Imperial Innovations Group Regulatory News (IVO)

27 Apr 2007 07:01

Imperial Innovations Group plc27 April 2007 IMPERIAL INNOVATIONS GROUP PLCINTERIM REPORT AND ACCOUNTS FOR THE SIX MONTHS ENDED 31 JANUARY 2007 Imperial Innovations Group plc (AIM:IVO), the intellectual propertycommercialisation and investment company, today announces its interim resultsfor the interim ended 31st January 2007. For further information please contact: Martin Knight, Chairman +44 207 594 1403Susan Searle, Chief Executive Officer +44 207 594 6591Julian Smith, Chief Financial and Operations Officer +44 207 594 6505Russ Cummings, Chief Investment Officer +44 207 594 1331 M:CommunicationsPatrick d'Ancona/Harriet Totty +44 207 153 1590 CHAIRMAN'S STATEMENT In my Chairman's Report for the year ended 31 July 2006, I identified a numberof tasks ahead for Imperial Innovations which, if carried out successfully,would provide evidence that the business was heading in the right direction. Iam pleased to confirm that in its first 6 months as a publicly quoted company,Imperial Innovations has made good progress. Intellectual property exploitation has been excellent, with 155 inventiondisclosures, 42 patent filings and 24 licence and option agreements beingconcluded in this period. In addition, 7 technology businesses have been addedto the portfolio of investments and 11 companies are now in full time residencein the Bioincubator. The intellectual property base has broadened: 2 of the newSpin Out companies, IDext and Chembecell, were formed from Intellectual Property("IP") generated outside Imperial College and relationships with multi-nationalcompanies have continued to grow, a partnership deal having been announced inOctober 2006 with BAE Systems. The Group has also put to use the capital raised at its IPO: £5.2m was investedin the period in 11 companies, 5 being follow-on investments and 6 being seedinvestments. The fact that an increasing number of third parties, includingmajor shareholders, are co-investing under the leadership of ImperialInnovations is, I believe, evidence of its increasing professionalism and theperceived quality of the investment opportunities. It is also pleasing to note that the fair value of the unquoted portfolio afterrevenue sharing obligations rose in the period by 24%. The International PrivateEquity and Venture Capital Guidelines ("IPEVCG") methodology adopted by theGroup to ascertain the fair values tends to understate the ongoing valueenhancement in a maturing portfolio of early stage companies. This value growthhas also not been completely reflected to date in the company's IncomeStatement, given the historically adopted accounting policies. In this context, the Board has decided that it should adopt InternationalFinancial Reporting Standards (IFRS) for the year ending 31 July 2007, meaningthat changes in the fair value of the quoted and unquoted portfolio will fromnow on be reported in the Income Statements. Additionally the new accountingstandard covering Share Based Payments has changed the treatment ofequity-settled share-based payments to employees and directors. This change maymake the Group's Income Statements more volatile in the future. But the impactof the latter change will be non-cash and the former change will provideshareholders with a more up to date picture of the progress being made in thecreation of shareholder value. Given the developments in the six months to 31 January 2007, the Board remainsconfident that this progress will be reflected in the company's results soonerrather than later. Dr Martin Knight Chairman HIGHLIGHTS FOR THE SIX MONTHS ENDED 31 JANUARY 2007 GROSS FAIR VALUE OF INVESTMENTS: TECHNOLOGY BUSINESSES ADDED TO £39.2 MILLION PORTFOLIO: 7 (H1 2006: £26.9 million, FY 2006: (H1 2006: 4, FY 2006: 10) £33.5 million) INVESTMENTS MADE: £5.2 MILLION TECHNOLOGY BUSINESSES: 70 (H1 2006: £0.6 million, FY 2006: £1.8 (H1 2006: 61, FY 2006: 66) million) INVENTION DISCLOSURES: 155 FUNDING ROUNDS COMPLETED: 9 (H1 2006: 120, FY 2006: 284) (H1 2006: 2, FY 2006: 6) PATENTS FILED: 42 TOTAL PATENT PORTFOLIO: 297 (H1 2006: 31, FY 2006: 61) (H1 2006: 251, FY 2006: 285) COMMERCIAL AGREEMENTS COMPLETED: 24 TOTAL LICENCE PORTFOLIO: 116 (H1 2006:11, FY 2006: 21) (H1 2006: 95, FY 2006: 99) CASH AND CASH EQUIVALENTS: £27.0 MILLION (H1 2006: £10.0 million, FY 2006: £32.5 million) POST 31 JANUARY 2007 HIGHLIGHTS • Since the period end the Group has invested a total of £1.5 million in funding rounds which raised a total of £6.2 million for Thiakis, Veryan Medical, Cell Medica, Membrane Extraction Technology and Quantasol. • The Group started to provide incubation services to Stoneglass Building Products and Rubber-Regen as part of the Imperial Innovations Recycling Commercialisation Centre, an incubation facility contracted to Imperial Innovations by the Waste & Resources Action Programme ("WRAP"). Stoneglass offers opportunities to displace traditional clay based bricks, pavers, and brick cladding by using glass waste to develop construction materials with an exceptionally high recycled content of 97%. Rubber-Regen is developing devulcanisation technology that will permit the reuse of rubber tyres in rubber compounds which has the potential to overcome existing limitations in rubber recycling. • The Group entered into a Memorandum of Understanding with International Technology Transfer Centre, a national technology transfer centre for Greater China (Mainland China, Hong Kong, Macau, and Taiwan), to build a long-term and sustainable strategic relationship to commercialise emerging technologies and to increase innovation networks between the UK and Chinese economy. • The Group licensed to StormBio Inc, a US biopharmaceutical company, patents and know-how for development of a novel therapy for treatment of life-threatening influenza and other inflammatory diseases. These highlights reflect the adoption of IFRS for the year ending 31 July 2007and therefore comparatives reflect IFRS and a change from previous accountingpolicies. Reconciliations are set out in the Transition Statements. OVERVIEW The period ended 31 January 2007 was our first six months as a publically quotedcompany. During the period, we have maintained our core focus, of investigatingand commercialising ideas emanating from Imperial College and other sources ofcomplementary intellectual property and developing and investing in the arisingtechnology companies. The funds raised at IPO have allowed us to take a moreleading and active role in assisting our technology companies in securingcapital. We have moved from co-investing with other investors to leading fundingrounds where other investors are following, based on our due diligence. Tomanage this, Russ Cummings (formerly at 3i and Scottish Equity Partners) joinedin September 2006 as Chief Investment Officer. In the six months to 31 January 2007 we invested £5.2 million in 9 fundingrounds in our technology companies, gained 7 new companies and exited 3 andcontinued to build the portfolio of licence agreements, signing a further 24agreements in the period. The 24% growth in the unquoted investment portfoliohas been offset by a decline of 16% in the quoted portfolio and therefore theentire portfolio grew by a modest 4% during the period. The Group is reporting for the first time under IFRS and the changes resultingfrom this are reflected in the transition statements on pages 14 to 18. TheGroup reported revenue for the period of £2.5 million (UK GAAP H1 2006: £1.8million; IFRS H1 2006: £1.8 million). The change in fair value of equityinvestments was £0.7 million (IFRS H1 2006: £3.5 million). The Group broke evenafter adjusting for the share based payment charge of £2.1 million for theperiod and its reported profit/loss for the six months ended 31 January 2007amounted to £2.1 million loss (UK GAAP H1 2006: £0.3 million loss; IFRS H1 2006:£3.2 million profit). THE TECHNOLOGY PIPELINE - (invention disclosures, patents, and proof of conceptprojects) We continue to see a flow of new ideas (155 invention disclosures, 42 patentsfiled) with many of these ideas being taken through proof of concept stage (9projects funded). The increase in the size of the patent portfolio to 297 is agood indicator of the yet un-commercialised intellectual property asset withinour commercialisation process. Getting technology through proof of concept is animportant step towards licensing or incorporating a new technology business.Imperial College is helping to bridge this proof of concept gap in the area oftherapeutics by committing £1.2 million to a Drug Discovery Facility. IP AGREEMENTS - (Licences, options and commercial agreements) The emphasis for the first part of the year has been on completing intellectualproperty agreements ("IP Agreements"). IP Agreements include licences leading topotential future milestone payments and eventual royalty income, outrightassignments of the intellectual property, sales of reagents, pipeline agreements(which are options to future intellectual property arising from research groupswithin Imperial College), and sales of technology arising from intellectualproperty. We have generated £1.1 million of income from IP Agreements (H1 2006: £0.7 million, FY 2006: £1.8 million). A total of 24 IP Agreements (H1 2006: 11, FY 2006: 21) were concluded. Whilst asignificant proportion of the income continues to represent milestones andupfront fees within the commercial portfolio, there are a number of licensedproducts that have potential for substantial royalty streams. For example, wehave licensed a new suite of peptides to Thiakis which are progressing well intheir development and have the potential to become effective treatments forobesity, the market for such products being in excess of US$5bn by 2010. Inaddition, we have acquired from GlaxoSmithKline, a drug discovery technology inthe cell based assay area. IP Agreements signed include: • Medical Device Innovations Ltd - Licence for rotator cuff device to repair torn shoulder ligaments • NovaThera Ltd - Licence and Option signed for hydrogel-based stem cell expansion technology • Bayer Healthcare and Novartis AG - Licences to enabling technology for drug discovery • Equinox Pharma Ltd - Licence to some software based drug discovery technologies for predictive protein folding • Sanbio GmbH - Non-exclusive Licence to an antibody reagent for life sciences research • A global pharma company - Non-exclusive licence for a Phyre-lite protein folding software NEW TECHNOLOGY BUSINESSES We formed or gained equity stakes in 7 new companies during the period (H1 2006:4, FY 2006: 10). These included 5 based on Imperial College technology and 2from external sources: • Evo-Electric Ltd - A producer of high performance electrical motor/ generators for use in gensets, powertrains, and as traction motors, in the hybrid-electric vehicle market • Respivert Ltd - A company developing therapeutics for asthma and COPD (smokers' lung) based on technology developed by Professor Peter Barnes and his team at the National Heart and Lung Institute (NHLI), Imperial College • Myotec Therapeutics Ltd - A drug re-positioning company initially concentrating on 'nichebuster' conditions such as cachexia (Muscle wasting disease). This company arose from discoveries made by Professor Stefan Anker of the NHLI and Professor Andrew Coates • Smart Surgical Appliances Ltd - A company developing sensor enabled surgical tools. The company is founded around technologies developed by Professor Ara Darzi in the Faculty of Medicine and Professor Guang-Zhong Yang in the Institute of Biomedical Engineering • Circassia Holdings Ltd - A company developing a way of using peptides as a vaccine against allergies • Idext Ltd - A developer of a fuel additive that safely disperses water in fuel, capturing the water in a permanent emulsion that can be combusted with the fuel • Chembecell Ltd - A company developing microfluidic technology PROGRESS IN OUR EXISTING PORTFOLIO OF TECHNOLOGY BUSINESSES There are three main indicators of progress in this portfolio. The first is thenumber of companies and the value of the portfolio. At the end of the period,there were 70 technology businesses in our portfolio (H1 2006: 61, FY 2006: 66).The portfolio of companies can be divided into quoted holdings (4 companies) andunquoted holdings (66 companies). The net growth in the value of the unquotedholdings is a particularly important metric for the business as it reflects theopportunity for the future. It is in this portfolio that we have been makinginvestments and in which we expect, in time, to see substantial growth. Theunquoted portfolio increased from £9.5 million to £16.8 million after revenuesharing obligations. This comprised £5.2 million investments, £0.1m of transfersto quoted stock, £0.1m of net disposals and £2.3 million (24%) fair value gainsafter revenue share. The quoted portfolio decreased by 16% from the year end. Ceres Power, ourlargest quoted holding, represented 32% of the total portfolio at the end of theperiod (H1 2006: 42%, FY 2006: 44%) and saw a drop in price from £2.80 per shareat the beginning of the period to £2.36 per share at the end of the period. At17 April 2007, the last practical date prior to publication, its share price was£2.33 per share and it represented 32% of the portfolio. The second indicator is the people we are attracting into our technologybusinesses as this is vital to build successful companies for the future. AndrewCarr, ex head of Amersham's life science division has joined the deltaDOT boardas Chairman and Peter Watson, ex CEO of AEA Technology has joined as Chairman ofLontra. Charles Swingland and Steve Harris, an experienced team who workedtogether at Powderject and Zeneus, have joined the Circassia Board, and SirRichard Sykes has agreed to take on the role of Circassia's Chairman. DavidGough joined as CEO of Equinox, Graham Richards as CEO of Acrobot, Ian Woolardas CEO of PPU Soft and David Cavella as CEO of Myotec. These are all experiencedCEOs who have successfully run start-ups and large scale successful businesses. The third indicator is the demonstration of customer traction as the technologybusinesses start to generate revenue, sell products and are recognised byindustry. For example, Ionscope has taken orders for its products from 4universities located in UK, France, China and Korea. Acrobot has sold its firstthree navigator systems to Corin. DeltaDOT has made sales to GlaxoSmithkline andthe Equinox technology has been sold to two global pharmaceutical companies.InforSense signed deals enabling expansion into North America and Europe.HeliSwirl won the 2006 Amec Award for Innovation and Excellence, and iscurrently negotiating a development deal with Stone and Webster. Veryan Medicalhas accelerated the development of its vascular grafts and stents and is workingclosely with a range of partners. The Bioincubator is a physical incubator supported by Imperial College and theLondon Development Agency and houses 11 of our companies (BioceramicTherapeutics, Deltadot, Aqix, Equinox, HydroVenturi, Midaz, Molecular Vision,Nexeon, Thiakis, Plasticell and Circassia) and employs 78 people. INVESTMENTS AND REALISATIONS During the period we have invested £5.2 million comprising largely ofcommitments to three large funding rounds: Circassia, InforSense and Thiakis. Weled the Circassia funding round with co-investors Lansdowne Partners and TudorCapital. Our co-investors in Thiakis were Advent, Novo, The Royal Society,Esperante, Nikko and Consensus Business Group and investing with us inInforSense were FF&P and Sitka. Other seed investments included: BioCeramicTherapeutics, Cardiak, Lontra, Equinox, Midaz Lasers and NanoBioDesign. Theportfolio as a whole raised a total of £15.7 million. We realised our holding inIntegration Diagnostics through a trade sale to Biolin. Since the period end the Group has invested a total of £1.5 million in fundingrounds which raised a total of £6.2 million for Thiakis, Veryan Medical, CellMedica, Membrane Extraction Technology and Quantasol. PARTNERSHIPS We signed the following partnerships, further strengthening our network ofrelationships with international customers, and providing access tocomplementary technology and technical expertise: • BAE Systems - to exploit technologies emerging from the Technology Engineering Centre at BAE Systems • Carbon Trust and Shell Foundation - to establish a £2m seed fund for low carbon technologies • Consensus Imperial Innovations Centre - a technology broking service matching industry partners to technologies and companies • ITTC China - a cross commercialisation agreement to assist with the entry of technology and companies into China and vice versa Our existing partnerships have continued to progress: • Under our recycling programme contract with WRAP (Waste & Resources Action Programme) since 31 January 2007 we have signed two companies, Rubber- Regen and Stoneglass, and taken an equity stake in the businesses. We are helping them to develop and implement their business plans • Johnson and Johnson co-funded four projects to develop prototype medical devices. Match funding came from the Higher Education Innovation Fund We continue to develop a range of partnerships which help us to increase ourglobal access providing links to international customers, new sources oftechnology, access to entrepreneurs, market knowledge and co-investors. OPERATIONAL AND FINANCIAL REVIEW Adoption of international financial reporting standards ('IFRS') The directors have decided to adopt IFRS for the year ending 31 July 2007. Themost significant change involved in the adoption of IFRS is that the Group willreport changes in the fair value of its portfolio of equity investments andconvertible loans and resulting movements in revenue sharing liabilities in theIncome Statement. All changes in the fair value of unquoted and quotedinvestments are passed through the Income Statement; whereas under UK GAAP onlymovements in the value of quoted investments and impairments of unquotedinvestments were reflected in the Income Statement. The other significant effect is the charge arising from the equity based staffcompensation and incentive scheme under IFRS2 "Share Based Payment" with respectto equity-settled share based payments provided to directors and employees. Thishas had the effect of reducing profitability with a significant charge in theperiod. This charge has no impact on the Group's cash flow or equity. The increase to equity arising from the introduction of IFRS is £1.4m (as at 1August 2005) rising to £2.7m as at 31 July 2006. The Group had already reflectedan increase of £1.2 million to the value of the portfolio as a result of astepped acquisition of a minority stake in 2005. PORTFOLIO PERFORMANCE The Group reported a change in fair value of £0.7 million (H1 2006: £3.5million). An analysis of the changes in fair value is given below: Unaudited Unaudited Unaudited six months to six months to 12 months to 31 January 2007 31 January 2006 31 July 2006 £'000 £'000 £'000--------------------------- ---------- ---------- ----------Unrealised/realised gain oninvestments 3,537 4,975 9,157Losses on the revaluationof investments (2,791) (1,437) (2,367)--------------------------- ---------- ---------- ---------- 746 3,538 6,790--------------------------- ---------- ---------- ---------- Gains on revaluation of investments of £3.5 million (H1 2006: £5.0 million, FY2006: £9.2 million) were attributable to restating the value of existingunquoted shareholdings as a result of increased valuations in 9 unquoted companyfunding rounds and to surpluses arising on realisations. The losses on therevaluation of investments of £2.8 million (H1 2006: £1.4 million, FY 2006: £2.4million) were attributable, in part, to market losses on the Group's portfolioof AIM-listed investments of £1.7 million, and unrealised losses againstinvestments in the unquoted portfolio amounted to £1.1 million. The Grouprealised, on the disposal of 3 investments, the sum of £270,000 (£239,000 net ofrevenue sharing obligations) following the sales of its investments inIntegration Diagnostics Ltd, Lipoxen plc and IC VEC Ltd. OPERATIONAL PERFORMANCE After adjusting for Share Based Payments and including interest receivable theGroup broke even. After accounting for the Share Based payments charge of £2.1million for the period (H1 2006: £nil million, FY 2006: £0.5 million) the Groupreported a loss of £2.1 million (H1 2006: £3.2 million profit, FY 2006: £4.8million profit). EQUITY STAKES At 31 January 2007, the Group had equity stakes in 70 companies (H1 2006: 61companies, FY 2006: 66 companies). A schedule setting out the movement in thenumber of technology companies is given below Technology Companies Unquoted Quoted Total (number) (number) (number)--------------------------- ---------- ---------- ----------At 1 August 2006 62 4 66New technology companies 7 - 7Companies floated during the period (1) 1 -Companies disposed of in the period (2) (1) (3)--------------------------- ---------- ---------- ----------At 31 January 2007 66 4 70--------------------------- ---------- ---------- ---------- During the period, the Group invested £1.1 million in 6 new technology companiesand £4.1 million in follow-on funding and the portfolio as a whole raised £15.7million. Since 31 January 2007 the Group has invested £1.5 million out of atotal raised of £6.2 million in 5 companies. SHARE BASED PAYMENTS As a result of the adoption of IFRS 2 "Share Based Payment", the Group hasincurred a charge in the period of £2.1 million (H1 2006: £nil, FY 2006:£496,000). The prior year charge reflects options that were granted to directorsand non-executive directors in July 2006. The current period charge reflectsoptions that were granted to non-executive directors in July 2006 and inaddition options granted to directors and employees in August and September 2006as a carry forward of the equity settled remuneration arrangements prior to theIPO. IFRS 2 requires the Group to value the stock options at grant date and tocharge this over the life of the options to the earliest exercise date. Furtheranalysis is provided in note 4. CASH At 31 January 2007 the Group had cash of £27.0 million (31 July 2006: £32.5million). The Group invested £5.2 million in new technology companies (includingcommitments) and follow on funding during the period and received the proceedsof sale of equity stakes of £0.3 million and therefore the Group incurred a netcash outflow in the period of £5.6 million (H1 2006: £0.2 million inflow). REVENUE AND EXPENSES Revenue for the six months ended 31 January 2007 of £2.5 million is £0.6m higherthan that for the six months ended 31 January 2006. This is primarily due tohigher licence and royalty income. Other expenses of £3.2 million are £1 millionhigher than that for the six months ended 31 January 2006. This is primarily dueto increased operational activity across the business. CONSOLIDATED INTERIM INCOME STATEMENTFOR THE SIX MONTH PERIOD TO 31 JANUARY 2007 ----------------------- ------- ---------- --------- --------- Unaudited Unaudited Unaudited six months to six months to 12 months to 31 January 2007 31 January 2006 31 July 2006 Note £'000 £'000 £'000----------------------- ------- ---------- --------- ---------Revenue 2,525 1,837 4,364Cost of sales (751) (319) (873)----------------------- ------- ---------- --------- ---------Gross profit 1,774 1,518 3,491 InvestmentsChange in fair value ofinvestments 2 746 3,538 6,790 Administrative expenses:Other expenses (3,207) (2,190) (5,454)Share based payments 4 (2,133) - (496)----------------------- ------- ---------- --------- ---------Operating (loss) / profit (2,820) 2,866 4,331 Interest receivable 711 229 453----------------------- ------- ---------- --------- ---------(Loss) / profit before taxation (2,109) 3,095 4,784 Taxation - 82 ------------------------ ------- ---------- --------- ---------(Loss) / profit for the period (2,109) 3,177 4,784----------------------- ------- ---------- --------- --------- Basic (loss) / earningsper ordinary share (pence) 6 (4.3) 7.5 11.3Diluted (loss) / earnings per ordinary share (pence) 6 (4.3) 7.5 11.3----------------------- ------- ---------- --------- --------- CONSOLIDATED INTERIM BALANCE SHEETAS AT 31 JANUARY 2007 ----------------------- ------- ---------- --------- --------- Unaudited Unaudited Unaudited As at As at As at 31 January 2007 31 January 2006 31 July 2006 Note £'000 £'000 £'000----------------------- ------- ---------- --------- ---------AssetsNon-current assetsProperty, plant and equipment 45 16 24 Investments 2 37,319 24,766 31,498University Challenge Seed Fund (UCSF): - Investments 881 982 987 - Loans 1,039 1,175 1,046----------------------- ------- ---------- --------- ---------Total non-current assets 39,284 26,939 33,555----------------------- ------- ---------- --------- ---------Current assetsTrade and other receivables 1,559 998 1,135 Cash and cash equivalents 26,954 10,036 32,547----------------------- ------- ---------- --------- ---------Total current assets 28,513 11,034 33,682----------------------- ------- ---------- --------- ---------Total assets 67,797 37,973 67,237----------------------- ------- ---------- --------- ---------Equity and liabilitiesEquity attributable to equity holdersIssued share capital 1,501 1,251 1,501Share premium 22,713 18,096 22,713Retained earnings 4,173 4,675 6,282Share based payments 4 2,629 - 496Other reserves 18,096 - 18,096----------------------- ------- ---------- --------- ---------Total equity 49,112 24,022 49,088----------------------- ------- ---------- --------- ---------Non-current liabilitiesUniversity Challenge Seed Fund 1,910 2,205 2,039 Provisions for liabilities and charges 3 12,041 9,465 12,003----------------------- ------- ---------- --------- ---------Total non-current liabilities 13,951 11,670 14,042----------------------- ------- ---------- --------- ---------Current liabilitiesTrade and other payables 4,734 2,281 4,107----------------------- ------- ---------- --------- ---------Total liabilities 18,685 13,951 18,149----------------------- ------- ---------- --------- ---------Total equity and liabilities 67,797 37,973 67,237----------------------- ------- ---------- --------- --------- CONSOLIDATED INTERIM CASH FLOW STATEMENTFOR THE SIX MONTHS PERIOD TO 31 JANUARY 2007 Unaudited Unaudited Unaudited six months to six months to 12 months to 31 January 2007 31 January 2006 31 July 2006 £'000 £'000 £'000----------------------- ---------- --------- ---------Operating activitiesOperating (loss) / profit (2,820) 2,866 4,331Adjustments to reconcile operating (loss) / profitto net cash flows from operating activitiesDepreciation of property, plant and equipment 9 7 18Fair value movement in investments (746) (3,538) (6,790)Share based payments 2,133 - 496Working capital adjustments(Increase) / decrease in trade and other receivables (383) 110 (191)Increase in trade and other payables 95 273 1,593----------------------- ---------- --------- ---------Net cash (used in) / generated from operatingactivities (1,712) (282) (543) Investing activitiesPurchase of property, plant and equipment (29) (5) (24)Purchase of investments (4,739) (625) (1,788)Proceeds from sale of investments 270 928 1,373Purchase of UCSF investments (19) - (23)Interest income 632 236 463----------------------- ---------- --------- ---------Net cash (used in) / generated from investingactivities (3,885) 534 1 Financing activitiesProceeds from share issues - - 25,983Transaction cost of issue of shares - - (2,658)Income / repayments to UCSF fund 4 (30) (50)----------------------- ---------- --------- ---------Net cash generated from / (used in) financingactivities 4 (30) 23,275 ----------------------- ---------- --------- ---------Net (decrease) / increase in cash and cashequivalents (5,593) 222 22,733Cash and cash equivalents at beginning of theperiod 32,547 9,814 9,814 ----------------------- ---------- --------- ---------Cash and cash equivalents at end of the period 26,954 10,036 32,547----------------------- ---------- --------- --------- CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY Attributable to equity holders of the group Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Share Share Retained Share Based Other Total Capital Premium Earnings Payments Reserves £'000 £'000 £'000 £'000 £'000 £'000---------------------- ------- ------- ------- ------- ------- -------At 1 August 2005 1,251 18,096 1,498 - - 20,845Consolidated profit for the period to31 January 2006 - - 3,177 - - 3,177---------------------- ------- ------- ------- ------- ------- -------At 31 January 2006 1,251 18,096 4,675 - - 24,022Consolidated profit for the period to31 July 2006 - - 1,607 - - 1,607Share based payments - - - 496 - 496Merger reserve - - - - 18,096 18,096Issued of share capital 250 4,617 - - - 4,867---------------------- ------- ------- ------- ------- ------- -------At 31 July 2006 1,501 22,713 6,282 496 18,096 49,088Consolidated loss for the period to31 January 2007 (2,109) (2,109) Share based payments - - - 2,133 - 2,133 ---------------------- ------- ------- ------- ------- ------- -------At 31 January 2007 1,501 22,713 4,173 2,629 18,096 49,112---------------------- ------- ------- ------- ------- ------- ------- NOTES TO THE INTERIM RESULTS 1. ACCOUNTING POLICIES Basis of preparation The interim results of Imperial Innovations Group plc ('the Group') are for thesix months to 31 January 2007. The European Union (EU) regulation (1606/2002)requires European Companies with securities traded on an EU regulated market toprepare their consolidated financial statements in accordance with EU endorsedInternational Financial Reporting Standards ("IFRS") for accounting periodsbeginning on or after 1 January 2005. On 7 October 2004, the AlternativeInvestment Market ('AIM') of the London Stock Exchange announced that it was tobecome an exchange regulated market instead of an EU regulated market, whichbecame effective from 12 October 2004. The change of status brings the marketoutside the scope of the EU directive on International Accounting Standards(IAS) adoption although the London Stock Exchange announced that it intended tomandate IAS for all AIM companies for financial years commencing on or after 1January 2007. As such, IFRS is not mandatory for AIM traded companies untilaccounting periods beginning on or after 1 January 2007. The directors have decided to adopt IFRS for the year ending 31 July 2007 aspermitted by The Companies Act 1985 (International Accounting Standards andOther Accounting Amendments) Regulations that became law on 11 November 2004.The date of transition to IFRS for the Group is therefore, 1 August 2005. The interim results have been prepared on the basis of the recognition andmeasurement requirements of IFRS in issue that have been endorsed by the EU forthe year ending 31 July 2007, the Group's first annual reporting date underIFRS. The respective standards that will be applicable for the year ending 31July 2007, including those that will be available on an optional basis, are notknown with certainty at the time of preparing these interim results.Accordingly, the accounting policies for that accounting period will bedetermined finally only when the annual financial statements for the year ending31 July 2007 are prepared. The Group's results were prepared in accordance with United Kingdom GenerallyAccepted Accounting Practice ('UK GAAP') until the year ended 31 July 2006. UKGAAP differs in a number of areas from IFRS. In preparing the Group's interimresults for the period to 31 January 2007, the directors have amended certainaccounting, valuation and consolidation methods applied in the UK GAAP financialstatements. The comparative figures in respect of 2006 have been restated toreflect these IFRS adjustments. The effect of the transition from UK GAAP to IFRS on the Group's profit, netassets and cash flows for the period ended 31 January 2007 are provided in thenumerical reconciliation and narrative statements. The interim financial statements of Imperial Innovations Group plc for the sixmonths to 31 January 2007, which were approved by the Directors on 26 April2007, are un-audited but have been reviewed, in accordance with AuditingPractices Board Bulletin 1999/4 "Review of Interim Financial Information", bythe auditors'. The consolidated financial statements have been prepared under the historicalcost convention, as modified by the revaluation of certain financial assets atfair value, as required by IAS 39 "Financial Instruments: Recognition andMeasurement". The basis of consolidation is set out below. Basis of consolidation The Group's consolidated Financial Statements consist of Imperial InnovationsGroup plc and all of its subsidiaries. The consolidated Financial statementsexclude intra-group transactions. Subsidiaries are consolidated from the date of their acquisition, being the dateon which the Group obtains control, and continue to be consolidated until thedate that such control ceases. Control comprises the power to govern thefinancial and operating policies of the investee so as to obtain benefit fromits activites and is achieved through direct or indirect ownership of more thanhalf of the voting rights, (currently exercisable or convertible potentialvoting rights) or by way of contractual agreement. The cost of acquisition is measured at fair value of assets given, equityinstruments issued and liabilities incurred or assumed at the date of exchangeplus costs directly attributable to the transaction. Identifiable assetsacquired, and liabilities assumed, in a business combination are initiallymeasured at their fair values at acquisition date, irrespective of the extent ofany minority interest. The excess of the cost of acquisition over the fair valueof the Group's share of the identifiable net assets is recorded as goodwill. The Group has elected not to apply IFRS 3, "Business Combinations,"retrospectively to business combinations that took place before 1 August 2005. Associates Associates are entities over which the Group has significant influence, but notcontrol, generally accompanied by a shareholding of between 20% to 50% of theequity or voting rights. Investments in associates are accounted for in accordance with IAS 39 "FinancialInstruments: Recognition and Measurement" and upon initial recognition aredesignated at fair value through profit or loss. Equity investments and other financial assets Financial assets within the scope of IAS 39 are classified as either financialassets at fair value through the profit and loss, loans or receivables, held tomaturity investments or available for sale financial assets except in the caseof University Challenge Seed Fund ("UCSF") investments. When financial assetsare recognised initially they are measured at fair value, plus, in the case ofinvestments not at fair value through profit or loss, directly attributabletransaction cost. Changes in the fair value of the UCSF investments are setagainst the value of the UCSF fund and not through the profit or loss inrecognition that the value of the fund has to increase threefold before anyrepayments or disbursements can be made to the Group. Financial assets at fair value through profit or loss The Group classifies all its equity investments as financial assets at fairvalue through profit and loss. Investments in associated undertakings that areheld by the Group with a view to the ultimate realisation of capital gains aredesignated as financial assets at fair value through profit and loss.Investments in undertakings that do not meet the definition of an associateundertaking are also designated as financial assets at fair value through profitand loss on initial recognition. The fair value movement is net of revenueshare. Treatment of gains and losses arising on fair value Realised and unrealised gains and losses on financial assets at fair valuethrough profit or loss are included in the income statement in the period inwhich they arise. Valuation of investments The fair values of quoted investments are based on bid prices at the balancesheet date. The fair value of unlisted securities is established using International PrivateEquity and Venture Capital Guidelines ("IPEVCG"). The valuation methodology usedmost commonly by the Group is the 'price of recent investment' contained in theIPEVCG valuation guidelines. The following considerations are used whencalculating the fair value using the 'price of recent investment' guidelines: • Where the investment being valued was itself made recently, its cost will generally provide a good indication of fair value • Where there has been any recent investment by third parties, the price of that investment will provide a basis of the valuation • If there is no readily ascertainable value from following the 'price of recent investment' methodology, the Group considers alternative methodologies in the IPEVCG guidelines, being principally discounted cash flows and price-earnings multiples requiring management to make assumptions over the timing and nature of future earnings and cash flows when calculating fair value • Where a fair value cannot be estimated reliably, the investment is reported at the carrying value at the previous reporting date unless there is evidence that the investment has since been impaired • All recorded values of investments are regularly reviewed for any indication of impairment and adjusted accordingly Recognition of financial assets The purchase or sale of financial assets is recognised using trade dateaccounting for all assets held at fair value through profit and loss. Therecognition of an asset and the liability to pay for it or the de-recognition ofan asset, recognition of any gain or loss on disposal and the recognition of areceivable from a buyer occur on the date that an irrevocable commitment is madeto purchase or to sell the asset. Revenue recognition and cost of sales Revenue, which excludes value added tax, represents the income generated by theGroup from licensing activities, from Intellectual Property (IP) managementservices provided by the Group to Imperial College and other parties. Revenue isstated gross of any revenue share due to Imperial College with any revenue shareincluded in cost of sales. When granting a licence, an initial up-front fee is receivable on signingfollowed by subsequent payments when milestone conditions are met. In addition,sales royalties may also be due under licence agreements. The initial up-frontfee receivable on the execution of a licence is generally recognised in full onsigning as long as all the Group's obligations under the licence have beencompleted and the fees are not refundable. Milestone payments are recognised atthe date all the conditions are satisfied for the particular milestone paymentand all the Group's obligations have been completed and the fees are notrefundable. Sales royalties receivable under a licence are generally recognisedon receipt of a royalty statement unless accurate sales information is availableto accrue revenue for royalty over the financial period. Income received in the form of listed or unlisted investments from licensingactivities is recognised as licensing income for those investments that haveeither a market value or a value attributed to them by other independent thirdparties. Income from IP management services is recognised on a straight linebasis over the period to which the services relate. Grant and investment awardsare recognised on a receivable basis. Proof of concept type awards are recognised in the balance sheet and matched torelated expenditure. Deferred tax Deferred tax arises from temporary timing differences as a result of thedifferent treatment for accounts and taxation purposes of transactions andevents recognised in the financial statements of the current period and previousperiods. Deferred tax assets are not currently recognised in the accountsbecause of the uncertainty of future taxable profits against which they may berecovered. Property, plant and equipment All property, plant and equipment is stated at historical cost, together withany incidental costs of acquisition. Depreciation is provided on all property,plant and equipment at rates calculated to write each asset down to itsestimated residual value on a straight line basis over its expected useful life,as follows: Office equipment - over 4 years Computers - over 4 years Intangible fixed assets Intangible fixed assets, which include acquired patent rights, are stated atrecoverable amount (fair value) and are tested annually for any impairment andwhenever circumstances indicate that the carrying amount may not be recoverable.Patent costs incurred on internally generated intellectual property are writtenoff to the income statement in the period in which they are incurred. Goodwill Goodwill arising on the acquisition of a subsidiary represents the excess of thefair value of the consideration given over the fair value of the identifiablenet assets acquired. Goodwill is recognised as an asset and is reviewed annuallyfor impairment and is carried at cost less accumulated impairment. On disposalof a subsidiary, the attributable amount of goodwill is included in thedetermination of the profit or loss on disposal. Pensions The Group makes payments to a defined contribution scheme. The assets of thescheme are held separately from the Group in independently administered funds.Contributions made by the Group are charged to the income statement in theperiod to which they relate. Share based payments Equity settled transactions Employees (and Directors) receive remuneration in the form of share basedpayments, whereby employees render services in exchange for shares or for rightsover shares. The fair value of the employee services received in exchange forthe grant of options or shares is recognised as an expense. The total amount tobe expensed on a straight line basis over the vesting period is determined byreference to the fair value of the options or shares determined at the grantdate, excluding the impact of any non-market based vesting conditions (forexample, continuation of employment and performance targets). The share optionsare valued using the binomial option pricing model. Non-market based vestingconditions are included in assumptions about the number of options that areexpected to become exercisable or the number of shares that the employee willultimately receive. This estimate is revised at each balance sheet date and thedifference is charged or credited to the income statement, with a correspondingadjustment to equity. Foreign currency translation The consolidated financial statements are presented in pounds sterling, which isthe Group's functional and presentational currency. The Group determines thefunctional currency of each entity and items included in the financialstatements of each entity are measured using that functional currency.Transactions denominated in foreign currencies are translated into sterling atthe actual rate of exchange ruling at the date of the transaction. Monetaryassets and liabilities denominated in foreign currencies are translated at ratesruling at the balance sheet date. Exchange differences are included in theincome statement. Operating leases Costs in respect of operating leases are charged to the income statement on astraight line basis over the lease term. Provisions (revenue sharing) Technology Pipeline Agreement The Group provides for liabilities in respect of revenue sharing with ImperialCollege, arising under the Technology Pipeline Agreement ("TPA"), and otherparties. Provision for revenue share, based on fair value, on the futurerealisation of listed stock and unlisted stock is recognised. Appointee Director Pool Imperial Innovations LLP, a wholly owned subsidiary of Imperial InnovationsGroup plc, has entered into a Carry Plan Agreement with members of the AppointeeDirector Network. Upon a sale by Imperial Innovations LLP of all or part of ashareholding in one of the specified companies, an "allocated amount" (based ona fixed percentage of net proceeds) will be paid to the appointee directors. Theprovision is based on fair value. Trade receivables Trade receivables are recognised initially at fair value. A provision forimpairment of trade receivables is established when there is objective evidencethat the Group will not be able to collect all amounts due according to theoriginal terms of receivables. The amount of the provision is the differencebetween the asset's carrying amount and the present value of the estimatedfuture cash flows, discounted at the effective interest rate. The amount of theprovision is recognised in the income statement within administrative expenses. Cash and cash equivalents 'Cash and cash equivalents' includes cash in hand, deposits held with banks andbank overdrafts. Segmental reporting Activities are allocated to one business segment. A business segment is a groupof assets and operations engaged in providing products or services that aresubject to risks and returns that are different from those of other businesssegments. A geographical segment is engaged in providing products or serviceswithin a particular economic environment that is subject to risks and returnswhich are different from those segments operating in other economicenvironments. 2. INVESTMENTS - DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS Quoted Unquoted Other Total companies companies Investments £'000 £'000 £'000 £'000------------------- ---------- ---------- ---------- ----------At 1 August 2006 16,906 14,162 430 31,498Investments during the period - 4,971 258 5,229Reclassification during the period 250 (60) (190) -Changes in fair value during theperiod (i) (2,752) 2,256 1,273 777Realisation during the period (49) (136) - (185) ------------------- ---------- ---------- ---------- ----------At 31 January 2007 14,355 21,193 1,771 37,319------------------- ---------- ---------- ---------- ---------- (i) This unrealised gain amount is before deducting revenue share of £86thousand (see note 3). Change in fair value of investments in income statementadditionally includes realised gains. Other Investments comprise loans andreclassifications to equity. 3. PROVISIONS FOR LIABILITIES AND CHARGES - REVENUE SHARE Revenue sharing Revenue sharing Deferred Total Imperial other consideration College £000 £000 £000 £000-------------------- --------- ---------- ---------- ----------At 1 August 2006 10,288 173 1,542 12,003Settlements (48) - - (48)Changes in fair valueattributable to revenue share 261 16 (191) 86-------------------- --------- ---------- ---------- ----------At 31 January 2007 10,501 189 1,351 12,041-------------------- --------- ---------- ---------- ---------- The revenue sharing provision represents monies due to Imperial College upon theeventual realisation of investments held by the Group under the revenue sharingarrangements of the Technology and Pipeline Agreement ("TPA") and in recognitionof Imperial College's right to call for a transfer of its share of the Group'sholding in investments. The timing and amount of the realisation of theprovision is dependent on the timing of the disposal of investments, which isuncertain as this is determined by the investment strategy. The other revenue share represents monies due to other third parties in theAppointee Directors Pool in respect of the Imperial Innovations LLP assetsacquired as part of the stepped acquisition in 2005. The timing and amount ofthe realisation of the provision is dependent on the timing of the disposal ofinvestments, which is uncertain. Deferred consideration represents monies due to Imperial College upon theeventual realisation of the Imperial Innovations LLP assets acquired fromImperial College as part of the private share placement in 2005. The deferredconsideration at the date of acquisition (April 2005) was £554,000. At eachbalance sheet date, a fair value adjustment is made until the eventualrealisation of the assets. The timing of the realisation of the provision isdependent on the realisation of the Imperial Innovations LLP assets acquiredfrom Imperial College, which is uncertain. Gross fair value of investments of £37.3 million (31 July 2006: £31.5 million)(note 2) less revenue share of £12.0 million (31 July 2006: £12.0 million) (note3) gives a net fair value of £25.3 million (31 July 2006: £19.5 million). 4. SHARE BASED PAYMENTS Share based incentives are provided to directors and employees. Share optionsgranted, and which will vest over the period to 27 April 2008, were valued as atthe date of grant using the binomial option pricing model and are charged to theincome statement over the vesting period. The model includes assumptions withrespect to volatility and the expected life of the options. It also considersrisk free rate at date of grant, exercise price of the options, market basedvesting conditions, market value of the shares at date of grant and expecteddividend yield. Options granted in July 2006 produced a charge of £496,000 inthe prior year. The current period charge of £2.1 million includes the effectsof options granted in July 2006 and of options granted in August and September2006. The annual charge is reviewed at each balance sheet date and is modifiedfor the impact of non-market related performance conditions (such as leaversduring the vesting period or any forfeiture of rights to share options). 5. POST BALANCE SHEET EVENTS Since the period end of 31 January 2007, until and as at 17 April 2007, the lastpractical date prior to the approval of the interim accounts, the value of theGroup's publicly quoted investments, including Ceres Power, had decreased by 3%and the effect of this is to decrease investments by £0.4 million and toincrease provisions for liabilities and charges by £0.2 million. 6. (LOSS) / EARNINGS PER SHARE The basic and fully diluted (loss) / earnings per share is calculated on anafter tax loss of £2.1 million for the 6 months to 31 January 2007, an after taxprofit of £3.2 million for the 6 months to 31 January 2006 and an after taxprofit of £4.8 million for the 12 months to 31 July 2006. The basic and fully diluted loss per share for the 6 months to 31 January 2007is based on 49,522,205 weighted average ordinary shares in issue. Share optionsare non-dilutive for the period because of the loss. The basic and fully diluted earnings per share for the 6 months to 31 January2006 is based on 42,403,605 weighted average ordinary shares in issue. Therewere no dilutive instruments in this period. The basic earnings per share for the 12 months to 31 July 2006 is based on42,405,230 weighted average ordinary shares in issue. The diluted earnings pershare reflects the effect of 5,452 weighted average potential dilutive shareoptions. TRANSITION STATEMENTS Impact of the first time adoption of IFRS/IAS For all periods up to and including the year ended 31 July 2006, the Groupprepared its financial statements in accordance with United Kingdom GeneralAccepted Accounting Practice (UK GAAP). The Group's financial statements for theyear ending 31 July 2007 will be the first annual financial statements thatcomply with International Financial Reporting Standards (IFRS). These transitionstatements have been prepared on the basis set out in note 1 to the interimfinancial statements. In preparing these financial statements, the Group has started from an openingbalance sheet as at 1 August 2005, the Group's date of transition to IFRS, andmade those changes in accounting policies and other restatements required byIFRS 1 ("First-time Adoption of International Reporting Standards") for thefirst-time adoption of IFRS. This section explains the principal adjustments made by the Group in restatingits UK GAAP balance sheet as at 1 August 2005, its half year results for theperiod ended 31 January 2006 and its previously published UK GAAP financialstatements for the year ended 31 July 2006. Balance sheet reconciliation as at 1 August 2005 (Transition date) ----------------------- ------ ---------- --------- --------- Effect of transition Note UK GAAP to IFRS IFRS £'000 £'000 £'000----------------------- ------ ---------- ---------- ---------AssetsNon-current assetsProperty, plant and equipment 18 18 Investments A 15,412 3,442 18,854University Challenge Seed Fund (UCSF): - Investments B 341 522 863 - Loans C 1,159 121 1,280----------------------- ------ ---------- ---------- ---------Total non-current assets 16,930 4,085 21,015----------------------- ------ ---------- ---------- ---------Current assetsTrade and other receivables 1,034 1,034 Cash and cash equivalents 9,814 9,814----------------------- ------ ---------- ---------- ---------Total current assets 10,848 10,848----------------------- ------ ---------- ---------- ---------Total assets 27,778 4,085 31,863----------------------- ------ ---------- ---------- ---------Equity and liabilitiesEquity attributable to equity holdersIssued share capital 1,251 1,251Share premium 18,096 18,096Revaluation reserve E 3,941 (3,941) 0Retained (deficit) / earnings D (3,824) 5,322 1,498----------------------- ------ ---------- ---------- ---------Total equity 19,464 1,381 20,845----------------------- ------ ---------- ---------- ---------Non current liabilitiesUCSF Fund F 1,577 643 2,220Provisions for otherliabilities and charges G 4,792 2,003 6,795----------------------- ------ ---------- ---------- ---------Total non-current liabilities 6,369 2,646 9,015----------------------- ------ ---------- ---------- ---------Current liabilitiesTrade and other payables H 1,945 58 2,003----------------------- ------ ---------- ---------- ---------Total liabilities 8,314 2,704 11,018----------------------- ------ ---------- ---------- ---------Total equity and liabilities 27,778 4,085 31,863----------------------- ------ ---------- ---------- --------- A Equity investments have been increased to reflect a fair value uplift(£3,441,782). B UCSF investments have been increased to reflect a fair value uplift(£522,753). C UCSF convertible loans have been increased to reflect a fair value uplift(£120,488). D Retained (deficit)/ earnings have been adjusted for the share of the fairvalue uplift on equity investments (£1,438,520), a holiday pay charge (£57,797)and the transfer from the revaluation reserve (£3,941,519). The balance of theincrease in equity investments (£2,003,262) is reflected in the increase inprovisions for liabilities and charges - i.e. an increase in the provision forrevenue share (see G). E Previously, under UK GAAP, revaluations of listed investments were taken tothe revaluation reserve. Under IFRS, fair value adjustments are taken to theincome statement. The balance on the revaluation reserve (£3,941,519) istherefore transferred to retained earnings. F Increase in UCSF Fund (£643,241) reflects the corresponding increase in UCSFinvestments and convertible loans (see B&C). G Provision for revenue share increase (£2,003,262) reflects the correspondingincrease in equity investments (see D). H Previously, under UK GAAP no provision for holiday pay was made. Under IFRS, aprovision for accrued holiday outstanding at the balance sheet date is required(£57,797). Reconciliation of income statement for the six months ended 31 January 2006 ----------------------- ------ ---------- --------- --------- Effect of transition Note UK GAAP to IFRS IFRS £'000 £'000 £'000----------------------- ------ ---------- ---------- --------- Revenue 1,837 1,837Cost of sales (319) (319)----------------------- ------ ---------- --------- ---------Gross profit 1,518 1,518 InvestmentsChange in fair value ofinvestments I 121 3,417 3,538 Administrative expenses:Other administrativeexpenses J (2,268) 78 (2,190)----------------------- ------ ---------- --------- ---------Operating profit / (loss) (629) 3,495 2,866 Interest receivable 229 229----------------------- ------ ---------- --------- ---------(Loss) / profit before taxation (400) 3,495 3,095 Taxation 82 82----------------------- ------ ---------- --------- ---------(Loss) / profit for the period (318) 3,495 3,177----------------------- ------ ---------- --------- --------- I Fair value gains recognised on equity investments (net of revenue share of£2,670,267) during the period (£3,417,426). J The increase in holiday pay accrual required (see D and O) from the previousbalance sheet date (£10,531) plus investments impaired under UK GAAP (£88,018)written back. Balance sheet reconciliation as at 31 January 2006 ----------------------- ------ ---------- --------- --------- Effect of transition Note UK GAAP to IFRS IFRS £'000 £'000 £'000----------------------- ------ ---------- ---------- ---------AssetsNon-current assetsProperty, plant and equipment 16 16 Investments K 20,698 4,068 24,766University Challenge Seed Fund (UCSF): - Investments L 583 399 982 - Loans M 1,045 130 1,175----------------------- ------ ---------- ---------- ---------Total non-current assets 22,342 4,597 26,939----------------------- ------ ---------- ---------- ---------Current assetsTrade and other receivables 998 998 Cash and cash equivalents 10,036 10,036----------------------- ------ ---------- ---------- ---------Total current assets 11,034 11,034----------------------- ------ ---------- ---------- ---------Total assets 33,376 4,597 37,973----------------------- ------ ---------- ---------- ---------Equity and liabilitiesEquity attributable to equity holdersIssued share capital 1,251 1,251Share premium 18,096 18,096Revaluation reserve N 6,695 (6,695)Retained (deficit) / earnings O (4,004) 8,679 4,675----------------------- ------ ---------- ---------- ---------Total equity 22,038 1,984 24,022----------------------- ------ ---------- ---------- ---------Non current liabilities UCSF Fund P 1,676 529 2,205Provisions for other liabilities and charges Q 7,456 2,009 9,465----------------------- ------ ---------- ---------- ---------Total non-current liabilities 9,132 2,538 11,670----------------------- ------ ---------- ---------- ---------Current liabilitiesTrade and other payables R 2,206 75 2,281----------------------- ------ ---------- ---------- ---------Total liabilities 11,338 2,613 13,951----------------------- ------ ---------- ---------- ---------Total equity and liabilities 33,376 4,597 37,973----------------------- ------ ---------- ---------- --------- K The uplift of £4,068,199 represents brought forward fair value gainsrecognised as at 1 August 2005 (£3,441,782) - see A, current period gross fairvalue gains recognised (£6,094,680) less current period revaluation previouslyrecognised under UK GAAP (£5,468,263). L UCSF investments have been increased to reflect a fair value uplift(£399,192). M UCSF convertible loans have been increased to reflect a fair value uplift(£130,487). N Previous and current period revaluations (£6,695,305) of listed investmentswere previously (under UK GAAP) taken to the revaluation reserve. Under IFRS,fair value adjustments are taken to the income statement. The balance on therevaluation reserve is therefore transferred to retained earnings to takeaccount of this change. O Retained earnings have been adjusted for: • brought forward (£1,438,520) and current period (£3,424,377) net fair value gains (giving a total of £4,862,897); • brought forward (£57,797) and current period (£10,531) increase in holiday pay accrual; • an adjustment to the surplus on disposal of shares (£81,067); • reversal of revaluation transferred from revaluation reserve to retained earnings on the shares realised under UK GAAP (£137,654); and • the transfer from the brought forward revaluation reserve (£3,941,520). P Increase in UCSF Fund (£529,679) reflects the corresponding increase in UCSFinvestments and convertible loans (see L&M). Q Provision for revenue share increase (£2,008,721) reflects the cumulativecorresponding increase required following the fair value uplifts in equityinvestments. R Previously, under UK GAAP, no provision for holiday pay has been made. UnderIFRS, a provision for the number of holidays outstanding at the Balance Sheetdate is required (£68,328). Revenue share due on shares realised (£6,953) isalso recognised. Reconciliation of income statement for the year ended 31 July 2006 ----------------------- ------ ---------- --------- --------- Effect of transition Note UK GAAP to IFRS IFRS £'000 £'000 £'000----------------------- ------ ---------- ---------- ---------Revenue 4,364 4,364Cost of sales (873) (873)----------------------- ------ ---------- ---------- ---------Gross profit 3,491 3,491 InvestmentsChange in fair value of investments S 519 6,271 6,790 Administrative expenses:Other administrative expenses T (5,617) 163 (5,454)Share based payments U (496) (496)----------------------- ------ ---------- ---------- ---------Operating (loss) / profit (1,607) 5,938 4,331 Interest receivable 453 453----------------------- ------ ---------- ---------- ---------(Loss) / profit before tax (1,154) 5,938 4,784----------------------- ------ ---------- ---------- ---------Taxation----------------------- ------ ---------- ---------- ---------(Loss) / profit for the period (1,154) 5,938 4,784----------------------- ------ ---------- ---------- --------- S Fair value gains on equity investments (i.e. net of revenue share) during theperiod were (£6,271,919). T Impairment charge recognised under UK GAAP has been reclassified to "Change infair value of equity investments" (£172,897), and the increase in holidayaccrual (see D and O) from the previous balance sheet date (£10,531). U An IFRS 2 share option charge has been recognised during the period(£495,992). Balance sheet reconciliation as at 31 July 2006 ----------------------- ------ ---------- --------- --------- Effect of transition Note UK GAAP to IFRS IFRS £'000 £'000 £'000----------------------- ------ ---------- ---------- ---------AssetsNon-current assetsProperty, plant andequipment 24 24 Investments V 25,694 5,804 31,498University Challenge Seed Fund (UCSF): - Investments W 679 308 987 - Loans X 808 238 1,046----------------------- ------ ---------- ---------- ---------Total non-current assets 27,205 6,350 33,555----------------------- ------ ---------- ---------- ---------Current assetsTrade and other receivables 1,135 1,135 Cash and cash equivalents 32,547 32,547----------------------- ------ ---------- ---------- ---------Total current assets 33,682 33,682----------------------- ------ ---------- ---------- ---------Total assets 60,887 6,350 67,237----------------------- ------ ---------- ---------- ---------Equity and liabilitiesEquity attributable to equity holdersIssued share capital 1,501 1,501Share premium 22,713 22,713Revaluation reserve Y 8,875 (8,875)Retained earnings Z (4,832) 11,114 6,282Share based payments AA 496 496Other reserves 18,096 18,096----------------------- ------ ---------- ---------- ---------Total equity 46,353 2,735 49,088----------------------- ------ ---------- ---------- ---------Non current liabilities UCSF Fund AB 1,493 546 2,039Provisions for liabilities and charges AC 9,150 2,853 12,003----------------------- ------ ---------- ---------- ---------Total non-current liabilities 10,643 3,399 14,042----------------------- ------ ---------- ---------- ---------Current liabilitiesTrade and other payables AD 3,891 216 4,107----------------------- ------ ---------- ---------- ---------Total liabilities 14,534 3,615 18,149----------------------- ------ ---------- ---------- ---------Total equity and liabilities 60,887 6,350 67,237----------------------- ------ ---------- ---------- --------- • In addition to the brought forward fair value uplift (£3,441,782), currentperiod fair value gains have been recognised (£11,623,788), an adjustment tocost of shares disposed (£4,751) has been made and revaluations previouslyrecognised under UK GAAP (£9,265,759) have been reversed. W UCSF investments have been increased to reflect fair value (£307,544). X UCSF convertible loans have been increased to reflect a fair value uplift(£238,195). Y Previous revaluations of listed investments were taken to revaluation reserveunder UK GAAP. Under IFRS, fair value adjustments are taken to the incomestatement. The balance on the revaluation reserve is therefore transferred toretained earnings to take account of this change (£8,874,777). Z Retained earnings have been adjusted for: • brought forward and current period fair value gains (£7,793,869); • brought forward (£57,797) and current period (£10,531) increase in the holiday pay accrual, • reduction in the surplus on disposal of shares (83,430); • the share option charge (£495,992); • reversal of movement transferred from revaluation reserve to retained earnings on the shares realised under UK GAAP (£147,180); • the transfer from the brought forward revaluation reserve (£3,941,520); • impairment charge recognised under UK GAAP has been reclassified to "Change in fair value of equity investments" (£172,897). AA A share option reserve has been recognised during the period (£495,992). AB Increase in UCSF Fund (£545,740) reflects the corresponding increase in UCSFinvestments and convertible loans (see W&X). AC Provision for revenue share increase due to cumulative increase in valuationof equity investments (£2,853,456). AD Previously under UK GAAP no provision for holiday pay had been made. UnderIFRS, a provision for the number of holidays outstanding at the balance sheetdate is required (£68,328). Revenue share due on shares realised (£148,265) isalso recognised. Independent review report to Imperial Innovations Group plc Introduction We have been instructed by the company to review the financial information forthe six months ended 31 January 2007 which comprises the unaudited consolidatedinterim balance sheet as at 31 January 2007 and the related unauditedconsolidated interim statements of income, cash flows and changes inshareholders' equity for the six months then ended and related notes. We haveread the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. As disclosed innote 1, the next annual financial statements of the group will be prepared inaccordance with International Financial Reporting Standards as adopted for useby the European Union. This interim report has been prepared in accordance withthe basis set out in note 1. The accounting policies are consistent with those that the directors intend touse in the next annual financial statements. As explained in note 1, there is,however, a possibility that the directors may determine that some changes arenecessary when preparing the full annual financial statements for the first timein accordance with International Financial Reporting Standards as adopted foruse by the European Union. The IFRS standards and IFRIC interpretations thatwill be applicable and adopted for use by the European Union at 31 July 2007 arenot known with certainty at the time of preparing this interim financialinformation. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany and for no other purpose. We do not, in producing this report, accept orassume responsibility for any other purpose or to any other person to whom thisreport is shown or into whose hands it may come save where expressly agreed byour prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 January 2007. PricewaterhouseCoopers LLP Chartered Accountants Cambridge Notes: (a) The maintenance and integrity of the Imperial Innovations Group plc websiteis the responsibility of the directors; the work carried out by the auditorsdoes not involve consideration of these matters and, accordingly, the auditorsaccept no responsibility for any changes that may have occurred to the interimreport since it was initially presented on the website. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. This information is provided by RNS The company news service from the London Stock Exchange