Kromek Regulatory News (KMK)

30 July 2015

Kromek Group plc

("Kromek" or the "Company")

Final Results for the Year ended 30 April 2015

Kromek (AIM: KMK), a radiation detection technology company focusing on the medical, security and nuclear markets, announces its final audited results for the year ended 30 April 2015.

Financial Highlights

· Revenue increased 36% to £8.1m (2013/14: £6.0m)

· Gross margin* was 69% (2013/14: 65%)

· Adjusted EBITDA**-breakeven/positive for the second half of the year, resulting in an adjusted EBITDA improvement to £1.6m loss (2013/14: £3.0m loss)

· Loss before tax was reduced to £3.1m (2013/14: £4.3m loss)

· Loss per share was 2p (2013/14: 5p loss)

· Cash and cash equivalents at 30 April 2015 were £1.2m (31 October 2014 were £2.9m; 30 April 2014: £6.6m)

· £3.0m revolving credit facility announced in April 2015

· The Company entered into an agreement to raise £9m through a Firm Placing and up to a further £2m through an Open Offer

*As with prior periods, gross margin is calculated before labour and overhead recovery.

**Adjusted EBITDA eliminates non-recurring other income and share-based payment expenses. See the Financial Review below for a reconciliation of adjusted EBITDA.

Operational Highlights

· Achieved growth through winning significant contracts across all three target segments and in multiple geographies

· Nuclear Detection segment experienced significant growth and represented the largest segment by revenues

o Key contract won from U.S. Department of Defense agency, the Defense Advanced Research Projects Agency ("DARPA")

o Other significant contracts in US and UK with U.S. Defense Threat Reduction Agency ("DTRA") and Innovate UK

· Medical Imaging segment represented the second largest contributor to revenues as it strengthened its relationship with OEMs globally

o Exclusive development programme in medical Computerised Tomography ("CT") extended to a second year

o Secured multiple orders from leading OEMs, both new and existing customers, for dual energy x-ray bone mineral densitometry (DEXA BMD) applications

o Post period, launched eVance™, a new generation of Single Photon Emission Computed Tomography ("SPECT") cameras based on cadmium zinc telluride ("CZT")

· Significant progress made in providing products and components for Security Screening at airports

o Increased sales of bottle scanners, including first contract in Asia - now deployed in 46 airports across 10 countries (2013/14: six airports in four countries)

o Commenced supplying OEM components for baggage screening

· Doubled CZT manufacturing capacity by expanding in the UK. Demonstrated ability to rapidly scale up production by successfully replicating the manufacturing process which was previously being conducted only in the US

· 23 new patents were granted and 18 new patent applications were filed

Dr Arnab Basu, CEO of Kromek, said: "Kromek achieved another year of strong revenue growth. We were adjusted EBITDA positive in the second half reflecting excellent operational progress and increased sales across all our key target markets. Our investment in additional sales and marketing resources is bearing fruit as our products gain traction worldwide with strong demand from current and new customers.

"The Company is also pleased to simultaneously announce at the same time as these results a firm placing and an open offer to raise up to £11.0m from both existing and new investors. The cash raised from this transaction will assist with the execution of our growth strategy and to leverage our established position and strong partnerships with global OEMs and government agencies. With contracted revenues for the year ahead currently totalling 60% of the Directors' expectations for the year, a clear path to capturing revenue opportunities and a stable cost base, the Board is confident in the prospects of the business and delivering significant shareholder value."

A copy of the full audited annual report and accounts is available at www.kromek.com and will be posted to shareholders shortly.

Enquiries

About Kromek Group plc

Kromek Group plc is a UK technology company (global HQ in County Durham) and a leading developer of high performance radiation detection products based on cadmium zinc telluride ("CZT"). Using its core CZT technology, Kromek designs develops and produces x-ray and gamma ray imaging and radiation detection products for the medical, security screening and nuclear markets.

The Group's products provide high resolution information on material composition and structure and are used in multiple applications, ranging from the identification of cancerous tissues to hazardous materials, such as explosives, and the analysis of radioactive materials.

The Group's business model provides a vertically integrated technology offering to customers, from the growth of CZT crystals to finished products or detectors, including software, electronics and application specific integrated circuits ("ASICs").

The Group has operations in the UK, Germany and US (California and Pennsylvania), and is selling internationally through a combination of distributors and direct OEM sales.

Currently, the Group has over a hundred full time employees across its global operations. Further information on Kromek Group is available at www.kromek.com.

Overview

Kromek is pleased to report another period of revenue growth. For the full year 2014/15, revenue increased by 36% to £8.1m (FY 2013/14: £6.0m) as the Company continued to establish its position as a key supplier of CZT detection systems both to commercial and government customers globally, winning contracts across all three of its target segments and in multiple geographies. From H1 2014/15 to H2 2014/15, revenues increased by 56% through expansion in the number and scope of customer-funded development projects as well as direct sales of both end-user and component-level products for OEMs. At the same time, tight control was maintained over the cost base with administration expenses (including operational expenses) growing by only 4% despite the 36% increase in revenue. This, combined with improved gross margin, resulted in EBITDA loss falling to £1.6m compared with £3.0m loss for the prior year.

Kromek made significant progress during the year in advancing its strategy of targeting OEMs in the three markets that it has identified as offering the largest growth opportunities: CT and SPECT in medical imaging and advanced portable networked nuclear detection. The most notable achievement of the Company in this area was the success with the U.S. Department of Defense in being awarded multiple contracts with DARPA and DTRA. This continued to be supported by sustained growth in sales of the Company's portfolio of end-user branded products.

During the year Kromek undertook significant steps to strengthen its manufacturing capabilities. The key development was replicating in the UK the manufacturing process that had previously only been utilised in the US, which enabled a doubling of the Company's production capacity. In addition, the efficiencies achieved in the manufacturing and engineering processes resulted in significant yield improvements and, consequently, a reduction in the cost of production of detector materials.

Operational Review

Medical Imaging

The Company made good progress this year with its mutually exclusive contract with a top four global OEM in the CT market for developing and supplying CZT-based multispectral (colour) detectors for producing high resolution colour x-ray images by CT scanners. In September 2014, based on sustained progress towards meeting the aims of the development programme, the OEM confirmed its decision to progress to the second year of the programme and awarded Kromek a $1m exclusivity payment for this next stage.

Kromek gained further traction during the year in the SPECT segment where it has been demonstrated that use of CZT provides more specificity due to higher resolution, which enhances detection capabilities. Kromek also commenced initial supply of CZT-based modules to an established SME manufacturer of x-ray diagnostics and analysis equipment in China, under a long-term contract that it signed in the prior year, for application in China and Chinese territories. Post period end, the Company launched eVance™, a new generation of CZT-based SPECT cameras that fully integrates Kromek's eV-CZT™ detectors with its advanced ASICs and microelectronics technology. This enables OEMs to integrate turn-key CZT cameras into almost all nuclear medical imaging systems in a short period of time and without the level of cost associated with new technology development. The Company has begun shipping its small field of view cameras for a thyroid application. During this calendar year Kromek will introduce other camera sizes to address specific SPECT imaging applications, and is currently in discussions with OEMs for thyroid, breast, cardiac and general purpose imaging applications.

Another significant development for the Company during the year was the continued growth of sales attributable to the DEXA BMD segment. DEXA BMD is the most accurate imaging technique to diagnose the strength and health of bones, allowing clinicians to accurately detect, monitor and treat Osteoporosis in patients. Kromek started a new programme with a leading global healthcare and diagnostics company for adopting the Company's detectors in the customer's machines. In addition, the Company received further contracts from two of its existing OEM customers for CZT-based detector modules for DEXA BMD applications, and, in the second half of the year, received new orders to supply radiation detectors and integrated electronic components to a leading global OEM of DEXA BMD systems.

During the year, Kromek received contracts worth £150,000 to develop an enhanced detection system for breast imaging in conjunction with the UK's Centre for Process Innovation. The contracts were awarded by Innovate UK (formerly the Technology Strategy Board), an executive non-departmental public body sponsored by the UK Government's Department for Business, Innovation & Skills. Following the successful collaboration on these, and other projects, Innovate UK awarded the Company a further contract worth approximately £200,000 for an 18-month programme for the development of a novel radiation detector for the medical and nuclear markets, which is progressing well.

Nuclear Detection

Kromek continued to grow its sales in the nuclear segment, being awarded contracts across multiple partners in the US and worldwide to supply innovative nuclear detection products for civil nuclear and safeguarding applications following the increased threat of 'dirty bombs'. This included signing four new and extension contracts, for a total value of $5.8m, with the U.S. Department of Defense. In August 2014, Kromek was awarded up to $1.2m for a 12-month programme with DARPA to develop an advanced portable detection system for gamma and neutron radiation that can be combined in large networks, providing information on radiation signatures over an extended area. This contract was extended by a further $1.1m by DARPA in January 2015 following progress on the first phase, which signifies the customer's confidence in Kromek as a strong solution provider. In April 2015, DARPA further modified the contract for volume supply of radiation network detectors, worth another $2.02m, bringing the total value of the contract to $4.4m. Kromek's solution is based on its 'Discreet Dual Detector' - the D3 - a handheld hybrid gamma/neutron detector that can be networked with other such devices. Kromek also secured a two-year $1.5m contract with DTRA for the design, manufacture and optimisation of high sensitivity, next generation, solid state detectors for the homeland security radiation detection market. The project has progressed well and the Company is delivering on all of its target milestones.

The Company continued to work under, and successfully completed, the first phase of a contract with a leading global security company, which provides innovative systems, products and solutions to government and commercial customers worldwide, to design CZT-based detectors and ASICs for nuclear safeguard markets. This resulted in Kromek being awarded a $1.0m contract extension to focus on the delivery of the new ASICs and detectors as well as the testing and characterisation of detector modules.

Security Screening

In the security screening market, Kromek was awarded a significant contract to provide its advanced bottle scanner technology to a number of airports in Asia. This initial contract, worth $620,000, represents entry into a new geographical market that the Company believes offers considerable scope for future growth. Kromek's bottle scanner is now installed in 46 airports in 10 countries in Asia, Europe and Australia.

Kromek expanded its customer base during the year with new contracts from additional global security technology groups for the supply of OEM components for baggage screening products, including a new contract worth approximately $0.3m for the supply of OEM components for a baggage screening product for aviation security. The Company also received a repeat order from a recognised OEM in the US to supply its patented detection modules to enhance the OEM's radiation detection capabilities for its security applications. In addition, Kromek is currently in discussion with a global OEM with a view to licensing its liquid detection technology and developing an OEM module for baggage screening.

Doubling of Manufacturing Capacity

During the period, Kromek reached an important milestone as it successfully replicated in the UK the CZT manufacturing processes that had previously been utilised in the US, which enabled a doubling of the Company's production capacity.

Specifically, 24 new CZT growth systems were installed and qualified for production at the Sedgefield, UK manufacturing site. Additionally, four new CZT systems were installed and qualified for production and R&D purposes at the Company's Saxonburg, US manufacturing site. In addition, the Company achieved significant yield improvements in materials for SPECT detectors through a new CZT sensor assembly technique, which has led to a lowering of the cost of detector production. Long-term supply agreements were negotiated with critical suppliers to secure pricing and supply of raw materials.

In addition to improvements in the production of CZT material, Kromek was able to further improve the fabrication process for detectors resulting in higher fabrication yields at the Saxonburg plant. At the Sedgefield plant, production processes were qualified for silicon photomultiplier-based gamma and neutron detectors.

There were significant efficiencies made in the assembly and testing for nuclear products. Multiple electronic component subassembly suppliers were qualified in Eastern Europe and Asia to improve costs. Advanced automated testing for nuclear detection instruments were developed, with multiple resources trained and qualified to carryout procedures at the Sedgefield plant. Both manufacturing sites, at Sedgefield and Saxonburg, were re-certified for ISO9001:2008 through ISO audits and successfully passed several key customer audits.

Financial Review

The financial performance for the year ended 30 April 2015 was characterised by growth in revenue whilst tight control was maintained over the cost base. Revenue increased by 36% to £8.1m (2013/14: £6.0m) due to significant progress on government contracts, especially in development of products for homeland security through the D3 product, supplemented by sales to OEMs in the medical imaging sector and sales of bottle scanners in Asia.

Gross margin, before labour and overhead recovery, increased to 69% (2013/14: 65%) due to the increase in government contracts, plus yield efficiencies and product mix.

Year-on-year, administration expenses (including operational expenses) grew by only 4% to £8.5m (2013/14: £8.2m) despite a 36% increase in revenue. The slight increase was largely due to a full year of costs associated with being a listed entity compared with only six months in the prior period. Additionally, employee numbers grew to 107 (2013/14: 101), primarily due to the expansion of the sales & marketing team, increasing employment costs (excluding Non-Executive Director costs) by 3%.

Summary of results

As a result of increased revenue, improved margin and tight cost control, the loss before interest, tax, depreciation and amortisation (EBITDA), excluding non-recurring other income and share-based payment expenses, fell to £1.6m compared with a loss of £3.0m for the prior year. Loss before tax was reduced by 28% to £3.1m (2013/14: £4.3m loss).

The results for the year, including reconciliation to adjusted EBITDA (which eliminates non-recurring other income and share-based payment expenses), are as follows:

Cash and cash equivalents at 30 April 2015 were £1.2m (31 October 2014: £2.9m; 30 April 2014: £6.6m). During the second half of the year, the Company secured a £3.0m revolving credit facility with HSBC Bank plc. The funds available will be used for working capital to support the growth of the business, and facilitate the Company in capitalising on the large and increasing opportunities that it continues to develop across its target markets. As at 30 April 2015, £1.0m had been drawn down under the credit facility.

Tax

The Company benefits from the UK Research and Development Tax Credit and recorded a credit of £1.0m for the year (2013/14: £0.7m). In addition, the Company saw a movement in the deferred tax provision of £nil (2013/14: £0.4m), resulting in an overall tax credit to the income statement of £1.0m (2013/14: £1.1m).

Earnings per share ("EPS")

EPS is recorded in the year on a basic and diluted basis producing a loss of 2p per share (2013/14: loss of 5p per share) and an adjusted basic and diluted loss of 2p per share (2013/14: loss of 5p per share). Due to the Company having losses in each of the two years, the diluted EPS for disclosure purposes is the same as the basic EPS.

R&D

As noted above, the Company continues to invest in the development of products and its technology platform to advance its commercial advantage and increase margin on sales. Total expenditure on research and development was £4.4m (2013/14: £3.1m), comprising £2.6m in the UK (2013/14: £1.9m) and £1.8m in the US (2013/14: £1.2m). This consists of £1.8m (2013/14: £1.1m) attributable to near-term product development and £2.6m (2013/14: £2.0m) reflecting investment in Kromek's core technology, platform and manufacturing capabilities.

The expenditure on commercial near-term product development, which has been capitalised, resulted in new and further development of existing products. This provides further short- and medium-term sales opportunities, and reflects Kromek's ability to draw from its technology platform to rapidly develop bespoke and need-specific products.

The investment in Kromek's core materials technology, platform developments and improved manufacturing and engineering processes, was expensed through the income statement. This provides a strong and enhanced basis for efficiency and profitability in future years, and strengthens the market position of Kromek's technology.

During the period, Kromek was awarded 23 new patents and filed 18 new patent applications.

Capital expenditure

Capital expenditure for the year amounted to £2.6m (2013/14: £0.2m), of which £0.8m (2013/14: £0.1m) was supported by awards from the Regional Growth Fund. This increase substantially relates to the expansion of furnace capacity in UK, which involved an investment of £2.0m. This investment is an important step for the business in demonstrating scalability and transferability of the requisite materials growth technologies, processes and know-how.

Outlook

The doubling in manufacturing capacity, increased customer base, and significant progress with new OEMs and U.S. Department of Defense, provides a strong base for growing the business over the medium to long term. The Company believes that it has the market-leading technology, products and personnel that will enable it to win further contracts across the three transformational market opportunities of CT, SPECT and portable advanced radiation detectors.

Kromek entered the new financial year with a significantly higher backlog than at the equivalent period last year, with contracts signed in the previous year providing 60% visibility on the Directors expectations for the year ahead. The Company continues to make progress and receive increasing interest across all three of its segments. In Security Screening, there are numerous revenue opportunities from the sale of bottle scanners in Europe and RoW. In Medical Imaging and Nuclear Detection, the Company is especially excited about the increasing traction, with both new and existing customers, that it is making in the three key growth opportunities of CT, SPECT and portable advanced radiation detection. In particular, the Directors expect recently-launched eVanceTM family of SPECT cameras and OEM units to gain traction and be a significant contributor to revenues over the next 12-18 months. The Company is making significant progress with its projects with the U.S. Department of Defense, and continues to penetrate civil nuclear markets with Kromek-branded products and through white labelling channels.

Kromek's management team is committed to maintaining tight cost control whilst continuing to invest in sales & marketing and targeted product development. The business has operational leverage reflected in a rise in revenue year-on-year of 36% but a rise in the administrative costs (including operating costs) of only 4% year-on-year. This is further demonstrated by revenue growing by £2.1m year-on-year and adjusted EBITDA improving by £1.4m to a loss of £1.6m from a loss of £3.0m for the prior year. As a result, the Board is confident in the prospects of the business and delivering significant shareholder value.

Consolidated income statement

For the year ended 30 April 2015

Consolidated statement of comprehensive income

For the year ended 30 April 2015

Consolidated statement of financial position

For the year ended 30 April 2015

The financial statements of Kromek Group plc (registered number 8661469) were approved by the board of directors and authorised for issue on 29 July 2015. They were signed on its behalf by:

Dr Arnab Basu MBE

Chief Executive Officer

Consolidated statement of changes in equity

For the year ended 30 April 2015

Consolidated statement of cash flows

For the year ended 30 April 2015

Notes to the consolidated financial statements

For the year ended 30 April 2015

1. General information

Kromek Group plc is a company incorporated and domiciled in the United Kingdom under the Companies Act. These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. Foreign operations are included in accordance with the policies set out in note 3.

The Group's financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and on a basis consistent with that adopted in the previous year.

Whilst the financial information included in this Preliminary Results Announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS.

The Preliminary Results Announcement does not constitute the Company's statutory accounts for the years ended 30 April 2015 and 30 April 2014 within the meaning of Section 435 of the Companies Act 2006 but is derived from those statutory financial statements.

The Group's statutory financial statements for the year ended 30 April 2014 have been filed with the Registrar of Companies, and those for 2015 will be delivered following the Company's Annual General Meeting. The Auditor has reported on the statutory accounts for 2015 and 2014, and their reports, which included no matters to which the Auditor drew attention by way of emphasis, were unqualified and did not contain statements under Sections 498 (2) or 498 (3) of the Companies Act 2006 in relation to the financial statements.

2. Adoption of new and revised Standards

The following new standards and amendments to standards are mandatory for the financial year beginning on 1 May 2014:

· IFRS 13 "Impairment of Assets"

· IFRS 10 "Consolidated Financial Statements"

· IAS 27 "Consolidated and Separate Financial Statements",

· IAS 36 "Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets"

· IFRS 12 "Disclosure of Interests in Other Entities".

· Amendments to IAS 32 "Financial Instruments: Presentation" Amendments to IAS 36 "Impairment of Assets"

· Amendments to IAS 39 "Financial Instruments: Recognition and Measurement"

· IFRS 10, IFRS 11, IFRS 12 Transition Guidance

These standards and amendments to standards have not had a material impact on the consolidated financial statements.

Standards not affecting the reported results nor the financial position

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

· IFRS 9 Financial Instruments

· IFRS 13 Fair Value Measurement

· IFRS 15 Revenue from Contracts with Customers

· Annual Improvements to IFRSs 2012-2014 Cycle

The Directors do not expect that the adoption of these Standards and Interpretations in future periods will have a material impact on the financial statements of the Group, however they are currently considering the future impacts of IFRS 15.

3. Significant accounting policies

Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRSs") and IFRIC interpretations. Therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.

The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting policies adopted are set out below.

Basis of consolidation

The consolidated financial statements incorporate the results and net assets of the Group and entities controlled by the Group (its subsidiaries) made up to 30 April each year. Control is achieved where the Group has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The results of subsidiaries acquired during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to results of subsidiaries to bring the accounting policies used into line with those used by the group. All intra-group transactions, balances, income and expenses, and profits are eliminated on consolidation.

Going concern

As at 30 April 2015, the Group had net assets of £16.2m (2014: £17.7m) as set out in the consolidated statement of financial position. The Directors have prepared detailed forecasts of the Group's financial performance over the next 5 years, which includes the £9.0m firm placing and open offer of up to £2.0m which was raised subsequent to the financial statements being approved and disclosed in note 19. As a result of this review, which incorporated sensitivities and risk analysis, the Directors believe that the Group has sufficient resources and working capital to meet their present obligations. Accordingly, they continue to adopt the going concern basis in preparing the Group financial statements.

Business combinations

The Group financial statements consolidate those of the company and its subsidiary undertakings. Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial information of subsidiaries is included from the date that control commences until the date that control ceases. Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial information.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes and comprises:

i) Sale of goods and services

The Group's income derives from the sale of goods and from the research and development contracts which are typically with government agencies. Revenue on product sales is recognised when the risk and reward of ownership pass to the customer. The terms of sale are agreed with each customer on an individual basis, which are generally under FCA INCOTERMS. Revenue from research and development contracts is recognised as revenue in the accounting period in which the milestones are achieved.

ii) Revenue from grants

Revenue from grants is recognised when the costs relating to the project activity have been incurred, the customer is in agreement with the expenses which are being claimed as grant revenue, and subsequent invoices have been issued to the customers.

iii) Long-term contracts

The Group accounts for long-term contracts under IAS 11, and reflects revenue by reference to the stage of completion of the contract activity at the statement of financial position date. Revenue and profits are determined by estimating the outcome of the contract and determining the costs and profit attributable to the stage of completion. Any expected contract loss is recognised immediately.

iv) Exclusivity contracts

The Group reflects exclusivity payments as revenue at the point that it contractually agrees to become exclusive. Where terms of exclusivity require performance the Group reflects the revenue as performance is delivered.

v) Interest revenue

Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.

Internally-generated intangible assets - research and development expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from the group's product development is recognised only if all of the following conditions are met:

· the technical feasibility of completing the intangible asset so that it will be available for use or sale;

• its intention to complete the intangible asset and use or sell it;

• its ability to use or sell the intangible asset; and

• how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.

Research expenditure is written off as incurred. Development expenditure is also written off, except where the Directors are satisfied as to the technical, commercial and financial viability of individual projects. In such cases, the identifiable expenditure is deferred and amortised over the period during which the Group is expected to benefit. This period normally equates to the life of the products the development expenditure relates to. Provision is made for any impairment.

Amortisation of the intangible assets recognised on the acquisitions of Nova R&D, Inc. and eV Products, Inc. are recognised in the income statement on a straight-line basis over their estimated useful lives of between five and fifteen years

Patents and trademarks

Patents and trademarks are measured initially at purchase cost and are amortised on a straight-line basis over their estimated useful lives.

Impairment of tangible and intangible assets excluding goodwill

At each statement of financial position date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the CGU to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGUs, or otherwise they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be identified.

An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or CGU) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Inventories

Inventories are stated at the lower of cost and net realisable value. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated in the statement of financial position at standard cost, which approximates to historical cost determined on a first in, first out basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Work in progress costs are taken as production costs, which include an appropriate proportion of attributable overheads.

Provision is made for obsolete, slow moving or defective items where appropriate. Items which have not shown activity for between 12-18 months will be provided for at a rate of 50%, and those which have not shown activity in 18 months or longer will be provided for at a rate of 100%. Given the nature of the products and the gestation period of the technology, commercial rationale necessitates that this provision is reviewed on a case by case basis.

Financial instruments

Financial assets and financial liabilities are recognised in the Group's statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

i) Financial assets

All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus

transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

Financial assets are classified into the following specified category: 'loans and receivables'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. The Group held no fair value through profit and loss ("FVTPL"), available for sale ("AFS") or held-to-maturity "HTM") financial assets during the period.

ii) Loans and receivables

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

The Group interacts with other technology based companies to obtain market penetration for its products. These arrangements initially require funding to allow for marketing of our products, with longer lead times for sale. As a consequence, the terms with these customers are not always on normal payment terms (30 to 60 days), and management confirm that it could take longer before recoverability of the cash on these sales.

iii) Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each statement of financial position date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

iv) Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

v) Financial liabilities and equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

vi) Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

vii) Financial liabilities

Financial liabilities are classified as 'other financial liabilities'. The Group held no financial liabilities that would be classified as FVTPL.

viii) Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

ix) Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.

4. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in note 3, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Critical judgements in applying the group's accounting policies

The following are the critical judgements that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

Development costs

As described in note 3, the Group expenditure on development activities is capitalised if it meets the criteria as per IAS38.

These capitalised assets are amortised on a straight-line basis over their useful lives. The useful life is determined by the expected future cash flows anticipated to be derived from these assets, based on management's revenue forecasts. Where no internally-generated intangible asset can be recognised, development expenditure is expensed in the period in which it is incurred.

Impairment of non-financial assets

The Group assesses whether there are any indicators of impairment as at the transition date and thereafter for all non-financial assets at each reporting date. Goodwill is tested for impairment annually and at other times when such indicators exist, such as negative cash flows and operating losses of subsidiaries. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable.

When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

Valuation of acquired intangible assets

Acquisitions may result in identifiable intangible assets such as customer relationships, supplier relationships, licences and technology being recognised. These are valued by professional valuation firms, using discounted cash flow methods which require the application of certain key judgments and estimates are required to be made in respect of discount rates and future cash flows.

Recoverability of receivables

As disclosed in note 3, in order to obtain market penetration through technology based customers, the Group recognises that normal payment terms from these customers may not be adhered to when assessing recoverability of receivables. This is as a result of the necessary marketing support that customers may require in promoting the products.

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the statement of financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

i) Development costs

Development costs are capitalised in accordance with the accounting policy noted above. Initial capitalisation of costs is based on management's judgement that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone.

ii) Impairment of goodwill

The Group determines whether goodwill is impaired on at least an annual basis or more frequently when there are indications of possible impairment. The impairment review requires a value in use calculation of the cash-generating units to which the goodwill is allocated. In estimating the value in use, management is required to make an estimate of the expected future cash flows attributable to the cash-generating unit and to choose an appropriate discount rate to calculate the present value of those cash flows. The carrying amount of goodwill at 30 April 2015 was £1,275k (2014: £1,275k). Further details are given in note 11.

5. Revenue

An analysis of the group's revenue is as follows:

6. Operating segments

Products and services from which reportable segments derive their revenues

For management purposes, the Group is organised into two business units (USA and UK) and it is on these operating segments that the Group is providing disclosure.

The chief operating decision maker is the Board of Directors who assess performance of the segments using the following key performances indicators; revenues, gross profit and operating profit. The amounts provided to the Board with respect to assets and liabilities are measured in a way consistent with the Financial Statements.

The turnover, profit on ordinary activities and net assets of the Group are attributable to one business segment, i.e. the development of digital colour x-ray imaging enabling direct materials identification, as well as developing a number of detection products in the industrial and consumer markets.

Analysis by geographical area

A geographical analysis of the Group's revenue by destination is as follows:

A geographical analysis of the Group's revenue by origin is as follows:

Year ended 30 April 2015

Year ended 30 April 2014

Inter-segment sales are charged on an arms-length basis.

No other additions of non-current assets have been recognised during the year other than property, plant and equipment, and intangible assets.

No impairment losses were recognised in respect of property, plant and equipment and goodwill.

The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 3. Segment loss represents the loss incurred by each segment. This is the measure reported to the Group's Chief Executive for the purpose of resource allocation and assessment of segment performance.

Revenues from major products and services

The Group's revenues from its major products and services were as follows:

Information about major customers

Included in revenues arising from USA operations are revenues of approximately £1,224k (2014: £1,249k) which arose from sales to the Group's largest customer. Included in revenues arising from UK operations are revenues of approximately £1,203k (2014: £nil) which arose from a major customer.

7. Loss for the year

Loss for the year has been arrived at after (crediting)/charging:

8. Tax

Recognised in the income statement

Corporation tax is calculated at 20.92% (2014: 22.83%) of estimated taxable loss for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

Reconciliation of tax credit

The charge for the year can be reconciled to the profit in the income statement as follows:

There are no tax items charged to other comprehensive income.

The Finance Act 2013 enacted a rate reduction in the main rate of corporation tax to 21% from 1 April 2014 and to 20% from 1 April 2015. The Government has subsequently announced in the Summer Budget, on 8 June 2015, that the rates of corporation tax will be further reduced to 19% with effect from 1 April 2017 and 18% with effect from 1 April 2020. As the enabling legislation has not been substantively enacted these rates do not apply to the deferred tax position at 30 April 2015. As there is no UK deferred tax recognised there is no impact of the above on the tax provisions reported in these accounts.

There is a potential deferred tax asset on excess tax deductions arising from share based payments on exercise of share options of £1,366k (2014: £1,147k). The asset has not been recognised as it is not considered probable that there will be future profits available.

9. Dividends

The directors do not recommend the payment of a dividend (2014: £nil).

10. Losses per share

The calculation of the basic and diluted earnings per share is based on the following data:

Losses

Due to the Group having losses in each of the years, the fully diluted loss per share for disclosure purposes, as shown in the income statement, is the same as for the basic loss per share.

11. Goodwill

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. Before recognition of impairment losses, the carrying amount of goodwill had been allocated as follows:

The goodwill arose on the acquisition of Nova R&D, Inc in 2010, and represents the excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired.

Goodwill has been allocated to Nova R&D, Inc as a cash generating unit (CGU) and is reported in note 6 within the segmental analysis of the US operations. Negative goodwill arose on the acquisition of eV Products, Inc which was released to the income statement in 2013.

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired, by comparing the net book value of the goodwill and non-current assets for the CGU to its value in use on a discounted cash flow basis.

The recoverable amount has been determined on a value in use basis on each cash-generating unit using the management approved 5 year forecasts for each cash-generating unit. The base 5 year projection is year on year growth over the next 5 years, with overheads remaining relatively stable. The growth rate of the CGU is expected to remain flat in Year 2 as a result of the CGU continuing to develop its technical capabilities in the forthcoming year. Growth is then expected to increase to 7% in Year 3, 14% in Year 4 and remain flat thereafter in Year 5. These cash flows are then discounted at the Company's weighted average cost of capital of 15% (2014: 16%).

Based on the results of the current year impairment review, no impairment charges have been recognised by the Group in the year ended 30 April 2015 (2014: £nil). Management have considered various sensitivity analyses in order to appropriately evaluate the carrying value of goodwill.

Having assessed the anticipated future cash flows the directors do not consider there to be any reasonably possible changes in assumptions that would lead to such an impairment charge in the year ended 30 April 2015. For illustrative purposes, a compound reduction in revenue of 10% in each of years 1-5 whilst holding overheads constant would not affect the conclusion of the review.

The Directors have reviewed the recoverable amount of the CGU and do not consider there to be any indication of impairment in 2015 or 2014.

12. Other intangible assets

The amortisation period for development costs incurred on the group's product development is over the period during which the company is expected to benefit and the amortisation will be based on the number of units sold over the expected product lifetime.

Patents and trademarks are amortised over their estimated useful lives, which is on average 10 years.

Other intangible assets with indefinite useful lives arose as part of the acquisitions of Nova R&D, Inc. in June 2010 and eV Products, Inc. in February 2013. The recoverable amounts of these assets have been calculated on a value in use basis at both 30 April 2015 and 30 April 2014. These calculations use cash flow projections based on financial forecasts and appropriate long-term growth rates. To prepare value in use calculations, the cash flow forecasts are discounted back to present value using a pre-tax discount rate of 15% (2014: 16%) and a terminal value growth rate of 2% from 2021. The Directors have reviewed the recoverable amount of these indefinite useful life assets and do not consider there to be any indication of impairment.

The carrying amounts of the acquired intangible assets arising on the acquisitions of Nova R&D, Inc. and eV Products, Inc. as at the 30 April 2015 was £1,858k (2014: £2,134k ), with amortisation to be charged over the remaining useful lives of these assets which is between 3 and 13 years.

The amortisation charge on intangible assets is included in administrative expenses in the consolidated income statement.

13. Property, plant and equipment

Assets held under finance leases with a net book value of £39k (2014: £nil) are included in the above table within plant and machinery.

14. Amounts recoverable on contracts

15. Trade and other receivables

Trade receivables

Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost.

The average credit period taken on sales of goods is 60 days. The Group initially recognises an allowance for doubtful debts of 100% against receivables over 120 days. However, this is subject to management override where there is evidence of recoverability, most notably, where specific support is being provided to strategic partners in the marketing of new products.

Before accepting any new customer, the Group uses an external credit scoring system to assess the potential customer's credit quality and defines credit limits by customer.

The Group does not hold any collateral or other credit enhancements over any of its trade receivables.

At 30 April 2015, trade receivables are shown net of an allowance for bad debts of £252k (2014:£nil) arising from the ordinary course of business, as follows:

The bad debt provision records impairment losses unless the Group is satisfied that no recovery of the amount owing is possible, at which point the amounts considered irrecoverable are written off against the trade receivables directly.

Ageing of past due but not impaired receivables at the statement of financial position date was: