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Lipoxen PLC (XEN)

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Wednesday 25 April, 2007

Lipoxen PLC

Annual Report and Accounts

Lipoxen PLC
25 April 2007



                                 LIPOXEN PLC

                                ANNUAL REPORT

                              FOR THE YEAR ENDED

                              31st DECEMBER 2006


                     Company Registration Number 3213174


CONTENTS                                             PAGE

Officers and professional advisers                     1

Chairman's statement                                   2

Report of the directors                                6

Independent auditors' report to the members           10

Group profit and loss account                         12

Group balance sheet                                   13

Company balance sheet                                 14

Group cash flow statement                             15

Notes to the financial statements                     16



OFFICERS AND PROFESSIONAL ADVISERS


Directors                     Sir Brian Richards
                              Scott Maguire
                              Professor Gregory Gregoriadis
                              Dr Dmitry D. Genkin
                              Dr Tatiana Zhuravskaya
                              Dr Giap Wang Chong
                              Colin W. Hill

Company secretary             Cargil Management Services Limited

Registered office             22 Melton Street
                              London
                              NW1 2BW

Auditors                      PKF (UK) LLP
                              Chartered Accountants
                              & Registered Auditors
                              Farringdon Place
                              20 Farringdon Road
                              London
                              EC1M 3AP

Bankers                       Bank of Scotland
                              14 Cockspur Street
                              London
                              SW1Y 5BL

Solicitors                    Charles Russell
                              8-10 New Fetter Lane
                              London
                              EC4A 1RS


CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2006

I am pleased to report on the considerable progress we have delivered in our
first year of trading as Lipoxen plc on AIM. Lipoxen is a biopharmaceutical
company specialising in the development of high value differentiated
biologicals, vaccines and oncology drugs based on novel drug and vaccine
delivery technologies. These technologies have the potential to improve greatly
the performance of biologicals, vaccines and oncology drugs by optimising their
performance and extending patent-life.

Lipoxen has adopted a two-pronged strategy in order to capture fully the
potential that its technologies offer by developing its own product portfolio as
well as working with a range of market leading collaborative partners to assist
them in developing new products in addition to optimising the performance and
extending the patent-life of their current drugs.

The Company's technology is comprised of:

  • PolyXen(R) protein drug delivery technology. This technology links
    therapeutic proteins or peptides to the naturally occurring polymer
    polysialic acid ('PSA') to prolong their stability, biological half-life,
    solubility and immunologic characteristics while maintaining their
    biological activity and minimising toxicity. The Company believes PolyXen(R)
    offers many advantages over PEGylation, which is currently widely used in
    the pharmaceutical and biotechnology industries to formulate biologicals.

  • ImuXen(R). This technology is based on using liposomes to administer
    vaccines. The vaccine components (antigens and adjuvants) are protected by
    the liposomal vesicle enhancing their delivery to the immune system. This
    leads to protective immune responses which are much stronger and more rapid
    than those observed with vaccines delivered by conventional means. Moreover,
    liposomal formulations are well known to minimize the side effects of
    vaccination as a result of the containment and slow release of the active
    materials.

  • VesicAll(R). This is a related liposomal technology which is being
    developed for the formulation of cytotoxic oncology drugs and a number of
    other anti-cancer agents, such as paclitaxel. VesicAll is a drug vehicle for
    solubilisation of hydrophobic drugs designed to avoid the known toxicity of
    established vehicles such as Cremaphor(R), which gives rise to anaphylactic
    reactions.

The Company's current R&D portfolio includes 11 developmental and pre-clinical
initiatives across a range of biologics, vaccines, and cytotoxic drugs. Of
these, nine are being co-developed under collaboration with the Serum Institute
of India Limited. The lead product is ErepoXen, a reformulated EPO product
candidate with a sustained release profile, designed to require less frequent
injections, which is currently in the final stages of pre-clinical development.
This product is expected to enter clinical trials during the course of 2007.

Lipoxen has two products in its own proprietary pipeline - the most advanced of
which is SuliXen, a long acting insulin for type 2 diabetes, which is due to
enter Phase I proof of concept clinical trials in mid-2007.

Serum Institute of India Limited ('SIIL')

In August 2006 Lipoxen and SIIL, India's largest biotechnology company and one
of the world's largest vaccine companies, expanded their strategic partnership.
As part of this expansion SIIL subscribed for 10 million new ordinary shares in
Lipoxen at 26 pence per share for a total of £2.6 million, thereby increasing
its then holding to 15.28%. In addition, the Company entered into a warrant
agreement with SIIL pursuant to which SIIL is entitled to subscribe for a
further 2.7 million ordinary shares in the Company at a price of 35 pence per
ordinary share, which if fully exercised now, would increase its holding to
approximately 20.73% while injecting some £945,000 of new capital into the
Company.

In addition, SIIL and the Company entered into a Development and Manufacturing
Agreement ('DMA') under which SIIL will provide Lipoxen with a unique source of
PSA in accordance with Good Manufacturing Practice ('GMP') standards and
according to defined specifications. This is an important agreement for Lipoxen
as PSA is a key component of the Company's PolyXen(R) protein drug delivery
technology and will facilitate the Company's ongoing proprietary development
programmes and drive to product commercialisation; the DMA further provides for
a continuous supply of PSA to the Company's current and future collaborative
partners.

Lipoxen has built a strong relationship with SIIL which dates back to an
original agreement established in December 2004. The partnership now covers nine
biologics, vaccines and oncology drug candidates which are currently in or being
advanced to pre-clinical trials. The most advanced of these is ErepoXen, an
improved EPO product candidate, designed to require less frequent injections.
SIIL has exclusive rights to these candidates in the developing world and,
together with Lipoxen, jointly owns rights to certain candidates in the
developed world.

Baxter Development Agreement

In December 2006, following a 15-month research evaluation of Lipoxen's PolyXen
(R) drug delivery technology with Baxter's proprietary proteins, Lipoxen and a
subsidiary of Baxter International Inc entered into an exclusive worldwide
development and licence agreement. The signing of this agreement by Baxter
triggered a $1million payment to Lipoxen, and the agreement includes further
clinical, regulatory and sales milestone payments to Lipoxen potentially worth
up to a total of $75million, plus royalties on future product sales. The
agreement is focused on developing improved, longer-acting forms of Factor VIII,
a therapeutic protein drug used for blood-clotting disorders, based on Lipoxen's
PolyXen(R) technology.

Bio-Entrepreneur of the Year Award

In July 2006, the Company was honoured with a Bio-Entrepreneur of the Year award
from UK Trade & Investment in recognition of its development efforts in India
with SIIL.

Financial Review

The financial results for the Group in the period under review were:

                                                             2006         2005
                                                            £'000        £'000

Turnover                                                    1,219            -
Total pre-tax losses for period                             2,132          112
Non-cash component of total pre-tax loss                    1,277            -
Net cash at 31 December                                     2,690          143
Net asset value as 31 December 2006                        13,160          104

                                                                p            p

Loss per share - basic and fully diluted                     2.05         2.06
Net asset value per share - basic                           11.40         1.25
Net asset value per share - fully diluted                   10.65         1.25


Shareholders should note that the financial statements for the period reflect a
significant level of non-cash costs by way of:

                                                                          2006
                                                                         £'000

Amortisation charges                                                       318
Depreciation of owned assets                                                57
R+D costs - equity settled                                                 395
Share option expense - equity settled                                      507
                                                                 ---------------
Total principal non-cash items                                           1,277
                                                                 ===============


Analysis of the total administrative expenses included within the profit and
loss account reveals that a majority of the expenses went to research and
development:
                                                 2006                     2006
                                                £'000                        %

Research and development - cash settled         1,320                     60.5
Other expenses - cash settled                     862                     39.5
                                        ---------------          ---------------
Total expenses - cash settled                   2,182                    100.0
Total non-cash items                            1,277                      =====
                                        ---------------
Total administrative expenses                   3,459
                                        ===============


Accordingly, it can be seen that the net cash-based expense in the period was
limited to some £855,000 (being the £2,182,000 shown above after deducting
turnover of £1,219,000 and interest income of £108,000) and the Company can take
some satisfaction that it has made significant scientific strides forward on a
relatively low cash burn basis. Since 2006 was the first year as a listed
company, the Company incurred higher than expected administrative expenses
primarily related to becoming a public company.

Of course, the Company's success in the recent past has generated the need to
accelerate its efforts in the future which, in turn, will result in a relatively
rapid growth in the spend on the scientific level of effort, and,
notwithstanding the close focus that the management team applies to cost control
in all areas of the business, there will be a continuing need for financial
prudence in the application of the available resources. Concomitant with this
requirement is a need to operate effective, but not restrictive, financial
controls across all areas of the company's operations, and, to that end, the
Directors are active in ensuring that the Company has an appropriate level of
non-scientific infrastructure to implement the necessary control processes and
procedures.

Lipoxen is an early stage development company in the life sciences sector and,
as such, its future is dependent upon regulatory compliance, clinical trial
success and the successful continued prosecution of its Intellectual Property
portfolio. In order to maintain the necessary growth in the level of scientific
effort to meet its commercial objectives it is crucial that adequate financial
resources are available to the Company. As at the date of this report, and in
consideration of ongoing development contracts, the Company is well positioned
to meet its ongoing obligations; however, the need to raise additional new
capital in the current financial year may yet arise as and when the demands
placed on the scientific effort increase beyond the Company's current and
expected financial capacity.

Outlook

The Directors are extremely pleased with the continued progress that the Company
has made in its first financial year as a quoted biopharmaceutical company. In
the last twelve months, Lipoxen has further validated its technologies through
the establishment of two major development agreements with Serum Institute of
India and Baxter Healthcare (USA), both of whom have significant biologicals and
vaccine expertise and represent key market and technological relationships going
forward. Based on the Company's dynamic technologies, Lipoxen, together with its
collaborative partners, is focussed on developing a pipeline of high value
product candidates, and we look forward to making further progress in the coming
year as we seek to drive additional shareholder value from our strong technology
base.

The Directors and I would like to thank all of the management and staff for
their substantial contribution to our successes in the last year and I look
forward to their continuing commitment in the future.


Brian Richards, CBE
Non-Executive Chairman

London: 24th April 2007



REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31ST DECEMBER 2006

The Directors present their report and the financial statements for the year
ended 31st December 2006.

Principal activities and business review

The principal activity of the Company during the year was to act as a holding
company.

On 16th January 2006, the Company acquired Lipoxen Technologies Limited for a
consideration satisfied by the issue of 66,666,662 new ordinary shares of 0.5p
each to the vendors, and raised £3.78 million (before expenses) by way of a
placing of 28,000,000 new ordinary shares of 0.5p each at a price of 13.5p per
share. The Company has changed its name to Lipoxen Plc following the
acquisition.

Lipoxen Technologies Limited is engaged in the development of drug delivery
systems and proprietary products in the fields of protein drugs, vaccines and
oncology.

Research and development

Research and development is an integral part of the Group's operations and it
intends to maintain this commitment in the future.

Review of the business

A full review of the business and of future prospects is contained in the
Chairman's Statement which accompanies these financial statements.

The Board considers that the primary key performance indicators ('KPIs') are
non-financial and relate to the progress of the scientific programs which are
discussed in the Chairman's Statement. The most important financial KPIs are the
cash position and the annual net cash spend which are also discussed in the
Chairman's Statement.

The Board considers that the principal risks and uncertainties facing the Group
may be summarised as follows:

(a)  that the scientific programs may not complete clinical trials and 
     regulatory approval processes;

(b)  patent applications may not be successful;

(c)  potential loss of key scientific staff.

Results and dividends

The trading results for the year and the group's financial position at the end
of the year are shown in the attached financial statements.

The Directors have not recommended a dividend.

Directors and their interests

The Directors who served the company during the year together with their
beneficial interests in the shares of the company were as follows:

                               Ordinary  Shares of 0.5p           Share options
                                 2006            2005            2006            2005
Sir Brian Richards                  -                *-       203,486          *101,743
Scott Maguire                       -                *-     6,575,366                *-
Professor Gregory
Gregoriadis                 5,561,973        *5,561,973       406,974          *406,974
Dr Dmitry D. Genkin                 -                *-             -                *-
Dr Tatiana Zhuravskaya              -                *-       339,145          *339,145
Dr Giap Wang Chong            375,000         375,000               -               -
Colin W. Hill                 375,000         375,000               -               -
                        =============== =============== =============== ===============

*at date of appointment


On 16th January 2006, Malcolm A. Burne resigned as a Director and Sir Brian
Richards, Scott Maguire, Professor Gregory Gregoriadis, Dr Dmitry D. Genkin and
Dr Tatiana Zhuravskaya were appointed as Directors.

Directors' indemnities

The Group has purchased insurance to cover its Directors and officers against
liabilities arising against them in that capacity.

Corporate governance

Although it is not a requirement for AIM-listed companies, the Company seeks
within the practical confines of a smaller company to act in compliance with the
principles of good governance and the code of best practice as set out in the
Combined Code on Corporate Governance. The Audit Committee and the Remuneration
Committee are chaired by non-executive Directors. The whole Board acts as a
Nomination Committee. The Board has identified the principal business and
financial risks facing the Group and documented the key control procedures that
are in place to manage these risks. This document is subject to review by the
Audit Committee and updated on a regular basis.

IFRS

The Group has commenced work in preparation for the requirement to report under
International Financial Reporting Standards ('IFRS') for the year ending 31
December 2007. The principal impact on the Group's results and financial
position as a result of the transition to IFRS will be:

(a)  because of the number of Lipoxen Plc shares issued to the former 
     shareholders of Lipoxen Technologies Limited relative to the number in 
     issue prior to the acquisition, the reverse acquisition accounting 
     requirements of IFRS 3 'Business combinations' will apply, and the Group's 
     consolidated financial statements will be presented as if Lipoxen 
     Technologies Limited was the 'acquirer' and Lipoxen Plc was the 'acquiree';
     and

(b)  The goodwill arising on consolidation will no longer be amortised but will
     be subject to impairment reviews.

Substantial shareholders

The Directors are aware of the following substantial shareholdings of 3 per cent
or more of the current Issued Ordinary Share Capital of 115,943,552 shares on
30th March 2007:

Ordinary Shares of 0.5p each                               Number     Percentage

FDS Pharma Ass.                                      45,849,964           39.5
Serum Institute of India Limited                     21,895,165           18.9
Professor Gregory Gregoriadis                         5,561,973            4.8
BNY GIL Client Account (Nominees) Limited             4,193,515            3.6
HSBC Global Custody Nominee (UK) Limited              3,877,795            3.3

Policy for payment of creditors

It is the Company's policy to settle all agreed transactions within the terms
established with suppliers. Trade creditors at the year end amounted to 22 days
of average supplies.

Directors' responsibilities

The directors are responsible for preparing the annual report and the financial
statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each
financial year. Under that law the directors have elected to prepare the
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable law).
The financial statements are required to give a true and fair view of the state
of affairs of the company and of the group and of the profit or loss of the
Group for that period.

In preparing these financial statements, the directors are required to:

  • select suitable accounting policies and then apply them consistently;
  • make judgements and estimates that are reasonable and prudent;
  • prepare the financial statements on the going concern basis unless it is
    inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and the Group and enable them to ensure that the financial statements
comply with the Companies Act 1985. They are also responsible for safeguarding
the assets of the Group and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.

Disclosure of information to auditors

The directors who held office at the date of approval of this directors' report
confirm that, so far as they are each aware, there is no relevant audit
information of which the Company's auditors are unaware; and each director has
taken all the steps that he/she ought to have taken as a director to make
himself/herself aware of any relevant audit information and to establish that
the Company's auditors are aware of that information.

Fundamental accounting concept - going concern

The financial statements have been prepared on a going concern basis.

The directors have prepared a financial forecast for the period through to 30th
June 2008, which projections include certain assumptions as to:


(a)  the rate of roll-out and licensing of the Company's technologies with its 
     collaborative partners;

(b)  the timelines related to the execution of concomitant pre-clinical and 
     clinical trials;

(c)  the likelihood of the exercise of certain option and warrant rights.

Based on the material realisation of these assumptions, which the directors
consider are reasonable assumptions to make, the Group has adequate working
capital to meet its obligations as they fall due for a period of at least twelve
months from the date of approval of these financial statements.

Auditors

A resolution to re-appoint PKF (UK) LLP as auditors for the ensuing year will be
proposed at the annual general meeting in accordance with section 385 of the
Companies Act 1985.


Signed on behalf of the Directors

Colin Hill

Director

24th April 2007


INDEPENDENT AUDITORS' REPORT TO THE MEMBERS FOR THE YEAR ENDED 31ST DECEMBER 2006

We have audited the group and parent company financial statements (the
'financial statements') of Lipoxen Plc for the year ended 31st December 2006
which comprise the group profit and loss account, the group and company balance
sheets, the group cash flow statement and the related notes. The financial
statements have been prepared under the accounting policies set out therein.

This report is made solely to the company's members, as a body, in accordance
with Section 235 of the Companies Act 1985. Our audit work has been undertaken
so that we might state to the company's members those matters we are required to
state to them in an auditors' report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company's members as a body, for our audit work,
for this report, or for the opinions we have formed.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

The directors' responsibilities for preparing the annual report and the
financial statements in accordance with applicable law and United Kingdom
accounting standards (United Kingdom Generally Accepted Accounting Practice) are
set out in the statement of directors' responsibilities.

Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with the Companies Act
1985. We also report to you whether, in our opinion, the directors' report is
consistent with the financial statements. The information given in the
Directors' Report includes that specific information presented in the chairman's
statement that is cross referred from the business review section of the
directors' report.

In addition we report to you if, in our opinion, the company has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law regarding
directors' remuneration and other transactions is not disclosed.

We read other information contained in the Annual Report, and consider whether
it is consistent with the audited financial statements. This other information
comprises only the directors' report and the chairman's statement. We consider
the implications for our report if we become aware of any apparent misstatements
or material inconsistencies with the financial statements. Our responsibilities
do not extend to any other information.

BASIS OF AUDIT OPINION

We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the group's and company's circumstances, consistently applied and adequately
disclosed.

We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.

OPINION

In our opinion:

- the financial statements give a true and fair view, in accordance with United
Kingdom Generally Accepted Accounting Practice, of the state of the group's and
the parent company's affairs as at 31st December 2006 and of the group's loss
for the year then ended;

- the financial statements have been properly prepared in accordance with the
Companies Act 1985; and

- the information given in the Directors' Report is consistent with the
financial statements.


PKF (UK) LLP
Registered auditors
London
24th April 2007


GROUP PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST DECEMBER 2006

                                                                2006            2005
                                                  Note             £               £
                                                              Acquired
                                                            operations

GROUP TURNOVER                                     2       1,218,839                 -
                                                       --------------- ---------------
ADMINISTRATIVE EXPENSES
Research and development
expenditure                                                1,715,212                 -
Administrative expenses                                    1,743,937         114,201
                                                       --------------- ---------------
Total                                                      3,459,149         114,201
                                                       --------------- ---------------
OPERATING LOSS                                     3      (2,240,310)       (114,201)

Interest receivable                                          108,479           2,258
                                                       --------------- ---------------
LOSS ON ORDINARY ACTIVITIES
BEFORE TAXATION                                           (2,131,831)       (111,943)

Tax on loss on ordinary
activities                                         6                 -               -
                                                       --------------- ---------------
LOSS FOR THE FINANCIAL YEAR                        7      (2,131,831)       (111,943)
                                                       =============== ===============

  Loss per share (pence) -
  basic and fully diluted                          8           (2.05)p         (2.06)p
                                                       =============== ===============



All of the activities of the Group are classed as continuing.

The Group has no recognised gains or losses other than the results for the year
as set out above.

The Company has taken advantage of section 230 of the Companies Act 1985 not to
publish its own Profit and Loss Account.



GROUP BALANCE SHEET AS AT 31ST DECEMBER 2006

                                                       2006               2005
                         Note             £               £                  £

FIXED ASSETS
Intangible assets         9                       6,338,878                    -
Tangible assets          10                         970,665                    -
                                              ---------------    ---------------
                                                  7,309,543                    -
                                                                 ---------------

CURRENT ASSETS
Debtors due in
more than one year       12       1,370,000                                    -
Debtors due
within one year          12       2,058,584                             82,936
Cash at bank
and in hand                       2,690,222                            142,613
                              ---------------                    ---------------
                                  6,118,806                            225,549
CREDITORS:
Amounts falling due
within one year          13         268,120                            121,495
                              ---------------                    ---------------
NET CURRENT
ASSETS                                            5,850,686            104,054
                                              ---------------    ---------------
TOTAL ASSETS
LESS CURRENT
LIABILITIES                                      13,160,229            104,054
                                              ===============    ===============

CAPITAL AND RESERVES
Called-up
equity share
capital                  14                       2,210,718          1,675,000
Share premium
account                  16                      21,456,915          7,311,165
Profit and
loss account             16                     (10,507,404)        (8,882,111)
                                              ---------------    ---------------
SHAREHOLDERS'
FUNDS                    17                      13,160,229            104,054
                                              ===============    ===============


The financial statements on pages 12 to 28 were approved and authorised for
issue by the directors on 24th April 2007 and were signed on their behalf by:


SIR BRIAN RICHARDS - Director


SCOTT MAGUIRE - Director


COMPANY BALANCE SHEET AS AT 31ST DECEMBER 2006

                                                                    2006            2005
                                      Note             £               £               £

FIXED ASSETS
Tangible assets                       10                         800,000                 -
Investments                           11                       9,045,030                 -
                                                           --------------- ---------------
                                                               9,845,030                 -
                                                                           ---------------

CURRENT ASSETS
Debtors                               12       2,063,447                          82,936
Cash at bank                                   2,627,835                         142,613
                                           ---------------                 ---------------
                                               4,691,282                         225,549
CREDITORS:
Amounts falling due
within one year                       13          39,981                         121,495
                                           ---------------                 ---------------
NET CURRENT ASSETS                                             4,651,301         104,054
                                                           --------------- ---------------
TOTAL ASSETS
LESS CURRENT
LIABILITIES                                                   14,496,331         104,054
                                                           =============== ===============
CAPITAL AND RESERVES
Called-up
equity share
capital                               14                       2,210,718       1,675,000
Share premium
account                               16                      21,456,915       7,311,165
Profit and
loss account                          16                      (9,171,302)     (8,882,111)
                                                           --------------- ---------------
SHAREHOLDERS'
FUNDS                                 17                      14,496,331         104,054
                                                           =============== ===============


The financial statements on pages 12 to 28 were approved by the directors and
authorised for issue on 24th April 2007 and were signed on their behalf by:


SIR BRIAN RICHARDS - Director


SCOTT MAGUIRE - Director



GROUP CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2006


                                              2006                       2005
                  Note                           £                          £

NET CASH
OUTFLOW FROM
OPERATING
ACTIVITIES        18                    (2,228,008)                   (75,448)

RETURNS ON
INVESTMENTS
AND SERVICING
OF FINANCE        18                       108,479                      2,258

CAPITAL
EXPENDITURE
AND FINANCIAL
INVESTMENT        18                    (1,002,752)                           -

ACQUISITIONS
AND DISPOSALS     18                       (11,578)                           -
                                     ---------------            ---------------
CASH OUTFLOW
BEFORE
FINANCING                               (3,133,859)                   (73,190)

FINANCING         18                     5,681,468                    214,872
                                     ---------------            ---------------
INCREASE IN
CASH              18                     2,547,609                    141,682
                                     ===============            ===============



RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS

                                             2006                         2005
                                                £                            £
Increase in cash in the
period                                  2,547,609                      141,682
                                    ---------------              ---------------
Movement in net funds in
the period                              2,547,609                      141,682

Net funds at 1st January
2006                                      142,613                          931
                                    ---------------              ---------------
Net funds at 31st December
2006                                    2,690,222                      142,613
                                    ===============              ===============



NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2006


1. ACCOUNTING POLICIES


Basis of accounting


The financial statements have been prepared under the historical cost convention
and in accordance with applicable United Kingdom accounting standards.


Fundamental accounting concept - going concern


The financial statements have been prepared on a going concern basis.


The directors have prepared a financial forecast for the period through to 30th
June 2008, which projections include certain assumptions as to:


(a)    the rate of roll-out and licensing of the Company's technologies with its
collaborative partners;

(b)    the timelines related to the execution of concomitant pre-clinical and
clinical trials;

(c)    the likelihood of the exercise of certain option and warrant rights.


Based on the material realisation of these assumptions, which the directors
consider are reasonable assumptions to make, the Group has adequate working
capital to meet its obligations as they fall due for a period of at least twelve
months from the date of approval of these financial statements.


Basis of consolidation


The group financial statements incorporate the financial statements of the
parent company and all of its subsidiary undertakings. The results of subsidiary
undertakings acquired or disposed of during the year are included in the group
financial statements from, or up to, the date of acquisition or disposal.


Turnover


The turnover shown in the profit and loss account represents the value of
services provided during the year, exclusive of Value Added Tax. For contracts
in progress at the balance sheet date, turnover is recognised based on the
degree of completion of the project and the agreed fee for the total project.


Goodwill


Goodwill, being the difference between the consideration and the attributable
fair values of the net assets of the undertaking acquired, is amortised over its
useful economic life, which is presently estimated to be 20 years. Provision is
made for any impairment.


Research and development costs


Research and development costs are written off to the profit and loss account as
incurred, except that development expenditure incurred on an individual project
is carried forward when its future recoverability can be reasonably regarded as
assured. Any expenditure carried forward is amortised in line with the expected
future sales from the related project.


1. ACCOUNTING POLICIES (continued)


Tangible fixed assets and depreciation


Depreciation is calculated so as to write off the cost less the estimated
residual value of tangible fixed assets on a straight line basis over their
estimated useful economic lives as follows:


Laboratory equipment - 4 years

Computer equipment - 4 years


Operating lease agreements


Operating lease rentals are charged in the profit and loss account on a straight
line basis over the lease term.


Deferred taxation


In accordance with FRS 19 full provision is made at current rates for taxation
deferred in respect of all timing differences. Deferred tax balances are not
discounted. Deferred tax assets are only recognised where their recoverability
is regarded as more likely than not.


Foreign currencies


Assets and liabilities in foreign currencies are translated into sterling at the
rate ruling at the balance sheet date. Transactions in foreign currencies are
translated into sterling at the rate of exchange ruling at the date of the
transaction. Exchange differences are taken into account in arriving at the
operating profit.


Pension costs


Company contributions to personal pension schemes are written off to the profit
and loss account as incurred.


Share based payments


The group has adopted FRS 20 'Share based payments' in respect of share options
granted to employees and also certain supplier contracts under which services
are provided as consideration for the issue of equity instruments.


Share options granted to employees of Lipoxen Technologies Limited since 7th
November 2002 are valued at the date of grant using an appropriate option
pricing model and are charged to operating profit over the vesting period of the
option. This has given rise to a charge to profits of £506,538 in the current
year (2005: £nil) but has had no impact on shareholders' funds.


2. TURNOVER


The turnover and loss before tax are attributable to the one principal activity
of the group. An analysis of turnover (by location of customer) is given below:

                                            2006                          2005
                                               £                             £
United States                          1,117,836                               -
Europe                                    95,753                               -
India                                      5,250                               -
                                   ---------------               ---------------
                                       1,218,839                               -
                                   ===============               ===============



3. OPERATING LOSS


Operating loss is stated after charging:

                                                  2006                    2005
                                                     £                       £

Amortisation                                   317,778                         -
Depreciation
of owned fixed
assets                                          57,283                         -
Auditor's remuneration
  - as auditor of the company                    4,000                   2,000
  - as auditor of the company's 
    subsidiary undertaking                      21,000                         -
Operating lease costs:
  - land and buildings                          50,241                         -
Net loss on foreign
currency translation                             4,558                         -
Research and development
costs - cash settled                         1,320,100                         -
Research and development
costs - equity settled                         395,112                         -
Share option expense -
equity settled                                 506,538                         -
                                         ===============         ===============


In addition to the fees disclosed above, the auditors received fees of £60,197
for services related to the share placing and acquisition of Lipoxen
Technologies Limited on 16th January 2006.


4. PARTICULARS OF EMPLOYEES


The average number of staff employed by the group during the financial year
amounted to:

                                                 2006                     2005
                                                   No                       No
Office and management                               6                        5
Research                                           12                        -
                                        ---------------          ---------------
                                                   18                        5
                                        ===============          ===============

The aggregate payroll costs of the above (excluding the share option expense)
were:

                                              2006                        2005
                                                 £                           £
Wages and salaries                         607,295                      55,461
Social security costs                       43,986                       6,495
Other pension costs                         32,975                           -
                                     ---------------             ---------------
                                           684,256                      61,956
                                     ===============             ===============



5. DIRECTORS' EMOLUMENTS


The directors' aggregate emoluments in respect of qualifying services were:

                                                      2006               2005
                                                         £                  £
Emoluments receivable                              248,523             37,500
Value of company pension contributions
to money purchase schemes                           11,847                  -
                                             ---------------    ---------------
                                                   260,370             37,500
                                             ===============    ===============
Emoluments of highest paid director:
                                                      2006               2005
                                                         £                  £
Total emoluments (excluding
pension contributions)                             133,366             25,000
Value of company pension contributions
to money purchase schemes                           10,514                  -
                                             ---------------    ---------------
                                                   143,880             25,000
                                             ===============    ===============


The number of directors who accrued benefits under company pension schemes was
as follows:

                                                 2006                     2005
                                                   No                       No
Money purchase schemes                              2                        -
                                        ===============          ===============


In addition to the above, the group was charged the following amounts by
directors or by companies controlled by directors for the provision of
consultancy services:

                                           2006                           2005
                                              £                              £
Sir Brian Richards                       30,000                              -
Professor Gregory Gregoriadis            15,470                              -
Dr Tatiana Zhuravskaya                   32,750                              -
Dr Giap Wang Chong                       21,500                         10,000
                                  ===============                ===============


6. TAXATION ON ORDINARY ACTIVITIES


(a) Analysis of charge in the period
                                                              2006             2005
                                                                 £                £
Current tax:

  UK corporation tax based on the results for the                -                -
  year at 30% (2005 - 30%)
                                                     ---------------  ---------------
Total current tax                                                -                -
                                                     ===============  ===============



6. TAXATION ON ORDINARY ACTIVITIES (continued)


(b) Factors affecting the tax charge for the year

The tax assessed for the year does not reflect a credit equivalent to the loss
on ordinary activities multiplied by the standard rate of corporation tax of 30%
(2005 - 30%).
                                                          2006            2005
                                                             £               £

Loss on ordinary activities
before tax                                          (2,131,831)       (111,943)
                                                 =============== ===============

Loss on ordinary activities
multiplied by the standard
rate of corporation tax of 30%                        (639,549)        (33,583)
Effects of:
Expenses not deductible for
tax purposes (primarily
amortisation of goodwill)                              111,164           1,201
Fixed asset timing differences                         (13,066)         (2,236)
Share options timing differences                        84,811               -
Unrelieved tax losses arising
in the year                                            456,640          34,618
                                                ---------------  ---------------
Current tax for the period                                   -               -
                                                ---------------  ---------------

The Group has corporation tax losses available for offset against future profits
of the same trade of £8,250,000.


7. LOSS ATTRIBUTABLE TO MEMBERS OF THE PARENT COMPANY


The loss dealt with in the accounts of the parent company was £ (289,191) (2005
- £(111,943)).


8. EARNINGS PER SHARE


The calculation of loss per share is based on losses of £2,131,831 (2005 -
£111,943) and on the number of shares in issue, being the weighted average
number of shares in issue during the period of 103,920,859 ordinary 0.5p shares
(2005 - 5,440,743 ordinary 0.5p shares). There is no dilutive effect of share
options on the basic loss per share.


9. INTANGIBLE FIXED ASSETS

Group                                                                   Goodwill
                                                                             £
COST
Subsidiary acquired                                                  6,656,656
                                                                 ---------------
At 31st December 2006                                                6,656,656
                                                                 ===============
AMORTISATION
Charge for the year                                                    317,778
                                                                 ---------------
At 31st December 2006                                                  317,778
                                                                 ===============
NET BOOK VALUE
At 31st December 2006                                                6,338,878
                                                                 ===============
At 31st December 2005                                                          -
                                                                 ===============



10. TANGIBLE FIXED ASSETS

Group                 Assets under      Laboratory        Computer          Total
                      construction       equipment       equipment
                               £               £               £                £
COST
Subsidiary
acquired           -                     102,560          14,651          117,211
Additions                800,000         187,203          15,549        1,002,752
                   --------------- --------------- ---------------  ---------------
At 31st
December 2006            800,000         289,763          30,200        1,119,963
                   =============== =============== ===============  ===============

DEPRECIATION
Subsidiary
acquired           -                      79,417          12,598           92,015
Charge for the
year               -                      52,290           4,993           57,283
                   --------------- --------------- ---------------  ---------------
At 31st
December 2006      -                     131,707          17,591          149,298
                   =============== =============== ===============  ===============

NET BOOK VALUE
At 31st
December 2006            800,000         158,056          12,609          970,665
                   =============== =============== ===============  ===============
At                 -               -               -               -
31st December 2005
                   =============== =============== ===============  ===============

Company               Assets under      Laboratory        Computer         Total
                      construction       equipment       equipment
                               £               £               £               £
COST
Additions                800,000   -               -                     800,000
                   --------------- --------------- --------------- ---------------
At 31st
December 2006            800,000   -               -                     800,000
                   =============== =============== =============== ===============
NET BOOK VALUE
At 31st
December 2006            800,000   -               -                     800,000
                   =============== =============== =============== ===============
At                 -               -               -               -
31st December 2005
                   =============== =============== =============== ===============


The assets under construction have not been depreciated because they have not
yet been brought into use. Their useful lives are estimated to be 10 years.


11. INVESTMENTS

    Company                                                         Group companies
                                                                                £
    COST
    Additions                                                           9,045,030
                                                                    ---------------
    At 31st December 2006                                               9,045,030
                                                                    ===============

    NET BOOK VALUE
    At 31st December 2006                                               9,045,030
                                                                    ===============


The Company owns the whole of the issued share capital of Lipoxen Technologies
Limited, a company incorporated in England and Wales engaged in research into
drug delivery systems.




12. DEBTORS
                              Group                          Company
                          2006            2005            2006            2005
                             £               £               £               £
Due in more than
one year:
Prepayments          1,370,000                 -               -               -
                 ===============    ============    ============    ============
Due within one
year:
Trade debtors          712,094                 -               -               -
Amounts owed
by group
undertakings                   -               -     2,043,931                 -
Other debtors           93,662          13,523          19,516          13,523
Prepayments
and accrued
income               1,252,828          69,413                 -        69,413
                 --------------- --------------- --------------- ---------------
                     2,058,584          82,936       2,063,447          82,936
                 =============== =============== =============== ===============


In October 2005, Lipoxen Technologies Limited entered into an agreement with its
then major shareholder, FDS Pharma Ass, under which 15,000,000 ordinary shares
were allotted in consideration for the provision by FDS of manufacturing and
clinical development services. The agreement provides for certain milestone
payments which may be settled either by the issue of further shares in Lipoxen
Plc or by specified cash amounts. An amount of £395,112 has been written off to
the profit and loss account in the year in respect of services provided in the
year by FDS. An amount of £2,605,000 is included in the balance sheet under
prepayments in respect of services still to be provided under the agreement, of
which £1,370,000 is expected to be provided in more than one year from the
balance sheet date.


13. CREDITORS: Amounts falling due within one year

                              Group                          Company
                          2006            2005            2006            2005
                             £               £               £               £
Trade creditors        131,343          54,628          14,215          54,628
Other taxation
and social
security                23,736   -               -               -
Other creditors          3,056                 -               -               -
Accruals and
deferred
income                 109,985          66,867          25,766          66,867
                 --------------- --------------- --------------- ---------------
                       268,120         121,495          39,981         121,495
                 =============== =============== =============== ===============


14. SHARE CAPITAL

Authorised share capital:
                                                                   2006            2005
                                                                      £               £
673,300,000
Ordinary
shares of 0.5p
each                                                          3,366,500       3,366,500
16,335,000,000
Deferred
shares of
0.01p each                                                    1,633,500       1,633,500
                                                          --------------- ---------------
                                                              5,000,000       5,000,000
                                                          =============== ===============
Allotted, called up and fully paid:
                                                 2006                              2005
                                     No             £                  No             £
Ordinary shares of 0.5p
each                      115,443,552         577,218         8,300,000          41,500
Deferred shares of
0.01p each              16,335,000,000      1,633,500    16,335,000,000       1,633,500
                                        ---------------                   ---------------
                                            2,210,718                         1,675,000
                                        ===============                   ===============



14. SHARE CAPITAL (continued)


On 16th January 2006 the company acquired Lipoxen Technologies Limited for a
consideration satisfied by the issue of 66,666,662 new ordinary shares of 0.5p
each to the vendors, and raised £3,780,000 (before expenses of issue of
£867,391) by way of a placing of 28,000,000 new ordinary shares of 0.5p each at
a price of 13.5p per share.


On 28th March 2006, under the terms of a warrant granted in December 2005,
1,180,000 ordinary shares of 0.5p each were issued for cash of £159,300.


In July 2006, following the exercise of share options, 1,296,890 ordinary shares
of 0.5p each were issued for cash of £9,559.


On 21st August 2006, Serum Institute of India Limited subscribed for 10,000,000
ordinary shares of 0.5p each for cash of £2,600,000.


The rights attached to the deferred shares are as follows:

(a) no entitlement to any dividend;

(b) on a winding-up, an entitlement to receive an amount equal to the nominal
value of each share, but only after an amount of £50,000,000 per share has been
paid to the holders of the issued and fully paid ordinary 0.5p shares;

(c) no right to attend or vote at a general meeting;

(d) an obligation to permit the Company to transfer the shares to such person as
the Company may determine, without receiving any payment.


15. SHARE OPTIONS AND WARRANTS


Movements in the number of share options in issue during the year were as
follows:
                                                 Number                Weighted
                                                                        average
                                                                 exercise price
At 1st January 2006                            46,000                358.6957p
Granted                                    10,643,234                  1.8033p
Exercised                                  (1,296,890)                 0.7371p
Expired                                      (140,951)                45.3607p
                                        ---------------
At 31st December 2006                       9,251,393                  3.0637p
                                        ===============


Following the acquisition of Lipoxen Technologies Limited, options in issue over
2,655,793 shares in that company were cancelled and the holders were granted
options over 3,602,792 ordinary shares in the Company. Scott Maguire was granted
an option over 6,575,366 ordinary shares in the Company at an exercise price of
1p per share exercisable from 17th January 2007, although the written consent of
the majority of the Board is required if the option is proposed to be exercised
before 17th January 2008.



15. SHARE OPTIONS AND WARRANTS (continued)


Options over 101,743 ordinary shares in the Company were granted to Sir Brian
Richards on 17th October 2006 at an exercise price of 0.7371p per share.


In accordance with the transitional provisions of FRS 20, only those share
options granted to employees after 7th November 2002 which had not vested at 1st
January 2006 are recognised as an expense. These are valued at the date of grant
using an appropriate option pricing model and are charged to operating profit
over the vesting period of the option. This has given rise to a charge to
profits of £506,538 in the current year. As the options giving rise to the
expense were either originally granted by Lipoxen Technologies Limited or were
granted under the terms of service contracts with that company, the expense has
been borne by Lipoxen Technologies Limited.


The weighted average fair value of options granted, estimated using the
Black-Scholes option-pricing model, was 13.0693p. The estimated fair values are
based on the following weighted average assumptions:

                                                                          2006

Share price                                                            13.8847p
Exercise price                                                          1.8033p
Expected volatility                                                      53.13%
Expected life                                     2 to 3 years
Expected dividend yield                           Nil
Risk free interest rate                                                   4.00%
                                                                 ===============


The share price at the date the share options were exercised in the year was
24p.


Options outstanding at 31st December 2006 were exercisable as follows:

Date of grant       Number granted        Exercise price         Exercise period

01/02/00                  16,000              750.0000p           Until 31/01/07
17/01/06                 135,658                0.7371p           Until 31/10/08
17/01/06                  48,837               22.1145p           Until 23/12/11
17/01/06                  71,904               41.7226p           Until 28/07/12
17/01/06                 406,974                0.7371p           Until 25/05/14
17/01/06                 922,474                0.7371p                  Between
                                                                    26/10/07 and
                                                                        25/10/14
17/01/06                 339,145                0.7371p                  Between
                                                                    18/03/08 and
                                                                        17/03/15
17/01/06                 101,743                0.7371p                  Between
                                                                    12/05/08 and
                                                                        11/05/15
17/01/06                 168,216                0.7371p                  Between
                                                                    30/09/08 and
                                                                        29/09/15
17/01/06               6,575,366                1.0000p             As described
                                                                           above
17/01/06                 205,000                1.0000p                  Between
                                                                    17/01/07 and
                                                                        17/01/16
15/02/06                 158,333               24.5000p                  Between
                                                                    15/08/07 and
                                                                        15/02/16
17/10/06                 101,743                0.7371p                  Between
                                                                    17/10/07 and
                                                                        17/10/16
                   ---------------
                       9,251,393
                   ===============



15. SHARE OPTIONS AND WARRANTS (continued)


In August 2006 the Company entered into a warrant agreement with Serum Institute
of India Limited under which the warrant holder has the right to subscribe for
up to 2,700,000 ordinary shares in the Company for a period of two years from
3rd August 2006 at a subscription price of 35p per share.


At 31st December 2006 a warrant originally issued in December 2005 was
outstanding under which the holder could subscribe for up to 500,000 ordinary
shares of 0.5p each at a price of 13.5p per share, exercisable until 17th June
2007. These shares were issued on 22nd January 2007.


16. RESERVES

Group                                 Share premium             Profit and loss
                                            account                     account
                                                £                           £

Balance brought forward                 7,311,165                  (8,882,111)
Loss for the year                                 -                (2,131,831)
Premium on shares issued               15,013,141                             -
Share issue expenses                     (867,391)                            -
Share based payments                              -                   506,538
                                    ---------------             ---------------
Balance carried forward                21,456,915                 (10,507,404)
                                    ===============             ===============

Company                               Share premium             Profit and loss
                                            account                     account
                                                £                           £

Balance brought forward                 7,311,165                  (8,882,111)
Loss for the year                                 -                  (289,191)
Premium on shares issued               15,013,141                             -
Share issue expenses                     (867,391)                            -
                                    ---------------             ---------------
Balance carried forward                21,456,915                  (9,171,302)
                                    ===============             ===============


17. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

Group                                         2006                       2005
                                                 £                          £

Loss for the financial year             (2,131,831)                  (111,943)
Issue of ordinary share capital         15,548,859                    214,872
Share issue expenses                      (867,391)                           -
Share based payments                       506,538                            -
Decrease in shares to be issued                    -                   (8,813)
                                     ---------------            ---------------
Net addition to
shareholders' funds                     13,056,175                     94,116
Opening shareholders' funds                104,054                      9,938
                                     ---------------            ---------------
Closing shareholders' funds             13,160,229                    104,054
                                     ===============            ===============



17. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (continued)

Company                                       2006                       2005
                                                 £                          £

Loss for the financial year               (289,191)                  (111,943)
Issue of ordinary share capital         15,548,859                    214,872
Share issue expenses                      (867,391)                           -
Decrease in shares to be issued                    -                   (8,813)
                                     ---------------            ---------------
Net addition to shareholders' funds     14,392,277                     94,116
Opening shareholders' funds                104,054                      9,938
                                     ---------------            ---------------
Closing shareholders' funds             14,496,331                    104,054
                                     ===============            ===============


18. NOTES TO THE STATEMENT OF CASH FLOWS


RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM

OPERATING ACTIVITIES
                                              2006                        2005
                                                 £                           £
Operating loss                          (2,240,310)                   (114,201)
Amortisation                               317,778                             -
Depreciation                                57,283                             -
Increase in debtors                       (545,666)                    (72,936)
(Decrease)/increase in
creditors                                 (718,743)                    111,689
Research and development -
equity settled                             395,112                             -
Share option expense -
equity settled                             506,538                             -
                                     ---------------             ---------------
Net cash outflow from
operating activities                     (2,228,008)                    (75,448)
                                     ===============             ===============


RETURNS ON INVESTMENTS AND SERVICING OF FINANCE

                                             2006                         2005
                                                £                            £
Interest received                         108,479                        2,258
                                    ---------------              ---------------
Net cash inflow from
returns on investments
and servicing of finance                  108,479                        2,258
                                    ===============              ===============


CAPITAL EXPENDITURE
                                            2006                          2005
                                               £                             £
Payments to acquire
tangible fixed assets                 (1,002,752)                              -
                                   ---------------               ---------------
Net cash outflow from
capital expenditure                   (1,002,752)                              -
                                   ===============               ===============


ACQUISITIONS AND DISPOSALS
                                            2006                          2005
                                               £                             £
Purchase of subsidiary
undertaking                              (45,030)                              -
Net cash acquired with
subsidiary                                33,452                               -
                                   ---------------               ---------------
Net cash outflow from
acquisitions and disposals               (11,578)                              -
                                   ===============               ===============



18. NOTES TO THE STATEMENT OF CASH FLOWS (continued)


FINANCING
                                             2006                        2005
                                                £                           £
Issue of ordinary share
capital                                 5,681,468                     214,872
                                    ---------------             ---------------
Net cash inflow from
financing                               5,681,468                     214,872
                                    ===============             ===============


ANALYSIS OF CHANGES IN NET FUNDS

                               At             Cash flows                     At
                       1 Jan 2006                                        31 Dec
                                                                           2006
                              £                      £                      £
Net cash:
Cash in hand
and at bank             142,613              2,547,609              2,690,222
                  ---------------        ---------------        ---------------
Net funds               142,613              2,547,609              2,690,222
                  ===============        ===============        ===============


19. ACQUISITION OF SUBSIDIARY


Net assets acquired

                                                              2006
                                                                 £

Tangible fixed assets                                       25,196
Debtors                                                  3,195,094
Cash at bank                                                33,452
Creditors                                                 (865,368)
                                                     ---------------
Net assets                                               2,388,374
Goodwill                                                 6,656,656
                                                     ---------------
                                                         9,045,030
                                                     ===============
Consideration:

Issue of ordinary shares                                 9,000,000
Cash paid                                                   45,030
                                                     ---------------
                                                         9,045,030
                                                     ===============


Lipoxen Technologies Limited was acquired on 16th January 2006. In the period
1st January 2006 to 16th January 2006, the company had turnover of £nil and a
loss after tax of £58,815. The loss after tax for the year ended 31st December
2005 was £1,326,321.



20. FINANCIAL INSTRUMENTS


The Company's financial instruments comprise cash balances and various items
such as debtors and creditors arising directly from its operations. The main
purpose of these instruments is to finance the Company's operations.


The Company does not enter into any derivative transactions.


Short term debtors and creditors have been excluded from the following
disclosure.


Interest rate risk of financial assets

                                             2006                        2005
                                                £                           £
Floating rate                           2,690,222                     142,613
                                    ===============             ===============


Floating rate cash earns interest based on prevailing market rates.


21. RELATED PARTY TRANSACTIONS


Serum Institute of India Limited ('SIIL') - substantial shareholder

In August 2006 Lipoxen and SIIL, India's largest biotechnology company and one
of the world's largest vaccine companies, expanded their strategic partnership.
As part of this expansion SIIL subscribed for 10 million new ordinary shares in
Lipoxen at 26 pence per share for a total of £2.6 million, thereby increasing
its then holding to 15.28%. In addition, the Company entered into a warrant
agreement with SIIL pursuant to which SIIL is entitled to subscribe for a
further 2.7 million ordinary shares in the Company at a price of 35 pence per
ordinary share, which if fully exercised now, would increase its holding to
approximately 20.73% while injecting some £945,000 of new capital into the
Company.


In addition, SIIL and the Company entered into a Development and Manufacturing
Agreement ('DMA') under which SIIL will provide Lipoxen with a unique source of
PSA in accordance with Good Manufacturing Practice ('GMP') standards and
according to defined specifications. This is an important agreement for Lipoxen
as PSA is a key component of the Company's PolyXen(R) protein drug delivery
technology and will facilitate the Company's ongoing proprietary development
programmes and drive to product commercialisation; the DMA further provides for
a continuous supply of PSA to the Company's current and future collaborative
partners.


FDS Pharma ('FDS') - substantial shareholder


In October 2005, Lipoxen Technologies Limited entered into an agreement with its
then major shareholder, FDS, under which 15,000,000 ordinary shares were
allotted in consideration for the provision by FDS of manufacturing and clinical
development services. The agreement provides for certain milestone payments
which may be settled either by the issue of further shares in Lipoxen Plc or by
specified cash amounts. An amount of £395,112 has been written off to the profit
and loss account in the year in respect of services provided in the year by FDS.
An amount of £2,605,000 is included in the balance sheet under prepayments in
respect of services still to be provided under the agreement, of which
£1,370,000 is expected to be provided in more than one year from the balance
sheet date.






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