel proprietary treatment for premature ejaculation, sometimes referred to as "PE". PSD502 was conceived by the Company's founder Dr Mike Wyllie and under his leadership has moved from concept to successful completion of clinical trials required for regulatory submission.  

The International Society of Sexual Medicine (ISSM) provides a clinically-diagnosed definition of PE, "a male sexual dysfunction" characterised by: (i) ejaculation that always or nearly always occurs prior to or within about one minute of vaginal penetration; (ii) the inability to delay ejaculation on all or nearly all vaginal penetrations; and (iii) negative personal consequences such as distress, bother, frustration and/or the avoidance of sexual intimacy. The ISSM provided a measure to evaluate PE by studying intra-vaginal ejaculation latency time (IELT).

For the purposes of regulatory evaluation of potential drug candidates the ISSM concluded that the definition should be restricted to IELT of less than or equal to 1 minute. 

Clinical Data

Plethora designed its pivotal clinical studies based on the most stringent definition of PE (patients having an IELT before treatment of less than 1 minute). In 2009 the Company completed two placebo controlled Phase III studies. These two pivotal trials showed a clinically and statistically significant improvement in average IELT from baselines of 32 and 34 seconds to average IELT of 2 minutes 37 seconds and 3 minutes 51 respectively.

In addition, the Company also generated additional clinical data from questionnaires or "patient reported outcomes". This studied the response from both patients and their partners. This again showed a clinically and statistically significant result. Importantly the data show, for both the patient and his partner, that PSD502 produced a reduction in their distress, and an increase in sexual control, sexual satisfaction and improved interpersonal relationships. In particular, the response from the patient's partner is highly encouraging, demonstrating the benefit of PSD502 to both parties.  

To date the Company has spent approximately £20m on PSD502 in bringing the product from concept to successfully completed Phase III trials. However, the Company has already recovered £18.8m of this in licensing income. A recent analysts report recently valued PSD502 in the Company's hands on an NPV basis at £48m. 

Regulatory Filing 

Following signature of the agreement with Shionogi in September the Company has progressed the filing of the dossier with the European Medicines Agency (the "EMA"). The dossier will eventually run to several thousand pages of information on the drug, its manufacturing, clinical and non-clinical studies. We are pleased to report that the process remains on target for filing the dossier in H1 2012.  

In March 2012, the Company announced that it had successfully completed the Pre-Submission Meetings with the Rapporteur and Co-Rapporteur. As part of the approval process Plethora submitted an 88 page Briefing Package to both the Rapporteur and Co-Rapporteur. The Pre-Submission Meeting was the first opportunity regulators have had to review information which will be submitted on PSD502 in the full dossier. The Briefing Package, which is in essence a summary of the complete dossier, was reviewed by the agencies prior to the meetings and the Company answered questions on its contents during those meetings. The Briefing Package was reviewed and all sections, including non clinical, clinical and manufacturing, were found to be entirely consistent with all regulatory requirements for submission of a registration dossier. The Board believes this is an important step towards the approval of PSD502.

Commercialisation 

Independent epidemiological analysis shows that premature ejaculation affects as many as 20-30% of men worldwide. With a European male adult population between 18 and 65 years old in the UK, Germany, France, Italy and Spain only in excess of 100 million men, it is clear that the target market is potentially very significant. The board estimates that in these territories alone product revenues could be of the order of £300m per annum. Analysts have commented that an effective treatment for PE could create a product with potential as large as the treatments for erectile dysfunction, such as Viagra and Cialis.

Although Priligy has been approved in certain EU countries, it has not proven to be a great commercial success, largely due to limitations in the product's clinical performance. Alternatives are selling only in modest quantities. As a result the board believes that at present there is no commercially effective product on the market. 

As was the case with erectile dysfunction (ED) 15 years ago, there is a lack of recognition of PE as a medical disorder. As exemplified by the arrival of Viagra in the market, this has much to do with the absence of an effective therapy. The incidence of PE has indeed been estimated to be larger than the incidence of ED and therefore healthcare analysts estimate that a commercially effective product could deliver revenues similar to that of the erectile dysfunction treatments. 

To exploit this potential the Company believes that it is essential to secure the support of a major pharmaceutical company, with the marketing resources to reach effectively the target healthcare professionals. The commercialisation strategy is likely to adopt the following path: 

§ First to establish the clinical benefit of the product with specialist physicians for the treatment of life long PE and establish the product as the Gold Standard for treatment of this condition; 

§ Second to increase awareness of the disorder and expand the market to the primary care physician and drive adoption. During this phase we expect to see PSD502 create the awareness and remove the stigma of PE in the public's mind, much the same as Viagra did with ED 15 years ago; and 

§ Finally, when the usage data permits we expect that the product, with regulatory approval, will become available in the OTC market potentially via the "branded generic" route.  

Part of our strategy in forming The Urology Co was our aspiration to retain co-promotion rights to PSD502 on launch. Regaining operational control last year has assisted this objective and it is our intention to retain co-promotion rights wherever the Group has a sales presence.  

At the present time the Group can confirm that early stage talks have commenced with a number of potential commercialisation partners. Given the nature of these talks no specific guidance can be given as to when a partner can be secured. Further announcements will be made in due course as appropriate. 

The Urology Co

The Urology Co is the Group's specialty sales and marketing business in urology, gynaecology, reproductive and sexual health. The Urology Co has both "Professional" (generally prescription) and "Consumer" (generally OTC) healthcare products. The Urology Co was founded in late 2009 and became operational in 2010, having made Urolieve (formerly PSD597) available for sale in compliance with the "Specials" legislation, in-licensed certain products (Striant SR) and signed exclusive UK distribution agreements (for MultiGyn, MultiMam, Gepan Instil and Dianatal).  

In Q4 of 2011 The Urology Co was generating revenue at a run rate of approximately £0.5m annually, and we believe that even without any further acquisitions this business has the potential to grow to multiple millions of pounds in revenue annually. The Urology Co has a niche UK sales force and a tightly controlled cost base. Consequently it should deliver strong profit growth and cash flow as revenues grow.

 Since the start of 2011 The Urology Co has achieved the following milestones. 

§ Striant SR - in March 2011, Plethora announced that it had entered into an agreement with Columbia Laboratories to expand its relationship from being the UK distributor of Striant SR to licensing it for all European territories. Striant SR is a testosterone replacement product and has a unique patent protected (2019) delivery system. 

§ Hyalofemme - in April 2011 the Company announced that it had been granted approval by the UK NHS Business Services Authority for reimbursement of Hyalofemme under an NHS prescription. 

§ North51 - in May 2011 Plethora announced that it had entered into an agreement with North51 to provide a contract sales force. As a result the Company now has coverage across all the major UK conurbations. 

§ BioClin MultiGyn & MultiMam - in June 2011, the Company announced that it had become the UK exclusive distributor for the MultiGyn and MultiMam product ranges. The MultiGyn range treats a number of conditions causing vaginal discomfort and the MultiMam range treats discomfort experienced by breast feeding mothers. These products were previously launched in the UK and The Urology Co was chosen to grow UK sales. The Company took over distribution effective 1 September 2011. 

§ Gepan-Instill - on 20 January 2012, the Company announced that The Urology Co had become the UK exclusive distributor for Gepan-Instill, a GAG-repair product for the treatment of chronic pelvic pain conditions including interstitial cystitis, painful bladder syndrome, radiation cystitis, and chronic recurrent cystitis.  

Board & Management Changes

In January 2011, Plethora announced that Dr Steven Powell was being granted an extended period of leave due to a serious medical condition and that Ronald Openshaw had been appointed interim CEO of the Company. In May the Company announced that Dr Powell had by mutual agreement resigned as a director and stepped down as CEO. We are pleased to report that Dr Powell is recovering and wish him well. He was crucial to the Company's early development and the board thanks him for his contribution.  

In February 2011, the Company announced that it had appointed Richard Horsman as a non-executive and senior independent director of the Company. Mr Horsman was previously CEO of Cybit Holdings plc a company he grew and eventually sold.  

In January 2012 it was announced that Ronald Openshaw had been appointed CEO on a permanent basis and that he would also fulfil the role of CFO for the foreseeable future.  

In January 2012, the Company announced that it had appointed Jim Mellon as a non-executive director of the Company. Mr Mellon is a renowned fund manager and is co-founder of Regent Pacific Group and Charlemagne Capital Limited. Mr Mellon has an indirect interest in 10% of the capital of the Company as a result of his supporting the company during its fund raising. 

Financial Results

Total income for the year was £214,000 (2010: £1,194,000) comprising sales revenue from The Urology Co £181,000 (2010: £33,000) and other operating income £25,000 (2010: £89,000). In 2011 the Group recorded £8,000 (2010: £1,072,000) as reimbursement income in respect of PSD502 from Shionogi. As a result turnover for the year is £189,000 (2010: £1,105,000). 

Revenues from The Urology Co were £181,000 (2010: £33,000) and showed significant growth, much of which was delivered in the Q4 2011, where revenue was approximately £120,000. This was particularly as a result of the distribution agreements for MultiGyn, MultiMam and Gepan-Instill. Based on these revenues The Urology Co generated Gross Profits of £37,000 (2010: £9,000) after accounting for an inventory provision of £39,000. Operating costs for this business were £1,372,000 (2010: £861,000) and resulted in an Operating loss of £1,191,000 (2010: £828,000).  

The development activities of the Group are conducted through Plethora Solutions Limited and set out in the segmental analysis as Plethora Development. Reimbursement income received was only £8,000 (2010: £1,072,000). Operating costs of this business unit were £172,000 (2010: £24,000) principally relating to the commencement of the filing process for PSD502.  

The Group's General & Administrative Expense of £1,450,000 (2010: £1,322,000) remained broadly in line with the previous year. It is expected that these costs will fall in 2012 due to the reduced size of the management team and reduced property occupancy costs.  

Overall the Company recorded a loss for the year (excluding exceptional items) of £3,120,000 (2010: £1,403,000).  

At 31 December 2011, the Company had cash resources of approximately £985,000 (2010: £756,000). Trade & Other Receivables increased to £336,000 (2010: £205,000) and Inventories increased to £181,000 (2010: £165,000), net of provisions of £39,000 (2010: nil), both as a result of increased trading activity. 

At 31 December 2011, the principal sum of total borrowings was £2.65 million (2010: £3.46 million), the decrease being as a result of financing activities and the conversion of outstanding loan notes.  

Plethora completed two financing rounds in April and October 2011 raising £0.86 million and £2.05 million respectively. Also in October 2011, loan note holders converted £1.66m of convertible loan notes, resulting in a reduction in the principal amounts of the company's borrowings from £3.46 million to £2.65 million during the course of the year.  

Exceptional Item - Accounting treatment of convertible loan notes 

In October concurrent with the completion of the financing, £1,655,000 of the £2,445,000 outstanding loan notes were repaid through the conversion of the principal plus accrued interest to 86,946,731 new ordinary shares at 2.5p per share. The board concluded this was in shareholders' interests to reduce gearing and liquidity risk. 

The Board has complied with IAS32 Financial Instruments in respect of the presentation of the convertible loan notes. Under this standard the Company is required to recognise a loss of £1,738,000, being the difference between the 12.5p the original conversion terms were set at and the actual conversion value, multiplied by the 86,946,731 shares issued. This amount is accounted for in the income statement as a cost, however, at the same time a broadly equivalent gain is booked in reserves to materially cancel the cost booked. This charge has no impact on cashflow, or a material impact after the gain in reserves, on shareholders funds. 

The board has consulted at length with its professional advisors and has reached the conclusion that this treatment must be adopted to ensure compliance with IFRS. The board cannot apply any judgement on this matter irrespective of the effect on the financial statements. The board has considered the treatment of the conversion at length and concluded that the accounting treatment simply does not reflect the economic reality. This accounting method makes reference to an artificial and historic reference price to compute a loss, this affects the reported loss for the year and consequently EPS. The board has, however, presented the P&L account including and excluding this accounting adjustment.  

The board believes the required accounting treatment is not meaningful and is a consequence of academically-based standards which do not reflect the commercial rationale for this transaction. The board suggests that readers of the accounts focus attention, as it itself does, on the results of operations excluding exceptional items, disregarding this technical charge.  

Outlook 

The Company's strategy is to build a leading urology and sexual health focussed speciality pharmaceutical company. This business will generate revenue from products developed in house and licensed to third parties and from the sales of products via its subsidiary The Urology Co. As we progress into 2012 we are encouraged by the progress made to date and we set out recent successes and near term objectives in respect of PSD502 and The Urology Co.  

PSD502: 

§ Work on the preparation for the filing of the dossier for PSD502 is now well underway and the Company expects to submit this to the European Medicines Agency in the first half of this year.

§ The results from the Pre-Submission Meetings are important, as this was the first opportunity the regulatory agencies have had to comment on the quality of the dossier. As a result we are increasingly confident that approval will be granted.

§ Our objective is to secure a major pharmaceutical company to launch of the product and we can confirm that discussions have commenced with multiple parties. 

The Urology Co:

§ At the end of 2011 we signalled that revenue had grown significantly with £120,000 being generated in Q4. We can now report that Q1 revenues to show a 25% growth compared to the previous quarter to approximately £125,000. With continued hard work, the business established over the last two years is now delivering the results.

§ Over the course of 2012 our business development will continue to seek to secure additional products to drive revenue growth and in due course profitability. 

The support from the Company's investors was essential during 2011 and this has allowed Plethora to demonstrate the development and growth in 2011 and into 2012. We would like to thank the staff of the Company who have worked hard to deliver these results. 

Bill Robinson Ronald Openshaw

Chairman Chief Executive Officer

PLETHORA SOLUTIONS HOLDINGS PLC

Consolidated statement of comprehensive income - Unaudited

PLETHORA SOLUTIONS HOLDINGS PLC

CONSOLIDATED balance sheet - UNAUDITED

PLETHORA SOLUTIONS HOLDINGS PLC

CONSOLIDATED STATEMENT OF changes in equity - Unaudited

1 Presentation of financial statements

The financial information set out in this unaudited preliminary statement does not comprise the Company's statutory accounts within the meaning of section 434 of the Companies Act 2006. The statutory accounts of the Company for the year ended 31 December 2011, currently unaudited and to be published, will be finalised on the basis of the financial information presented by the Directors in this unaudited preliminary statement and will be delivered to the Registrar of Companies, in due course and will also be sent to shareholders.

Whilst the financial information included in this unaudited preliminary announcement has been prepared in accordance with EU endorsed International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs.

The financial information set out on this unaudited preliminary statement includes comparative figures that have been prepared on the same basis. The auditors have reported on the financial statements for the year ended 31 December 2010 which were prepared under IFRSs. Their report was unqualified and did not contain any statements under section 498 of the Companies Act 2006.

This preliminary statement was approved by the board on [29] March 2011.

2 accounting policies

Basis of preparation

These consolidated financial statements are prepared using the required measurement bases specified under International Financial Reporting Standards (IFRS) and in accordance with applicable IFRS as adopted by the European Union and in accordance with the Companies Act 2006.

Overall considerations

The significant accounting policies that have been used in the preparation of these consolidated financial statements are summarised below.

The consolidated financial statements have been prepared using the measurement bases specified by IFRS for each type of asset, liabilities, income and expense. The measurement bases are more fully described in the accounting policies below.

The accounting estimates and assumptions are consistent with the Group's latest approved budget forecast where applicable. Judgements are based on the information available at each balance sheet date. All estimates are based on the best information available to management.

Going concern

In considering the appropriate basis on which to prepare the financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future.

As at 31 December 2011, the Group had £985k of cash and cash equivalents.

The Directors have prepared detailed cash flow forecasts for the period to 31 December 2013, which show that the Group has adequate working capital for the forecast period. These cash flow projections assume that a number of as yet uncertain events occur including that The Urology Company achieves sales and earns margins broadly in line with budget; that certain of the planned capital management and financing activities are completed and that the Company's lenders do not withdraw any of its existing financing facilities and that the company receives royalty/milestone income in relation to PSD502 within the expected timeframes.

Consequently, the Directors have concluded that it is appropriate to prepare the Group's financial statements on the going concern basis, which assumes that the Group will continue in operational existence for the foreseeable future. Nevertheless, the circumstances described in the preceding paragraph indicate the existence of material uncertainties which may cast significant doubt on the Group's ability to continue as a going concern. In the event that some combination of the above events fails to occur as expected, the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.

Significant accounting estimates and judgements

Certain estimates and judgments need to be made by the directors of the Group which affect the results and position of the Group as reported in the financial statements. Estimates and judgments are required for example, as at the reporting date, not all liabilities have been settled and certain assets/ liabilities are recorded at fair value which requires a number of estimates and assumptions to be made.

The major areas for judgments within the financial statements are as follows:

• preparing the financial statements on a going concern basis; and

• inventory provisioning.

The reasons that the directors believe it is appropriate to prepare the financial statements on a going concern basis are set out above.

Judgment is required in determining required stock obsolescence provisions. Management take into consideration, the expiry date of inventory on hand as well as actual, committed and forecast sales revenues in making these determinations.

There are no other major areas of estimation.

3 segmental reporting

At 31 December 2011, the Group is organised into two main business segments: the development of new pharmaceutical products known as "Plethora Development" and the sale and marketing of pharmaceutical and healthcare products in the UK and continental Europe known as "The Urology Co". Unallocated costs represent shared property costs, in addition to background support services, such as finance, IT and marketing, and corporate expenses which cannot be directly attributed to either business segment.

The Group operates from a single geographical area, namely the United Kingdom.

The comparative table for the segmental reporting in 2010 has been restated to bring this in line with the disclosure provided in 2011.

4 Exceptional items

In October concurrent with the completion of the financing £1,655,000 of the £2,445,000 outstanding loan notes were repaid through the conversion of the principal plus accrued interest to 86,946,731 new ordinary shares at 2.5p per share.

The Board has complied with IAS32 Financial Instruments in respect of the presentation of the convertible loan notes. Under this standard the Company is required to recognise a loss of £1,738,000 being the difference between the 12.5p the original conversion terms were set and the actual conversion value, multiplied by the 86,946,731 shares issued. This amount is accounted for in the profit and loss account as cost, however, at the same time a gain is booked in reserves to cancel the cost booked. This charge has no impact on cashflow, or after the gain in reserves on shareholders funds.

5 LOSS PER SHARE

The calculation of the basic and diluted loss per share is based on the loss on ordinary activities after tax and on the weighted average number of ordinary shares in issue during the year. The earnings and weighted average number of shares used in the calculations are set out below:

Basic loss per share is calculated based on a weighted average number of shares in issue of 89,880,265 (2010: 43,815,650). Diluted earnings per share takes into account the dilutive effect of share options to the extent they are in the money and convertible loan notes. The dilutive effect on the loss per share in 2010 is not shown as the effect on the loss per share of share options and convertible loans is anti-dilutive on the loss.

6 Trade and other RECEIVABLES

7 current liabilities : trade and other payables

Due to the short term duration of trade and other payables the carrying value in the balance sheet represents the fair value of the liabilities.

8 borrowings

The future contractual payments of principal for convertible loan notes and third party borrowings are as follows:

(i) Convertible Loan Notes Due 2012

During 2011, the Company converted £1,655,000 (plus accrued interest of £519,000) of its £2,455,000 outstanding Convertible Loan Notes, through the issue of 86,946,731 new ordinary shares. The conversion was done at the prevailing share price of 2.5p and resulted in a reduction in the principal of Convertible Loan Notes 2012 from £2,455,000 to £800,000.

The terms of the outstanding Convertible Loan Notes Due 2012 remain unchanged and include: maturity 31 December 2012; coupon 13% per annum, accrued until maturity; convertible into new ordinary shares at 12.5p per share; secured by first charge over the Company's assets; repayable by the Company at any point post issuance; convertible by the Company after 31 December 2010 provided the Company's share price is 25% greater than the conversion price for the preceding 60 days prior to conversion.

Under IFRS £112,000 (2010: £224,000) of the Convertible Loan Notes Due 2012 is regarded as equity and is recorded in the convertible loan note reserve. In addition, amounts were recorded as notional interest and as a loss on the restructuring of the Merlin Notes and the Institutional Notes.

The following non-IFRS disclosure shows the effect of the accounting treatment.

(ii) CfE Loan Due 2015

On 29 June 2010 the Company entered into a £1,000,000, five year secured term loan ("CfE Loan") with Capital For Enterprise Fund A L.P. ("CfE Fund"). The CfE Loan will be repayable by 29 June 2015. However, the Company may, at its option, repay part, or all, of the loan ahead of the maturity date. During the year the Company received a waiver from the CfE fund which remedied technical breaches of a financial covenant. Interest accrues on the loan at 10% per annum. The loan agreement provides for the Company to pay a premium on repayment of the loan. This premium is fixed at either 20% of any amounts repaid in the first 3 years or 25% in years 4 or 5 or at maturity. The CfE Fund has also been granted a warrant to acquire new ordinary shares in the Company at nominal value. The number of shares issuable under the warrant is the lower of 3% of the Company's fully diluted share capital, or such number of shares as equals £500,000 at the then prevailing market price. The warrant is only exercisable at an Exit Event, as defined in the loan agreement.

The following non-IFRS disclosure shows the effect of the accounting treatment.

(iii) Galloway Loan Due 2015

On 20 October 2011 the Company entered into a £850,000 secured term loan ("Galloway Loan") with Galloway Limited. The Galloway Loan will be repayable on 30 June 2015. However, the Company may, at its option, repay part, or all, of the loan ahead of the maturity date. Interest accrues on the loan at 10% per annum. The loan agreement provides for the Company to pay a fixed redemption premium of 25%. Galloway Limited has also been granted a warrant to acquire new ordinary shares in the Company at nominal value. The number of shares issuable under the warrant is the lower of 5% of the Company's fully diluted share capital, or such number of shares as equals £1,500,000 at the then prevailing market price. The warrant is only exercisable at an Exit Event, as defined in the loan agreement.

The following non-IFRS disclosure shows the effect of the accounting treatment.