ANNUAL FINANCIAL REPORT 2010 2010 - TiGenix

operating results and operating plans and make resourceallocation decisions on a company-wide basis, therefore TiGenixoperates as one segment.Business combinationsThe consolidated financial statements incorporate the resultsof business combinations using the purchase method. Theacquiree’s identifiable assets, liabilities and contingent liabilitiesare initially recognised at their full fair values at the acquisitiondate. The results of the acquired operations are included in theconsolidated statements of comprehensive income from thedate on which control is obtained. They are deconsolidatedfrom the date control ceases.Revenue recognitionRevenue from sales of goods is recognized when:• the significant risks and rewards of the ownership of goodsare transferred to the buyer; The Group retains neithereffective control nor involvement to the degree usuallyassociated with ownership over the goods sold;• the amount of revenue can be measured reliably;• it is probable that the economic benefits associated with thetransaction will flow to the entity; and• the costs incurred or to be incurred in respect of thetransaction can be measured reliably.License fees are recognised when the Group has fulfilledall conditions and obligations. The license fee will not berecognised if the amount cannot be reasonably estimated andif the payment is doubtful. License up-front (signature fees)and non-refundable fees for access to prior research resultsand databases are recognised when earned, provided thatthe Group has no continuing performance obligations and allconditions and obligations are fulfilled (this means after thedelivery of the required information).If the Group has continuing performance obligations towardsfees, the fee will be recognised on a straight-line basis over thecontractual performance period.Research and development service fees are recognised asrevenue over the life of the research agreement as the requiredservices are provided and costs are incurred. These services areusually in the form of a defined number of full-time equivalents(“FTE”) at a specified rate per FTE.Government grants are recognised as revenue over the life ofthe grant as the required or planned activities are performedand the related costs incurred and when there is reasonableassurance that the Group will comply with the conditions of thegrant. The grants are usually in the form of periodic progresspayments.Deferred revenue represents amounts received prior to revenuebeing earned.Cost of salesCost of sales includes primarily the direct production costs, thedirect sales costs and the services rendered. Royalty expensesdirectly linked to goods sold are also included.Research & development costsInternally-generated intangible assets – research &development expenditureDevelopment costs are capitalised to the extent that allconditions for capitalisation have been satisfied as specifiedin IAS 38. The Company considers that the regulatory andclinical risks inherent to the development of its productspreclude it in general from capitalising development costs untilthe moment of regulatory approval. Nevertheless after thepositive CHMP opinion of ChondroCelect end of June 2009,the Company has decided to capitalise the development costs.In the consolidated IFRS financial statements of the Group,development costs of ChondroCelect and ChondroMimetichave been capitalised as from July 2009 and as from January2010 as intangible assets if all conditions for capitalisation havebeen satisfied as specified in IAS 38.Acquired intangible assetsIn-process research & development projects acquired throughbusiness combinations are capitalised as intangible assets.These intangible assets are amortised on a straight-line basisover their estimated useful life from the moment that they areavailable for use.Property, plant and equipmentProperty, plant and equipment are stated at historical costless accumulated depreciation and impairment. Repair andmaintenance costs are charged to the income statement asincurred. Gains and losses on the disposal of property, plantand equipment are included in other income or expense.170 • TiGenix • Rights Offering