Corporate Governance

Compliance with the Combined Code
(the "Code")

The rules of AIM do not compel the Company to comply with the Code. Nevertheless, the Group fully endorses both the spirit and principles of the Code and seeks to comply wherever possible, whilst taking account of both its own size and its resources. Precisely how the Group has applied these principles is set out in the following statement.

Board of Directors

The Board meets at regular intervals, approximately every six weeks. The Company is committed to maintaining a balance of Executive and Non-Executive Directors and the Board currently consists of five members, two are Executive Directors, the remaining three, one of whom is Chairman, are Independent Non-Executive Directors. The Board believes that, given its size and complexity, it is not appropriate to specify a Senior Independent Director.

Non-Executive Directors are members of the Audit, AIM Compliance and Remuneration Committees. Their biographies on page 13 illustrate their relevant corporate and industry experience.

Given the Company's limited resources and manpower, there is no separate Nominations Committee. However, any new appointments at Board level are considered and approved by the full Board. A detailed introduction to the activities of the Company is given to any new appointee who is also provided with any appropriate training deemed necessary. The Company Secretary, to whom all Directors have full access, attends all Board and Committee meetings.

During the year the Board has regularly reviewed its composition, balance of skills and performance. On 6 May 2009 Dr M McDonald was appointed as a Non-Executive Director of the Company and became a member of both the Audit and Remuneration Committees.

Following the AGM on 27 July 2010, Geoff McMillan retired as the Non-Executive Chairman after five years of committed service. Geoff has made a significant contribution to the transformation of the Group and the leadership of the Board.

Audit Committee

The Audit Committee, chaired by J H Gregory, meets at least twice a year (or more frequently as required). The Chief Financial Officer is generally in attendance at those meetings and also acts as Secretary to the Committee. An invitation is extended to the auditor to attend meetings of the Committee in order to discuss related matters. On a formal basis, the Committee reviews with the auditor those reports to be issued by the auditor to the Directors.

The Audit Committee also undertakes a formal assessment of the auditor's independence each year which includes:

a review of the non-audit services provided to the Group and related fees;
discussion with the auditor of a written report detailing all relationships with the Company and any other parties that could affect independence or the perception of independence;
a review of the auditor's own procedures for ensuring the independence of the audit firm and partners and staff involved in the audit, including the regular rotation of the audit partner; and
obtaining written confirmation from the auditor that, in its professional judgement, it is independent.

An analysis of the fees payable to the external audit firm in respect of both audit and non-audit services during the year is set out in note 4 to the consolidated accounts.

AIM Compliance Committee

The Company has an obligation to comply with the AIM Rules for Companies ("AIM Rules") as administered by the London Stock Exchange plc. Rule 31 of the AIM Rules requires all AIM companies to:

have in place sufficient procedures, resources and controls to enable its compliance with the AIM Rules;
seek advice from its nominated adviser regarding its compliance with these AIM Rules whenever appropriate and take that advice into account;
provide its nominated adviser with any information it requests or requires in order for that nominated adviser to carry out its responsibilities under these AIM Rules and the AIM Rules for Nominated Advisers, including any proposed changes to the Board of Directors and provision of draft notifications in advance;
ensure that each of its Directors accepts full responsibility, collectively and individually, for its compliance with these AIM Rules; and
ensure that each Director discloses to the AIM company without delay all information which the AIM company needs in order to comply with AIM Rule 17 insofar as that information is known to the Director or could with reasonable diligence be ascertained by the Director.

In order to ensure that these obligations are being discharged, the Board considers all AIM compliance matters at each Board meeting and reports back formally to its nominated adviser, confirming that it has made it aware of all relevant compliance matters.

Having reviewed relevant Board papers and met with the Company's Executive Board and the nominated adviser to ensure that such is the case, the AIM Compliance Committee is satisfied that the Company's obligations under AIM Rule 31 have been satisfied during the year under review.

Internal control

At the present time, there is no internal audit function. The Board is responsible for the Company's system of internal control, which is designed to manage rather than eliminate the risk of failure to achieve business objectives; it can therefore only provide a reasonable and not an absolute assurance against material misstatements or losses.

Proper briefing of all Directors at Board meetings is considered an important issue and all Board papers are distributed in advance of those meetings; meetings are either adjourned or decisions deferred on occasions when the Board seeks the provision of further information upon which to base its decisions. There also exists a formal schedule of matters specifically reserved for decisions by the Board.

During the year the Directors have reviewed and are satisfied with the adequacy of the Group's internal financial controls. These controls include the following:

a comprehensive annual budgetary process, reviewed and approved by the Board; and
the monitoring of actual results against budget, no greater than at monthly intervals, together with the revisiting of forecasts whenever it is deemed appropriate.