Corporate Governance Statement

Compliance with the Combined Code

The rules of the Alternative Investment Market (“AIM”) do not compel the Company to comply with the Combined Code (the “Code”). Nevertheless the Directors intend that the Company will comply with some of the provisions of the Code providing a limited number of disclosures deemed necessary and valuable to readers, insofar as it is practicable for a company of its size.

Board of Directors

The Company has appointed three Non-executive Directors (R. James Macaleer, Anthony W. Henfrey, and Gerard Moufflet) with relevant sector experience to complement the Executive Directors and to provide an independent view to the Board.

The Company has an Audit Committee of two Non-executive Directors. The Audit Committee is scheduled to meet a minimum of three times a year to consider i) the audit plan for each financial year, ii) the publication of the final results, and iii) the publication of interim results. The Audit Committee met two times in 2010 with all members present.

The Company has a Compensation Committee of two Non-executive Directors. The Compensation Committee is responsible for reviewing the performance of the executives, setting remuneration, determining the payment of bonuses based on an established management incentive plan, and considering the grant of options. The Compensation Committee met two times in 2010.

The Board meets regularly, generally every two months, to review key business risks including the financial risks facing the Company in the operation of its business.

The Board approves the annual budget and operating plan and monitors the performance of the Company and the executive management team against the approved budget, as well as considering employee issues and any key appointments. The Board approves all additional and new portfolio investments and additional investments to existing Partner Companies. The Board meets prior to the publication of the final results to approve the value of the Company’s Partner Company investments and considers the going concern assumption.

The Directors will retire by rotation and offer themselves for re-election in accordance with the Company’s Articles and the Code.

The Company has adopted a model code for Directors’ dealings which is appropriate for an AIM listed company. The Directors complied with Rules 21 and 31 of the AIM Rules relating to Directors’ dealings and took reasonable steps to ensure compliance by the Company’s applicable employees as well.

A Directors’ Remuneration Report is included on page 8.

A summary of the performance and financial position of the Group for the year ended 31 December 2010 is set out in the Chairman and CEO’s Statement on pages 1 to 3. The Board considers this information to provide a balanced assessment of the Group’s financial position and future prospects.

Chairman’s duties

At 31 December 2010, the Company’s Chairman and Chief Executive Officer was Richard C.E. Morgan. Mr. Morgan retired as Chairman on 1 May 2011 and R. James Macaleer became Chairman.

The Chairman is responsible for:

• leadership of the Board;
• ensuring the Board’s effectiveness on all aspects of its role and setting its agenda;
• ensuring that the Directors receive accurate, timely, and clear information;
• ensuring the effectiveness of communication with shareholders;
• facilitating the effective contribution of Non-executive Directors in particular; and
• ensuring constructive relations between Executive and Non-executive Directors.

Chief Executive Officer’s duties

The Company’s Chief Executive Officer (“CEO”) is responsible for:

• running the Company’s business;
• managing the senior executive staff;
• reporting to the Board on all aspects of the Company’s operations;
• being the primary spokesperson for the Company; and
• carrying out the annual operating plan approved by the Board.

Internal control and risk management

The Board attaches considerable importance to the Company’s system of internal control and risk management.

The Company operates a comprehensive accounting and budgeting system, which is analysed on a monthly basis. Variances between forecast and actual results are analysed thoroughly to ensure that, should there be any material differences, they would be investigated immediately. Variances between forecast and actual results are reported to the Board as part of regularly scheduled Board meetings.

The Company intends to maintain a small and close-knit team and to stay in close touch with its Partner Companies. As a result, the Company intends to limit the number of Partner Companies to no more than 10 at any one time. In addition to limiting the number of Partner Companies, the Company employs a rigorous selection process prior to initial investment into a Partner Company and once invested, the Company provides a wide range of services including direct management, strategic planning, intellectual property planning and strategy, capital raising, recruiting, business development, and other advisory services in areas such as marketing, administration, and capital markets. These services allow the Company to have direct knowledge of the operations of the Partners Companies and allow the Company to identify and seek remedies for potential financial and operational issues occurring at the Partner Companies.

The internal controls and risk management are designed to manage, rather than eliminate, the risk of failure to achieve business objectives, and the Board recognises that any system can only provide reasonable, and not absolute, assurance against material misstatement or loss.

Going concern

The Board has undertaken a recent and thorough review of the Group’s forecasts and associated risks and sensitivities. The extent of this review reflects the uncertain economic outlook for the US and UK economies taken as a whole, as well as the specific financial circumstances of the Group at this time. The review has identified that the Group’s cash flow forecasts are particularly sensitive to the Company’s ability to continue to raise new funds for itself and its Partner Companies and the continued success of its licensing activity.

Following this review, the Board has concluded that even though the Company has a net current liability position at the year end, it has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and for this reason, the going concern basis continues to be adopted in preparing the financial statements. The monthly performance of the business and its forecasts are being regularly reviewed in detail. Should there be an unforeseen and material adverse change in any of the key sensitivities impacting on the Group’s forecasts, the Board would seek to mitigate the impact by adopting different operating and funding strategies. For further details of management’s assessment of going concern, refer to note 1 of the financial statements.

Communication with shareholders

The Company is strongly committed to the maintenance of good investor relations and seeks, wherever possible, to build a relationship of mutual understanding with both its institutional and private clients. Additionally, the Board seeks to use the Annual General Meeting and the Company’s website (www.amphionplc.com) to communicate with all shareholders.

Further queries are welcome and should be directed to Richard C.E. Morgan, CEO (rmorgan@amphionplc.com), or Charlie Morgan, Director of Communications (cmorgan@amphionplc.com).