Proteome Regulatory News (PRM)

29 Jun 2007 08:00

Proteome Sciences PLC ("the Company")

29th June, 2007

RESULTS FOR THE YEAR ENDED 31st DECEMBER 2006HIGHLIGHTS - Commercialisation

- Allowances for TMT1 and TMT2 patents for isobaric tandem mass tags in US and

Europe.

- Substantial revenues should be generated from licence payments, back-licence

payments, product sales and royalties for the manufacture and use of any type

of isobaric mass tags. - Market for isobaric tandem mass tags growing disproportionately fast.

- Biological reference materials - new consumable products for TMT in high volume

/high value applications for clinical trials and compound development. - Multiplex assays using proprietary tags can be developed quickly and inexpensively.

- Broad mass spectrometry user base to open up significant new revenues and

markets. - Targeting to have licences concluded and TMT products launched in 2007. - Three licences announced for high throughput screening in stroke.

- Discussions with other global top twenty clinical diagnostics companies.

- NDKA - new blood biomarker for early diagnosis, treatment and management of

stroke. - Grant of FABP patents for stroke in US and Europe. - Novel biomarkers in colorectal cancer and AD.

- Highly accurate quantitative TMT‚® sixplex data from plasma samples of renal

rejection. - ProteoSHOP‚®

- ProteoSHOP‚® marketing campaign continued.

- Strong levels of interest will be reflected in revenue in the first half of

2007.

- Cross-platform protein validation increases coverage and data confidence.

- Veri-Q Inc.

- Development of further antibodies against the de-protecting groups underway.

- High profile scientific papers in Analytical Biochemistry and Nucleic Acid

Research. - Intronn Inc.

- Issuance of SMaRT‚® patents in US, Europe, Australia and Canada.

- NIH grant awarded for SMaRT‚® with RNAi.

- In-vivo proof of principle for haemophilia.

- Seeking the right strategic partner/alliances for clinical and commercial

development and funding for clinical trials.

- Financial

- Headline loss (excluding non-cash items and associates) ‚£4.66m (2005 : ‚£4.17m).

- Loss after tax ‚£6.38m (2005 : ‚£6.90m).

- Net cash outflow from operating activities ‚£4.47m (2005: ‚£4.91m).

- Cash balance ‚£0.30m (2005 : ‚£2.59m).

- Additional ‚£4m working capital provided by loan facility from CEO

- Consistent and predictable cash burn expected.

- Current Outlook

- Highest short term priority is to complete the out-licensing of TMT‚® and have

TMT‚® products launched in 2007.

- Earlier stroke biomarker research licenses should convert into full commercial

licenses - Licensing activity in Alzheimer's disease biomarkers.

- Benefits of the addition of TMT‚®, biological reference materials and MRM to

ProteoSHOP‚® to be seen in revenue in the first half of 2007.

- Ideally positioned to exploit the strong growth projected for biomarkers and

isobaric tandem mass tagging and to convert it into revenue and profits.

Commenting on these results, Christopher Pearce, Chief Executive of Proteome Sciences, said:

"We are delighted to have now obtained allowances for our TMT‚® patents thatprovide us with broad protection for the manufacture and use of any type ofisobaric mass tags. The market for isobaric tandem mass tags is growingdisproportionately fast and we expect to generate substantial revenues fromlicence payments, back-licence payments, product sales and royalties for TMT‚®and it is our intention to have TMT‚® products launched and to complete theoutlicencing process in the second half of the year. Our ProteoSHOP‚® activities have benefited from the expanded technicaldevelopments and applications from the addition of TMT‚®, biological referencematerials and MRM that will, for the first time, take us into high volume/highvalue applications for clinical trials and compound development. This will bereflected in ProteoSHOP‚® revenue in the first half of 2007. With a substantial number of patents granted and new applications filed overthe period covering discoveries made across a range of different diseases, weexpect to see further licencing activity for our biomarkers. We are optimisticthat the earlier research licences in stroke should convert into fullcommercial licences when their integration processes are coming to completionlater this year. This should be reflected through significant licence fees

androyalties. With a similar pattern of cash burn expected and the prospect of substantialrevenue being derived from TMT‚®, ProteoSHOP‚® and our biomarker portfolio, weare ideally positioned to exploit the strong growth projected for biomarkersand isobaric tandem mass tagging and to convert that potential into revenue

andprofit." ENDS

Attached: Full text of Chairman's statement, consolidated profit and loss account, consolidated balance sheet, consolidated cashflow statement and notes to the financial information.

For further information please contact:

Proteome Sciences plcwww.proteomics.com Tel: +44 (0)1932 865065

Christopher Pearce, Chief Executive

Email: christopher.pearce@proteomics.com

James Malthouse, Finance Director

Email: james.malthouse@proteomics.com

Public RelationsIKON Associates Adrian Shaw Tel: +44 (0)1483 535102 Mobile: +44 (0)797 9900733 Email: adrian@ikonassociates.com Coast CommunicationsMatt BaldwinTel: +44 (0)1233 503200Mobile: +44 (0)7930 439739Email: matt@coastcommunications.co.uk Nominated AdviserTeather & Greenwood Tel: +44 (0)20 7426 9000

Gareth Price / Thilo Hoffman

Notes to Editors:

Proteome Sciences plc applies high sensitivity proteomics to identify and characterise differential protein expression in diseases for diagnostic, prognostic and therapeutic applications. It has discovered blood biomarkers principally for stroke, vCJD, BSE, brain damage, solid organ transplant rejection and Alzheimer's disease. The main focus of its research currently addresses neurological, neurodegenerative, oncology and cardiovascular conditions.

In addition to its own proprietary biomarkers, Proteome Sciences has developedProteoSHOP‚® (Proteome Sciences High Output Proteomics), a toolbox that offershigh sensitivity and high throughput gel and gel-free proprietary technologiesfor the identification and validation of potential biomarkers and drug targets,including specialisation in membrane proteins and protein phosphorylation. The Company has developed a range of specialist reagents to improve theperformance and quantitation of protein separation and characterisation withmass spectrometry, bioinformatics, statistics and pattern recognition. Theseinclude Sensitizer‚®, PST‚®, qPST¢â€ž¢ and TMT‚®. Proteome Sciences has patentallowances in the major global jurisdictions for isobaric tandem mass tags (TMT‚®) for the manufacture and use of any type of isobaric mass tags.

Commercialisation is actively pursued across the portfolio of the Company's programmes and technologies with licensing deals signed in biomarkers for Stroke and TSEs and for ProteoSHOP‚®.

Proteome Sciences has its headquarters in Cobham, Surrey in the UK and has laboratories at Kings College Hospital, London and Frankfurt Innovations Zentrum (FIZ), Frankfurt. It employs 32 full time scientists in addition to its corporate and business development staff, and has collaborative research agreements with leading academic institutes. The Company is listed on the Alternative Investment Market.

Chairman's Statement

For the year ended 31st December 2006

Dear Shareholder,

I am pleased to report that good progress has been made in the year under review, a period in which considerable advances have been made commercially, scientifically and in the company's intellectual property portfolio. This momentum has continued into 2007.

The profile of and interest in biomarkers has grown rapidly on the back of theUS FDA's Critical Path Initiative and the major clinical problems which haveresulted in a number of major drug withdrawals. Industry estimates forecastthat the biomarker market is expected to quadruple to around $21.2bn by 2012from just over $5.4bn in 2005. Proteome Sciences should be particularly wellplaced to exploit the prolific growth projected from biomarkers, having itscore activities centred on biomarker discovery and, in particular, on biomarkervalidation.

The rapid expansion and acceptance of isobaric tandem mass tags to deliverquantitative mass spectrometry has provided the ideal backcloth against whichProteome Sciences has obtained allowances for its TMT1 and TMT2 patents andshould enable it to conclude commercial licences for the manufacture and use ofany type of isobaric tandem mass tags (TMT‚®). Completion of the TMT‚® licencesremain our highest short term priority and the grants of the TMT1 and TMT2patents put the company in an outstanding position to generate substantialrevenues from a combination of licence payments, back-licence payments, productsales and royalties. The market for isobaric tandem mass tags continues togrow disproportionately fast and earlier estimates of the revenue that may begenerated over the patent lives appear to have considerably underestimated thescale and importance of quantitative mass spectrometry. An extensive marketing campaign was launched for ProteoSHOP‚® in the secondquarter of 2006 and this has resulted in a strong level of enquiries andcontracts under discussion that will be reflected in revenue in the first halfof 2007 and beyond. The marketing efforts have been augmented again in thecurrent year, with attendances and presentations more focussed towards the mainbiomarker and mass spectrometry conferences and meetings. In biomarkers, further research licences were concluded in stroke and anothertwo licences were announced in high throughput screening (HTS) in the firsthalf of the year with two of the top ten global companies in clinicaldiagnostics (BioMerieux was one) and a subsequent research licence agreementwith another global diagnostics player was concluded in the second half of2006. The remaining in-vitro diagnostics companies in the global top twentyhave been targeted and, as some of the earlier research licences may convertinto full commercial licences later in the year, further and additionallicences and licencees are expected.

In 2006, 25 patents have been granted including oesophageal cancer, acute rejection, protein sequence tags, sensitizer and tandem mass tags, and new patent applications have been made for discoveries made in colorectal cancer, renal rejection, brain damage, stroke, Alzheimer's disease and tandem mass tags.

ReagentsNot surprisingly, over the last year the rapid expansion and acceptance ofisobaric tandem mass tags has attracted considerable interest from the field ofresearch and shareholders alike. In the short term, the commercial priorityfor our company is concentrated on Tandem Mass Tags‚® and the different streamsof revenue that will be generated principally from the TMT‚® reagent products onone side and from licencing the intellectual property relating to the field ofisobaric mass labelling on the other. The TMT‚® isobaric tandem mass tagging has advanced considerably over the lasttwelve months. A duplex reagent was initially developed that is complementedby TMTzero and a fully functioning six-plex set of mass tags. The six-plextags provide accurate differential quantitation of protein expression in sixsamples simultaneously within one experiment. Powerful data using TMT‚®six-plex in complex samples of human plasma in renal transplant rejection waspresented at the 7th Siena Meeting, 'From Genome to Proteome : Back to theFuture', in September 2006.

New and different applications for TMT‚® have been, and continue to be, developed. At the Biomarker World Congress in Philadelphia, USA in May 2007 Proteome Sciences demonstrated the use of Tandem Mass Tags‚® to generate universal biological reference materials, a novel application for isobaric tandem mass tags for which further patent applications have been filed.

This heralds a range of universal reference materials based on TMT‚®, thedevelopment of which has been validated with complex human samples to showdramatic improvements in the reproduceability and comparability of proteomicsstudies for biomarker discovery. Biological reference materials for exact andreliable absolute quantitation for biomarker validation and measurement havealso been demonstrated that will add to this growth. In light of thesedevelopments, TMT‚®, for the first time, can now be applied as a consumableproduct in the high volume/high value applications in clinical trials andcompound development/testing. Highly specialist skills are required to undertake protein separation andidentification for biomarker discovery. Notwithstanding these, the realbottleneck hampering most biomarker studies is no longer the discovery processbut the ability to undertake biomarker validation efficiently and in a timelyand effective manner. Using chemical mass tags and peptide synthesis,ProteoSHOP‚® is now able to provide proprietary solutions to these issues. Thecost and timescales for developing multiplex assays in drug developmentrestrict the use of antibody methods, which typically can cost between $1 and$3m per protein and take between 18 to 36 months to implement. ProteomeSciences has established and presented strategies for new multiplex assaysusing proprietary chemical tags that can be developed quickly (in three months)and inexpensively. These provide high value applications to a very broad massspectrometry user base and with the ability to measure a number of biomarkerssimultaneously. This will address and open up substantial new revenues andmarkets. Since December 2006, the encouraging progress reflected in the patentprosecution process for TMT1 and TMT2 has been crystallised with the grants and/or allowances of TMT1 patents in the US, Europe and Canada and the grants forTMT2 in Europe and Canada. The allowances of these patents in the US andEurope have provided Proteome Sciences broad claims across the field ofisobaric tandem mass tagging with the ability to exploit TMT‚® in thesesubstantial markets, both as a product in its own right and for third partylicences for the manufacture or use of any type of isobaric mass tags. Initial estimates for isobaric tandem mass tags in 2005 projected sales intohundreds of millions dollars over the TMT‚® patent lives. These figures appearconservative and with three products currently available, the market continuesto grow at a rapid pace and may have already increased to between $600m and$1.4bn. The latest patent grants should now enable Proteome Sciences tocomplete commercialisation of TMT‚® through outlicencing and thus to generatestrong revenue through licence income, product sales and royalties. The goalis to have licences concluded and to have TMT‚® products launched in the marketin the second half of the year.

Biomarkers

The proprietary research undertaken internally and through collaborativepartners is applied to discover and validate a broad portfolio of biomarkersfor diagnostic and prognostic uses in major human and veterinary diseases, forthe evaluation of new compounds and for measuring and monitoring the efficacyof treatment. In stroke, two research licences for high throughput screening (HTS) wereannounced with top ten global companies in clinical diagnostics in the firsthalf of 2006, one of which was BioMerieux. A further research licenceagreement with another global diagnostics player was reported in September,taking the number of stroke licences concluded to date to four. It is expectedthat these earlier research licences may convert into full commercial licenceswhen the testing and integration processes are completed later this year, andfurther additional licences and licencees are anticipated with the remainingglobal top 20 diagnostics companies. Good new data has been generated from therecently sourced stroke and stroke mimic samples to validate further existingbiomarkers and to identify additional biomarkers for inclusion on the HTSstroke panels. A new biomarker in blood, NDKA, that discriminates stroke froma range of mimic pathologies, correlates with the clinical outcome of patientsand could further improve the performance of our stroke panel for stroketreatment and management. Patents were granted in the US and Europe in December 2006 and January 2007respectively for 'Diagnostic Assay for Stroke' by measuring the levels of heartfatty acid binding protein or brain fatty acid binding protein (FABPs, two ofour proprietary biomarkers found in the blood of stroke patents). This wasfurther validation of the patentability of proteomic biomarkers in the twolargest economic markets and underpins the value and importance of ProteomeSciences' extensive intellectual property portfolio in biomarkers. This willenhance the continuing licensing process and should stimulate a number of othermajor global players in clinical diagnostics to include and develop ourbiomarkers as in-vitro diagnostic tests. The research effort in brain diseases using cerebrospinal fluid has been highlysuccessful with the identification of approximately 200 novel candidatebiomarkers with potential applications across a diverse range of braindisorders. A targeted approach to extend and leverage this valuable resourceis underway. The data, results and intellectual property from this researchshould create outstanding opportunities for commercial exploitation over manyyears which will arise from research reagents and disease specific diagnosticand prognostic markers. A study demonstrating the power of the TMT‚® sixplex isobaric tandem mass tagsfor biomarker discovery using mass spectrometry was undertaken in plasma fromrenal transplant samples. This demonstrated the power and accuracy of relativequantitation across several hundred proteins and resulted in the discovery ofnovel differentially expressed biomarkers that confirmed and extended thevalidation of results previously announced and added significantly to thecandidate biomarkers discovered from an earlier 2-DE study. The advantage of the TMT‚® sixplex was that it identified a greater number ofnovel candidate biomarkers of renal transplant rejection and provided directquantitative comparison of protein abundance when compared with the previous2-DE study of the same samples. This confirms the power and utility ofisobaric mass labels for the rapid discovery and validation of biomarkers andthe impact that they will have on the future of proteomics. In Alzheimer's disease (AD), Proteome Sciences co-authored a high profilepublication in the peer reviewed journal 'Brain' with Kings College, Instituteof Psychiatry, London that confirmed the identification of two proteinbiomarkers in blood from a 500 patient study in the UK. This has been followedby another study comparing 50 disease versus 50 control patients using acombination of three different proteomic approaches that has revealed 36differentially expressed proteins in blood, ten of which were common to morethan one method. These are being evaluated for their utility to diagnose andmonitor AD progression.

Following the previous identification of 37 tau phosphorylation sites, a virtual library of small molecule 'hits' was built to validate the new targets. A selection of compounds with drug-like properties has been established and the subsequent stage will involve testing the compound activities.

From the vCJD programme, patents have been filed for plasma protein markers invCJD and Huntington's disease and a patent filed for a novel test identifyingdisease specific peptide fragmentation. These protein markers are beingfurther validated as are the large set of BSE samples, where candidatebiomarkers are being assessed for suitability for panel inclusion. In lung and oesophageal cancer research, Proteome Sciences has developed aquality-controlled immunohistochemical assay for assessing the levels ofAnnexin 1 and 2 protein expression in tissue from patients with various typesof lung cancer. The expression of Annexins in non-small cell lung cancers mayprovide an important new diagnostic for the early identification of tumourcells from lung biopsies compared with normal cells and for inflammatory cellsmigrating to the lung. Plasma samples have been received and processed frompatients with colon cancer to be added to and to further validate the 22differentially expressed proteins discovered in tissue earlier in the year.

ProteoSHOP‚®

The development and availability of qPST to increase the coverage of proteinsin combination with 2-DE in the second quarter of 2006 was the catalyst toembark on an extensive marketing campaign for ProteoSHOP‚®. Moving into 2007this process has been augmented by the introduction of a family of TMT‚®isobaric tandem mass tags (TMT‚®zero, TMT‚®duplex and TMT‚®sixplex) and theintroduction of TMT‚® calibrator for absolute quantitation withmultipoint-calibration, TMT‚® labelled reference materials and TMT‚® with MRM toaccelerate biomarker candidate evaluation for clinical diagnostics,pre-clinical and clinical drug development and systems biology approaches. The benefits of the expanded technical developments and applications will bereflected in the revenue line in the first half of 2007 and we expect that theadditional interest generated will convert into further ProteoSHOP‚® strategicalliances and contracts. In April 2007, a ProteoSHOP‚® research contract wasannounced with Onconome Inc for the analysis of prostate and colon cancermaterials. A co-marketing agreement was announced in March 2006 with Medical Solutionsplc, a company specialising in immunohistochemistry with automated imageanalysis in histopathology. The combination of the two companies complementarytechnologies provides customers with a one-stop-shop from biomarker discoverythrough to implementation in diagnostics and drug development.

Veri-Q

No material events of significance have taken place at Veri-Q since last September.

The quality of oligonucleotides is often compromised by the incomplete removal(de-protection) of certain chemical groups required for proper chemicalsynthesis which creates inaccurate and misleading results. Veri-Q has shownthat the presence of these impurities also has a substantial effect on theperformance of gene expression analysis using microarrays. Two high profile scientific papers have now been published, one in NucleicAcids Research 'Assessing incomplete deprotection of microarrayoligonucleotides in situ' and the second, in Analytical Biochemistry entitled'Quality assessment of commercial small interfering RNA and DNA : Monoclonalantibodies and a high-throughput chemiluminescence assay'. The content ofthese articles, and pilot projects undertaken highlight the prospects of theseQC reagents and should accelerate the outlicencing process for RNAi and DNAmicroarrays. The programme to develop further antibodies against thedeprotecting groups is underway and this process should be concluded shortly. Intronn

Since the publication of the interim results, steady progress has continued through 2006 into the current year. This follows the outstanding performance of the science in the previous year with in-vivo proof of principle for dyslipidemia, AAT and haemophilia nearly 12 months ahead of schedule.

With the development of the high throughput screen and the in-vivo proof ofprinciples completed for SMaRT‚®, the research was focused accordingly tocontain costs by moving to smaller facilities and to make Intronn selfsufficient from grants and its other resources in order to concentrate on thepreparation and design of clinical trials for two high-value lead programmes,dyslipidemia and haemophilia. Intronn continues to work hard to establish the right strategic partners/alliances for the clinical and commercial development of SMaRT‚®, and is innegotiations to secure further funding to move it into clinical trials. Thisprocess has been assisted by the recent issuance of SMaRT‚® patents in the US,Europe, Australia and Canada. Intronn was awarded a NIH grant to use SMaRT‚® incombination with RNAi and has submitted a major NIH grant application in July. Further developments are expected in the second half of the year.

Results

The financial results for the twelve month period ended 31st December 2006 showa headline loss (being the loss for the financial year excluding non-cash costsand share of associate company's losses) of ‚£4,656,000 compared with ‚£4,166,673in 2005. Non cash costs (amortisation of goodwill, amounts written off fixedasset investments, depreciation and National Insurance on notional share optiongains, as extracted from the profit and loss account) were ‚£855,987 against ‚£1,262,689. The period to 31st December 2006 also contains a share ofassociate's losses at Intronn Inc. of ‚£372,487 (2005: ‚£735,684). Under FRS 20"share-based payment" the Company is required to recognise an expense in theprofit and loss account in respect of share options and awards under the LongTerm Incentive Plan. The charge is based on the fair value of the option atthe time of grant, calculated using the Black Scholes option pricing model andexpensed to the profit and loss account over the related vesting period of theoption. The resulting charge in 2006 was ‚£462,661 compared to ‚£731,659 in2005.

The loss on ordinary activities after taxation for the twelve month period ended 31st December 2006 was ‚£6,377,135 (2005: ‚£6,896,705). The net cash outflow from operating activities for the year was ‚£4,465,256 (2005: ‚£4,908,985).

At the year end, cash held on deposit stood at ‚£304,225 (2005: ‚£2,587,155).

The cash spend in 2006 was consistent with previous years and this pattern isexpected to continue in 2007. The licences announced and the commercialisationanticipated, combined with grant income and the R&D tax credit, should providesignificant cash inflows and have a positive effect on the financialrequirements of the Company. As previously announced, a loan facility of up to‚£4 million has been made available to the Company from C.D.J. Pearce, the ChiefExecutive, details of which are disclosed in Notes 18 and 30 to the accounts. The directors have assumed that the timing of the cash inflows from theanticipated commercial income will be appropriate to meet the cash requirementsof the business; however, due to the current cash burn, the timing of receiptof the aforementioned cash inflows is important and therefore there can be nocertainty regarding the availability of funding for the next 12 months. Having regard to the assumptions made in respect of the timing of receipt ofthe anticipated commercial income, combined with grant income, and the R&D taxcredit and other cash inflows, including the loan facility of up to ‚£4 millionmade available by C.D.J. Pearce, the directors continue to adopt the goingconcern basis in preparing the accounts, and accordingly the financialstatements do not contain any adjustments that would result if sufficientcommercial income were not to be received on a timely basis.

In relation to the loan facility from C.D.J. Pearce, the Directors of the Company, (with the exception of C.D.J. Pearce who, in view of his interest in the transaction, has taken no part in the consideration thereof), having consulted with its nominated adviser, consider that the terms of this transaction are fair and reasonable insofar as shareholders are concerned.

As previously announced, the Company filed a claim on 29th December 2005 in theDistrict Court of Frankfurt am Main ("the Court") against Sanofi-AventisDeutschland GmbH ("Sanofi-Aventis") under which it is seeking damages of up to¢â€š¬30 million for, amongst other things, the breach of certain warrantiesprovided by Sanofi-Aventis at the time of the acquisition of XzillionProteomics GmbH & Co KG (now Proteome Sciences R&D GmbH & Co KG) on 4th July2002. The process has moved ahead in the second half of 2006 and into 2007,but, to date, there have been no major developments.

Full provision of all costs arising in 2006 in connection with the claim has been made in the 2006 financial statements. Whilst it is not possible to predict the outcome of this matter, the Directors are pursuing this action vigorously and will keep shareholders informed of material developments.

Current Outlook The considerable advances that have been made by the Company over the period,particularly in respect to TMT‚®, both in terms of the development of a familyof TMT‚® products and through the grant of patents should enable us to nowfulfill the commercial expectations that have been anticipated for some time. Our goal is to have TMT‚® products launched in the market in the second half ofthe year and to complete the outlicencing of TMT‚® to generate strong revenuethrough licence income, product sales and royalties. On the biomarker activities, we are optimistic that the earlier researchlicences that have been concluded in stroke should convert into full commerciallicences when the testing and integration processes are nearing completionlater this year and that additional licences will be forthcoming from furtherof the global top 20 diagnostics companies and that we should also start to seelicencing activity from the biomarkers that we have discovered in Alzheimer'sdisease. The development and availability of qPST, provided the catalyst to embark on anextensive marketing campaign for ProteoSHOP‚®. This has been continued in 2007with the introduction of the TMT‚® family, in particular for use in absolutequantitation, for biological reference materials and with MRM to acceleratebiomarker candidate evaluation for clinical drug development and trials. Thebenefits of the expanded technical developments and applications will be seenin revenue in the first half of 2007 and that the additional interest generatedwill convert into further ProteoSHOP‚® strategic alliances and contracts.

Proteome Sciences is ideally positioned to exploit the prolific growth projected for biomarkers and to maximise its opportunities from Tandem Mass Tagging‚®, both from TMT‚® as a product and from the manufacture and use of any type of isobaric tandem mass tags.

Against this background, the prospects for our company look very promising and we look forward to realizing that potential in the current year.

Finally, I would like to take this opportunity to thank our employees in the UKand overseas, and our collaborators for their determination and commitment tothe progress achieved over the last twelve months. Steve HarrisChairman 29th June, 2007

Unaudited consolidated profit and loss account

For the year ended 31st December 2006

2005 2006 (as re-stated) ‚£ ‚£

Turnover - continuing operations 68,469 16,200

Cost of sales (47,928) (11,340) __________ __________ Gross profit 20,541 4,860 Administrative expenses excluding non-cash (5,054,848) (4,764,026)items Amortisation of goodwill (648,960) (648,960) Depreciation (291,682) (425,843) National Insurance on notional share option 54,655 (75,008) gains Share-based payment (462,661) (731,659) Administrative expenses (6,403,496) (6,645,496) __________ __________

Operating loss - continuing operations (6,382,955) (6,640,636) Share of associate's operating loss (372,487) (735,684) __________ __________ Group operating loss - continuing operations (6,755,442) (7,376,320) Interest receivable and similar income 44,835 140,628 Amounts written off fixed asset investment - (112,878) Interest payable and similar charges (36,637) (882) __________ __________ Loss on ordinary activities before taxation (6,747,244) (7,349,452) Tax credit on loss on ordinary activities 370,109 452,747

__________ __________ Loss for the financial year (6,377,135) (6,896,705) __________ __________ Headline loss (4,656,000) (4,166,673) __________ __________ Loss per share Basic and diluted loss per share (4.85p) (5.34p) Headline loss per share (3.54p) (3.22p) __________ __________

Unaudited reconciliation of loss per share to headline loss per share

The headline loss and headline loss per share is presented by the Directors asan additional measurement of financial performance. The calculations ofheadline loss per ordinary share are based on the following losses and on thenumbers of shares shown in note 3 to this statement. 2006 2006 2005 2005 Loss per (as share re-stated) Loss per share ‚£ pence ‚£ pence Loss for the financial year (6,377,135) (4.85) (6,896,705) (5.34) Add back/(deduct): Amortisation of goodwill 648,960 0.50 648,960 0.50

Amounts written off fixed asset - - 112,878 0.09

investment Depreciation 291,682 0.22 425,843 0.33

National Insurance on notional (54,655) (0.04) 75,008 0.06

share option gains

Share of associate's operating 372,487 0.28 735,684 0.57

loss Share based payment 462,661 0.35 731,659 0.57 __________ _______ __________ __________ Headline loss (4,656,000) (3.54) (4,166,673) (3.22) __________ _______ __________ __________

Unaudited consolidated balance sheet

As at 31st December 2006 2006 2005 (as re-stated) ‚£ ‚£ Fixed assets Intangible assets 3,569,281 4,218,241 Tangible assets 546,509 489,058 Investments in associates 562,328 954,837 Other investments - - __________ __________ 4,678,118 5,662,136 __________ __________ Current assets Debtors 673,998 1,326,592

Cash held on deposit as short term investment - 1,900,000

Cash at bank and in hand 304,225 687,155 __________ __________ 978,223 3,913,747 __________ __________ Creditors: Amounts falling due within one year (3,570,290) (1,433,260) __________ __________

Net current (liabilities)/assets (2,592,067) 2,480,487

__________ __________

Total assets less current liabilities 2,086,051 8,142,623

(188,043) (188,043)

Provisions for liabilities and charges (49,282) (103,937)

__________ __________ Net assets 1,848,726 7,850,643 __________ __________ Capital and reserves Called-up share capital 1,314,654 1,314,512 Share premium account 29,150,563 29,145,773 Equity reserve 1,795,971 1,333,310 Other reserve 10,755,000 10,755,000 Profit and loss account (41,167,462) (34,697,952) __________ __________ Shareholders' funds 1,848,726 7,850,643 __________ __________

Unaudited consolidated statement of total recognised gains and losses For the year ended 31st December, 2006

2006 2005 (as re-stated) ‚£ ‚£ Loss for the financial year (6,377,135) (6,896,705) (Loss)/Gain on foreign currency translation (92,375)

73,840

Gain on deemed part disposal of associate - 111,536 __________ ___________ Total recognised gains and losses relating to the (6,469,510) (6,711,329) year ___________ Prior year adjustment (1,333,310) __________

Total recognised gains and losses since last (7,802,820)

annual report __________

Unaudited consolidated cash flow statement

For the year ended 31st December 2006

2006 2005 ‚£ ‚£

Net cash outflow from operating activities (4,465,256) (4,908,985)

Returns on investments and servicing of 8,198 139,746

finance Taxation 891,968 -

Capital expenditure and financial investment (357,411) (181,334)

__________ __________

Cash outflow before use of liquid resources (3,922,501) (4,950,573) and financing

Management of liquid resources 1,900,000 (100,000) Financing 1,639,571 5,111,785 __________ __________

(Decrease)/increase in cash in the year (382,930) 61,212

__________ __________

Reconciliation of operating loss to operating cash flows

2006 2005 (as re-stated) ‚£ ‚£ Operating loss (6,382,955) (6,640,636) Depreciation charges 291,682 425,843 Amortisation charges 648,960 648,960 Share-based payment 462,661 731,659

(Decrease)/increase in provisions (54,655) 75,008 Profit on sale of tangible fixed - (5,805) assets Increase in debtors (924) (139,862) Increase/(decrease) in creditors 569,975 (4,152) __________ __________ Net cash outflow from operating (4,465,256) (4,908,985) activities

Notes to the financial information

1. The Group has changed its accounting policy during the year in

respect of the adoption of FRS20 "share-based payment". The comparative

figures in this unaudited statement and notes have been restated to reflect the

new policy. The adoption of FRS 20 for the year to 31st December 2005 has

impacted upon the results and financial position of the Company as follows: Group 2005 ‚£ Profit and loss account Administrative expenses (731,659) ________ Decrease in profit for the (731,659) financial year Balance Sheet Equity reserve 1,333,310 Profit and loss deficit (1,333,310) ________ Increase / (decrease) in net - assets

2. Following the loss for the financial year of ‚£6,377,135, the Directors do

not recommend the payment of a dividend.

3.

a. The calculation of the loss per share for the year ended 31st

December 2006 is based on the loss for the financial period of ‚£6,377,135 and

on 131,467,466 Ordinary Shares, being the weighted average number of shares in

issue and ranking for dividend during the period (year ended 31st December 2005

- re-stated loss ‚£6,896,705, weighted average number of Ordinary Shares in

issue and ranking for dividend, 129,243,696).

b. The losses used to calculate the headline loss per share are as follows:

2006 2006 2005 2005 Loss per (as share re-stated) Loss per share ‚£ pence ‚£ pence Loss for the financial year (6,377,135) (4.85) (6,896,705) (5.34) Add back/(deduct): Amortisation of goodwill 648,960 0.50 648,960 0.50 Amounts written off fixed - - 112,878 0.09 asset investment Depreciation 291,682 0.22 425,843 0.33

National Insurance on notional (54,655) (0.04) 75,008 0.06

share option gains

Share of associate's operating 372,487 0.28 735,684 0.57

loss Share based payment 462,661 0.35 731,659 0.57 __________ ________ __________ ______ Headline loss (4,656,000) (3.54) (4,166,673) (3.22) __________ ________ __________ ______

The headline loss per share is presented by the Directors as an additional measure of financial performance.

4. The preceding financial information does not constitute statutory accounts as

defined in Section 240 of the Companies Act 1985. The financial information

for the year to 31st December 2005 is based on the statutory accounts for that

year. These accounts, upon which the auditors issued an unqualified opinion,

and which did not contain any statement under Section 237(2) or (3) of the

Companies Act 1985, have been delivered to the Registrar of Companies.

The statutory accounts for the year ended 31st December 2006 will be finalised

on the basis of the financial information presented by the Directors in this

preliminary announcement and will be posted to shareholders today. After that

time, they will also be available at the Company's registered office: Coveham

House, Downside Bridge Road, Cobham, Surrey KT11 3EP.

5. Whilst it is anticipated that the company will receive an unqualified

audit report for the year ended 31st December, 2006, the audit report will

contain the following additional paragraph: "Emphasis of matter - Going Concern

Without qualifying our opinion, we draw attention to the disclosures made in

note 2(b) of the financial statements concerning the Group's ability to

continue as a going concern. The Group incurred a net loss of ‚£6,377,135 during

the year ended 31st December 2006, with a headline loss of ‚£4,656,000 (being

the loss for the financial year excluding non-cash costs and share of associate

company losses) and a net cash outflow from operating activities of ‚£

4,465,256. This, along with other matters as set forth in note 2(b), indicates

the existence of a material uncertainty which may cast significant doubt about

the company's ability to continue as a going concern. The financial statements

do not include the adjustments that would result if the company was unable to

continue as a going concern."

6. (a) On 29th June, 2006 the company entered into an agreement with C.D.J. Pearce,

the Chief Executive of the company, under which he agreed to provide an unsecured

loan facility of up to ‚£2m to the company. The loan facility will be available

from the 1st August, 2006 and carries interest at 2.5% above the base rate of

Barclays Bank Plc. It is repayable on seven days notice, or immediately in the event of:

(i) C.D.J. Pearce ceasing to be an executive director of the company.

(ii) A general offer to the shareholders of the company being announced to acquire

its issued share capital.

(iii)The occurrence of any of the usual events of default attaching to this sort of agreement.

(b) On the 21st February 2007 it was announced that C.D.J. Pearce had

agreed to increase the total size of the facility to up to ‚£4m, on the same

terms, save that in view of the size of the loan facility, it was agreed that

security for the loan should be charged against the company's patent portfolio

up to the value of the loan outstanding and that the loan should be

convertible, at Mr. Pearce's option, into ordinary shares of the Company at the

lower of market price on the date of conversion or the average price over the

lowest consecutive ten day trading period since the 29th June 2006 (the date on

which details of the original loan agreement were disclosed).