Report and Accounts 2009 - Pa

RNS Number : 5087D

Phytopharm PLC

03 December 2009

 



Notes to the financial statements

Page 49

11    Loss per ordinary share

The calculation of basic and diluted loss per share is based on the loss on ordinary activities after taxation, namely £3,910,688 (2008: £2,274,702) and on 94,548,391 (2008: 75,452,138) ordinary shares, being the weighted average number of ordinary shares in issue and ranking for dividend during the period.

The Company has no dilutive potential ordinary shares in issue because it is loss making.

12    Property, plant and equipment

Group	Short		Computer		Motor		Plant and		Fixtures		Total
	leasehold		equipment		vehicles		machinery		and fittings
	£		£		£		£		£		£
Cost
At 1 October 2008	3,363		296,694		160,677		28,271		188,368		677,373
Additions	5,821		8,704		25,850		567		1,319		42,261
Disposals	-		(54,043)		(91,527)		-		-		(145,570)
At 30 September 2009	9,184		251,355		95,000		28,838		189,687		574,064
Depreciation
At 1 October 2008	3,363		193,622		95,695		23,619		156,854		473,153
Charge for year	1,779		45,839		38,230		1,695		13,432		100,975
Disposals	-		(51,371)		(51,059)		-		-		(102,430)
At 30 September 2009	5,142		188,090		82,866		25,314		170,286		471,698
Net book value
At 30 September 2009	4,042		63,265		12,134		3,524		19,401		102,366
Net book value
At 30 September 2008	-		103,072		64,982		4,652		31,514		204,220

Company

The Company has no property, plant and equipment.

13    Intangible assets

	30 September		30 September
	2009		2008
Cost
At 1 October	99,400		-
Additions	-		99,400
Net carrying value
At 30 September	99,400		99,400

Intangible assets represent patent and know-how licences acquired externally that have been recognised as an asset at cost. The Board has undertaken a review of intangible assets, and has concluded that their carrying value as presented above is consistent with their recoverable value.

Company

The Company has no intangible assets.

Notes to the financial statements

Page 50

14    Investments

	Group				Company
	2009		2008		2009		2008
Investment in group undertakings	£		£		£		£
At 1 September	-		-		1,593,429		2,330,855
Share option credit	-		-		(147,768)		(737,426)
At 30 September	-		-		1,445,661		1,593,429

Interests in Group undertakings

			Proportion of voting rights and nominal value of issued shares held by
Name of undertaking	Country of incorporation	Description of shares held	Group %	Company %
Phytotech Limited	England and Wales	Ordinary 10 pence shares	100	100
Phytodevelopments Limited	England and Wales	Ordinary £1 shares	100	-

Both the above companies have been included in these financial statements and operated principally in their country of incorporation or registration.

The principal business activities of these subsidiary undertakings are:

Phytotech Limited - development of pharmaceutical products and functional foods

Phytodevelopments Limited - dormant

15    Amounts due from subsidiary undertaking

	Group				Company
	30 September		30 September		30 September		30 September
	2009		2008		2009		2008
	£		£		£		£
Amounts due from subsidiary undertaking	-		-		12,291,586		10,003,509

No provision was made against the amount due to the Company from its subsidiary undertaking during the year (2008: £36,384,471).

There are no fixed terms in respect of amounts owed by subsidiary undertakings. These are non-interest bearing, unsecured and not payable on demand.

16    Inventories

	30 September			30 September
	2009			2008
	£			£
Finished goods and goods for resale	-			69,708
Work in progress	126,292			126,292
Raw materials and consumables	123,182			204,231
	249,474			400,231

The Company has no inventories.

Notes to the financial statements

Page 51

17    Trade and other receivables

The fair value of trade and other receivables are the current book values.

	Group				Company
	30 September		30 September		30 September		30 September
	2009		2008		2009		2008
	£		£		£		£
Trade receivables	44,794		54,330		-		-
Other receivables	11,803		27,427		(3,943)		4,052
Prepayments and accrued income	171,422		402,118		25,997		180,575
	228,019		483,875		22,054		184,627

As of 30 September 2009, the Group had no trade receivables that were past due but not impaired (2008: £4,090). These related to independent customers for whom there was no recent history of default.

The ageing analysis of these trade receivables is as follows:

	Group				Company
	30 September		30 September		30 September		30 September
	2009		2008		2009		2008
	£		£		£		£
Less than three months	44,794		50,369		-		-
Three months to one year	-		-		-		-
More than one year	-		3,961		-		-
	44,794		54,330		-		-

The carrying amounts of the Group's trade receivables are denominated in the following currencies:

	Group				Company
	30 September		30 September		30 September		30 September
	2009		2008		2009		2008
	£		£		£		£
GB pounds	6,228		39,960		-		-
Indian Rupee	-		3,961		-		-
US dollar	36,280		10,409		-		-
South African Rand	2,286		-		-		-
	44,794		54,330		-		-

There is no bad debt provision against any trade receivables at 30 September 2009 and 30 September 2008.

The Company has no trade receivables.

18    Money market investments

	Group				Company
	30 September		30 September		30 September		30 September
	2009		2008		2009		2008
	£		£		£		£
Held-to-maturity financial assets	-		5,500,000		-		5,500,000

These represent fixed-rate short-term deposits placed with a range of banks at fixed terms.

Notes to the financial statements

Page 52

19    Cash and cash equivalents

	Group				Company
	30 September		30 September		30 September		30 September
	2009		2008		2009		2008
	£		£		£		£
Cash and cash equivalents	3,910,117		1,607,067		3,683,802		736,950

The Company holds its excess cash and cash equivalents in a combination of fixed interest accounts and fixed term money market deposits. At 30 September 2009 and 30 September 2008 these did not exceed three months in duration.

20    Trade and other payables

The fair value of trade and other payables are the current book values.

	Group				Company
			30 September		30 September		30 September
	2009		2008		2009		2008
	£		£		£		£
Trade payables	203,597		343,461		14,724		71,989
Other payables	5,871		14,596		-		-
Other taxation and social security	32,160		44,689		-		-
Accruals and deferred income	1,505,192		930,840		55,435		58,655
	1,746,820		1,333,586		70,159		130,644

21    Provisions

Provision for employer's national insurance on share option gains

There is no provision for employer's National Insurance on share option gains at the period end as options granted under the 2007 share option schemes have transferred the liability for National Insurance to the employee.

Deferred taxation

The Group and Company have the potential deferred tax assets shown below, which are not recognised due to uncertainty as to the timing of their utilisation.

	Group				Company
	30 September		30 September		30 September		30 September
	2009		2008		2009		2008
	£		£		£		£
Tax effect of timing differences:
Excess of tax allowances over depreciation	332,609		318,633		8,195		8,195
Accumulated losses	11,186,799		10,321,347		1,007,374		893,953
	11,519,408		10,639,980		1,015,569		902,148

Notes to the financial statements

Page 53

22    Financial instruments

The Group's financial instruments comprise primarily cash and liquid resources, and various items such as trade receivables and trade payables, which arise directly from its operations. The Group does not enter into derivative transactions.

The Group's ongoing objectives in using financial instruments are to maximise the returns on funds held on deposit, to minimise exchange rate risk where appropriate, and to generate additional cash resources through the issue of shares when market conditions are appropriate. In addition, the Group has from time to time conserved cash resources by entering into financing arrangements for the acquisition of major capital assets.  

The balance sheet positions at 30 September 2009 and 30 September 2008 are not representative of the positions throughout the period as cash and short-term investments fluctuate considerably depending on when significant receipts have occurred and on the timing of share issues.  

Risk in relation to the use of financial instruments

Capital risk

The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained loss. The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern and to ensure that the Group has sufficient capital available to meet future funding requirements.

Liquidity risk

The Group's policy throughout the year regarding liquidity has been to maximise the return on funds, but to minimise the associated risk by placing funds in low risk cash deposits and short term cash deposits. The Board monitors the level of cash and money market investments on a regular basis and management monitors the level on a daily basis, to ensure that the Group has sufficient liquid funds to meet its commitments as they fall due.  

The Group and Company holds cash deposits at call or with a maturity of up to twelve months.  

Trade payables are normally payable within the terms specified by the supplier.

Credit risk

Other than trade receivables, the financial instruments that subject the Group to a potential credit risk comprise principally of cash and money market investments. The Group's policy is to minimise the risks associated with cash and money market investments by placing these deposits with institutions with a recognised high rating (typically AA or above), or with one of the major clearing banks. Trade receivables are largely with highly reputable, creditworthy trading partners.

Interest rate risk 

The Group held all cash, bank and held-to-maturity investments in pounds sterling (GBP) Euro's (EUR) and United States Dollar (USD) accounts. Interest rates on current accounts are floating and are based on LIBID, while interest rates on term deposits are fixed for the duration of deposit.

The Group does not have any committed borrowing facilities. Consequently, there is no material exposure to interest rate risk in respect of financial liabilities.

Notes to the financial statements

Page 54

Foreign currency risk

The Group's principal functional currency is GBP. However during 2009, the Group had income and expenditure in USD. The Group's policy is to maintain natural hedges, where possible, by matching USD revenue with USD expenditure. The Group also incurred minimal expenditure in other foreign currencies and the strengthening of GBP against those currencies is not considered to have a material impact on the net loss for the period. Consequently, there is no material exposure to foreign currency rate risk.

Fair value of financial assets and liabilities

There is no material difference between the fair value and the carrying values of the financial instruments referred to above, because of the short maturity period of these financial instruments or their intrinsic size and risk.

Notes to the financial statements

Page 55

Financial instruments by category

	30 September 2009						30 September 2008
	Loans and receivables		Held to maturity financial assets		Total		Loans and receivables		Held to maturity financial assets		Total
	£		£		£		£		£		£
Group
Assets as per balance sheet
Trade and other receivables excluding prepayments	56,597		-		56,597		81,757		-		81,757
Money market investments	-		-		-		-		5,500,000		5,500,000
Cash and cash equivalents	3,910,117		-		3,910,117		1,607,067		-		1,607,067
	3,966,714		-		3,966,714		1,688,824		5,500,000		7,188,824
	30 September 2009						30 September 2008
	Loans and receivables		Held to maturity financial assets		Total		Loans and receivables		Held to maturity financial assets		Total
	£		£		£		£		£		£
Company
Assets as per balance sheet
Trade and other receivables excluding prepayments	(3,943)		-		-		4,052		-		4,052
Money market investments	-		-		-		-		5,500,000		5,500,000
Cash and cash equivalents	3,683,802		-		3,683,802		736,950		-		736,950
	3,683,802		-		3,683,802		741,002		5,500,000		6,241,002
	30 September 2009						30 September 2008
					Other financial liabilities						Other financial liabilities
					£						£
Group
Liabilities as per balance sheet
Trade and other payables excluding statutory liabilities					1,714,660						1,288,897
	30 September 2009						30 September 2008
					£						£
					Other financial liabilities						Other financial liabilities
Company
Liabilities as per balance sheet
Trade and other payables excluding statutory liabilities					70,159						130,644

Notes to the financial statements

Page 56

23    Pensions and similar obligations

The Group operates a number of defined contribution pension schemes for employees. The assets of the schemes are held separately from those of the Group in independently administered funds. The pension cost represents contributions paid and payable by the Group to the funds and amounted to £54,409 (2008: £113,368). The amounts outstanding in respect of pensions are £5,871 (2008: £14,956).

24    Share capital

	30 September		30 September
	2009		2008
	£		£
Authorised
150,000,000 (2008: 150,000,000) ordinary shares of 1pence each	1,500,000		1,500,000
Allotted, called-up and fully paid
94,548,391 (2008: 94,548,391) ordinary shares of 1pence each	945,484		945,484

In the period ended 30 September 2009 no shares were issued for cash consideration. During the period the Company received reimbursement of £37,913 in respect of VAT on previous share issue costs.

On 28 March 2008, the Company issued 38,929,048 new ordinary shares of 1 pence each at a price of 22 pence per share for a total cash consideration of £7,371,493 after the expenses of the issue. The nominal value of these shares was £389,291.

The remaining 13,034 shares issued relate to the Phytopharm Share Incentive Plan 2007 whereby the Company issued one "Matching Share" for every "Partnership Share" purchased by the employee up to May 2008. As from June 2008 "Matching Shares" under the scheme have been market purchases. All the shares are held by the scheme Trustee until the shares vest unconditionally with the employee. The nominal value of these shares was £130.

Notes to the financial statements

Page 57

25    Options over shares of Phytopharm plc

Potential issues of ordinary shares

The company may grant share options to selected employees on joining the Company and any such grants are made following the preliminary and interim announcements together with performance related grants to all employees. Performance criteria must be satisfied before share options can be exercised and these are detailed below. In addition the Company has a long-term incentive scheme under which long-term share incentives may be granted to selected Senior Executives.

The outstanding share scheme options and long-term incentive awards at 30 September 2009 are shown below analysed according to the exercise criteria.

Number						Currently	Currently
outstanding	Exercise		Date	Exercisable		vested	exercisable
30/09/2009	Price	Note	granted	From	To	30/09/2009	30/09/2009
Phytopharm Share Option Plan 2007
52,000	£0.445	2c	03/08/2007	03/08/2010	02/08/2017	-	-
87,863	£0.31	2c	19/12/2007	19/12/2010	18/12/2017	-	-
14,327	£0.235	2c	28/03/2008	28/03/2011	27/03/2018	-	-
274,621	£0.2175	2c	30/05/2008	30/05/2011	29/05/2018	-	-
480,145	£0.0413	2c	11/03/2009	11/03/2012	10/03/2019	-	-
908,956						-	-
Phytopharm Long Term Incentive Plan 2007
27,810	£0.4825	4	12/09/2007	01/10/2010	30/09/2011	-	-
125,285	£0.0613	4	22/12/2008	22/12/2011	21/12/2012	-	-
153,095						-	-

Notes to the financial statements

Page 58

1    On 9 January 2007 the Remuneration Committee made a performance share award of 350,000 ordinary shares to Dr D Rees, and 250,000 ordinary shares to Mr P Morgan at an exercise price of 45 pence per share. The Remuneration Committee considered that there was a considerable risk of Dr Rees leaving the Company as his existing share option awards were at option prices significantly in excess of the current share price and this performance share award was granted, as permitted by Listing Rule 9.4.2 (2) to retain the services of Dr Rees. The Remuneration considered that the award to Mr Morgan was necessary and as permitted by Listing Rule 9.4.2 (2), to secure the services of Mr Morgan. Following the resignation of Dr D D Rees and Mr P J Morgan on 13 November 2008, these options lapsed.

2a    These options vest on the second anniversary of the date of grant and have been granted under the Phytopharm Share Option Plan 2007; Enterprise Management Incentive Scheme. The number of options exercisable will be determined by the Company's TSR compared to the constituents of the FTSE Small Cap Index. The value of options (at date of grant) will be exercisable if the Company's TSR in the relevant ranking group is above the median.

2b    These un-approved options vest on the second anniversary of the date of grant and have been granted under the Phytopharm Share Option Plan 2007. The number of options exercisable will be determined by the Company's TSR compared to the constituents of the FTSE Small Cap Index. The value of options (at date of grant) will be exercisable if the Company's TSR in the relevant ranking group is above the median.

2c    These options vest on the third anniversary of the date of grant and have been granted under the Phytopharm Share Option Plan 2007; Enterprise Management Incentive Scheme. The number of options exercisable will be determined by the Company's TSR compared to the constituents of the FTSE Small Cap Index. The value of options (at date of grant) will be exercisable if the Company's TSR in the relevant ranking group is above the median.

2d    These un-approved options vest on the third anniversary of the date of grant and have been granted under the Phytopharm Share Option Plan 2007. The number of options exercisable will be determined by the Company's TSR compared to the constituents of the FTSE Small Cap Index. The value of options (at date of grant) will be exercisable if the Company's TSR in the relevant ranking group is above the median.

3a    These options vest on the second anniversary of the date of grant and have been granted under the long-term incentive plan. The number of options exercisable will be determined by the Company's TSR compared to the constituents of the FTSE Small Cap Index. The value of options (at date of grant) will be exercisable at 25% if the Company's TSR in the relevant ranking group is above the median rising to 100% for upper decile performance.

3b    These options vest on the third anniversary of the date of grant and have been granted under the long-term incentive plan. The number of options exercisable will be determined by the Company's TSR compared to the constituents of the FTSE Small Cap Index. The value of options (at date of grant) will be exercisable at 25% if the Company's TSR in the relevant ranking group is above the median rising to 100% for upper decile performance.

4    These options are granted under a save as you earn plan approved by HMRC. The last offer under the plan was made to all employees and Executive Directors on 13 August 2007.

Notes to the financial statements

Page 59

Option valuations

Options were valued using a stochastic model (also known as a Monte Carlo model). The fair value per option granted and the assumptions used in the calculation for options granted since 3 August 2007 are set out in the tables below. The Company's effective date for IFRS2, "Share Based Payments" implementation is 1 September 2005 and the IFRS has been applied to all options granted after 7 November 2002 which have not vested by this effective date and options granted before this effective date which have been subsequently modified.

Award	Grant date	Exercise price	Number of shares outstanding at 30 September 2009	Fair value per option at grant date
		£		£
2007 Share option plan	03/08/2007	0.445	52,000	0.2034
2007 Share option plan	19/12/2007	0.31	87,863	0.1531
2007 Share option plan	28/03/2007	0.2375	14,327	0.1297
2007 Share option plan	30/05/2008	0.2175	274,621	0.1142
2007 Share option plan	11/03/2009	0.0413	480,145	0.0223
2007 Sharesave plan	12/09/2007	0.4825	27,810	0.1900
2007 Sharesave plan	22/12/2008	0.0613	125,285	0.0308

Notes to the financial statements

Page 60

The fair values of the original share options granted but not vested as at 30 September 2009 were calculated using the following assumptions:

Award	Grant date	Expected term	Expected dividend yield (note(b))	Expected volatility (note (c))	Risk free rate (note (d))	Performance condition (note)
2007 Share option plan	03/08/2007	3 years	0%	67.5%	5.4%	2c
2007 Sharesave plan	12/09/2007	3 years	0%	64.5%	4.9%	4
2007 Share option plan	19/12/2007	3 years	0%	65.7%	4.7%	2c
2007 Share option Plan	28/03/2008	3 years	0%	69.8%	4.1%	2c
2007 Share option plan	30/05/2008	3 years	0%	69.9%	4.9%	2c
2007 Sharesave plan	22/12/2008	3 years	0%	77.2%	1.9%	4
2007 Share option plan	11/03/2009	3 years	0%	72.4%	2.3%	2c

Notes to assumptions

a)   

i) 40% of participants exercise after 3 years if a gain of 40% is available. If this gain is not available, these individuals hold on to their shares until such a gain can be made. The performance test must be satisfied. If the test has not been satisfied at the date of leaving, the awards lapse.

ii) 25% of the remainder exercise from the 3rd anniversary onwards using a reducing balance methodology, providing that a gain of 20% is available. If this gain is not available, these individuals refrain from exercising until such a gain can be made.

iii) 15% of the total participants are "good leavers" (where the employee may have up to twelve months to exercise options).

iv) 5% of the participants exercise per annum in years 4 onwards on a reducing balance methodology, providing that the options are "in the money" (irrespective of the level of gain) to allow for leavers in these periods. This is reduced to 7 years for the 7 year options granted under the ESOS.

v) any remaining options are exercised at maturity providing that they are "in the money". Any awards that are "underwater" therefore lapse at maturity.

This exercise strategy is subject to the passing of the performance conditions described above.

b) The dividend yield of 0% reflects the absence of a history of paying dividends and a clear dividend policy statement at the relevant grant dates.

c) Expected volatility is the measurement of the amount by which a share price is expected to fluctuate during a period. The expected volatility has been calculated using the standard approach of calculating the standard deviation of the natural logarithm of historical share price movements.

d) UK Gilt rates prevalent on the date of grant with a period commensurate with the term of the award.

Notes to the financial statements

Page 61

A reconciliation of share option scheme movements for the periods ended 30 September 2008 and 30 September 2009 is set out below:

	2009				2008
			Weighted				Weighted
			average				average
			exercise price				exercise price
	Number		£		Number		£
At 1 October	4,467,500		0.36		3,625,359		0.42
Granted	843,470		0.05		1,305,003		0.23
Exercised	-		-		-		-
Lapsed	(4,248,919)		0.35		(462,862)		0.53
At 30 September	1,062,051		0.15		4,467,500		0.36

The following tables summarise the information about the range of exercise prices for share options outstanding at 30 September 2009 and 30 September 2008:

		30 September 2009						30 September 2008
Range of exercise prices		Weighted average  exercise  price				Weighted average remaining life contractual years		Weighted average  exercise  price				Weighted average remaining life Contractual years
				Number of shares						Number of shares
		£						£
£0.01		-		-		-		0.01		561,136		9.45
£0.04 to £0.07		0.05		605,430		8.34		-		-		-
£0.21 to £0.23		0.22		288,948		9.00		-		-		-
£0.31		0.31		87,863		8.00		-		-		-
£0.44 to £.48		0.46		79,810		5.91		-		-		-
£0.48 to £0.56		-		-		-		0.39		3,906,364		9.05

The total credit for the period relating to employee share-based payment plans was £147,768 (2008: £737,426) all of which related to the above equity based transactions. The credit arose due to the large number of unvested options which lapsed in the period.

26    Post balance sheet events

In December 2009, the Group approved a £24.1 million (net of expenses) underwritten fundraising. The Placing and Open Offer will be voted on by shareholders at the General meeting on 29 December 2009.

27    Capital commitments

The Group had no capital commitments contracted but not provided for at 30 September 2009 (2008: £25,995). The Company had no capital commitments contracted but not provided for at 30 September 2009 (2008: £nil).

28    Contingent liabilities

There were no contingent liabilities in the Group or Company at 30 September 2009 (2008: £nil).

Notes to the financial statements

Page 62

29    Financial commitments

At 30 September 2009 there were the following commitments under non-cancellable operating leases:

	2009				2008
	Land and				Land and
	buildings		Other		buildings		Other
	£		£		£		£
Within one year	13,650		-		6,474		-
Between two and five years inclusive	17,063		-		-		-
	30,713		-		6,474		-

Company

The Company has no annual commitments under non-cancellable operating leases.

The Group has purchase obligations of £208,103 in respect of its sub-contracted research and development activities as at 30 September 2009 (2008: £481,896). The Company had no such commitments.

30    Related party transactions

Group

Under IAS 24 "Related Party Disclosures" the Group is not required to disclose inter-group transactions which are eliminated on consolidation.

The Directors regard Phytopharm plc as the ultimate controlling party of the Group.

Company

The inter-company balances outstanding at 30 September 2009 and 30 September 2008 are shown on the Company balance sheet.

The Company has been charged £333,407 (2008: £458,046) for corporate services provided by subsidiary undertakings.

The remuneration received by key management personnel, including the Directors, is disclosed in note 6.

Page 63

Shareholder information

Registered office

Corpus Christi House

9 West Street

Godmanchester

PE29 2HY

Phytopharm plc is a company registered in England and Wales, which is listed on the London Stock Exchange (symbol: PYM)

Company number

03131723

Registrars

Equiniti Registrars Limited

The Causeway

Worthing

BN99 6DA

Brokers

KBC Peel Hunt Limited

111 Old Board Street

London

EC2N 1PH

Auditors

PricewaterhouseCoopers LLP

Abacus House

Castle Park

Cambridge

CB3 0AN

Solicitors

White & Case

5 Old Broad Street

London

EC2N 1DW

Financial public relations

FD

Holborn Gate

26 Southampton Buildings

London

WC2A 1PB

Financial Advisors

N M Rothschild & Sons Limited

New Court

St Swithins Lane

London

EC4P 4DU

 

END

 

 

FR ZGMGZGFVGLZG