26 Jun 2007 07:00
Embargoed Release: 07:00hrs Tuesday 26 June 2007
Nanoscience Inc.('Nanoscience' or 'the Group')
Preliminary Results
Nanoscience, the specialist niche investor in emerging technologies with focus on the growing nanotechnology sector, is pleased to announce its preliminary results for the year ended 31 December 2006 ('the period'). During the period, the Group channelled its resources on accelerating the technical and commercial activities of its two main investee companies; its wholly owned subsidiary Toumaz Technology Limited ('Toumaz'), and Future Waves Pte. Limited ('Future Waves') in which it holds a 28.9 per cent. interest.
Highlights:
Toumaz successfully developed and tested the first fully integrated single chip version of its pioneering Sensium platform and subsequently made available a variety of wireless remote patient monitoring applications to a range of customers in both the healthcare and pharmaceutical sectors. Strong relationships are now being formed as a result that should offer significant commercial opportunities
Future Waves won a number of 'design-ins' for its Fenix 1 chip with a variety of MP3, GPS and multimedia systems manufacturers. The order book is building as a result in both the Far East and Europe
Nanoscience's board was strengthened, most notably by the appointment of Guy Spelman as Group CEO. Guy has held a number of senior industry positions including Vice President of IBM Global Services and Managing Director of the Reuter's account for BT Global Services
Guy Spelman, CEO, commented:
'Throughout the period we focussed our efforts and resources on assisting both Toumaz and Future Waves in their ambitions to become major players in their respective commercial markets. Both Toumaz and Future Waves operate within multibillion dollar global markets and it is our firm belief that they have very realistic chances of becoming significant commercial entities. Our confidence in the ability of these two companies to achieve such ambitious goals is founded, not least, on the substantial commercial and technical progress achieved by them in the period.'
Further Information:
Richard Rose Nanoscience Inc. 07836 250 474
Guy Spelman Nanoscience Inc. 07767 338 967
Andrew Tan Hansard Group 020 7245 1100 Chairman's Statement
The twelve month period to 31 December 2006 was an extremely important one for the Group, during which we were successful in significantly building upon the value of our investment activities in the prior year.
Following the acquisition of Toumaz in November 2005 for wholly share consideration of approximately ‚£16m we are now positioned to make substantial progress on this investment as Toumaz continues to move towards commercialisation. By making available to Toumaz the commercial, managerial and financial experience contained within the Nanoscience management team we have been able to actively contribute to its development and further demonstrate our strength as value-add investors.
In the period we were also successful in providing similar support to our second most significant investment, Future Waves, which achieved progress in excess of our initial expectations.
The period of focussed effort and determination has led to a number of substantial developments being achieved by these companies including the launch of Toumaz's first fully integrated chip and a number of design-ins and commercial orders won by Future Waves.
Consequently, both Toumaz and Future Waves, are maturing into rapidly emerging commercial entities in their own right. With leading-edge technologies targeted at very large and growing global markets the work undertaken with key partners to position these companies at the forefront of change has been extremely productive. Coupled with a growing understanding of the range of applications available for Toumaz's technology and a developing order book for Future Waves, this provides me with much confidence for the future of these two companies.
Furthermore, our other investments continue to offer the prospect of good returns.
The accounts for the year ended 31 December 2006 were prepared under the International Financial Reporting Standards (IFRSs) for the first time. The results again demonstrate our ongoing commitment to the development of the Toumaz and Future Waves' businesses. The loss for the Group reflects the pre-revenue stage of the investments and a focus on producing working technology remained the foremost deliverable for both companies. A goal that was achieved. A further expense was incurred in connection with the Toumaz share option plan which is in line with our commitment to implementing incentive based plans for our key employees.
As we further develop our plans for commercialisation, the Directors have obtained from certain existing shareholders intentions to provide total financing facilities of ‚£3.5 million, to be drawn upon as necessary, to take advantage of further opportunities for growth.
Once again this has been a period of significant activity for the Group and I would like to thank everybody for their continuing efforts and support.
Richard RoseChairman26 June 2007
Chief Executive Officer's Report
It is with great pleasure that I present my first operational report as CEO of the Group on a period that has seen our key investments make significant progress towards commercial maturity.
As detailed below our, focus has been to commit our resources to the commercialisation of the core AMx technology platform of our wholly owned subsidiary Toumaz in order to capitalize on the significant potential value it could have through applications in a number of industries including healthcare, homeland security, digital broadcasting and sport. Throughout the period a number of key milestones were met culminating in further interest and partnerships for the technology platform developed by Toumaz and the launch of a consumer digital broadcasting product into the Korean markets. These achievements, coupled with a number of significant commercial collaborations and ongoing commercial discussions, leave us highly confident of reaping significant value from our efforts in the coming year.
The first two commercial sectors in which the AMx platform can be exploited were identified as being healthcare and digital audio and video broadcasting. Since then within the last eighteen months a growing range of opportunities with commercial potential in the care home market have been identified, which we intend to undertake through a joint venture called Sentinel established in January 2007, and in the sports field through our partnership with Healthe International Pte Limited ("Healthe").
Toumaz created the Sensium which represents the integration of its underlying AMx technologies with micro and nano scale bio-sensors to create a generic, locally intelligent, self configuring and flexible wireless body sensor platform, that has ultra-low power consumption, miniature size and low cost. The Sensium solution includes silicon chips and the Toumaz proprietary nano power sensor protocol that, simply and without user effort, automatically configures Sensium chips to operate as an end-to-end network capable of connecting to new and existing healthcare IT systems.
The Sensium will be used as a body attached (or implanted) wireless monitoring device, configurable to operate with a range of physical, chemical and bio-chemical sensors to measure parameters including temperature, ECG, sound and pressure levels, motion, oxygen saturation (SpO2), real-time blood glucose and creatine as well as other bio-markers.
The Sensium fundamentally changes the dynamics of personalized healthcare by effectively shrinking bulky instruments onto a disposable, wireless enabled silicon chip.
Also during the period, Future Waves, a spin-out from Toumaz formed in January 2005 concentrated on the development of the Fenix 1 chip, built around the same underlying AMx technology, specifically for commercial applications within digital broadcasting. Commercial development is advanced with orders won in five different Asian countries. Future Waves' competitiveness is further demonstrated via commercial relationships being developed with industry leaders including Pure Digital, the UK market leader in digital radios and a wholly owned subsidiary of Imagination Technologies plc, Sunplus Technology Co. Ltd., and Maxscend Technologies Inc. Fenix based products including GPS, MP3 and digital radios are expected to be in the retail shops from summer 2007.
The digital broadcasting landscape is characterized by fragmented standardization, which necessitates multi-standard chipset solutions operating on a range of distinct frequencies. The Future Waves IP portfolio targets multi-band and multi-standard radio frequency solutions on a global basis. The immediate intent is to combine the RF solution with digital processing to produce a single 'system on chip' solution which has the lowest cost and ultra-low power usage.
It is important to note that the patented AMx technology that Toumaz has developed, and upon which Toumaz and Future Waves' products are based, offers many benefits in performance and cost which your directors believe are not currently available from competitors' offerings. This affords considerable competitive advantage in very large and growing global markets.
Key Business Milestones
Toumaz' and Future Waves' technology, based around the same underlying AMx platform, has been validated in a number of products that have demonstrated enhanced commercial performance levels thereby significantly reducing the risk profile of the businesses and enhancing the value of the group's overall IP portfolio.
The Group has identified and validated routes to markets and commercial roadmaps. Toumaz is now actively targeting at least six market segments with healthcare remaining the key focus.
We have successfully established positive commercial collaboration arrangements with a number of industry leaders and are targeting further such relationships for Toumaz, Future Waves and Sentinel.
Additional commercial applications for the respective technology and Group IP continue to be evaluated and opportunities remain extensive (for example, care homes, sports and media, homeland security).
Toumaz' and Future Waves' existing commercial collaborations serve to demonstrate the potential addressable markets and validates Nanoscience's strategy for the exploitation of its IP portfolio.
Validating Commercial Progress
Toumaz Technology
In collaboration with Infineon, (a top ten international semiconductor business with annual revenues in excess of ¢â€š¬7.9bn), the original design for the Sensium solution is being customised to meet market and specific customer requirements as well as in preparation for mass production. Infineon remain a key partner in this process and the first Sensium chip was shipped back to Toumaz from Infineon's facilities in December 2006 and has subsequently passed a long series of functional tests. In the intervening period, Toumaz had delivered its first medical application solution based on an earlier embodiment of its proprietary technology; the ECG Sensium module with a proprietary Zoum radio chip. This model has been sold as a demonstrator for clinical trials to customers. Customer satisfaction with these modules has convinced Toumaz's most active partners to engage in good faith discussions with Toumaz concerning sizeable joint commercial opportunities.
Toumaz has now established a clear segmentation of its target medical market; Disposables, Clinical Trials, Medical Devices, Home Health, Wellness/Fitness, Homeland Security, Sports and Entertainment and has relationships in place with major commercial entities in each of these segments. Toumaz has established close relationships with well renowned, multi-billion dollar revenues, healthcare companies, leveraging their experience and broad and established customer base. An increasing number of smaller companies offering remote monitoring services are also being created across Europe. For both Nanoscience and Toumaz, the existence of these companies, their own business models, their requests for Toumaz products and technology and their market input confirm the sizable potential of the end-user markets. Toumaz is frequently their initial port of call in developing new product and service offerings owing to the enabling nature of the Sensium technology.
Initial corporate collaborations are currently underway for example with a US-based leader in the supply of pharmaceuticals, equipment and consumables for the healthcare industry. With sales of multi-billions of USD, its medical devices design and manufacturing arm has been mandated to lead the way in the search for the next ground-breaking technology, capable of bringing sustainable and profitable growth to that group. Based on this relationship and their comprehensive due diligence, the directors believe that Toumaz is the leader in ultra-low power wireless based platform technologies that can provide higher margin applications in current operating areas and could be applied across multiple commercial divisions. Toumaz is currently engaged in discussions towards agreeing terms for the use of its Sensium platform within vital signs monitoring products, the manufacturing of digital plasters and other development projects. The partner's customer base and knowledge of the market should ensure a complete commitment to the technology and enable major trials to commence in various centres throughout the world as early as 2008 as a precursor to significant sales among the millions of devices they ship to their markets shortly thereafter.
A further commercial opportunity has arisen from a top 10 pharmaceuticals group which is very active in the medical devices marketplace. This company has clearly expressed its intent to enhance its commercial activities within the blood glucose monitoring field for a number of years and now has the ambition to establish a more dominant market position. In order to achieve this goal, the group in question has identified Toumaz's technology as a key enabler and has stated its commitment to the rapid development of a commercial relationship with Toumaz. This was evidenced by this company being the first customer to take Sensium development kits. It is the belief of the Director's of Nanoscience that this ongoing relationship presents a major commercial opportunity for Toumaz and the Group.
Amongst other opportunities available to Toumaz, another global pharmaceutical group has expressed its intention to leverage Toumaz's technology across all of its ongoing clinical trials. To that effect, one of the world's most successful companies in the IT field has also been approached by the group and is now working with Toumaz as the IT technology partner in this project. The relationship is on-going and the first trial for foetal cardiac monitoring solutions in a South of England healthcare institution is expected to begin shortly, having recently passed ethics and device approvals.
Future Waves
Future Waves has made exciting progress throughout the period culminating in the successful launch of commercial product in Korea. After several re-designs, Fenix 1 has now reached its final, commercially accepted version. This chip not only delivers superior performance compared to previous versions and competitors products but also provides solutions for a wide range of commercial digital radio, TV and multimedia signals. Commercial transactions were initiated in April 2006 with a number of reputable manufacturers buying Future Waves' development kits to experiment with the integration of Fenix 1 in their consumer products. These tests have resulted in some significant orders for 2007 and the first product incorporating Fenix 1 is now being put on sale in the Korean market. We currently anticipate consumer product being made available in Europe this coming Christmas.
In addition we also announced that Future Waves had won a significant design win with Pure Digital Limited, the market leader in digital radios and a wholly owned subsidiary of Imagination Technologies plc. Pure Digital is the number one supplier of radios to the UK and we look forward to developing and maintaining this relationship.
Future Waves has established a commercial customer base in the form of the OEM's (original equipment manufacturers) serving the significant MP3, GPS and mobile phone markets. Taiwan is a strategic location for this sector as the bulk of these companies are in the APAC region. Communication with industry leaders, which has been ongoing for more than one year, has confirmed the appetite for Future Waves technology, as the industry is acutely aware of the varying digital standards applied in different regions of the world. The fundamental reconfigurable functionality of the AMxTM and Future Waves' technology enables solutions to be progressively developed for roll-out and geographical distribution whilst adhering to current and emerging digital standards.
The Directors estimate that Future Waves is some six to nine months ahead of Toumaz in terms of its stage of market development.
Sentinel Health Care Solutions
Sentinel Healthcare Solutions Limited ("Sentinel") is a 50/50 joint venture between Nanoscience and Continum, an IT and communications engineering group based in Manchester, England. Sentinel was established in January 2007 specifically as an early business demonstrator and channel to the end-user market for Toumaz's product range in the less sophisticated end of the healthcare sector. The initial focus has been on the elderly, care home, nursing homes, sheltered housing and 'worried well' segments. Sentinel intends to complement Toumaz's technology platform with communication, decision and notification engines for the chosen health application.
Following a review of possible applications and potential markets, Sentinel decided to focus initially on the development of dementia-related monitoring devices. Currently, 700,000 people (one in every 88 of the UK population) suffer from dementia, incurring a rising annual cost of approximately ‚£17bn in related care requirements. There is no cure for dementia, and sufferers require increasing levels of care and monitoring as the disease progresses. Toumaz's mobile monitoring platform is an ideal solution for care givers, enabling them to monitor their patients whereabouts and movements from off-site locations. Two products are under development; one a location tracking device, the other an activity levels monitor and fall detection device. The former is currently undergoing trials in an elderly care home in the North East of England. Feedback from the nursing staff and management of the home is extremely positive. They have been advising the business on a variety of end-user applications and systems. Decision and notification engines are being calibrated in response to users' comments and initial steps towards commercialization have been taken. Concurrently, Sentinel is completing the development of the activity level monitor and fall detection device and will initiate field trials in the coming months.
Other Market Trends and Observations
Increasing recognition by global companies of the changing dynamics in how healthcare must be addressed is illustrated in the establishment of the Continua Alliance which is a worldwide consortium dedicated to the development of standards for remote healthcare monitoring in the home. Toumaz is an active participant. Invitations to participate in several European programmes under the current FP7 directive, with large multinational companies including IBM (Switzerland), Infineon (Germany), Novo Nordisk (Denmark) and Thomson (France) demonstrate how important new innovation is to the healthcare industry and the key role that Toumaz can play by bringing the economics of the semiconductor industry into healthcare sector.
As noted above, a number of smaller companies are emerging specifically to develop offerings around Toumaz's platform. In Sweden a new company supported by a consortium of well established names, is seeking to develop a new service based around the ECG Sensium. Further relationships in France, Germany, Italy, Switzerland and Spain have resulted in the requirement to create a European presence for Toumaz to manage these opportunities and we expect this office to be fully functional in the fourth quarter of this year.
The other significant area of development is within the sporting industry. An initial letter of intent has been signed with Healthe, an internationally recognised leader in the field of sports healthcare management, , with the intention of collaborating on the development of Sensium solutions for the sports market. Healthe have a growing reputation in supporting elite athletes utilizing its state of the art sports performance Oracle HTB database system which is already fully utilized by the Australian Olympic and Paralympic teams. Further sports collaborations are underway and we expect strong progress over the rest of this year with broadband providers, broadcasting 'rights' owners and leading brands.
The directors believe that the Group's AMx technology and its radio / transceiver embodiment have the potential to become the "industry standard" within the digital healthcare market for wireless devices and we hope to ultimately become the "Bluetooth" equivalent standard in our chosen field.
Outlook
Digital broadcasting is recognized to be the next wave in delivering high quality audio, video and content to portable consumer products. Markets for digital, audio and video broadcasting are projected to grow at rates of up to 500 per cent. in 2007 and then 100 per cent. or more thereafter. In addition, the digital radio market is expected to reach 38 million units by 2010.
Likewise, the digital medical market is forecast to grow substantially over the next few years as the understanding of how the economies of the semiconductor industry can be deployed brings substantial change to the economics of healthcare.
Nanoscience is well placed to take full advantage of these developments.
To continue to build on the Group's success to date, we have set ourselves the following targets over the next twelve months:-
TOUMAZ TECHNOLOGY
1. Sensium II with further enhanced low power characteristics designed and
ready for testing with Infineon by October 2007.
2. Full approval under the European Medical Devices Directive and CE marking
for the deployment of Sensium I in clinical trials by December 2007.
3. Production of the first fully operational digital plaster incorporating the
Sensium platform by February 2008.
4. A signed agreement by March 2008 with a significant commercial partner for
the launch of a mass market product.
5. Approval from the US regulatory body for full deployment of temperature
modules by June 2008. FUTURE WAVES
1. 2007 commercial revenue of $US3m.
2. Completion of the first system on chip solution combining RF and digital
processing by March 2008.
3. Expansion of the geographical outlets for product across Europe throughout
the fourth quarter of 2008.
SENTINEL
1. A commercial product launched through the planned distributor network and
generating revenue by the forth quarter of 2007.
2. A second product incorporating greater functionality from the Sensium
platform by March 2008 SPORT
1. To have completed one field trial by November 2007 to prove the business
model and commercial application
We have made much progress in the period under review and are excited by theopportunities that are currently available for us to capitalise upon. Our twomain investments are moving from their development stages into fully fledgedcommercial operations with significant potential. We intend to exploit thatpotential to the full.Guy SpelmanChief Executive Officer26 June 2007 CONSOLIDATED INCOME STATEMENT Year ended Period ended 31 December 31 December 2006 2005 Note ‚£'000 ‚£'000 Revenue 364 72 Cost of sales (352) (283) Gross profit/(loss) 12 (211) Administrative expenses - amortisation of intellectual property (534) (95) Administrative expenses - other (3,594) (446) Total administrative expenses (4,128) (541) Loss from operations (4,116) (752) Result from equity accounted investment (635) (53) Finance income 157 50 Loss before taxation (4,594) (755) Taxation 3 436 - Loss after taxation and retained loss attributable to the equity holders of the company (4,158) (755) Loss per ordinary share (pence) 4 Basic and diluted (2.26)p (1.23)p
There were no recognised gains or losses other than the loss for the financial year.
The consolidated income statement for the period ended 31 December 2005 incorporates the results of Toumaz Technology Limited with effect from the date of acquisition of 3 November 2005.
consolidated statement of changes in equity
Share based Share Share payment Profit and Total capital premium reserve loss account equity ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 At 14 February 2005 - - - - - Loss for the period - - - (755) (755) Issue of share 459 capital 23,383 - - 23,842 Cost of issue of - share capital (555) - - (555) Share based payments - (20) 126 - 106 At 31 December 2005 459 22,808 126 (755) 22,638 Loss for the year - - - (4,158) (4,158) Issue of share 3 capital 29 - - 32 Share based payments - - 285 - 285 Transfer on exercise - of options - (6) 6 - At 31 December 2006 462 22,837 405 (4,907) 18,797
CONSOLIDATED BALANCE SHEET
As at As at 31 31 December December 2006 2005 ‚£000 ‚£000 ASSETS Non-current assets Intangible assets 13,969 14,503 Property, plant and equipment 78 87 Interests in associate 2,368 2,329 Available for sale investments 391 323 16,806 17,242 Current assets Tax receivable 414 - Trade and other receivables 329 322 Cash and cash equivalents 2,291 6,087 Total current assets 3,034 6,409 Total assets 19,840 23,651 LIABILITIES Current liabilities Trade and other payables 434 404 Total current liabilities 434 404 Non-current liabilities 609 609 Total liabilities 1,043 1,013 EQUITY Share capital 462 459 Share premium 22,837 22,808 Share based payment reserve 405 126 Profit and loss account (4,907) (755) Total equity attributable to equity holders of the Company 18,797 22,638 Total equity and liabilities 19,840 23,651
CONSOLIDATED cashflow statement
Year ended Period ended 31 December 31 December 2006 2005 ‚£000 ‚£000 Cash flows from operating activities Loss before taxation (4,594) (755) Amortisation 534 95 Depreciation 66 3 Share of loss of associate 635 53 Loss on disposal of non current assets 1 - Share based payments 285 106 Interest received (157) (50) (Increase)/decrease in trade and other receivables (7) 17 Increase/(decrease) in trade and other payables 30 (294) Tax refund 22 - Net cash outflow from operating activities (3,185) (825) Cash flows from investing activities Purchase of and loans to investments and associates (742) - Purchase of other non current assets (58) (323) Interest received 157 50 Acquisition of subsidiary - net of cash acquired - (447) Net cash used in investing activities (643) (720) Cash flows from financing activities Proceeds from issue of share capital 32 8,187 Share issue costs - (555) Net cash inflow from financing activities 32 7,632 Net change in cash and cash equivalents (3,796) 6,087 Cash and cash equivalents at beginning of period 6,087 - Cash and cash equivalents at end of period 2,291 6,087
The consolidated cashflow statement for the period ended 31 December 2005 incorporates the cashflows of Toumaz Technology Limited with effect from the date of acquisition of 3 November 2005.
general information and accounting policies
The preliminary announcement has been prepared in accordance with applicable accounting standards and under the historical cost convention. The Company was incorporated as a Corporation in the Cayman Islandswhich does not prescribe the adoption of any particular accounting framework. The Board had previously resolved that the Company would follow United Kingdom Accounting Standards and apply the Companies Act 1985 when preparing its annual financial statements.
The Board have now resolved that Nanoscience Inc. will adopt International Financial Reporting Standards as adopted by the European Union (IFRS), as developed and published by the International Accounting Standards Board (IASB), for the first time in its financial statements for the year ended 31 December 2006. This financial report has therefore been prepared under the historical cost convention and in accordance with the requirements of International Financial Reporting Standard 1 "First Time Adoption of International Reporting Standards" relevant to financial reports.
GOING CONCERN
The Directors have prepared cashflow forecasts through to 30 June 2008which assume that Toumaz Technology Limited commences to earn revenue from the commercial exploitation of its technology in late 2007 and continues to incur costs at the same rate as 2006. The forecasts also assume no further financial support is provided to the associated undertaking, Future Waves UK Limited. The Directors have also secured total finance facilities of ‚£ 3.5 million from two shareholders. On this basis the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.
The principal accounting policies of the Group are set out below.
BASIS OF CONSOLIDATION
The Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to the balance sheet date. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from their activities. The Group obtains and exercises control through voting rights.
Unrealised gains on transactions between the Group and its subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.
Acquisitions of subsidiaries are dealt with by the purchase method. The purchase method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their fair values, which are also used as the bases for subsequent measurement in accordance with the Group accounting policies. Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of acquisition cost over the fair value of the Group's share of the identifiable net assets of the acquired subsidiary at the date of acquisition.
REVENUE
The Group follows the principles of IAS18 "Revenue" in determining the appropriate revenue recognition policies. In principle therefore, revenue is recognised to the extent that the Group has obtained the right to consideration through its performance.
Revenue excluding VAT comprises revenue arising from development contracts. Development contracts are designed to meet the specific requirements of each customer. Revenue on such contracts is recognised on a percentage to completion basis over the period from signing the agreement to customer acceptance that the contract deliverables have been fulfilled.
When invoicing milestones on development contracts are such that the proportion of work performed is greater than the proportion of total contract value, the Group evaluates whether it has obtained, through its performance to date, the right to the uninvoiced consideration and therefore whether revenue should be recognised.
ASSOCIATES AND JOINTLY CONTROLLED ENTITIES
Entities whose economic activities are controlled jointly by the Group and by other ventures independent of the Group are accounted for using the equity method.
A jointly controlled entity is an entity which operates under a contractual agreement whereby the Group and other parties undertake an economic activity that is subject to joint control and exists only when the strategic, financial and operating decisions relating to the activity require the unanimous consent of the venturers.
Associates are those entities over which the Group has significant influence but which are neither subsidiaries nor interests in joint ventures.
The Group's interests in associates or jointly controlled entities are recognised initially at cost and subsequently accounted for using the equity method. Acquired investments in associates or jointly controlled entities are also subject to purchase method accounting. However, any goodwill or fair value adjustment attributable to the share in the associate or jointly controlled entities is included in the amount recognised as investment in associates or jointly controlled entities.
All subsequent changes to the share of interest in the equity of the associate or jointly controlled entity are recognised in the Group's carrying amount of the investment. The consolidated financial statements include the Group's share of the post acquisition, post tax results for the year, including any impairment loss on goodwill relating to the interest in associates or jointly controlled entities and movements of reserves of jointly controlled entities on an equity accounting basis.
Items that have been recognised directly in the associate's equity are recognised in the consolidated equity of the Group. However, when the Group's share of losses in an associate or jointly controlled entities equals or exceeds its interest in the associate or jointly controlled entity, including any unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or jointly controlled entity. If the associate or jointly controlled entity subsequently reports profits, the investor resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised.
Unrealised gains on transactions between the Group and its associates or jointly controlled entities are eliminated to the extent of the Group's interest in the associates or jointly controlled entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of associates or jointly controlled entities have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.
GOODWILL
Goodwill, representing the excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired, is capitalised and reviewed annually for impairment. Goodwill is carried at cost less accumulated impairment losses. Any excess in the net fair value of an acquiree's identifiable net assets over the cost of acquisition is recognised immediately after acquisition in the income statement.
TAXATION
Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable result for the year. All changes to current tax assets or liabilities are recognised as a component of tax expense in the income statement.
Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.
Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.
Most changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement. Only changes in deferred tax assets or liabilities that relate to a change in value of assets or liabilities that is charged directly to equity are charged or credited directly to equity.
INTANGIBLE ASSETS
Intellectual property rights
The costs of creating and protecting internally generated property, patents and know-how are written-off to the income statement in the period in which they are incurred.
The costs of acquiring rights to the use of third party intellectual property are capitalised and, subject to impairment reviews, amortised over the estimated economic life of the intellectual property concerned. Amortisation is calculated so as to write off the cost of an asset, less its estimated residual value on a straight line basis over the useful economic life of the asset as follows:
Intellectual property rights 4 - 9 years
Assets acquired as part of a business combination
In accordance with IFRS 3 "Business Combinations", an intangible asset acquired in a business combination is deemed to have a cost to the Group of its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the Group. The fair value is then amortised over the economic life of the asset as detailed above. Where an intangible asset might be separable, but only together with a related tangible or intangible asset, the Group of assets is recognised as a single asset separately from goodwill where the individual fair values of the assets in the Group are not reliably measurable. Where the individual fair value of the complimentary assets are reliably measurable, the Group recognises them as a single asset provided the individual assets have a similar useful lives.
RESEARCH AND DEVELOPMENT
Expenditure on research activities is recognised in the income statement as an expense as incurred.
Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources to complete development. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Other development expenditure is recognised in the income statement as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses.
IMPAIRMENT TESTING OF GOODWILL, OTHER INTANGIBLE ASSETS, PROPERTY, PLANT AND EQUIPMENT, INTERESTS IN ASSOCIATE AND OTHER INVESTMENTS
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors the related cash flows.
Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist.
FINANCIAL ASSETS
The Group's financial assets include investments in shares, cash and trade and other receivables.
All financial assets are recognised when the Group becomes party to the contractual provisions of the instrument. All financial assets are initially recognised at fair value, plus transaction costs.
Non-compounding interest and other cash flows resulting from holding financial assets are recognised in profit or loss when received, regardless of how the related carrying amount of financial assets is measured.
Available for sale financial assets are measured subsequently at fair value with changes in value recognised in equity through the statement of changes in equity. Where the fair value cannot be measured reliably such financial assets are held at cost.
Trade and other receivables are provided against when objective evidence is received that the Group will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash at bank and in hand, bank deposits repayable on demand and other short-term highly liquid investments with original maturities of three months or less from the date of acquisition.
EQUITY
Share capital is determined using the nominal value of shares that have been issued.
The share premium account represents premiums received on the initial issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.
Share based payment reserve represents the cumulative amount which has been expensed in the income statement in connection with share based payments, less any amounts transferred to the profit and loss account on the exercise of share options.
Profit and loss account earnings include all current and prior period results as disclosed in the income statement.
SHARE BASED PAYMENTS
All share based payment arrangements are recognised in the financial statements. The Group operates equity-settled share based remuneration plans for remuneration of its employees and has issued a share warrant.
All services received in exchange for the grant of any share-based remuneration are measured at their fair values. These are indirectly determined by reference to the fair value of the share options/warrants awarded. Their value is appraised at the grant date and excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets).
Share based payments are ultimately recognised as an expense in profit or loss or included as part of the cost of share issues with a corresponding credit to the share based payment reserve, net of deferred tax where applicable. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options/warrants expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised, if there is any indication that the number of share options/warrants expected to vest differs from previous estimates. No adjustment is made to the expense or share issue cost recognised in prior periods if fewer share options/warrants ultimately are exercised than originally estimated.
Upon exercise of share options/warrants, the proceeds received net of any directly attributable transaction costs up to the nominal value of the shares issued are allocated to share capital with any excess being recorded as share premium.
FINANCIAL LIABILITIES
The Group's financial liabilities include trade and other payables. Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument.
All financial liabilities are recognised initially at fair value, net of direct issue costs, and are subsequently recorded at amortised cost using the effective interest method with interest related charges recognised as an expense in the income statement.
Dividend distributions to shareholders are included in 'other short term financial liabilities' when the dividends are approved by the shareholders' before the year end.
OTHER PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
Other provisions are recognised when present obligations will probably lead to an outflow of economic resources from the Group and they can be estimated reliably. Timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events, for example, legal disputes or onerous contracts.
Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the balance sheet date, including the risks and uncertainties associated with the present obligation. Any reimbursement expected to be received in the course of settlement of the present obligation is recognised, if virtually certain as a separate asset, not exceeding the amount of the related provision. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. In addition, long term provisions are discounted to their present values, where time value of money is material. All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.
In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognised in the balance sheet. Probable inflows of economic benefits to the Group that do not yet meet the recognition criteria of an asset are considered contingent assets.
PROPERTY, PLANT AND EQUIPMENT
Measurement bases
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to the working condition and location for its intended use. Subsequent expenditure relating to property, plant and equipment is added to the carrying amount of the assets only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other costs, such as repairs and maintenance are charged to the income statement during the period in which they are incurred.
When assets are sold, any gain or loss resulting from their disposal, being the difference between the net disposal proceeds and the carrying amount of the assets, is included in the income statement.
Depreciation
Depreciation is calculated so as to write off the cost of property, plant and equipment, less its estimated residual value, which is revised annually, over its useful economic life as follows:
Leasehold improvements - 33.3% straight lineOffice equipment - 33.3% straight lineFixtures and fittings - 25% straight lineComputer equipment - 33.3% straight line RETIREMENT BENEFIT SCHEME
The Group operates a defined contribution retirement benefit scheme. The assets of the scheme are held separately from those of the Group in independently administered funds. Entrants into this scheme are entitled to have a percentage of their basic salary paid into the scheme by the Group. These contributions are charged to the income statement as an employee benefit expense in respect of the accounting period in which they become payable.
FOREIGN CURRENCIES
The financial statements are presented in UK Sterling which is the functional and presentational currency of the Group. Monetary assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account in arriving at the operating profit or loss.
SEGMENTAL REPORTING
A segment is a distinguishable component of the Group that is engaged either in a particular business (business segment) or conducting business in a particular geographical area (geographical segment), which is subject to risks and rewards that are different from those of other segments.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
(i) Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next accounting year are discussed below:
Impairment of assets
The Group conducts impairment reviews of assets when events or changes in circumstances indicate that their carrying amounts may not be recoverable annually, or in accordance with the relevant accounting standards. An impairment loss is recognised when the carrying amount of an asset is lower than the greater of its net selling price or the value in use. In determining the value in use, management assesses the present value of the estimated future cash flows expected to arise from the continuing use of the asset and from its disposal at the end of its useful life. Estimates and judgments are applied in determining these future cash flows and the discount rate. Details of the estimates and assumptions made in respect of the potential impairment of intellectual property and goodwill on consolidation are detailed in Note 6 to the financial statements.
Valuations of share options granted
The fair value of share options granted was calculated using the Binomial option pricing model which requires the input of highly subjective assumptions, including the volatility of share price. Because changes in subjective input assumptions can materially affect the fair value estimate, in the opinion of Directors of the Company, the existing model will not always necessarily provide a reliable single measure of the fair value of the share options. Details of the inputs are set out in Note 17 to the financial statements.
(ii) Critical judgements in applying the Group's accounting policies
Management in applying the accounting policies, which are described above, considers that the most significant judgement they have had to make is whether any impairment provision is required against the intellectual property and goodwill on consolidation.
Adoption of new or amended IFRS
The Group has not early adopted the following new standards, amendments or interpretations that have been issued but are not yet effective. Except for IFRS 7 and IFRS 8 which may result in changes in the future as to how the Group's financial performance and financial position are prepared and presented, the Directors anticipate that the adoption of these other standards will not result in significant changes to the Group's accounting policies. The Group has commenced its assessment of the impact of IFRS 7 an IFRS 8 but it is not yet in a position to state whether these standards would have a material impact on its results of operations and financial position.
IAS 1 Capital Disclosures Effective for annual (Amendment) periods beginning on or after 1 January 2007 IFRS 7 Financial Instruments : Disclosures Effective for annual periods beginning on or after 1 January 2007 IFRS 8 Operating Segments Effective for annual periods beginning on or after 1 January 2009 IFRIC 7 Applying the Restatement Approach Effective for annual under IAS 29 Financial Reporting in periods beginning on or Hyperinflationary Economies after 1 March 2006 IFRIC 8 Scope IFRS 2 Effective for annual periods beginning on or after 1 March 2006 IFRIC 9 Reassessment of Embedded Derivatives Effective for annual periods beginning on or after 1 June 2006 IFRIC 10 Interim Financial Reporting and Effective for annual Impairment periods beginning on or after 1 November 2006 IFRIC 11 Group and Treasury Share Transactions Effective for annual periods beginning on or after 1 March 2007 IFRIC 12 Service Concession Arrangements Effective for annual periods beginning on or after 1 January 2008 IAS 23 Borrowing costs Effective for annual periods beginning on or after 1 January 2009 2 TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
The transition to IFRS reporting has resulted in a number of changes in the reported financial statements, notes thereto and accounting principals compared to the previous annual report. This note 2 provides further details on the transition from UK GAAP to IFRS. The following reconciliations and explanatory notes thereto describe the effects of the transition for the financial period ended 31 December 2005. All explanations should be read in conjunction with the IFRS accounting policies of Nanoscience Inc.
The re-measurement of the balance sheet and income statement as at 31 December2005is summarised as follows: Effect of Reconciliation of balance sheet presentation at 31 UKGAAP transition IFRSDecember 2005 ‚£'000 ‚£'000 ‚£'000 ASSETS Non-current assets Intangible assets 14,451 52 14,503 Property, plant and equipment 87 - 87 Interests in associate 2,329 - 2,329 Investments 323 - 323 17,190 52 17,242 Current assets Trade and other receivables 322 - 322 Cash and cash equivalents 6,087 - 6,087 6,409 - 6,409 Total assets 23,599 52 23,651 LIABILITIES Current liabilities Trade and other payables 404 - 404 Non current liabilities 609 - 609 Total liabilities 1,013 - 1,013 EQUITY Share capital 459 - 459 Share premium account 22,828 (20) 22,808 Share based payment reserve - 126 126 Profit and loss account (701) (54) (755) Total equity 22,586 52 22,638 Total equity and liabilities 23,599 52 23,651
The Group has also modified its former balance sheet, income statement and cashflow structure on transition to IFRS. ‚£3,738,000 originally categorised as goodwill under UK GAAP, on transition to IFRS, has been redesignated as intellectual property in accordance with IFRS3 "Business combinations".
Reconciliation of income statement presentation at 31 Effect of December 2005 UKGAAP transition IFRS ‚£'000 ‚£'000 ‚£'000 Revenue 72 - 72 Cost of sales (283) - (283) Gross loss (211) - (211) Amortisation (147) 52 (95) Administrative expenses (340) (106) (446) Loss from operations (698) (54) (752) Result from equity accounted investment (53) - (53) Finance income 50 - 50 Loss before taxation (701) (54) (755) Taxation - - - Loss for the period (701) (54) (755)
The difference between the retained deficit reported under UK GAAP for the period ended 31 December 2005 and the retained deficit as reported under IFRS is represented by a reduction in the amortisation charge of ‚£52,000 and a provision for share based payments of ‚£106,000 resulting in a net charge of ‚£ 54,000.
The share based payment in connection with the warrants issued to the Company's Nominated Adviser as part of their fee for services provided in connection with the Admission of the Company to the AIM market in March 2005 is ‚£20,000 which has been charged to share premium as a cost of issuing shares.
3 Taxation
The tax credit for the period is as follows:
Year ended Period ended 31 December 31 December 2006 2005 ‚£'000 ‚£'000 Current tax UK corporation tax at 19% (22) - UK research and development tax credit (414) - (436) - 3 TAXATION (CONTINUED) The tax assessed for the period differs from the standard rate of corporationtax in the UK as follows: Year Period ended ended 31 31 December December 2006 2005 ‚£'000 ‚£'000 Loss before tax (4,594) (755) Loss multiplied by standard rate of corporation tax in the UK of 30% (1,378) (226) Effect of: Disallowable expenses 130 42 Depreciation in excess of capital allowances 20 8 Research and development tax credit adjustment 103 (20) Prior year adjustment (22) - Losses not utilised 711 196 Current tax credit for year (436) -
The Group has tax losses in the UK, subject to Her Majesty's Revenue and Customs approval, of approximately ‚£4.4 million (31 December 2005: ‚£3.6 million) available for offset against future operating profits. The Group has not recognised any deferred tax asset in respect of these losses, which would amount to ‚£1,320,000 (2005: ‚£1,080,000) due to there being insufficient certainty regarding its recovery.
4 LOSS PER SHARE
The calculation of the basic loss per share is based on the loss after tax of ‚£ 4,158,000 (period ended 31 December 2005: ‚£755,000) divided by the weighted average number of ordinary shares in issue during the year of 183,891,674 (period ended 31 December 2005: 61,206,224).
The impact of the share options and share warrant is anti dilutive.
5 PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985.
The consolidated balance sheet at 31 December 2006 and the consolidated income statement, consolidated statement of changes in equity, consolidated cash flow statement and associated notes for the year then ended have been extracted from the Group's 2006 statutory financial statements upon which the auditors opinion is unqualified and does include any statement under Section 237 of the Companies Act 1985.
The annual report for the year ended 31 December 2006 will be sent to shareholders shortly.
NANOSCIENCE INC