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 1 July 2008

NEXTGEN GROUP PLC

Preliminary results

NextGen Group plc, (AIM: NGG, 'the Group', 'NextGen'), a provider of biomarker testing services, announces its published preliminary results for the year to 31 December 2007.  The report and accounts will be sent to shareholders today and is available on the Group's website.

Highlights

• Reposition to focus Group on biomarker market

  • Biomarker services introduced, including testing, discovery and assay development

  • Infrastructure for assay development and testing services put in place 

  • Invested in new management team 

• Divesting of non core businesses initiated

• Substantially reducing cost base

• Sales growth of 18.5% in the year to £1.68 million

Dr Michael Pisano, NextGen Chief Executive, commented:

'In November last year we initiated a strategic review, which indicated that we need to focus all our resources on growing the biomarker service business, covering testing, assay development and discovery - a market which has real growth opportunities. We have already established an impressive reputation for the quality and scope of our contract research services in the areas of proteomics and biomarkers. The market for biomarkers is predicted to grow to greater than $21bn (Source: Business Insights) in the next five years. We plan to take advantage of our position and build on the opportunities in this very specialist but high margin market.'

Enquiries:                                         

NextGen www.nextgensciences.com
	Mike Pisano, Chief Executive	+1 734 973 7914
Seymour Pierce
	Nicola Marrin/Jonathan Wright	+44 (0) 20 7107 8000
College Hill
	Lorna Cuddon/Adrian Duffield	+44 (0) 20 7457 2020

Notes to Editors

NextGen Group PLC is a provider of biomarker services for pharmaceutical and biotech companies globally. Using advanced techniques, such as Multiple Reaction Monitoring (MRM) mass spectrometry analysis, the Company is developing a portfolio of robust assays for testing clinical samples for drug safety and efficacy, and the development of personalised treatment for patients. NextGen's range of services, which include biomarker testing, discovery and assay development, are employed by its customers as a key part of the biomarker-based drug and diagnostic development process. 

  Strategic overview

In 2007 the Group had three main product lines; electrophoresis equipment and consumables; molecular biology automation and software; and contract research services.  Shortly after the appointment of Dr. Michael Pisano as Chief Executive in September 2007, the Group started to invest in the development of a biomarker service business with the expansion of its service portfolio to include biomarker testing, discovery and assay development.

The Board initiated a strategy review during Q4 2007 as it was clear that despite considerable managerial and financial resources being invested in all of the Group's business streams not enough progress was being made.

This result of the review was published in April 2008 and confirmed that the Group's previous strategy was unsustainable.  The company did not have the scale or resources to be involved in so many lines of business in international markets and therefore NextGen should focus on a single core business.  

The review identified that the key opportunity for NextGen's business is in biomarker services (discovery, assay development and testing) for pharmaceutical and biotechnology customers.

NextGen now intends to focus all of its resources on growing the biomarker service business and the existing U.S.-based biomarker team will be strengthened with the addition of key personnel and operational infrastructure. The Board has started the process to divest and/or wind down its other operations.  The Group's headquarters will be moved to its Ann Arbor, Michigan, USA facility.  At the same time NextGen will change its reporting currency to the US dollar effective 1 July 2008 as all its businesses now will be operated in US dollars.  

Trading Review

Group turnover for the 12 months ended 31 December 2007 was £1.68 million (2006: £1.42 million), an increase of 18.5%. Operating charges in the year included £0.4 million of exceptional costs relating to the wind down of operations at the UK site. Gross margin (before exceptional costs) increased from 67.8% to 72.7% (fell to 55.9% after exceptional costs).  Total operating charges before exceptional costs decreased by 5.9% to £4.08 million (after exceptional costs by 9.4% to £4.21 million) (2006: £3.85 million).

The operating loss before exceptional costs was £2.86 million (£3.27 million after exceptional costs) (2006: £2.89 million).  After an interest charge of £0.045 million, the Group reports a pre-tax loss of £3.32 million (2006: loss £2.9 million) and a loss per share of 0.33p (2006: loss 0.37p).

On four separate occasions in 2007 the Company undertook a placing of Ordinary Shares that raised approximately £3.4 million after expenses. The Company's net cash position at 31 December 2007 was £129,432 (2006: £21,698).

Biomarker services

A biomarker is an entity used as an indicator of a biologic state. A biomarker can be objectively measured from a clinical sample, such as blood or urine, and evaluated as a gauge of normal biologic processes, pathogenic processes, or pharmacologic responses to therapeutic intervention. For example, pre-clinical applications include target discovery and validation, lead compound optimization and safety assessment of new compounds.

The pharmaceutical industry's interest in biomarkers is increasing as they can be used not only for diagnosis but also for understanding the mechanism of disease and for development of therapeutics. In clinical applications, biomarkers can be used for patient selection in a drug trial, measuring drug efficacy, monitoring adverse events and studying alternative indications for a drug in development.  

Biomarkers have been shown to play a key role in helping to reduce costs in the drug discovery and development process.  They can also be used in translational medicine as prognostic indicators of the success of a lead compound in clinical trials and are playing a vital in the move towards personalized medicine, which requires the use of more biomarkers for the selection of sub-populations of patients and monitoring efficacy of therapies.

In January 2007 the US Food and Drug Administration (FDA) issued an update on its Critical Path Initiative to stimulate and facilitate a national effort to modernize the sciences through which FDA-regulated products are developed, evaluated, and manufactured.  Amongst several initiatives detailed in this update is a clear message to the industry to integrate the use of biomarkers in the development of new drugs.  We believe by making the biomarker services NextGen's core business we will place the Group in a strong position to attain a significant market share in this emerging market.

NextGen's biomarker business includes the following services for customers:

• Biomarker discovery - the application of the Group's technology and know-how in the discovery of new putative biomarkers

• Biomarker assay development - the development of assays to quantify biomarkers in biological samples

• Biomarker testing - the application of the assay to client samples

The Group is already making good progress with its pharmaceutical and biotechnology customers with projects in therapeutic areas such as oncology and Alzheimer's disease. 

Current trading and outlook

2008 will be a pivotal year for NextGen. The Pharmaceutical industry has gone through a period of low productivity and a concomitant decreased expenditure in research, which has resulted in many large pharmaceutical companies entering a period of restructuring and downsizing.  

NextGen has built an impressive reputation for the quality and scope of its contract research services for proteomics and biomarkers. The Board intends to take advantage of this reputation and build on the opportunity. 

The far-reaching benefits to R&D of biomarkers are evident.  Biomarkers have moved to the front-line of medical research. The undeniable need for classifying molecular markers based on the understanding of disease mechanisms has received immense emphasis owing to the significant challenges encumbering the drug development pipeline. It has been recognized that integration of biomarkers through the different phases of drug development can yield safer drugs with enhanced therapeutic efficacy in a cost-effective manner. Biomarker-based tests have been in existence for a few decades now but their relevance to drug development applications in particular has gained momentum only recently. This is apparent from the increased research interest, and patent and regulatory activity with regards to biomarkers.

The biomarker market is estimated to be about $21 billion (COMMERCIAL OPPORTUNITIES FROM BIOMARKERS: Transforming drug discovery, clinical development and molecular diagnostics By Dr CL Barton; 2006 Business Insights Ltd). The biomarker market is segmented into three main sections: biomarker discovery, molecular diagnostics and clinical trials. Of these, biomarker discovery for applications in drug discovery, preclinical studies of drug development and diagnostics research are the largest and accounted for nearly 48 per cent of the total market in 2007. This market segment is expected to grow to at a compounded average growth rate (CAGR) of 16.9 year on year. The second largest segment was the use of biomarkers on molecular diagnostics applications which was estimated to be worth $2.3bn in 2007. It is predicted to grow at a CAGR of 17.5 per cent year on year. This market will provide the point-of-care and laboratory based diagnostic tools that enable a more informed ability to choose the right drug for a disease and patient. While currently the smallest business segment, having been valued at around $612m in 2007, was the clinical trials market. This segment has been predicted to see the largest growth rate with a CAGR of 23.5 per cent. 

The Group has already made good progress with its biomarker business, with projects in therapeutic areas such as oncology and Alzheimer's disease for pharmaceutical and biotechnology customers due for delivery in mid 2008. Upon completion of the restructuring plan the Group is targeting to be profitable and cash generating during H1 2009.

  NEXTGEN GROUP PLC 

Consolidated Income Statement 

For the year ended 31 December 2007

	Note		2007	2006
			£	£
Revenue	3		1,683,859	1,421,504
Cost of sales			(742,005)	(457,589)
Gross profit			941,854	963,915
Other operating charges			(4,214,674)	(3,853,078)
Operating loss	3		(3,272,820)	(2,889,163)
Finance income			362	15,905
Finance costs			(45,629)	(36,578)
Loss before taxation			(3,318,087)	(2,909,836)
Income tax expense / income	4		(509)	301,414
Net loss attributable to shareholders' equity			(3,318,596)	(2,608,422)
Basic loss per share	6		0.33p	0.37p

All of the above relates to continuing operations.

Consolidated statement of recognised income and expense

For the year ended 31 December 2007

		2007	2006
		£	£
Currency retranslation gains/(losses) net of tax recognised directly in equity		(1,107)	7,954
Net loss attributable to shareholders' equity		(3,318,596)	(2,608,422)
Total recognised income and expense attributable to shareholders' equity		(3,319,703)	(2,600,468)

  NEXTGEN GROUP PLC 

Consolidated Balance Sheet 

At 31 December 2007

	Note		2007	2006
			£	£
Non-current assets
Goodwill			519,877	519,877
Intangible assets			-	26,564
Property, plant and equipment			547,505	241,634
			1,067,382	788,075
Current assets
Inventories			78,808	472,154
Trade and other receivables			223,617	556,422
Tax receivable			-	116,237
Cash and cash equivalents			129,432	99,323
			431,857	1,244,136
Total assets			1,499,239	2,032,211
Equity
Called up share capital	7		1,394,753	793,794
Share premium account	7		4,187,559	2,308,900
Merger relief reserve	7		63,544	63,544
Merger reserve	7		5,731,082	5,731,082
Other reserves	7		571,057	930,421
Foreign currency translation reserve	7		6,847	7,954
Profit and loss account	7		(12,186,845)	(9,587,954)
Equity shareholders' funds			(232,003)	247,741
Labilities
Non-current liabilities
Financial liabilities			341,132	56,608
Current liabilities
Trade payables and other current liabilities			1,114,264	1,419,782
Financial liabilities			200,751	152,739
Provisions			75,095	155,341
			1,390,110	1,727,862
Total liabilities			1,731,242	1,784,470
Total equity and liabilities			1,499,239	2,032,211

  NEXTGEN GROUP PLC 

Consolidated cash flow statement

For the year ended 31 December 2007

	Note		2007	2006
			£	£
Cash flows from operating activities	8		(2,234,441)	(2,959,711)
Taxation received			115,728	185,177
Net cash flow from operating activities			(2,118,713)	(2,774,534)
Cash flows from investing activities
Interest received			362	15,905
Purchase of subsidiary undertakings			-	(105,341)
Purchase of property, plant and equipment			(174,803)	(45,186)
Sale of property, plant and equipment			12,465	-
Purchase of intangible assets			-	(26,564)
Net cash flow from investing activities			(161,976)	(161,186)
Cash flows from financing activities
Interest paid			(22,756)	(25,150)
Finance lease interest paid			(22,873)	(11,428)
Repayment of borrowing			(62,000)	(63,000)
Capital element of finance lease rentals			(61,191)	(46,967)
Issue of shares/debentures			2,479,618	3,030,000
Net cash flow from financing activities			2,310,798	2,883,455
Net increase/(decrease) in cash and cash equivalents			30,109	(52,265)
Cash and cash equivalents at the beginning of the year			99,323	151,588
Cash and cash equivalents at the end of the year			129,432	99,323

NEXTGEN GROUP PLC 

Notes

accounting policies

Basis of Preparation

The consolidated accounts have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and with the Companies Act 1985. These are the Group's first annual consolidated accounts where IFRS has been applied.

The accounts are prepared under the historical cost convention. A summary of the significant Group accounting policies adopted in the preparation of the financial statements are set out in the Group's 2007 annual report. These policies have been consistently applied to all years presented, unless otherwise stated.

First time adoption of IFRS

These are the Group's first financial statements prepared in accordance with IFRS. Accordingly, IFRS 1 'First Time Adoption of International Financial Reporting Standards' has been applied. The Group's transition date to IFRS was 1 January 2006 and the Group prepared its opening balance sheet at that date in accordance with IFRS effective at 31 December 2007 except as specified below. First time adoption of IFRS in preparing the group financial statements for the year ended 31 December 2007 has had no material effect upon the results and the financial position of the Group.

Exemptions to full retrospective restatement elected by the Group include:

Share based payments

The Group has elected to apply IFRS 2 only to awards of equity instruments made after 7 November 2002, which had not vested by 1 January 2005.

Cumulative translation differences

The Group has elected to set the previous cumulative translation differences arising from the translation of all foreign operations to nil at the date of transition to IFRS.

Business combinations

The Group has elected not to apply IFRS 3 retrospectively to business combinations prior to 1 January 2006.

Basis of consolidation

The Group financial statements consolidate the financial statements of NextGen Sciences Limited, NextGen Sciences Inc. and Proteomic Research Services Inc. (collectively the 'Group'), drawn up to 31 December each year. Acquisitions of subsidiaries are dealt with by the acquisition method of accounting. All inter company balances and transactions have been eliminated on consolidation.

Revenue

Revenue is measured by reference to the fair value of consideration received or receivable by the Group for goods supplied and services provided, excluding VAT and trade discounts. Revenue is recognised upon the performance of services or transfer of risk to the customer, that is, when the contracted services have been fulfilled. Where completion of a sale is conditional upon customer acceptance, recognition is deferred until such acceptance is received.

Revenue from the sale of goods is recognised when all the following conditions have been satisfied:

• the Group has transferred to the buyer the significant risks and rewards of ownership of the goods which is generally when goods are shipped,
• the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold,
• the amount of revenue can be measured reliably
• it is probable that the economic benefits associated with the transaction will flow to the Group, and
• the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Revenue for product services is recognised over the period during which the service is provided. Where service and upgrades are included in the price of the product, they are unbundled and treated separately for purposes of revenue recognition. Revenue for product services is recognised either at total completion of the service or upon reaching a specific stage of completion that has been agreed in advance.

Research and development

Research costs are recognised as expenses in the period in which it is incurred.

Development costs are also expensed in the period in which they are incurred unless they satisfy the criteria as set out in IAS 38 'Intangible Assets', in which case they are capitalised as an intangible asset. The Group capitalises development costs upon demonstration of the following:

• The technical feasibility of completing the intangible asset so that it will be available for use or sale.
• Its intention to complete the intangible asset and use or sell it.
• Its ability to use or sell the intangible asset.
• How the intangible asset will generate probable future economic benefits.
• The availability of adequate resources to complete the development and to use the asset.
• Its ability to measure reliably the expenditure attributable to the intangible asset during its development.

Goodwill

Goodwill (being the difference between the fair value of consideration paid for new interests in group companies and the fair value of the Group's share of their net identifiable assets and contingent liabilities at the date of acquisition) is capitalised. Goodwill is not amortised, but is subject to an annual review for impairment (or more frequently if necessary). Any impairment is charged to the income statement as it arises.

Property, plant and equipment

Property, plant and equipment are stated at historical cost, net of depreciation and impairment. Depreciation is calculated to write off the cost less estimated residual value of each asset on a straight-line basis over its expected useful life as follows:

Plant, machinery and office equipment	3 years
Fixtures and fittings	1 to 5 years
Computer equipment	3 years
Motor Vehicles	3 years

Impairment testing of goodwill, other intangible assets and property, plant and equipment

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors the related cash flows.

Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist.

Lease and hire purchase commitments

Assets held under finance leases and other similar contracts, which confer rights and obligations similar to those attached to owned assets, are capitalised as property, plant and equipment and are depreciated over the shorter of the term of the lease and their expected useful lives. The capital element of future lease obligations are recorded as liabilities, while the finance element is charged to the income statement over the period of the lease so as to produce a constant rate of charge on the balance of the capital repayments outstanding. Hire purchase transactions are dealt with similarly, except that assets are depreciated over their useful economic lives. 

All other leases are regarded as operating leases and the payments made under them are charged to the income statement on a straight-line basis over the lease term, even if the payments are not made on such a basis.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises actual cost paid or payable. Net realisable value is based on estimated selling price, less further costs expected to be incurred to completion and disposal. Provision is made for obsolete and slow moving or defective items where appropriate.

Pension and similar obligations

The Group operates a defined contribution scheme under which the amount charged to the income statement is the contributions payable in the year. Differences between contributions payable in the year and contributions actually paid are shown as payables in the balance sheet.

Current and deferred taxation

Current tax is the tax currently payable or receivable on the result for the period.

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity (such as the revaluation of land) in which case the related deferred tax is also charged or credited directly to equity.

Deferred tax is measured using rates of tax that have been enacted or substantively enacted by the balance sheet.

Foreign currency

Functional and presentational currency

The Group's consolidated financial statements are presented in pounds sterling, the functional currency of the Group, being the currency of the primary economic environment in which the Group operates.

Transactions, balances and foreign subsidiaries

Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in the profit or loss in the period in which they arise.  

The assets and liabilities in the financial statements of foreign subsidiaries and related goodwill are translated at the rate of exchange ruling at the balance sheet date. Income and expenses are translated at the actual rate. The exchange differences arising from the retranslation of the opening net investment in subsidiaries are taken directly to the 'Foreign currency translation reserve' in equity. On disposal of a foreign operation the cumulative translation differences (including, if applicable, gains and losses on related hedges) are transferred to the income statement as part of the gain or loss on disposal.

The Group has taken advantage of the exemption in IFRS 1 and has deemed cumulative translation differences for all foreign operations to be nil at the date of transition to IFRS. The gain or loss on disposal of these operations excludes translation differences that arose before the date of transition to IFRS and includes later translation differences.  

Share based payments

The group operates an equity-settled share-based compensation plan. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 January 2006.

The group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the group's estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions.

Fair value is measured by use of the Black-Scholes option pricing model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

Equity

Equity comprises the following:

'Share capital' represents the nominal value of equity share.

'Share premium' represents the excess over nominal value of the fair value of the consideration received for equity shares, net of expenses of the share issue.

'Merger reserve' is a reserve arising from the merger accounting of NextGen Sciences Limited on acquisition by NextGen Group Plc.

'Foreign currency translation reserve' represents the differences arising from translation of investments in overseas subsidiaries.

'Other reserves' includes equity-settled share based employee remuneration until such share options are exercised and gains.

'Profit and loss Reserve' represents accumulated losses.

'Merger Relief Reserve' represents excess raised over the nominal value of the share capital issued on acquisition of PRS.

Financial Assets

Financial assets are divided into the following categories: loans and receivables; financial assets at fair value through profit or loss; available-for-sale financial assets; and held-to-maturity investments. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which they were acquired. The designation of financial assets is re-evaluated at every reporting date at which a choice of classification or accounting treatment is available.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade receivables, trade payables and loans are classified as loans and receivables. Where the difference is material, these are measured subsequent to initial recognition at amortised cost using the effective interest rate method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the income statement.

Provision is made against trade receivables where there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows.

Regular way purchases and sales are accounted for on trade date.

Financial liabilities

Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial liabilities categorised as at fair value through profit or loss are recorded initially at fair value, all transaction costs are recognised immediately in the income statement. All other financial liabilities are recorded initially at fair value, net of direct issue costs.

A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits.

Financial instruments

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities.

Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented as such in the balance sheet. Finance costs and gains or losses relating to financial liabilities are included in the income statement. Finance costs are calculated so as to produce a constant rate of return on the outstanding liability.

Where contractual terms of a financial instrument do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument. Dividends and distributions relating to equity instruments are debited direct to equity.

Financial assets are recognised in the balance sheet at the lower of cost and net realisable value. Income and expenditure arising on financial instruments is recognised on the accruals basis and credited or charged to the income statement in the financial period to which it relates. 

Provisions

Provisions are recognised when either a legal or constructive obligation, as a result of a past event, exists at the balance sheet date and where the amount of the obligation can be reliably estimated.

Estimation techniques

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated accounts are disclosed below. These estimates and judgements are regularly reviewed and updated as necessary.

Income taxes

In determining the Group provisions for income tax and deferred tax it is necessary to consider transactions in a small number of key tax jurisdictions for which the ultimate tax determination is uncertain. To the extent that the final outcome differs from the tax that has been provided, adjustments will be made to income tax and deferred tax provisions held in the period the determination is made.

Provisions

Inventory

Inventories are stated at the lower of cost and net realisable value, with due allowance for excess, obsolete or slow moving items which are dependent on estimates of future revenues and margins of the inventories.

Trade receivables

Trade receivables are stated after deducting an adequate provision for doubtful debts which is dependent on estimates of the recoverability of the receivables.

Share options

The fair value of options is measured using a Black-Scholes option valuation model which requires estimates including factors such as the volatility of share price, dividend yield and the risk free interest rate. 

Impairment of non-current assets

Impairment reviews in respect of goodwill is performed at least annually. More regular reviews are performed on all non-current assets if events indicate that this is necessary. Examples of such triggering events would include a significant planned restructuring, a major change in market conditions or technology, expectations of future operating losses, or negative cash flows.

The recoverable amounts of cash-generating units are determined based on the higher of realisable value and value-in-use calculations. These calculations require the use of estimates.

Deferred consideration

Goodwill is calculated with regard to the value of consideration of an acquisition. Deferred consideration is calculated on an earn-out basis subject to meeting certain revenue targets. This calculation requires estimates of whether the revenue targets will be met which are, by their nature, uncertain.

Recent accounting developments

New standards and interpretations currently in issue but not effective for accounting periods

commencing on 1 January 2007 are:

• IAS 1 Presentation of Financial Statements (revised 2007) (effective 1 January 2009)
• IAS 23 Borrowing Costs (revised 2007) (effective 1 January 2009)
• Amendment to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation (effective 1 January 2009)
• IAS 27 Consolidated and Separate Financial Statements (Revised 2008) (effective 1 July 2009)
• Amendment to IFRS 2 Share-based Payment - Vesting Conditions and Cancellations (effective 1 January 2009)
• Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 27 Consolidated and Separate Financial Statements - Costs of Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective 1 January 2009)
• Improvements to IFRSs (effective 1 January 2009 other than certain amendments effective 1 July 2009) 
• IFRS 3 Business Combinations (Revised 2008) (effective 1 July 2009)
• IFRS 8 Operating Segments (effective 1 January 2009)
• IFRIC 11 IFRS 2 - Group and Treasury Share Transactions (effective 1 March 2007)
• IFRIC 12 Service Concession Arrangements (effective 1 January 2008)
• IFRIC 13 Customer Loyalty Programmes (effective 1 July 2008)
• IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective 1 January 2008)

Going concern

The financial statements have been prepared on a going concern basis, which assumes that the Group will continue to trade for the foreseeable future. During the year the Group incurred losses after taxation of £3,318,596 and had an accumulated profit and loss account loss of £12,186,845 at 31 December 2007.  The Group liabilities exceeded the Group assets by £232,003 at 31 December 2007.

The nature and stage of the Group's business are such that there can be considerable unpredictable variations in the timing of cash inflows. The Group's plans for growth may necessitate alternative funding levels and the directors constantly review the need for such additional funds. The directors have prepared projected cash flow information, which incorporates their best estimate of the timing and value of sales revenue and consequential external funding requirements. On the basis of these forecasts the directors expect the Group to continue to meet its liabilities as they fall due. For this reason the Directors continue to adopt the going concern basis in preparing the financial statements. This assumes that required levels of sales revenue and forecast external funding are achieved by the Group. The financial statements do not include any adjustments that would result should the Group not generate forecast sales revenue or raise adequate funding.

SEGMENT information

The Group determines its reportable segments based on the structure of the internal financial reports that are used by senior management for decision-making purposes and its primary segment reporting format is by geographical segment.

At 31 December 2007, the Group is organised into two main geographical segments which the directors consider are the most appropriate to explain the Group's activities. The segments are the United Kingdom and the United States of America.  

The analysis of revenue below is based on the country in which the customer is located.  

The segment results are as follows:

 

				United	United
				Kingdom	States	Total
2007				£	£	£
Revenue				793,446	890,413	1,683,859
Operating loss				(2,686,176)	(586,644)	(3,272,820)
Net finance costs						(45,267)
Loss before taxation						(3,318,087)
Taxation						(509)
Net loss						(3,318,596)
2006
Revenue				939,312	482,192	1,421,504
Operating loss				(2,795,182)	(93,981)	(2,889,163)
Net finance costs						(20,673)
Loss before taxation						(2,909,836)
Taxation						301,414
Net loss						(2,608,422)

 

 

OPErating loss

	2007	2006
	£	£
Operational exceptional and one-off costs
Onerous lease provision	25,667	-
Write down of inventories	283,033	-
Impairment of property, plant and equipment	86,370	-
Impairment of licence	21,877	-
	416,947	-

Operational exceptional and one-off costs are costs in connection with the group's intended divestment or wind down of its software and instrumentation UK-based businesses and its protein production fee for service business unit. The write down of inventories is included within cost of sales, the remaining costs are included within other operating charges.

TaxATION

The tax charge / (credit) is based on the loss for the year and represents:

	2007	2006
	£	£
Loss before taxation	(3,318,087)	(2,909,836)
Expected corporation tax on loss at 19.75 % (2006:19%)	(655,322)	(552,869)
Effects of:
Expenses not deductible for tax purposes	(21,884)	89,855
Difference between capital allowances and depreciation	22,559	(6,920)
Tax losses carried forward	810,150	470,092
Other timing differences	(157)	(158)
Research and development tax credit	(82,172)	(301,414)
Rate differences	(72,665)	-
Current tax charge/(credit) for the period	509	(301,414)

Unrelieved tax losses of approximately £10 million (2006: approximately £7 million) remain available to offset against future taxable trading profits. A deferred tax asset of approximately £1,952,643 (2006: £1,330,000) calculated at 20% (2006: 19%) in respect of trading losses has not been recognised as an asset as the future benefit cannot be determined at 31 December 2007.

Factors affecting the future tax rate:

Further to a proposed UK corporation tax rate change announced in the 2007 budget, UK corporation tax arising and deferring tax reversing after 1 April 2008 will be recognised at a rate of 20% as opposed to the existing rate of 19%.

Dividends

No dividends have been declared or paid in respect of 2007 and 2006.

LOSS PER SHARE

The calculation of the basic loss per share is based on the loss attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.

Reconciliation of the loss and weighted average number of shares used in the calculations are set out below:

	2007	2006
	£	£
Loss attributable to ordinary shareholders	3,318,596	2,608,422
Weighted average number of shares	1,004,555,014	712,082,411
Loss per share	0.33p	0.37p

As identified in Note 29 Post Balance Sheet Events 516,226,060 Ordinary Shares were issued in January, April and May 2008. These issues will affect future earnings/loss per share calculations.

The average number of shares amounting to 116,291,134 (2006: 118,313,752) that existed in the year could potentially dilute basic earnings per share in the future but were not included in the calculation of diluted earnings per share since they are antidilutive for both years.

statement of changes in equity

	Share capital	Share premium	Merger  relief reserve	Merger reserve	Other reserves	Foreign currency translation reserve	Profit and loss	Total share-holders funds
	£	£	£	£	£	£	£	£
At 1 January 2006	693,400	1,697,433	-	5,731,082	464,714	-	(6,971,578)	1,615,051
Allotments during the year	93,333	636,667	-	-	-	-	-	730,000
Share issue costs	-	(25,200)	-	-	-	-	-	(25,200)
Share issue to acquire PRS	7,061	-	63,544	-	-	-	-	70,605
Share based payments	-	-	-	-	465,707	-	-	465,707
Total recognised income and expense for the year	-	-	-	-	-	7,954	(2,608,422)	(2,600,468)
Exchange differences on translation of foreign operations	-	-	-	-		-	(7,954 )	(7,954)
At 31 December 2006	793,794	2,308,900	63,544	5,731,082	930,421	7,954	(9,587,954)	247,741
Allotments during the year	600,959	1,999,284	-	-	-	-	-	2,600,243
Share issue costs	-	(120,625)	-	-	-	-	-	(120,625)
Share based payments	-	-	-	-	(359,364)	-	719,705	360,341
Total recognised income and expense for the year	-	-	-	-	-	(1,107)	(3,318,596)	(3,319,703)
At 31 December 2007	1,394,753	4,187,559	63,544	5,731,082	571,057	6,847	(12,186,845)	(232,003)

The share based payment amounts relate to a non-cash charge recorded against operating loss in respect of the fair value of options granted to employees.

Notes to the cash flow statement 

	2007	2006
	£	£
Net loss	(3,318,596)	(2,608,422)
Taxation	509	(301,414)
Finance income	(362)	(15,905)
Finance cost	45,629	36,578
Depreciation of property, plant and equipment	235,975	164,788
Impairment of property, plant and equipment	86,370	-
Profit on sale of property, plant and equipment	(11,347)	-
Amortisation of intangible assets	4,687	-
Impairment of intangible assets	21,877	-
Inventories	393,346	(255,256)
Trade and other current receivables	332,805	(185,827)
Trade payables and other current liabilities	(385,675)	(259,960)
Changes in working capital	340,476	(701,043)
Share option charge	360,341	465,707
Cash flow from operating activities	(2,234,441)	(2,959,711)

FIRST TIME ADOPTION OF International Financial Reporting Standards

As discussed in the principal accounting policies, this is the first time the Group has prepared its annual consolidated accounts in accordance with International Financial Reporting Standards (IFRS). 

The accounts for the year 2007 are prepared in accordance with the accounting policies disclosed in these accounts. This also applies to the comparative figures for the period ended 31 December 2006 and the opening balance sheet of 1 January 2006, as changes become effective as of that date, which is referred to as the transition date. 

Accounts in the opening balance sheet of 1 January 2006 have been changed in accordance with IFRS but were previously reported in accordance with UK GAAP (Generally Accepted Accounting Principles). The following tables and notes show the effects the changes from UK GAAP to IFRS has had on the financial position of the Group's financial position. 

UK GAAP permitted the amortisation of goodwill. This is not permitted by IAS 38 'Intangible Assets'. Goodwill was recognised on acquisition of PRS as a 100% subsidiary in November 2006. Under IFRS 3 any goodwill is written back to the profit and loss.

Reconciliation of Equity at the transition date 1 January 2006

			£
Shareholders' equity (UK GAAP and IFRS)			1,615,051

Reconciliation of loss for the period ended 31 December 2006

			£
Loss after tax (UK GAAP)			(2,614,599)
Write back of amortisation of goodwill			4,314
Other			1,863
Loss after tax (IFRS)			(2,608,422)

 Reconciliation of Equity at 31 December 2006

			£
Shareholders' funds (UK GAAP)			241,564
Write back of amortisation of goodwill			4,314
Other				1,863
Shareholders' equity (IFRS)			247,741

Cash flow

The transition from UK GAAP to IFRS has no effect upon the cash flows generated by the Group. The IFRS cash flow statement is presented in a different format from that required by UK GAAP, with cash flows split into three categories of activities - operating activities, investing activities and financing activities. The reconciling items between the UK GAAP presentation and the IFRS presentation have no net impact on the cash flows generated.

publication of non-statutory accounts

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined under Section 240 of the Companies Act 1985. The consolidated income statement, consolidated balance sheets and consolidated cash flow statement and associated notes for the year ended 31 December 2007 have been extracted from the Group's audited financial statements. These financial statements have not been delivered to the registrar.

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