RNS Number:2824Z
Futuragene PLC
29 June 2007
FUTURAGENE PLC ("FuturaGene" or "the Company")
Final results for the year ended December 31 2006
June 29, 2007
Acquisition of CBD Technologies Inc. successfully completed
Research and development capability in China increased
FuturaGene, which develops environmentally friendly solutions that enable plants
to grow in hostile conditions and to stabilise and improve crop yields, today
reports final results for the year ended December 31, 2006.
Highlights
* Pre-impairment operating loss #1.46million (2005: #0.58 million)
* Retained loss for year #3.84 million (2005: #7.88 million)
* Earnings figures impacted by impairment adjustments (#3.22 million)
and exchange loss (#0.5 million)
* Loss per ordinary share 10.2p (2005: 22.9p)
* Cash at period end of #3.6 million
* Completion of CBD Technologies Inc. acquisition
* Encouraging progress at Chinese subsidiary
* Extension of relationships with two further academic institutions in China
* Eucalyptus field trial in Brazil for Suzano continues
* Eucalyptus field trials in Thailand for AA Alliance to start later
this year
* Cotton field trial in China under way
* Biofuel market entry under review
* Review of options for Osmotin as a human health compound
* Board and management restructuring complete
* No dividend is proposed
FuturaGene has worldwide exclusive licences over patents on genes capable of
improving yields for crops facing the impact of cold, high salt concentrations
and drought, known as abiotic stresses. FuturaGene's portfolio of genes improves
the ability of crops to withstand these pressures by enhancing the function of
genes already natural to the plant, through over expression of these genes.
Together with the intellectual property of CBD Technologies, which improves
yields, processability and the sustainability of plants for the forestry,
biofuels and agricultural sectors, FuturaGene has an attractive intellectual
property portfolio addressing opportunities in the agri-bio industry which
offers real opportunities for the development of shareholder value.
FuturaGene's business model is to add value to this portfolio by taking gene
discoveries as far down the development path as possible, and then bring them to
market via out-licensing partnerships with market leading agricultural-biotech
companies.
Mark Pritchard, Chairman, commented: "This has been a significant year for
FuturaGene as we successfully completed the acquisition of CBD Technologies.
CBD's technology, which helps improves yields in the forestry, biofuels and
agricultural sectors, is complementary to FuturaGene's, providing the underlying
logic for the acquisition. CBD is making good progress with field trials in
Brazil and Thailand and we greatly look forward to bringing these and other
projects to fruition."
"Our Chinese subsidiary continues to make encouraging progress .We increasingly
centralising our research and development efforts there and this is reflected in
an increase in our research and development expenditure in China. We have
established new working relationships with Peking University and the China
Academy of Forestry Sciences, building on our established relationships with
China Agriculture University and Huazhong Agriculture University. "
"Financially the company continues to operate on a low cost base and with tight
cost controls. Cash reserves are #3.6 million.
"The Company's unique set of academic relationships with a range of Chinese
universities and research institutes provides valuable resource in the task of
generating the necessary data on specific crops to add value to our intellectual
property portfolio. This is a substantial task on which we are making good
progress but are realistic about the speed with which the work can be completed.
"We continue to consider strategic acquisitions and partnerships to complement
and enhance our technology portfolio and provide opportunities in the market. We
believe our entry into the forestry business via the acquisition of CBD holds
great opportunity for the future. With our existing technology, we have a
valuable portfolio of intellectual property which we are confident we will be
able to turn into economic value for our shareholders."
The company's Annual General Meeting will be held at 9.00am on July 24 2007 at
10 Dominion Street, London EC2M 2EE.
ENDS
For further information, please contact:
FuturaGene Plc
Mark Pritchard, Chairman +44 (0) 7802 827 846
Cubitt Consulting
Michael Henman/John Beresford-Peirse +44 (0) 20 7367 5100
Evolution Securities
Neil Elliot +44 (0) 20 7071 4300
Annual Report and Accounts
The Company has today published and posted to shareholders its Annual Report and
Accounts for the year ended 31 December 2006 ("Annual Report").
For the information of investors and shareholders alike, copies of the Annual
Report will be available for at least one month, free of charge, at the offices
of the Company's Nominated Adviser, Evolution Securities, being 100 Wood Street,
London EC2V 7AN. Electronic copies are available on the Company's website,
www.futuragene.com.
Notes to Editors
FuturaGene
FuturaGene is committed to the research and development of environmentally
friendly solutions to solve crop production problems.
FuturaGene sponsors research at a consortium of universities to develop
knowledge and create intellectual property that is essential to the development
of crop species with enhanced agronomic characteristics including tolerance to a
variety of environmental stresses such as salt, drought and cold conditions.
FuturaGene has established contracts with a number of universities for the
exclusive global commercial rights on a suite of utility and provisional
patents.
The Group's technology comprises a licensed patented portfolio of genes which
enhance stress tolerance in the plant by mediating over-expression of genes
present in the plant. FuturaGene has identified genes which confer enhanced
tolerance and enable plants to withstand extreme environmental stresses such as
cold, drought, fungal pathogens and high salt concentrations.
CHAIRMAN'S REPORT
Introduction
This year has been significant for FuturaGene as we completed the acquisition of
CBD Technologies Inc. (CBD). I am very excited about the addition of CBD
technology to our existing portfolio and I am delighted to welcome both CBD
employees and shareholders into our Group. We look forward to an exciting future
together. As part of the acquisition, Gaetan Waucquez has joined the Board of
the Company and Dr Stanley Hirsch has joined the management team of FuturaGene.
Their appointments complete the restructuring of the board and management of the
Company which was initiated at the beginning of the year. We are delighted to
have both of them join the Company and look forward to the contribution we
expect them to make towards its success.
Financial Results
We have decided to adopt International Financial Reporting Standards (IFRS) for
these financial statements. In addition to presenting our results (and prior
year comparatives) in accordance with IFRS, we have taken the opportunity to
re-assess the carrying value of the intangible assets we hold within our Group.
Due to the speculative and long term nature of our business, the uncertainty as
to the timing and quantum of future cash flows and the absence of comparative
data, the book value of our intangible assets has been fully impaired resulting
in a charge to the Income Statement of #3.2m (2005 restated #7.4m). The
directors believe that this provides a prudent and simple base from which to
move forward. In practice, apart from delays inherent in developing and proving
out the technology and achieving its acceptability, little has changed since the
acquisitions, and the directors believe they still represent attractive
opportunities for the Group in the long term. Administrative expenses were #1.5m
(2005 #0.6m). This includes an exchange loss of #508,000 (2005 profit #403,000)
arising on intercompany balances. After eliminating these differences, total
underlying costs have continued at approximately #900,000 per annum although
during the year we slightly increased research and development expenditure in
our subsidiary in China where we are encouraged by the progress being made. Our
overhead cost will be higher in the current year following the acquisition of
CBD. The loss after impairment charges per ordinary share was 10.2p (2005:
22.9p). The Group has cash reserves totalling #3.6m as at 31st December 2006
(2005: #5.2m). FuturaGene has always operated with a relatively low cost base
and tight cost control continues to be a major operational focus. No dividend
payment is proposed.
CBD
In December 2006, FuturaGene acquired CBD, a US corporation focused on the
development and commercialization of genetically modified plants for improving
yields, processability and environmental sustainability in the forestry,
biofuels and agricultural sectors. The core intellectual property developed by
CBD is a new modality for modifying plant cell walls. Plant cell walls consist
mainly of cellulose and other sugarbased polymers, "glued" together by lignins.
As cellulose is the principal component of paper and is the major source of the
sugars used in second generation bioethanol production, the amount of cellulose
and the ease of its accessibility for processing are becoming of increasing
economic importance. The CBD technology and patent portfolio rests on an
umbrella patent position covering this novel approach to modifying plant cell
walls. To date, cell wall modification has been the only single-gene process
which has been demonstrated to increase biomass and improve fibre properties.
The company has recently filed additional patents, covering modification of
polymers in the plant cell wall to facilitate the recovery of cellulose for
paper production or saccharification for bioethanol production. CBD's
Israel-based subsidiary, CBD Technologies, Ltd. operates from a modern facility
with full molecular biology, plant tissue culture and plant transformation
capability. In addition to the ongoing development work, the facility will serve
as the central gene and germplasm bank for the enlarged group. CBD has
demonstrated the effectiveness of its technology in trees and has transformed
both poplar and eucalyptus species. An independent trial conducted using the
company's transformed poplar trees demonstrated that the genetically modified
trees generated significantly more biomass than the control trees over a two
year period.
CBD has a strategic deal in place with Companhia Suzano de Papel e Celulose
('Suzano'), one of the largest integrated forestry, pulp and paper companies in
South America. In 2005 Suzano had approximately 172,000 Ha of eucalyptus
plantations and its nurseries produced around 32 million seedlings. CBD has
successfully transformed multiple Suzano eucalyptus clones with its genes. The
first field trial with modified Suzano eucalyptus was initiated in January 2006
in Brazil. This trial is planned to run for three growing seasons.
In addition, CBD has a development and evaluation agreement with the AA Alliance
Group ('AA'), a leading forestry, pulp and paper group in Thailand. AA plants
approximately 60 million trees per annum. The first AA modified eucalyptus
clones were exported to Asia for field trialing earlier this month.
I am particularly pleased that integration of the CBD business into the
FuturaGene Group is well under way. The technology portfolios of FuturaGene
Inc. and CBD are very complementary and provided the underlying logic for the
acquisition. We are now working on developing product offerings incorporating
multiple traits encompassing both abiotic stress resistance together with yield
enhancement and increased processibility. To this end, CBD has rapidly utilized
the Group presence in China to initiate activities for cotton transformation and
forest biotech.
FuturaGene Inc.
During the year we have initiated discussions with several institutions and
commercial partners in the United States to look at transforming non-edible
crops such as ornamentals and biofuel feedstock using our portfolio of genes.
With long lead times for regulatory approvals for food crops, we have decided to
focus our commercialisation efforts on non-food crops.. As reported previously,
we have been looking at opportunities to commercialise the plant protein
Osmotin, as a human health compound and have had a number of discussions with
interested parties. None of these has been brought to a successful conclusion
and, as the Board wishes to focus the Company's management and financial efforts
on opportunities in the agri-bio industry, the Board is currently reviewing its
options for this technology.
FuturaGene China
Our wholly owned subsidiary in China continues to be active and increasingly the
Group's research and development efforts are being centralised there. Our focus
has been to establish strong cooperative relationships with the top universities
and research institutes. Building on our relationships with China Agriculture
University ("CAU") and Huazhong Agriculture University, we are now also working
with Peking University and more recently the China Academy of Forestry Sciences.
In September 2005, we signed a further cooperation agreement with CAU
specifically to initiate the transformation of major crops such as maize, rice,
and canola, with our portfolio of genes, both individually and stacked. The
programme is designed to provide us both with data and transformed plant
material to enable us to conduct field trials on these crops. Primary
transformation for our lead abiotic stress genes have been applied to cotton,
tobacco, rapeseed, turfgrass, rice, wheat and alfalfa and we have obtained the
first generation transgenic lines. Currently, we are working on molecular
testing and physiological and biochemical analysis of the transgenic plants.
Initial results have been encouraging. During the year we have also particularly
focused on cotton as a high value crop where we believe that bio-engineering
could add significant commercial value.
Field trials have been conducted in China's Xinjiang Province and Hainan
Province in order to fully test the transformed species. I look forward to
reporting more fully on the outcome of these trials later in the year. We have
also recently initiated work on a programme with CAU to consider the
implementation of the CBD genes in cotton which could potentially improve the
fibre quality.
Biofuels
The strong global interest in alternative energy will drive significant demand
for crops which can be utilized as feedstock for biofuel production. Even at
this relatively early stage of development for commercial biofuel, we are
beginning to see the inherent conflict between land usage for food production
and land usage for energy production. There have been significant price
movements in certain agricultural commodities caused by demand for alternative
energy production. The long term key to addressing this conflict is the
application of technology to engineer crop improvements so as to increase
overall production yields and enable production on marginal lands. We believe
that the combination of our technologies, if proven out in relevant species,
could make a significant contribution to the improving the economic viability of
biofuel. We are currently assessing our strategy as to how best to enter this
market.
People
I am delighted to welcome Dr. Mike Thomashow, an elected member of the
prestigious United States National Academy of Sciences, to our Scientific
Resource Panel. Dr. Thomashow is currently Director of the Michigan State
University-DOE Plant Research Laboratory and a Distinguished Professor at
Michigan State University. In 2005-2006 he served as President of the American
Society of Plant Biologists. As well as the appointments of Gaetan Waucquez, the
Board was strengthened by the appointments of Peter Toynton and Mike Fromm. We
have already benefitted from their valuable contributions. During the year,
Bruno Ruggiero and Marta Zgagacz left the Company. Discussions with Dr Ruggiero
about the terms of his departure continue.
Outlook
Building an agricultural biotech business is a long term task with a number of
inherent risks. Public acceptability of genetically modified organisms is still
largely unproven, although we do anticipate greater ease of adoption in non-food
sectors. The key challenge for the successful application of our exciting
technology is to prove the effectiveness of the technology, prove commercial
utility in multiple species and then obtain substantive data to support their
commercial adoption. Our key performance indicators for the development of our
business involve this task of data generation in specific crops as this is where
we add value to our intellectual property. The Company's unique set of academic
relationships with a range of Chinese universities and research institutes
provide us with a valuable resource to focus on this substantial task. We are
making good progress but are realistic about the speed with which the work can
be completed.
We will continue to consider strategic acquisitions and partnerships to
complement and enhance our technology portfolio and create routes to market.
We believe that our entry into the forestry business through the acquisition of
CBD holds great promise for the future and that the need to improve the economic
viability of biofuels, through greater production efficiency in biomass, has
potentially created a major new market opportunity for our technology in the
future. Together with our existing technology portfolio, your Company has a
valuable portfolio of intellectual property which it is working hard to
translate into economic value for shareholders. The year has seen important
developments at FuturaGene which we believe will be of real long term value to
shareholders, who I would like to thank for their continued support throughout
the year.
M.A Pritchard
Chairman - London
29 June 2007
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2006
Restated
(see note 5)
Notes 2006 2005
#'000 #' 000
Revenue - -
------- ---------
Administrative expenses before impairment (1,465) (582)
Impairment loss on intangible assets 3, 4 (3,223) (7,442)
------- ---------
Total administrative expenses (4,688) (8,024)
------- ---------
Operating loss (4,688) (8,024)
Finance Income 178 143
------- ---------
Loss before income tax (4,510) (7,881)
Income tax credit 675 -
------- ---------
Loss for the year attributable to equity
holders of the company (3,835) (7,881)
------- ---------
Loss per ordinary share - Basic and diluted 6 (10.2p) (22.9p)
The income statement has been prepared on the basis that all operations are
continuing operations.
BALANCE SHEETS
at 31 December 2006
Group Company
Restated Restated
(see note 5) (see note 5)
Notes 2006 2005 2006 2005
#' 000 #' 000 #' 000 #' 000
ASSETS
Non-current assets
Goodwill 3 - - - -
Intangible assets 4 - - - -
Plant, property & equipment 108 21 - -
Investment in subsidiaries - - 129 160
--------- --------- --------- ---------
108 21 129 160
--------- --------- --------- ---------
Current assets
Trade and other receivables 157 10 2,011 2,687
Cash and cash equivalents 3,630 5,180 1,506 2,184
--------- --------- --------- ---------
3,787 5,190 3,517 4,871
--------- --------- --------- ---------
Total assets 3,895 5,211 3,646 5,031
--------- --------- --------- ---------
LIABILITIES
Current liabilities
Trade and other payables (865) (510) (616) (320)
--------- --------- --------- ---------
Net current assets 2,922 4,680 2,901 4,551
--------- --------- --------- ---------
Non-current liabilities
Convertible Loan - (200) - (200)
--------- --------- --------- ---------
- (200) - (200)
--------- --------- --------- ---------
Total liabilities (865) (710) (616) (520)
--------- --------- --------- ---------
Net assets 3,030 4,501 3,030 4,511
--------- --------- --------- ---------
EQUITY
Share Capital 5 213 176 213 176
Share premium account 5 18,810 15,672 18,810 15,672
Shares to be issued 5 143 1,140 143 1,140
Capital redemption reserve 5 2,415 2,415 2,415 2,415
Profit and loss account 5 (18,551) (14,902) (18,551) (14,892)
--------- --------- --------- ---------
Total equity 3,030 4,501 3,030 4,511
--------- --------- --------- ---------
Cash Flow Statements
for the year ended 31 December 2006
Group Company
Restated (see Restated (see
note5) note5)
Notes 2006 2005 2006 2005
#' 000 #' 000 #' 000 #' 000
Cash used in operating activities
Cash used in
operations (794) (100) (66) (2,519)
Interest received 178 143 88 (79)
------- ------- ------- -------
Net cash (used
in)/from
operating
activities (616) 43 22 (2,598)
------- ------- ------- -------
Cash from investing activities
Purchase of
property, plant
and equipment net
of proceeds (25) (17)
Proceeds from
sale of property,
plant and
equipment 4 - -
Acquisition of
subsidiaries (net
of cash balances
acquired) 2 (355) - (420) (175)
Investment in
subsidiaries - - (80) -
------- ------- ------- -------
Net cash flows
used in investing
activities (376) (17) (500) (175)
------- ------- ------- -------
Cash flows from financing activities
Net proceeds from
issue of share
capital - 4,213 - 4,213
Repayment of
convertible loan (200) - (200) -
------- ------- ------- -------
Net cash flow
from financing
activities (200) 4,213 (200) 4,213
------- ------- ------- -------
Net
(decrease)/increa
se in cash and
cash equivalents (1,192) 4,239 (678) 1,440
Cash and cash
equivalents at
beginning of the
year 5,180 1,020 2,184 744
Effect of
exchange rates on
cash and cash
equivalents (359) (79) - -
------- ------- ------- -------
Cash and cash
equivalents at
end of year 3,630 5,180 1,506 2,184
------- ------- ------- -------
Reconciliation of net loss to net cash used operating activities
Group Company
Restated (see Restated (see
note5) note5)
2006 2005 2006 2005
#'000 #'000 #'000 #'000
Net loss before
income tax (4,511) (7,881) (3,060) (7,693)
Interest received (178) (143) (88) 79
Depreciation of
property plant
and equipment 11 7 - -
Impairment of
intangible assets 3,223 7,442 2,709 7,457
(Increase)/decrease
in trade and
other receivables 467 75 77 (2,728)
Increase in trade
and other
payables 194 400 296 308
------- ------- ------- -------
Cash used in
operating
activities (794) (100) (66) (2,519)
------- ------- ------- -------
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2006
1. ACCOUNTING POLICIES
1.1. Basis of accounting
The financial information set out in this announcement does not constitute the
Group's statutory statements for the year ended 31 December 2006 but is taken
from those financial statements, which have received an unqualified report by
the auditors and will be delivered to the Registrar of Companies.
These financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) and IFRIC interpretations endorsed by the
European Union (EU) and with those parts of the Companies Act 1985 applicable to
companies reporting under IFRS.
The group is preparing its financial statements in accordance with IFRS for the
first time and consequently has applied IFRS 1 First-time Adoption of
International Reporting Standards. The Group's transition date is 1 January
2005.
IFRS 1 First-time Adoption of International Reporting Standards sets out the
transition rules which must be applied when IFRS is adopted for the first time.
The standard sets out certain mandatory exemptions to retrospective application
and certain optional exemptions. The optional exemptions available and taken by
the group are as follows:-
(i) Business Combinations: The Group adopted the business combinations
exemption in IFRS 1. It has not restated business combinations that took place
prior to the 1 January 2005 transition date.
(ii) Share-based transactions: the Group adopted the exemption in IFRS 1
which allows a first time adopter to apply the new standard only to share
options granted after 7th November 2002 that have not vested by 1st January
2005.
A summary of the more important Group accounting policies is given below for the
years ending 31 December 2005 and 31 December 2006.
1.2. Basis of preparation and consolidation
The preparation of financial statement in conformity with IFRS required the use
of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group's accounting
policies. The areas involving a higher amount of judgement or complexity, or
areas where assumption and estimates are significant to the financial statements
are disclosed in note 1.4.
The results and net assets of subsidiary undertakings acquired are included in
the consolidated income statement and consolidated balance sheet using the
acquisition method of accounting from the effective date of acquisition.
Subsidiaries are entities that are directly or indirectly controlled by the
Group. Control exists where the Group has the power to govern the financial and
operating policies of the entity so as to obtain benefits from its activities.
These consolidated financial statements have been prepared under the historical
cost convention.
1.3. Standards, amendments and interpretation
There are a number of published standards, amendments and interpretations that
have not been adopted by the Group because they are not relevant to the Group's
circumstances. These published standards, amendments and interpretations are:
IAS 21 (Amendment), Net investment in a foreign operation.
IAS 39 (Amendment), Cash flow hedge accounting of forecast group transactions.
IAS 39 (Amendment), The fair value option.
IAS 39 and IFRS 4 (Amendment), Financial guarantee contracts.
IFRS 1 (Amendment), First time adoption of International Reporting Standards.
IFRS 6 (Amendment), Exploration for and evaluation of mineral resources.
IFRIC 4, Determining whether an arrangement contains a lease.
IFRIC 5, Rights to interest arising from decommissioning, restoration and
environment rehabilitations funds.
IFRIC 6, Liabilities arising from participating in a specific market - Waste
electrical and electronic equipment.
IFRIC 7, Applying the restatement approach under IAS29, Financial reporting in
hyperinflationary economies.
IFRIC 8, Scope of IFRS 2.
IFRIC 9, Reassessment of embedded derivatives.
IFRIC 10, Interim financial reporting and impairment.
IFRIC 11, Group and treasury share transactions.
IFRIC 12, Service concessions agreements.
Two other standards that may impact upon the Group but that are not applicable
for the first year end following the period of the financial information are
IFRS 7, Financial instruments: disclosures and IFRS 8, Operating segments, The
Group has not elected to adopt these standards early, as it does believe that
doing so would provide significant additional information beyond that required
by IAS 32, Financial instruments: presentation, and IAS 14, Segment reporting,
which are the related standards already adopted by the Group in the presentation
of the financial information.
1.4. Critical accounting estimates and judgements
To be able to prepare accounts according to generally accepted accounting
principles, management and the Board of directors must make estimates and
assumptions that affect the asset and liability items and revenue and expense
items recorded in the final accounts as well as other information, such as that
provided on contingent liabilities. These estimates are based on historical
experience and various other assumptions that management and the Board believe
are reasonable under the circumstances, the results of which form the basis for
making judgements about the carrying value of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. Areas comprising critical
judgement that may significantly impact earnings and financial position are
valuation of intangible assets, share based payments income taxes and litigation
and contingent liabilities, all of which are discussed in the respective notes.
1.5. Foreign currency translation
Functional and presentation currency:-
Items included in the financial statements of each of the group's entities are
measured using the currency of the primary economic environment in which the
entity operates (the "functional currency"). The consolidated financial
statements are presented in Pounds Sterling which is the Company's functional
and presentation currency.
Transactions and balances:-
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the
translation at year end exchange-rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement.
Unsettled inter-company loans made by one group member to another in a currency
that is different from the borrower's functional currency will be recorded at
the rate of exchange ruling at the date the loan is made. At each balance sheet
date thereafter, until it is repaid, the loan will be translated at the closing
rate and any exchange difference will be reported in the borrower's income
statement.
Group Companies:-
The results and financial position of all group entities (none of which has the
currency of a hyperinflationary economy) that have a functional currency
different from the presentation currency are translated into the presentation
currency as follows:-
- assets and liabilities for each balance sheet presented are translated
at the closing rate at the date of that balance sheet
- income and expenses for each income statement are translated at
average exchange rates; and
- all resulting exchange differences are recognised in reserves
1.6. Research and development
Research expenditure is recognised as an expense as incurred. Costs incurred on
product development are capitalised as intangible assets when it is probable
that the development will provide economic benefits, considering its commercial
and technical feasibility, resources are available for the development and costs
can be measured reliably. Other development expenditures are recognised as costs
are incurred.
1.7. Property, plant and equipment
Property, plant and equipment is shown at cost less subsequent depreciation.
Cost includes expenditure that is directly attributable to the acquisition of
the items. Depreciation on assets is calculated using the straight-line method
to allocate the cost of each asset to its residual value over its estimated
useful life as follows:-
Leasehold improvements over the period of the lease
Computer hardware and software over 3 years
Furniture, fixtures and fittings over 4 years
Motor Vehicles over 4 years
1.8. Investments
Investments in subsidiaries are stated at cost less any provision for impairment
1.9. Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value
of the Group's share of the net identifiable assets of the acquired subsidiary
at the date of acquisition. Goodwill is tested annually for impairment and
carried at cost less accumulated impairment losses. The carrying value of
capitalised goodwill is reviewed if events or changes in circumstances indicate
a potential impairment. Any impairment is charged to the income statement. Gains
and losses on the disposal of an entity include the carrying amount of goodwill
relating to entity sold.
1.10. Intangible assets
Patent costs and costs incurred in licensing Intellectual Property are
recognised as an expense as incurred until future revenues and costs can be
reliably measured.
1.11. Impairment of assets
Assets that have an indefinite useful life are not subject to amortisation and
are tested annually for impairment and whenever events or changes in
circumstance indicate that the carrying value may not be recoverable. Assets
that are subject to amortisation are tested for impairment whenever events or
changes in circumstance indicate that the carrying value may not be recoverable.
An impairment loss is recognised for the amount by which the assets carrying
value exceeds its recoverable amount. The recoverable amount is the higher of an
asset's fair value less costs to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for which they are
separately identifiable cash flows
1.12. Share based Compensation
The Group operates equity settled share based transactions. The fair value of
the transactions received in exchange for the grant of the options is recognised
as an expense. The total amount to be expensed over the vesting period is
determined by reference to the fair value of the options granted, excluding the
impact of any non-market vesting conditions.
1.13. Leases
Operating lease rentals are charged to the Income statement on a straight line
basis over the period of the lease.
1.14. Deferred income tax
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. However,
the deferred income 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 accounting nor
taxable profit or loss. Deferred income tax is determined using rates (and laws)
that have been enacted or substantially enacted by the balance sheet date and
are expected to apply when the related deferred income tax asset is realised or
the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that
future taxable profit will available against which the temporary differences can
be utilised.
Deferred income tax is provided on temporary differences arising on investments
in subsidiaries and associates, except where the timing of the reversal of the
temporary difference is controlled by the group and it is probable that the
temporary difference will not reverse in the foreseeable future. Deferred income
tax balances are not discounted.
1.15. Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and short term bank deposits
that are not restricted as to withdrawal or use, less overdrafts repayable on
demand.
1.16. Financial instruments
The Group's financial assets and liabilities are recorded initially at their
fair value and subsequently at amortised cost. They are classified as current or
non-current according to when the receipt or payment falls due.
Trade receivables are recognised and carried at fair value, being original
invoice amount less an allowance for uncollectible amounts. A provision for
impairment of trade receivables is made when there is objective evidence that
collection of the full amounts is no longer probable. Bad debts are written off
as they are identified.
Financial risk management
The Group centrally manages borrowings, investment or surplus funds and
financial risks. The objective of holding financial investments is to provide
efficient cash and tax management and effective funding for the Group. The
Group's financial instruments comprise cash along with various items, such as
trade creditors. It is and continues to be the Group's policy that no
speculative trading in derivatives shall be undertaken. The main risks arising
from the Group's financial instruments are liquidity risk and interest rate
risk.
Liquidity risk
The Group finances its operations through loans from parent companies. The Group
has continued with its policy of ensuring that there are sufficient funds to
meet the expected finding funding requirements of the Group's operations and
investment opportunities. The Group has continued to monitor its liquidity
position through budgetary procedures and cash flow analysis.
Foreign exchange risk
The group operates internationally and is exposed to foreign exchange risk
arising from various currency exposures, primarily with respect to the US
dollar. Foreign exchange risk arises from future commercial transactions,
recognised assets and liabilities and net investments in foreign operations. The
Group has continued to monitor its foreign exchange rate risk.
The group has certain investment in foreign operations, whose net assets re
exposed to foreign currency translation risk. Currency exposure arising from the
net assets of the group's foreign operations is managed primarily through
borrowings denominated in the relevant foreign currencies where appropriate.
Interest rate risk
Interest expense reflects the cost of the Group's borrowings. Interest income
arises from investment of cash and short-term deposits held by the Group.
Interest rate risk is managed by monitoring market rates to ensure that optimal
returns are achieved.
Credit risk
The Group has no significant concentrations of credit risk.
2. BUSINESS COMBINATIONS
On 19 December 2006, the company acquired 100% of CBD Technologies Inc., a US
holding company and its 100% subsidiary CBD Technologies Limited operating in
Israel. The company is focused on the commercialisation of plants which are
modified to grow faster, stronger and with greater biomass than native plants.
The initial consideration consisted of 4,950,000 ordinary shares of #0.005 each
which at that date were listed at 0.44p each. Costs incurred in respect of the
acquisition of #420,000 have been added to the Company's cost of the investment.
As at the time of the acquisition, fair values were calculated for Customer
Contracts and intellectual Property. The excess of the initial purchase
consideration over such fair values was attributed to Goodwill. At the year end,
these values were tested for impairment under IAS 36 which results in a charge
disclosed in note 4 Intangible Assets.
A further 3,850,000 ordinary shares may be issued if certain conditions and
revenue targets are met by CBD. In view of the long term nature and uncertainty
of achieving these targets, such consideration has not been included in the
initial consideration cost.
There were no material transactions between 19 and 31 December at which date
audited accounts have since been prepared. For consolidation purposes therefore,
the company was deemed to have been acquired on 31 December 2006 and no
transactions other than the impairment loss have been recognised in the Income
Statement.
Details of net assets acquired and goodwill are as follows:
-------------------------------------------------
#'000
Purchase consideration
Fair value of shares issued 2,178
Direct costs relating to the acquisition 420
--------
Total purchase consideration 2,598
Fair value of net assets acquired (1,625)
--------
Goodwill (note 3) 973
--------
CBD Acquisition Pre- Fair value Provisional
----------------- acquisition adjustments Fair value at
book value date of
acquisition
#'000 #000 #'000
Intangible assets
Customer
contract - 1,500 1,500
Intellectual
property - 750 750
Deferred tax
liabilities (675) (675)
Property,
plant and
equipment 80 - 80
Receivables 46 - 46
Payables (141) - (141)
Cash and cash
equivalents 65 - 65
-------- -------- --------
Net assets
acquired 50 1,575 1,625
-------- -------- --------
The fair value of intangible assets and goodwill recognised at the date of
acquisition has been subject to an impairment review (see note 3 and 4).
3. GOODWILL
Restated (see
note 4)
#' 000
Cost
At 1 January 2005 and 31 December 2005 7,442
Acquired through business combinations 2006 973
-------
At 31 December 2006 8,415
-------
Aggregate impairment
At 1 January 2005 -
2005 impairment charge 7,442
-------
At 31 December 2005 7,442
2006 impairment charge 973
-------
At 31 December 2006 8,415
-------
Net book amount
-------
At 31 December 2005 -
-------
At 31 December 2006 -
-------
Impairment note for goodwill
All the recoverable amounts were measured based on value in use. The goodwill
carried represents the goodwill acquired on the acquisition of FuturaGene Inc on
14 June 2004 and the residual excess cost over the fair value of the net assets
acquired on the acquisition of CBD Technologies.
The key assumptions used in the value in use calculation were based on
projections of market size, current crop yields, projected yield improvements,
estimated probability factors and a discount rate of 20%. Due to the uncertainty
of the projections, management believe at this stage a full impairment charge
against all goodwill is required.
4. INTANGIBLE ASSETS
Group Customer Intellectual Total
------- contract property
#' 000 #' 000 #' 000
Cost
At 1 January 2005 and 31 December 2005 - - -
Acquired through business combinations 2006 1,500 750 2,250
------- -------- --------
At 31 December 2006 1,500 750 2,250
------- -------- --------
Aggregate impairment
At 1 January 2005 and 31 December 2005 - - -
2006 impairment charge 1,500 750 2,250
------- -------- --------
At 31 December 2006 1,500 750 2,250
------- -------- --------
Net book amount
------- -------- --------
At 31 December 2005 - - -
------- -------- --------
At 31 December 2006 - - -
------- -------- --------
Impairment tests for intangible assets
In view of the uncertainty of timing of achievement, where relevant, of
long-term milestones and both the timing and quantum of future cash flows
together with the absence of comparable market or cost data, the carrying values
in respect of both acquisitions were unable to support calculations applied
under IFRS and IAS rules and have therefore been written off to the consolidated
income Statement. In practice little has changed since the dates of the
acquisitions and the directors continue to believe that the acquisitions
represented worthwhile opportunities.
5. STATEMENT OF CHANGES IN EQUITY
Group Share Shares Share Capital Merger Profit Total
------- capital to be premium redemption reserve and loss equity
issued account account account
#'000 #'000 #'000 #'000 #'000 #'000 #'000
At I January
2005 as
previously
reported 164 1,140 11,520 2,415 (844) (6,146) 8,249
Prior year
adjustments
(see below) - - (48) - 844 (796) -
------ ------ ------- -------- ------ ------- ------
At I January
2005 as
restated 164 1,140 11,472 2,415 - (6,942) 8,249
Exchange rate
movement - - - - - (79) (79)
Loss for the
year as
previously
reported - - - - - (842) (842)
Prior year
adjustments
(see below) - - - - - (7,039) (7,039)
Shares issued 12 - 4,200 - - - 4,212
------ ------ ------- -------- ------ ------- ------
At 31 December
2005 176 1,140 15,672 2,415 - (14,902) 4,501
Exchange rate
movement - - - - - 186 186
Loss for the
year - - - - - (3,835) (3,835)
Shares issued 37 - 3,138 - - - 3,175
Deferred
shares settled - (997) - - - - (997)
------ ------ ------- -------- ------ ------- ------
At 31 December
2006 213 143 18,810 2,415 - (18,551) 3,030
------ ------ ------- -------- ------ ------- ------
Company Share Shares Share Capital Profit Total
--------- capital to be premium redemption and loss equity
issued account account account
#'000 #'000 #'000 #'000 #'000 #'000
At I January 2005
as previously
reported 164 1,140 11,520 2,415 (6,019) 9,220
Prior year
adjustments (see
below) - - (48) - 48 -
------ ------ ------- -------- ------- ------
At I January 2005
as restated 164 1,140 11,472 2,415 (5,971) 9,220
Loss for the year
as previously
reported - - - - (179) (179)
Prior year
adjustments (see
below) - - - - (8,742) (8,742)
Shares issued 12 - 4,200 - - 4,212
------ ------ ------- -------- ------- ------
At 31 December
2005 176 1,140 15,672 2,415 (14,892) 4,511
Loss for the year - - - - (3,659) (3,659)
Shares issued 37 - 3,138 - - 3,175
Deferred shares
settled - (997) - - - (997)
------ ------ ------- -------- ------- ------
At 31 December
2006 213 143 18,810 2,415 (18,551) 3,030
------ ------ ------- -------- ------- ------
On 15 February 2005, the company undertook a placing of 970,000 ordinary shares
of 0.5 pence each at #1.70 pence per share.
On 13 June 2005, the company issued 1,478,471 ordinary shares of 0.5p each at
#1.80 per share.
On 9 March 2006, 2,624,982 ordinary shares were issued under the terms of the
FuturaGene Inc acquisition agreement.
Prior year adjustments
In the 2005 accounts, an exchange profit of #403,000 arising on revaluation of
an intercompany account balance in the accounts of a subsidiary company, was
included within the movement on reserves. The comparative figure shown in this
years accounts have been restated to include this amount within administrative
expense.
In the 2005 accounts a merger reserve was shown on consolidation in relation to
the merger between Overnet Data (UK) Limited and Overnet Data Plc (now FutuaGene
Plc). This arose as the investment by Overnet Data Plc was greater than the
share capital and share premium of Overnet Data (UK) Limited. As this investment
held by FuturaGene Plc in Overnet Data (UK) Limited was written down in the year
ended 31 December 2005, the merger reserve should have been recorded as a
realised loss in reserves. The merger reserve has therefore been transferred
within the statement on changes in equity to the P&L reserve.
In June 2004 FuturaGene raised further working capital by a placing. The
commission payable for Brokers fees were settled by the issue of share options.
At this time the share options should have been fair valued and deducted from
the share premium account. This has therefore been accounted for as a share
transfer in 2005.
At 31 December 2005 the intercompany loan due from FuturaGene Inc would have not
have been recoverable in the foresseable future. A provision of #1,228,000 has
accordingly been recorded as a charge to the income statement.
At the year ended 31 December 2005 the investment in FuturaGene Inc would not
have represented the value recoverable by FuturaGene Plc. Based on trading
conditions which existed at 31 December 2005, this investment has been written
down to the net assets of FuturaGene Inc. at that date.
Profit and loss account
Group Company
#'000 #'000
2004
Placing costs issued as options 48 48
Transfer of reserve arising on merger (844) -
------- --------
(796) 48
------- --------
2005
Inter-company receivable - provision - (1,228)
Impairment of FuturaGene Inc goodwill (7,442) -
Impairment of FuturaGene Inc investment - (7,500)
Impairment of FuturaGene China investment - (14)
Exchange gain reported in reserves 403 -
------- --------
(7,039) (8,742)
------- --------
6. LOSS PER ORDINARY SHARE
The calculation of loss per ordinary share is based on:-
(1) Basic and diluted EPS
Restated (see
note 4)
2006 2005
Loss for the year attributable to equity holders of
the company #3,835,000 #7,881,000
Weighted average number of ordinary shares in issue
during the year 37,423,558 34,324,283
Basic Loss per share (10.2p) (22.9p)
Since the conversion of potential ordinary shares would decrease net basic loss
per share, they are anti-dilutive. Accordingly, diluted loss per share is the
same as basic loss per share.
7. TRANSITION TO IFRS
(a) Application of IFRS 1: First time adoption of International Accounting
Standards
The Group is preparing its financial statements in accordance with IFRS as
adopted by the European Union for the first time and consequently has applied
IFRS 1 First-time Adoption of International Financial Reporting Standards. The
Groups' transition date is 1 January 2005. IFRS 1 First time adoption of
International Financial Reporting Standards sets out the transition rules, which
must be applied, when IFRS is adopted for the first time. The standard sets out
certain mandatory exemptions to retrospective application and certain optional
exemptions. The optional exemptions available and taken by the Group are as
follows:
(i) Share-based transactions; the Group adopted the exemption
in IFRS 1 which allows a first time adopter to apply the new standard only to
share options granted after 7th November 2002 that have not vested by 1st
January 2005.
(ii) Business combinations; the Group adopted the business
combinations exemption in IFRS 1. It has not restated business combinations that
took place prior to the 1 January 2005 transition date.
(b) Main policy differences between IFRS and UK GAAP
(i) Share compensation expense, IFRS 2 Share-based Payment;
IFRS 2 requires that the fair value for share options to employees be estimated
and charged to the income statement over the vesting period of the incentive.
This applies to all share options granted except those covered by the IFRS 1
exemptions mentioned above.
(ii) Acquisition of subsidiary, IFRS 3 Business Combinations;
Goodwill represents the excess of the cost of an acquisition over the fair value
of the net identifiable assets of the acquired subsidiary at the date of
acquisition. Goodwill is not amortised, instead it is subject to annual
impairment tests, or more frequently if there is an indication of impairment.
IFRS 3 also requires that intangible assets are identified separately from
goodwill. Hence for the business combination acquired after 1 January 2005 part
of the cost of the acquisition has been allocated to intangible assets for the
element that relates to the fair value of customer contracts and intellectual
property acquired.
(iii) Intangible assets, IAS 38; IAS 38 states that amortisation
shall begin only when the asset is available for use. This is defined as when
the asset is in the location and condition necessary for it to be capable of
operating in the manner intended by management.
(iv) Impairment of intangible assets, IAS 36; IAS 36 requires that
the recoverable amount of intangible assets not yet available for use to be
measured annually, irrespective of whether there is any indication that it may
be impaired. Goodwill acquired in business combinations is to be tested for
impairment annually. In addition IAS 36 also requires that irrespective of
whether there is any indication of impairment, an entity should test an
intangible asset with an indefinite useful life or an intangible asset not yet
available for use for impairment annually by comparing its carrying amount with
its recoverable amount. If such an intangible asset was initially recognised
during the current annual period, that intangible asset shall be tested for
impairment before the end of the current annual period
(c) Reconciliations between IFRS and UK GAAP
(i) Reconciliation of UK GAAP loss to IFRS loss
Group
Note Year ended 31
December 2005
#' 000
Loss for year as reported under UK GAAP (821)
Adjustments for:-
-------------------
Reinstate amortisation of goodwill (ii) 382
Impairment of intangible assets (iv) (7,442)
---------
Loss for year as reported under IFRS (7,881)
---------
(ii) Reconciliation of equity from UK GAAP to IFRS
Group Company
Note As at 1 January Year ended 31 As at 1 January Year ended 31
2005 December 2005 2005 December 2005
#' 000 #' 000 #' 000 #' 000
Total equity
as reported
under UK GAAP 8,248 11,561 9,220 13,254
Adjustments for:-
-------------------
UK GAAP Errors - - - (1,228)
Reinstatement
of
amortisation (ii) - 382 - -
IAS 36
Impairment of
intangible
assets (iv) - (7,442) - -
Impairment of
investment in
subsidiary - - (7,515)
------ ------- -------- ------- --------
Total equity
as reported
under IFRS 8,248 4,501 9,220 4,511
------ ------- -------- ------- --------
(iii) Reconciliation of cash flows from UK GAAP to IFRS
The consolidated statement of cash flows prepared under IFRS present
substantially the same information as that required under UK GAAP. Under IFRS
only there categories of cash flow activity are required to be reported:
operating, investing and financing. Cash flows from returns on investments and
serving of finance under UK GAAP are included as operating activities and
investing activities respectively under IFRS. There are no other material
difference between the cash flow statement presented under IFRS and the cash
flow statement presented under UK GAAP.
(d) Detailed reconciliation between IFRS and UK GAAP
Group
Year ended 31 December 2005
UK GAAP UK GAAP errors Effect of IFRS
transition to
IFRS
#' 000 #' 000 #' 000 #' 000
Administrative
expenses (1,367) 403 382 (582)
Impairment
loss on
intangible
assets - (7,442) - (7,442)
Impairment of investment in
subsidiary - - - -
-------- ------- -------- --------
Operating loss (1,367) (7,039) 382 (8,024)
Interest
receivable 143 - - 143
-------- ------- -------- --------
Loss on
ordinary
activities (1,224) (7,039) 382 (7,881)
Taxation - - - -
-------- ------- -------- --------
Loss for the
year (1,224) (7,039) 382 (7,881)
-------- ------- -------- --------
(e) Reconciliations of equity at 1 January 2005 and 31 December 2005 from UK
GAAP to IFRS
Group
1 January 2005 31 January 2005
UK GAAP UK GAAP errors Effect of IFRS UK GAAP UK GAAP errors Effect of IFRS
transition to transition to
IFRS IFRS
#' 000 #' 000 #' 000 #' 000 #' 000 #' 000 #' 000 #' 000
ASSETS
Non-current
assets
Goodwill - - - - - - - -
Intangible
assets 7,442 - - 7,442 7,060 7,442 382 -
Tangible 11 - - 11 21 - - 21
assets
Investment
in
subsidiaries - - - - - - - -
------ ------ ------- ------ ------ ------ ------- ------
7,453 - - 7,453 7,081 (7,442) 382 21
------ ------ ------- ------ ------ ------ ------- ------
Current
assets
Trade and
other
receivables 85 - - 85 10 - - 10
Cash and
cash
equivalents 1,020 - - 1,020 5,180 - - 5,180
------ ------ ------- ------ ------ ------ ------- ------
1,105 - - 1,105 5,190 - - 5,190
------ ------ ------- ------ ------ ------ ------- ------
Total assets 8,558 - - 8,558 12,271 (7,442) 382 5,211
------ ------ ------- ------ ------ ------ ------- ------
LIABILITIES
Current
liabilities - - - - - - - -
Trade and
other
payables (109) - - (109) (510) - - (510)
------ ------ ------- ------ ------ ------ ------- ------
Net current
assets 996 - - 996 4,680 - - 4,680
------ ------ ------- ------ ------ ------ ------- ------
Non-current
liabilities
Convertible
Loan (200) - - (200) (200) - - (200)
------ ------ ------- ------ ------ ------ ------- ------
(200) - - (200) (200) - - (200)
------ ------ ------- ------ ------ ------ ------- ------
Total
liabilities (309) - - (309) (710) - - (710)
------ ------ ------- ------ ------ ------ ------- ------
Net assets 8,249 - - 8,249 11,561 (7,442) 382 4,501
------ ------ ------- ------ ------ ------ ------- ------
EQUITY
Share
Capital 164 - - 164 176 - - 176
Share
premium
account 11,520 (48) - 11,472 15,672 - - 15,672
Shares to be
issued 1,140 - - 1,140 1,140 - - 1,140
Capital
redemption
reserve 2,415 - - 2,415 2,415 - - 2,415
Merger
reserve (844) 844 - - - - - -
Profit and
loss account (6,146) (796) - (6,942) (7,842) (7,442) 382 (14,902)
------ ------ ------- ------ ------ ------ ------- ------
Total equity 8,249 - - 8,249 11,561 (7,442) 382 4,501
------ ------ ------- ------ ------ ------ ------- ------
Company
1 January 2005 31 December 2005
UK GAAP UK GAAP errors Effect of IFRS UK GAAP UK GAAP errors Effect of IFRS
transition to transition to
IFRS IFRS
#' 000 #'000 #' 000 #' 000 #' 000 #'000 #' 000 #' 000
ASSETS
Non-current
assets
Goodwill - - - - - - - -
Intangible
assets - - - - - - - -
Tangible
assets - - - - - - - -
Investment
in
subsidiaries 7,500 - - 7,500 7,675 (7,515) - 160
------- ------ ------- ------ ------ ------ ------- ------
7,500 - - 7,500 7,675 (7,515) - 160
------- ------ ------- ------ ------ ------ ------- ------
Current
assets
Trade and
other
receivables 1,188 - - 1,188 3,915 (1,228) - 2,687
Cash and
cash
equivalents 744 - - 744 2,184 - - 2,184
------- ------ ------- ------ ------ ------ ------- ------
1,932 - - 1,932 6,099 (1,228) - 4,871
------- ------ ------- ------ ------ ------ ------- ------
Total assets 9,432 - - 9,432 13,774 (8,743) - 5,031
------- ------ ------- ------ ------ ------ ------- ------
LIABILITIES
Current
liabilities
Trade and
other
payables (12) - - (12) (320) - - (320)
------- ------ ------- ------ ------ ------ ------- ------
Net current
assets 1,920 - - 1,920 5,779 (1,228) - 4,551
------- ------ ------- ------ ------ ------ ------- ------
Non-current
liabilities
Convertible
Loan (200) - - (200) (200) - - (200)
------- ------ ------- ------ ------ ------ ------- ------
(200) - - (200) (200) - - (200)
------- ------ ------- ------ ------ ------ ------- ------
Total
liabilities (212) - - (212) (520) - - (520)
------- ------ ------- ------ ------ ------ ------- ------
Net assets 9,220 - - 9,220 13,254 (8,743) - 4,511
------- ------ ------- ------ ------ ------ ------- ------
EQUITY
Share
Capital 164 - - 164 176 - - 176
Share
premium
account 11,520 (48) - 11,472 15,672 - - 15,672
Shares to be
issued 1,140 - - 1,140 1,140 - - 1,140
Capital
redemption
reserve 2,415 - - 2,415 2,415 - - 2,415
Profit and
loss account (6,019) 48 - (5,971) (6,149) (8,743) - (14,892)
------- ------ ------- ------ ------ ------ ------- ------
Total equity 9,220 - - 9,220 13,254 (8,743) - 4,511
------- ------ ------- ------ ------ ------ ------- -------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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