London, United Kingdom
June 20, 2008
FuturaGene, which
develops environmentally friendly solutions that enable plants
to grow in hostile conditions, improve crop yields and enhance
processability and digestibility, today reports final results
for the year ended 31 December 2007.
Highlights
- Operating loss £1.64
million (2006: £4.69 million)
- Retained loss for year
£1.52 million (2006: £3.84 million)
- Loss per ordinary share
3.6p (2006: 10.2p)
- Cash at period end of £2.1
million (2006: £3.6 million)
- Successful completion of
first year commercial eucalyptus field trials with Suzano in
Brazil
- Completion of Development
and Evaluation deal with Forage Genetics Inc.
- Collaboration Agreement
with the Research Institute of Tropical Forestry, China
- Establishment of JV in
China to develop sustainable biofuel in China
- No dividend is proposed
Mark Pritchard, Chairman,
commented “This has been a year of sound operational progress,
where important licensing deals have been struck. Significant
validation of the CBD technology platform has been achieved
through the data collected from field trials. We have also
forged some important collaborations in China, which we hope
will prove to be exciting projects in the future. However, the
on-going litigation continues to impact on the Company and its
share price”.
The Company's Annual General Meeting will be held at 9.00 a.m.
on 14 July 2008 at the offices of Fox Williams LLP, 10 Dominion
Street, London EC2M 2EE.
Chairman’s Report
The year under review
has been one of measured success for the Company. The
integration of CBD Inc. into the FuturaGene Group was
completed and during the year we have made significant
progress toward future revenue generation, a milestone
for any biotech company.
In August 2007, Stanley Hirsch was appointed Group CEO
and you will find his review of our operations set out
below.
It is very pleasing to note that there is significant
and growing interest in the capabilities of our
technology as evidenced by the out-licensing deals we
have announced. It is equally pleasing that we are
making substantive progress in taking our technologies
from the laboratory to the field and that we are now
building data, particularly in respect of the CBD genes,
that truly demonstrates the efficacy of our gene
portfolio.
However, it is a great shame that the real advances
being made by the Company are being obscured by the
on-going litigation with certain former managers and a
small group of shareholders. The performance of the
share price was particularly disappointing during the
year and the downward trend has continued since the year
end. The Directors believe that the legal actions filed
against the Company have played a major role in this
trend, in contradiction to the continued positive
operational progress of the Company. The board continues
to defend the interests of shareholders against these
actions, which are costly in terms of both management
distraction and money.
Audit Opinion
The auditors have stated in their opinion that they are
unable to form an opinion as to whether the group and
parent company financial statements give a true and fair
view of the state of the affairs as at 31 December 2007
and of the loss and cash flows for the year then ended.
This is as a result of the on-going legal claims and the
consequential uncertainty over the ability of the
company to continue as a going concern.
As set out in Notes 3 and 4, the directors believe that
the claims against the company are without merit and
remain optimistic of a positive resolution to the
litigation. No provision for any liability that may
result has been made in the financial statements.
Further, as set out in Note 1.2, the directors have
prepared working capital projections for the period to
30 June 2009. The projections are subject to a number of
potentially material variables including the impact of
any settlement to the ongoing litigation and the
associated legal costs, the timing and extent of future
revenues, the ability to control levels of expenditure
and the proceeds from any potential future fund raising.
Based upon these projections, the directors consider it
appropriate to prepare the accounts on a going concern
basis. However, the directors recognise there will
remain material uncertainty over the group’s cash flows
which consequently cast significant doubt about the
company’s ability to continue as a going concern.
Financial Results
Administrative expenses (after eliminating foreign
exchange losses (2007: £79,000, 2006: £508,000) have
increased from £957,000 to £1,559,000. As a pre-revenue
business, our key performance indicators are centered
around cost control which is monitored through budgetary
control and management meetings. This increase in
expenses, which is in line with expectations, is due to
the acquisition of CBD which impacted on our cost base
for the first time in 2007 following the completion of
its acquisition in late 2006
The loss per share was 3.6p (2006: 10.2p).
The Group had cash reserves of £2,124,000 as at 31
December 2007 (2006: £3,630,000). As at 16 June 2008 the
group’s cash balance had fallen to £1,400,000. The board
is actively considering its options in respect of the
net additional funding required for the next stage of
the group’s development and continues to maintain a
tight control over operational costs. No dividend
payment is proposed. (See also note 1.2).
Biofuels
In the first half of the current year we completed an
additional out-licensing deal and established a joint
venture in China to pursue opportunities in the biofuels
sector (further details of which are set out in the
Chief Executives’ report) which further increases our
optimism for the future. We will continue to diligently
pursue our business plan with a renewed focus on fuel
and fibre production and pursue key strategic
partnerships to develop and market our technology
worldwide.
AGM
Enclosed with these accounts is a notice of our annual
general meeting to be held on 14 July 2008. At the
meeting the Company proposes to adopt new articles of
association (the “New Articles") which will update the
Company’s current articles, primarily to take account of
recent changes in English company law brought about by
the Companies Act 2006. The principal changes introduced
in the New Articles are procedures surrounding convening
and voting at general meetings, conflicts of interest
and electronic and website communications with
shareholders.
The New Articles, showing all the proposed changes to
the current articles, are available for inspection
between 9.00 a.m. and 5.00 p.m. Monday to Friday at the
Company’s registered office, Ten Dominion Street, London
EC2M 2EE.
As an early stage technology, the Company faces a number
of business risks. During the year, the technology risks
associated with the CBD technology have started to
lessen as the data being generated from field trials
indicates that use of these genes can generate
significant yield gains. However the ongoing litigation
mentioned above is a significant risk to the company due
to the uncertainty it creates and the distracting effect
on Company management.
Finally I would like to thank my fellow board members
and all the employees for their continued efforts during
the year, in what has been, and continue to be, trying
and difficult circumstances. I am confident that during,
2008 we will continue to build on the achievements and
progress of 2007.
Mark Pritchard
Chairman
Chief Executive’s Report
The past year has been
an important year for the company, in which we have both
consolidated the operations of FuturaGene and its new
wholly owned subsidiary, completed a number of
transactions and laid the foundations for the future
activity of the Group.
2007 was a watershed year in which fuel and food prices
increased dramatically. Food and fuel have become even
more tightly linked as agriculture has expanded from its
classic role as a provider of food, feed and fibre to
include an additional arm producing a raw material for a
fuel source – agriculture is developing from being a
huge user of hydrocarbons as fuel and fertilizer source
to becoming the provider of the new “crude” for biofuel
refineries. We have worked in this new milieu to
position the company for its future growth. Through the
biomass development work of our CBD subsidiary over the
past seven years in the plantation forestry industry we
believe that the Group is uniquely positioned for the
development of enhanced crops for second generation
bioethanol production (cellulose-to-ethanol), which will
provide significant benefits with respect to food
security and environmental sustainability.
The Group has worked actively to exploit the technology
synergies which provided the rationale for merging the
abiotic stress base from FuturaGene with the yield
enhancement and processability traits from CBD
technologies. In a world of increasing food and energy
prices, we believe that the technology offered by the
Group will become of critical importance in the next
generation of agricultural development.
Highlights for 2007 included two important transactions:
- Development and
Evaluation Agreement with Forage Genetics in the USA
for the enhancement of alfalfa as a forage and
biofuel crop with CBD genes. Alfalfa is a principal
feedstock for dairy cows, but is also an important
food source for horses, beef cattle and sheep.
Alfalfa is the fourth biggest crop in the USA with
approximately 23 million acres harvested for hay and
alfalfa silage annually. Alfalfa hay production is
estimated to generate more than $7 billion per
annum. Forage Genetics has a market share of about
60% of the branded alafalfa seed sold in the USA.
Forage Genetics will develop the improved varieties
and FuturaGene will receive a share of the trait
premiums paid by growers for using these varieties.
- Collaboration
Agreement with the Research Institute of Tropical
Forestry (RITF) of the China Academy of Forestry for
the development of growth enhanced eucalyptus for
China. RITF, a satellite institute of the China
Academy of Forestry, is the principal research
institute for the eucalyptus industry in southern,
sub-tropical China. It is a major provider of
improved germplasm to this fast-growing industry, as
well as being the provider of extension services.
More than 2 million hectares (c.5 million acres) of
eucalyptus have been planted in the southern
provinces of China over the last few years. RITF
will develop improved eucalyptus clones for
dissemination to the industry. FuturaGene and RITF
will have co-commercialisation rights for these
clones.
- Furthermore, at
the end of this reporting period, we were in
advanced negotiation with Targeted Growth, Inc. in
the USA for the licensing of specific genes from our
subsidiary, CBD Technologies for shortening rotation
time and enhancing digestibility and processability
of corn and soy. This agreement was subsequently
executed and announced in April, 2008. This
agreement will yield licensing and milestone
payments and a share of trait premium from the use
of the modified crops. Corn and soy are two of the
largest crops in the United States and cover
hundreds of millions of acres worldwide. These crops
play a critical role in the food, feed and biofuel
sectors worldwide.
On the R&D front, a
significant shift in the Group’s approach to R&D
occurred during 2007. Up to this time, the Group had
conducted most of its research activities under
contract with universities. This model, whilst at
first appearing to be attractive, has many
shortcomings including the difficulty in controlling
confidentiality, no accumulation of in-house
expertise, disruption of projects as research
students move on to other institutions and a
significant difference in the deliverables needed
for commercialisation of discoveries compared with
academic deliverables. With the acquisition of CBD
Technologies, the Group acquired its own research
facility in Rechovoth, Israel. The Group has used
this asset to enforce tighter controls on existing
projects, to validate work done by outside groups
and increasingly, to conduct its own work. In
parallel, outside projects are being wound down and
very stringent selective criteria will be applied on
the initiation of any new projects conducted by
third parties for the Group.
An intensive audit of the overall state of projects
in the Group was conducted during 2007 and this
culminated in a detailed presentation to the
Scientific Advisory Panel of the Group in Chicago in
October, 2007. Based on this review, it emerged that
the Group should move rapidly on its biomass-based
technologies, with a continued focus on eucalyptus
and accelerating work in poplar. Poplar is a leading
species indicated by the US Department of Energy as
a cellulose source for non-food crop biofuel
production. Thus, in the latter crop, our focus will
be on developing high yield, short rotation (2-3
year growing period) poplar for the
cellulose-to-ethanol industry. CBD has previously
demonstrated an increase in growth of hundreds of
percent in poplar through the introduction of its
cell wall modifying technology into this species.
The abiotic stress technologies (salt tolerance,
drought tolerance etc.) were adjudged to be earlier
stage and to require additional in-house
development. Our consensus management view is that
despite the time required, the value of these
abiotic stress traits would be significantly
enhanced by prototyping and field testing these
traits in-house, prior to commercialising either by
own-crop development in certain species or
out-licensing for crops which are not in the
strategic areas in which the Group is involved.
Highlights on the research front included:
- Successful
completion of first year commercial field trials
for growth enhanced eucalyptus with our
partners, Suzano, in Brazil. Suzano also
established a second field trial at an
additional location to verify results of the
first trial. Companhia Suzano de Papel e
Celulose (Suzano) is the largest producer of
paper for the Brazilian domestic market and the
second largest producer of eucalyptus-based pulp
in the world. FuturaGene has modified commercial
eucalyptus clones bred by Suzano to enhance
their growth properties. After an exclusive
usage period by Suzano, Suzano and FuturaGene
will jointly commercialise the enhanced clones
in South America. There are approximately 5
million hectares (12.5 million acres) of
commercial eucalyptus forest in South America
today. Subsequent to this reporting period,
second year results from the first trial and
first year results have been obtained from the
second trial, demonstrating the strong
commercial potential of this technology.
- Completion of
a modified eucalyptus field trial in Israel.
Eucalyptus modified with genes for the
enhancement of yield were tested for three years
and weighed after harvest. Leading clones from
this trial showed a growth improvement of more
than 30% over un-modified controls. Classic
breeding techniques usually provide yield
improvements of about 5% over a 7-10 year cycle.
This result, combined with the results obtained
with Brazilian trials, provides convincing
evidence that the Group’s yield enhancement
technology works in commercial species, in the
field.
- Completion of
transformation work on growth enhanced
eucalyptus clones for AA Alliance, our partners
in Thailand and certain territories in South
East Asia and transfer of these clones to Asia
for field trialing, expected to start in Q3,
2008. AA Alliance is a leading pulp and paper
producer in Thailand. It has ultra-modern mill
facilities, which adhere to stringent
environmental controls and are socially involved
in neighbouring communities, including
electricity supply. AA Alliance currently plants
more than 60 million eucalyptus plantlets
annually to supply its fibre requirements.
- Preliminary
field analysis of our drought resistance genes
in cotton in China demonstrated the potential of
this technology. Whilst extremely promising, the
expression of these genes needs to be optimised
and developed beyond the scope of the project
conducted by China Agriculture University for
the Group, prior to strategic decisions on the
appropriate commercialisation pathway for this
technology.
To maximise the
economic potential of the Group and to shorten
the time to commercialisation, the Group is
working on extending its business model to the
development of a modern technology based, market
driven integrated operating platform. As a first
step, the company has made a clear commitment to
the development of a sustainable biofuels
business in China. To this end, the Group
established a Hong Kong-based 50:50 joint
venture, Hyacinth BioEnergy, with the JPI Group
of Beijing a leading private investment and
advisory company based in China, whose client
base includes corporate, institutional and
governmental clients and partners, including a
number of Fortune 500 companies.
Hyacinth BioEnergy is developing a fully
integrated feedstock to biofuel project in
China. This project will be based on second
generation cellulose-to-ethanol processing
technology and will utilise non-food crops such
as high yield, short rotation poplar and sweet
sorghum as feedstocks. In the period subsequent
to this reporting period, variety selection
field trials have been initiated and a number of
potential processing technology suppliers have
been engaged in discussion. Hyacinth is
currently negotiating land leases for
approximately 7,000 hectares (17,500 acres).
In addition to our ongoing research and business
development activities, we remain committed to
strengthening our intellectual property
portfolio, both by extension of current filings,
through strategic licensing-in from commercial
bodies and by strengthening and broadening our
relationships with universities, which are ideal
as discovery “engines”.
I look forward to updating you on additional
progress in future reports.
Stanley Hirsch,
Group CEO
20 June 2008
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