GROUP PROFIT AND LOSS ACCOUNT

PROFIT FOR THE FINANCIAL YEAR

TURNOVER			1				4,386,619
Cost of sales							(1,542,043	)

GROSS PROFIT			2,844,576
Other operating expenses			(3,616,656	)

OPERATING LOSS	(772,080	)
Interest receivable and similar income	17,711
Foreign exchange gain	803,455

PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION			3			49,086
Tax on profit on ordinary activities			6			-

16/18

49,086

PHOTO THERAPEUTICS GROUP LIMITED

GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

for the year ended 31 December 2008

			2008
	Notes		£
PROFIT FOR THE YEAR			49,086
Exchange loss on translation of foreign subsidiary		18	(304,912	)
TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR			(255,826	)


Prior year adjustment			17				17,589

TOTAL RECOGNISED LOSSES SINCE LAST ANNUAL REPORT

(238,237

)

GROUP BALANCE SHEET

PHOTOTHERAPEUTICS GROUP LIMITED

		2008
	Notes	£
FIXED ASSETS
Intangible assets	9	319,219
Tangible assets	10	62,035
		381,254

CURRENT ASSETS

Stocks	11	1,159,437
Debtors	12	522,404
Cash at bank and in hand		377,329
		2,059,170
CREDITORS
Amounts falling due within one year	13	(989,616	)
NET CURRENT ASSETS		1,069,554

TOTAL ASSETS LESS CURRENT LIABILITIES		1,450,808
Provisions for liabilities	14	(151,859	)
NET ASSETS		1,298,949

CAPITAL AND RESERVES
Called up share capital	15	377,825
Share premium account	16	1,627,131
Profit and loss account	16	(13,839,292	)
Foreign exchange reserve	16	(304,912	)
Merger reserve	16	13,438,197
SHAREHOLDERS’ FUNDS	18	1,298,949

GROUP CASH FLOW STATEMENT

Capital expenditure and financial investment

		2008 Discontinued £

NET CASH OUTFLOW FROM OPERATING ACTIVITIES	19	(579,340	)


Returns on investments and servicing of finance	20	17,711

Taxation	20	48,654

(25,030

)

NET CASH OUTFLOW BEFORE FINANCING

(538,005

)

Financing		-
Decrease in cash in the year	21	(538,005	)
Effect of foreign exchange on cash		161,077

CASH OUTFLOW IN THE YEAR		(376,928	)

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

ACCOUNTING POLICIES

BASIS OF ACCOUNTING

GOING CONCERN

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

BASIS OF CONSOLIDATION

The consolidated financial statements incorporate those of Photo Therapeutics Group Limited and all of its subsidiary undertakings for the year. Subsidiaries acquired, other than Photo Therapeutics Limited, are consolidated using the acquisition method. Their results are incorporated from the date that control passes. The difference between the cost of acquisition of shares in subsidiaries and the fair value of the separable net assets acquired is capitalised as purchased goodwill and amortised through the profit and loss account over its estimated economic life. Provision is made for any impairment. All financial statements are made up to 31 December 2008.

All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.

In 2001, the company acquired the whole of the issued share capital of Photo Therapeutics Limited in exchange for shares. This acquisition has been accounted for in accordance with the principles of merger accounting as set out in the Financial reporting Standard No. 6 (FRS 6) and in accordance with Schedule 4a of the Companies Act 1985.

INTANGIBLE ASSETS – RESEARCH AND DEVELOPMENT

Research expenditure is written off as incurred. Development expenditure is also written off, except where the directors are satisfied as to the technical, commercial and financial viability of individual projects. In such cases, the identifiable expenditure is deferred and amortised over the period during which the company is expected to benefit. This period is between three and five years. Provision is made for any impairment.

TANGIBLE FIXED ASSETS

Tangible fixed assets are stated at cost, net of depreciation and any provision for impairment. Depreciation is provided on all tangible fixed assets at rates 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:

Computer equipment	3 to 4 years
Furniture and other	3 to 5 years
Omnilux Lamps	3 years
Paterson Lamps and Enlighten Machines	3 years

Residual value is calculated on prices prevailing at the date of acquisition.

GOODWILL

Purchased goodwill (representing the excess of the fair value of the consideration given over the fair value of the separate net assets acquired) arising on the acquisition of business combinations is capitalised and written off on a straight line basis over its useful economic life, which is 5 years. Provision is made for any impairment.

ACCOUNTING POLICIES

INVESTMENTS

Fixed asset investments are shown at cost less provision for any impairment.

STOCKS

Stocks are stated at the lower of cost and net realisable value. 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, slow-moving or defective items where appropriate.

TAXATION

Current tax, including UK corporation tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

DEFERRED TAXATION

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the company’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements.

A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.

TURNOVER

Turnover represents amounts receivable for goods provided in the normal course of business, net of VAT, and is recognised when significant risks and rewards of ownership are transferred to the customer.

PENSION COSTS AND OTHER POST-RETIREMENT BENEFITS

The group contributes to employees’ private pension schemes. Annual contributions paid are charged to the profit and loss account as incurred.

LEASES

Rentals under operating leases are charged on a straight-line basis over the lease term, even if the payments are not made on such a basis.

SHARE OPTIONS

Equity-settled share based payments are measured at fair value at the date of the 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 be adjusted for the effect of non-market-based vesting conditions,.

Fair value is measured by use of the Black-Scholes pricing mode. 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

Assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All differences are taken to the profit and loss account.

ACCOUNTING POLICIES

FOREIGN CURRENCIES

Assets, liabilities, and results of overseas subsidiaries are translated at the rate ruling at the balance sheet date. Exchange differences arising are dealt with through reserves.

WARRANTY PROVISIONS

Provision is made for liabilities arising in respect of expected warranty claims on warranties provided in conjunction with the sale of goods. The provision has not been discounted on the grounds of immateriality.

Turnover during the year arose in relation to the group’s principal activity as follows:

1 TURNOVER

	2008
	Discontinued
		£
United Kingdom		149,826
Rest of Europe		605,796
Rest of World		3,630,997
		4,386,619

2 OTHER OPERATING EXPENSES

	2008
	Discontinued
		£
Selling and distribution costs		1,125,983
Administrative expenses		2,490,673
		3,616,656

3 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION

Profit on ordinary activities before taxation is stated after charging:

	2008
		£
Depreciation and amounts written off tangible fixed assets
- owned		24,459
Amortisation of goodwill		79,446
- current year expenditure		34,845
- amortisation and amounts written off deferred expenditure		13,212
- plant and machinery		2,172
- other		101,101
Auditor’s remuneration for audit services		26,000

Amounts payable to Baker Tilly UK Audit LLP (2007 - Deloitte & Touche LLP) by the group in respect of non-audit services for 2008 were £17,957 (2007 - £3,950).

The average monthly number of employees (including executive directors) was:

4 STAFF COSTS

	2008
	Number
Sales and administration		22

Their aggregate remuneration comprised:

	2008
		£
Wages and salaries		1,131,781
Compensation for loss of office		95,000
Social security costs		146,286
Other pension costs		57,010

		1,430,077

5 DIRECTORS’ REMUNERATION, INTERESTS AND TRANSACTIONS

Aggregate remuneration

The total amounts for directors’ remuneration and other benefits were as follows:

	2008
		£

Emoluments		147,000
Compensation for loss of office		95,000
Benefits		11,590
Contributions to money purchase pension schemes		15,400
		268,990

The above amounts for remuneration include the following in respect of the highest-paid director:

	2008
		£

Emoluments		110,000
Benefits		10,435
Contributions to money purchase pension schemes		15,400
		135,835

One director is a member of a money purchase scheme (2007 – 2).

Photo Therapeutics Group Limited did not have any employees during the year or the preceding year other than the directors. Directors are remunerated by other group companies. No directors exercised share options during the period.

6 TAXATION ON PROFIT ON ORDINARY ACTIVITIES

The tax charge for the year comprises:

	2008
		£
Current tax:
UK corporation tax		-
		-

The differences between the total current tax shown above and the amount calculated by applying the standard rate of UK corporation tax of 28% (2007 – 30%) to the profit before tax is as follows:

	2008
		£
Profit on ordinary activities before tax		49,086

Tax on profit on ordinary activities at standard UK corporation tax rate of 28% (2007 – 30%)		13,744
Effects of:
Expenses not deductible for tax purposes		105,138
Depreciation in excess of capital allowances		3,270
(Decrease)/increase in tax losses		(213,798	)
Unrelieved losses in respect of loss on PTI		72,647
Other timing differences		18,999

Current tax for the year		-

A deferred tax asset amounting to £2,594,860 (2007 - £3,019,731) for trading losses has not been recognised because, in the opinion of the directors there is insufficient certainty surrounding the timing and incidence of future taxable profits.

No deferred tax is recognised in respect of the unremitted earnings of Photo Therapeutics Inc., as there are currently losses in the company.

7 PROFIT ATTRIBUTABLE TO PHOTO THERAPEUTICS GROUP LIMITED

The loss for the financial year dealt within the financial statements of the parent company, Photo Therapeutics Group Limited, was £382,905 (2007 - £nil). As permitted by Section 230 of the Companies Act 1985, no separate profit and loss account is presented in respect of the parent company.

8 PRINCIPAL COMPANY INVESTMENTS

The parent company has investments in the following subsidiary undertakings, which principally affectedthe losses and net issues of the group.

	Country of incorporation	Type of shares	Holding %

Photo Therapeutics Limited	England and Wales	0.01p ordinary shares	100
Photo Therapeutics Inc	USA	$1 ordinary shares	100
LightSource Laboratories Limited*	England and Wales	£1 ordinary shares	100

*indirect holding

The principal activity of the subsidiary undertakings consists of the application of non-coherent light sources in the cosmetic and clinical markets.

9	INTANGIBLE FIXED ASSETS

Group Cost	Restated Goodwill		Development costs		Restated Total
		£		£		£
At 1 January 2008		362,876		80,261		443,137
Exchange differences		124,310		-		124,310

At 31 December 2008		487,186		80,261		567,447

Depreciation

At 1 January 2008	63,303	49,024	112,327
Charge for the year	79,446	13,212	92,658
Exchange differences	43,243	-	43,243

At 31 December 2008	185,992	62,236	248,228

Net book value

At 31 December 2008			301,194				18,025				319,219

Net book value

At 31 December 2007			299,573				31,237				330,810

10 TANGIBLE FIXED ASSETS

	Computer Equipment	Furniture and other	Paterson Lamps and Enlighten Machines	Omnilux Lamps		Total
	£	£	£	£		£
Group Cost
At 1 January 2008	219,233	451,310	1,398,515	99,797		2,168,855
Additions	9,276	15,754	-	-		25,030
Disposals	-	-	-	(2,356	)	(2,356	)
Exchange differences	14,826	10,678	-	-		25,504
At 31 December 2008	243,335	477,742	1,398,515	97,441		2,217,033

Depreciation

At 1 January 2008	194,241	427,065	1,398,515	99,797		2,119,618
Charge for the year	7,807	16,652	-	-		24,459
On disposals	-	-	-	(2,356	)	(2,356	)
Exchange differences	7,974	5,303	-	-		13,277
At 31 December 2008	210,022	449,020	1,398,515	97,441		2,154,998

13 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

11 STOCKS

	Group
	2008
		£
Raw materials and consumables		169,951
Finished goods		989,486
		1,159,437

12 DEBTORS

	Group
	2008
Amounts falling due within one year:		£

Trade debtors		406,807
VAT		21,139
Prepayments and accrued income		94,458
		522,404

	Group
	2008
		£

Bank overdraft		27,093
Trade creditors		545,031
OTSS and VAT		65,740
Other creditors		18,170
Accruals and deferred income		333,582
		989,616

14 PROVISIONS FOR LIABILITIES

	Group
	2008
Product warranties		£

At 1 January 2008		135,443
Charged to the profit and loss account		48,526
Utilised in the year		(33,611	)
Foreign exchange difference		1,501
At 31 December 2008		151,859

A provision of £151,859 (2007 - £135,443) has been recognised for expected warranty claims on goods sold during the last 2 years. It is expected that most of this expenditure will be incurred in the next financial year and all will be incurred within 2 years of the balance sheet date