Nanoco Regulatory News (NANO)

NANOCO GROUP PLC

("Nanoco" or the "Company")

Preliminary results for the year ended 31 July 2015

Nanoco Group plc (LSE: NANO), a world leader in the development and manufacture of cadmium-free quantum dots and other nanomaterials, is pleased to announce its preliminary results for the year ended 31 July 2015.

Highlights

· Substantial progress in the commercialisation of the Company's technology in the display industry in partnership with worldwide licensing partner The Dow Chemical Company ("Dow")

· Mechanical completion of Dow's large-scale cadmium-free quantum dot manufacturing plant in South Korea during the year with customer sampling expected to begin in the very near term

· Robust display pipeline with Nanoco and Dow currently working with 11 display OEMs globally from countries including Korea, China, Japan, Taiwan and the USA

· Further joint development agreement announced today with Osram for the use of quantum dots in near-chip lighting applications - see separate announcement released today. Other progress in lighting including the development of niche lighting products with Marl International Limited and the formation of a lighting business unit

· Progress in other target markets of solar and life sciences including the award of an Innovate UK grant for solar work with Loughborough University's Centre for Renewable Energy Systems Technology 

· Team strengthened with the appointment of David Blain as Chief Financial Officer, Keith Wiggins as Chief Operating Officer, Brendan Cummins as a Non-executive Director and Caroline Watson as Investor Relations Manager

· Moved from AIM to the main market of the London Stock Exchange in May 2015, accompanied by a £20 million fundraising

· Balance sheet remains robust with cash, cash equivalents and deposits at 31 July 2015 of £24.3 million (31 July 2014: £12.2 million)

Commenting on the results, Anthony Clinch, Nanoco's Chairman, said:

"The past year has been one of rapid development at Nanoco and we continue to configure the organisation to meet the needs of an emerging, global licensing and manufacturing business.

"Mechanical completion of Dow's mass production plant in South Korea at the year end marked a major milestone in the commercialisation of our cadmium-free quantum dots in the display industry. The commissioning of the plant is ongoing and proceeding well. Customer sampling from the plant, which was initially expected to start in Q3 CY 2015, is now expected to begin in the very near term. As a result we expect recurring income in the second half of our current financial year rather than in Q4 CY 2015.

"The commercialisation of our technology in lighting is also well advanced and, as we develop our other market opportunities in life sciences and solar, we become ever more enthusiastic about the potential for our technology across all four of our target markets. We look forward to the year ahead with confidence."

Analyst meeting: A meeting for analysts will be held at 10am this morning, 13 October 2015, at the offices of Buchanan, 107 Cheapside, London EC2V 6DN. For further details, please contact Buchanan on 020 7466 5000.

For further information, please contact:

Notes for editors:

About Nanoco Group plc

Nanoco is a world leader in the development and production of cadmium-free quantum dots and other nanomaterials for use in multiple applications including LCD displays, lighting, solar cells and bio-imaging. In the display market, it has an exclusive manufacturing and marketing licensing agreement with The Dow Chemical Company.

Nanoco was founded in 2001 and is headquartered in Manchester, UK. It has production facilities in Runcorn, UK, and a US subsidiary, Nanoco Inc, based in Concord, MA. Nanoco also has business development executives in Japan, Korea and Taiwan. Its technology is protected worldwide by a large and growing patent estate.

Nanoco is listed on the main market of the London Stock Exchange and trades under the ticker symbol NANO. For further information please visit: www.nanocotechnologies.com.

Chairman's and Chief Executive Officer's joint review

Overview

We continued to drive the development of Nanoco during the year and to deliver our strategy for the commercialisation of the Company's nanomaterial technologies. Progress at the Company was accompanied by positive trends in our marketplace, increasing the opportunities open to us. These trends included the increasing recognition that cadmium-free quantum dots are the preferred option for the protection of human and environmental health compared with cadmium-based technologies.

This was underlined in May this year when Members of the European Parliament (MEPs) voted overwhelmingly (618 to 33) against an EU proposal to prolong the permission to use cadmium-containing quantum dots in Europe under an amendment to the Restriction of Hazardous Substances Directive (RoHS). Along with MEPs, we continue to urge the European Commission to enact anti-cadmium legislation promptly. Following the MEPs' vote in May, the Company has seen increased activity with display OEMs that had previously chosen to pursue other technologies.

Nanoco evolved during the year, continuing to make the transition from a research-based company to an integrated business capable of research, manufacturing and delivering consistent product to customer requirements. This has been a major cultural and organisational shift for the Company. We have strengthened our executive, non-executive and wider team to ensure that the Company successfully manages its development and growth.

In May 2015, Nanoco took a major step in its corporate development when it moved from AIM to the main market of the London Stock Exchange. The move was also accompanied by a fundraising of £20 million (gross) to further advance the Company's commercial leadership in display and exploit other major market opportunities in LED lighting, solar and bio-imaging.

Whilst last year was a year of progress, the past few weeks have also been particularly exciting with the ongoing commissioning of the mass production plant for cadmium-free quantum dots built in South Korea by our worldwide licensing partner for the display industry, Dow. This plant represents the world's leading mass production plant for cadmium-free quantum dots and both Dow and Nanoco are very proud of this achievement. Customer sampling from the plant is expected to begin in the very near term.

We are pleased to announce today a further follow-on joint development agreement ("JDA") with Osram, one of the world's largest lighting companies. This JDA continues the work carried out to date on a near-chip design for lighting applications.

Nanoco's business is built on robust intellectual property. We continued to reinforce our patent estate during the year and now have about 360 granted or pending patents with worldwide protection.

Commercial applications - displays

The display industry has invested billions of dollars in building LCD TV manufacturing capacity and is committed to supporting the further development and evolution of LCD technology. New investment in LCD manufacturing capacity is continuing to come on-stream, particularly in China.

Nanoco's cadmium-free quantum dot technology improves the colour quality of LCD displays and is of compelling interest to the display industry. Nanoco and Dow are currently working at various stages of the development process with a total of 11 LCD display OEMs around the world. They range from multi-national organisations to emerging consumer electronics brands from countries including Korea, China, Japan, Taiwan and the USA.

Nanoco's technology is applicable to all LCD displays. Innovations in LCD technology are often first introduced in top-end TVs but the technology is also suited to smartphones and other handheld devices, tablets and laptop computers. LCD TV screens are becoming larger, with TVs with greater than 55 inch screens now readily available, which is another positive trend in the roll-out of our technology.

Nanoco is commercialising its technology in the LCD display industry through a worldwide licensing agreement with Dow. Under the agreement, which was signed in January 2013, Dow is marketing the Company's cadmium-free technology under the brand name TREVISTA™ Quantum Dots.

In July this year, Dow finished mechanical completion of its large-scale plant in Cheonan, South Korea, for the manufacture of Nanoco cadmium-free quantum dots. Commissioning has been ongoing in preparation for customer sampling, which is expected to begin in the very near term.

The Cheonan plant is based on Nanoco's designs and Nanoco has worked very closely with Dow throughout the construction and commissioning stages, which have been a period of intense activity at Nanoco. A significant portion of Nanoco's staff has been involved in the various stages of the Cheonan plant.

Dow has also made progress in the marketing of TREVISTA™ Quantum Dots. In January this year, Dow announced a partnering agreement with LG Electronics in connection with the supply of TREVISTA™ Quantum Dots.

It was initially anticipated that LG's quantum dot TVs would be launched on a modest scale using Nanoco quantum dots from the Company's Runcorn production plant with full commercial roll-out anticipated once Dow's plant was on-line. LG continues to work with Dow as plans are progressed for commercial launch, which is ultimately a market timing decision that will be made by LG.

Nanoco received a significant milestone payment from Dow during the year. Fees paid by Dow follow a commonly used structure whereby earn-outs are paid on achievement on agreed total sales milestones up to an agreed cap and royalties are earned on sales achieved for the lifetime of the agreement.

Commercial applications - general lighting

LEDs have compelling advantages over traditional lighting, particularly in long service life and reduced power consumption. A limiting factor to the widespread adoption of LEDs remains colour performance as existing products tend to offer either bright cold light or warm dull light. Nanoco's quantum dots have been shown to transform LEDs so they produce bright, warm light with a high colour rendering index without the loss of lumens. In addition, as Nanoco quantum dots are tuneable to any specific wavelength, any shade of light can be produced. This opens up new opportunities, in both general and niche applications, such as the ability to create artificial daylight.

Our general lighting activities gained momentum during the year, particularly in niche lighting. We have been working on these niche applications with Marl International Limited ("Marl"), a privately held UK company, and with other companies. The quantum dots, which are manufactured in Runcorn, are supplied under the Nanoco brand.

Marl has developed products for architectural lighting, such as panels that reproduce daylight; downlighting for the retail sector; and LEDs for horticulture to assist seed germination and plant growth. Marl has already satisfied initial orders for products containing Nanoco CFQD® quantum dots.

Nanoco has been working under JDAs with Osram, one of the world's largest lighting companies, since August 2011, and we are pleased to announce today that we have signed a further JDA with Osram. We continue to make good progress in this joint development work, which is focused on encapsulating our quantum dots to optimise them for the operating conditions associated with LEDs. The Company is also working with a number of other lighting companies in Asia, the USA and Europe on both general lighting and niche applications such as the lighting of food in retail premises.

The Company formed a lighting division in July 2015 to accelerate progress in this area. The division, called Nanoco Lighting, is based at the Company's Manchester headquarters and is headed by Torsten Schanze, General Manager, and Dale Needham as Business Development Director.

Commercial applications - solar

Nanoco's solar ink, developed from cadmium-free nanomaterials, has been designed to maximise the absorption of solar energy and to have physical characteristics such that it can be printed by low cost methods and annealed into a photovoltaic film. The technology is based on copper, indium, gallium, selenium ("CIGS") materials.

Thin-film solar panels have considerable potential advantages over traditional panels in that they are potentially more efficient along with being cheaper, more flexible, lighter weight and consequently easier to handle. However, the thin-film solar market is currently dominated by cadmium-containing solar panels.

Our development work on our CIGS materials has been focused on increasing the efficiency of the conversion of light into electricity and we have now reached a conversion rate of approximately 17%, which we believe is close to the efficiency level required to form the basis for low cost, printable solar panels. We believe that we could achieve a cost performance of less than 0.33$/W, which is very competitive when compared with existing technologies.

Development work to scale up the CIGS PV technology from small lab-sized cells to larger 300mm x 300mm square cells, or mini-modules, is on-going.

In April 2015, Nanoco was awarded a grant from Innovate UK, the Government agency formerly known as the Technology Strategy Board, to fund a collaborative project with Loughborough University's Centre for Renewable Energy Systems Technology ("CREST"), a major UK centre of photovoltaic research. In the two year project, Nanoco and CREST will work together to optimise the architecture of the mini-modules. Nanoco will receive about £400,000 over the two year period.

Given the resource requirements for eventual production, the Company intends to identify a suitable partner to pursue the solar opportunity. Early stage discussions have already begun with a number of third parties with the objective of forming a partnership, initially to prove the technology on 300mm x 300mm square panels. A portion of the proceeds of the recent £20 million fundraising has been allocated to progress the solar opportunity.

Commercial applications - life sciences

We have been working with University College London since 2009 on the use of cadmium-free quantum dots in the in-vivo imaging of cancer. The fluorescence of Nanoco quantum dots is being used in this work to pinpoint malignant lymph nodes to guide surgeons in the removal of cancerous tissue. Other materials have already been used in this way in clinical practice but Nanoco quantum dots offer the major advantage of being able to fluoresce for a longer period of time, and their fluorescence can be detected from deeper tissues, giving surgeons more time and accuracy to visualise the cancer which we believe will lead to a greater improvement in patient outcomes.

Nanoco won a second grant award from Innovate UK, the UK's innovation agency, totalling £308,000, in support of the current phase of this research work at University College London. This grant funded phase commenced in October 2014 and, at the appropriate time, we will seek suitable commercial partners from the healthcare industry.

We see a substantial opportunity for our cadmium-free quantum dot technology in the healthcare sector, both as a cancer diagnostic and as a surgical tool. We are currently developing a detailed business plan to map out the commercialisation of our technology in this target market. Once the business plan is complete, we will set up a life sciences business unit and recruit a leadership team.

People

The Nanoco board was strengthened considerably during the year at executive and non-executive levels.

In October 2014, Keith Wiggins was appointed to the newly created board position of Chief Operating Officer. Keith has more than 20 years' experience at Dow and is a great asset to Nanoco. In May this year, Brendan Cummins joined the board as a Non-executive Director. Brendan has 40 years' experience of the international chemicals sector and is a former CEO of Ciba Inc.

Shortly after the period end, David Blain joined the Company as Chief Financial Officer, following his recruitment in early May this year. David has a wealth of financial and commercial experience and we look forward to his input to the Company. Recently Caroline Watson joined Nanoco as Investor Relations Manager. Caroline has 20 years of experience having worked on both the buy and sell side of London based financial institutions. Additionally the Company is actively recruiting a commercial director and product engineering director to strengthen the executive team further.

The Nanoco team, most of whom are based in Manchester, UK, had grown to 113 people at the year end, compared with 98 people a year earlier, with most of the increase being technical and scientific staff. We would like to offer our sincere thanks to all at Nanoco for their enthusiasm, commitment and achievement during the year.

Financial results

Our revenues in the year to 31 July 2015 were £2.03m (2014: £1.43m). Our loss before tax was £10.88m (2014: £9.06m). This increase in loss before tax reflected increased research and development plus additional staff costs and a one-off cost of £0.9m (2014: Nil) in relation to the move to the main market.

Cash, cash equivalents and deposits at the year-end were £24.31m (2014: £12.18m). The increase reflects the proceeds of a placing on 1 May 2015 when the Company moved to the main market.

Outlook

The past year has been one of rapid development at Nanoco and we continue to configure the organisation to meet the needs of an emerging, global licensing and manufacturing business.

Mechanical completion of Dow's mass production plant in South Korea at the year end marked a major milestone in the commercialisation of our cadmium-free quantum dots in the display industry. The commissioning of the plant is ongoing and proceeding well. Customer sampling from the plant, which was initially expected to start in Q3 CY 2015, is now expected to begin in the very near term. As a result we expect recurring income in the second half of our current financial year rather than in Q4 CY 2015.

The commercialisation of our technology in lighting is also well advanced and, as we develop our other market opportunities in life sciences and solar, we become ever more enthusiastic about the potential for our technology across all four of our target markets. We look forward to the year ahead with confidence.

Anthony Clinch  Michael Edelman

Chairman Chief Executive Officer

13 October 2015 13 October 2015

Financial review

Results

Revenue for the year increased by £596,000 to £2,029,000 (2014: £1,433,000) and the loss before tax was £10,881,000 (2014: £9,060,000). As has historically been the case, the timing of revenue receipts in the form of milestone and joint development payments from strategic partners continued to be the major determinant of the results of the business. During the year, revenue has benefited from the inclusion of a milestone payment from Dow, triggered by the announcement that it was beginning the construction of the cadmium-free quantum dot manufacturing plant in South Korea, whilst JDA revenue has reduced as work has reached its completion. Almost all JDA revenues in both the current and prior year were denominated in US Dollars having originated primarily from customers in the USA and Asia.

Historically, the Company has disclosed all R&D materials as cost of sales and included all R&D labour costs within administrative expenses. As the revenue from product sales begins to come on stream and with the aim of providing greater transparency, the Company now sets out to disclose as cost of sales, those materials, labour and ancillary costs attributable to product sales and to government grants included within revenue from the rendering of services.

Accordingly the comparatives have been restated and the figure previously reported as cost of sales has been reduced by £1,259,000 and the aggregate sum of administrative expenses and R&D expenses increased by an equivalent amount; with administrative expenses increasing by £1,518,000 and R&D expenses being reduced by £259,000. There has been no impact on the reported loss for the year.

In the current period, cost of sales has reduced by £977,000 and the aggregate sum of administrative expenses and R&D expenses increased by an equivalent amount; with administrative expenses increasing by £1,293,000 and R&D expenses being reduced by £316,000. There is no impact on the reported loss for the year-ended 31 July 2015. Cost of sales comprises the labour, materials and power costs incurred in the generation of revenue from products sold and government grants.

Revenue from royalties and licences and revenue from the rendering of services which comprise payments from customers to gain preferential treatment in terms of supply or pricing do not have an associated cost of sale.

The increase in research and development expenditure of £662,000 to £5,580,000 (2014: £4,918,000) comprises an increase in R&D labour costs associated with the trialling of production scale-up, partially offset by a decrease in R&D materials costs, as the formulations for production materials become more refined.

Total payroll costs (before the charge for share-based payments) increased by £1,089,000 to £5,623,000 (2014: £4,534,000). The increase in payroll costs is attributable to a number of factors including, the recognition during the year of director and employee bonuses in respect of both the year ended 31 July 2014 and the year ended 31 July 2015, pay increases and regrades and some additional recruitment including that of the newly created role of chief operating officer. Average staffing numbers increased by 5 heads from an average of 104 heads in 2014 to an average of 109 heads in 2015. During the year, a number of former pure R&D staff were redeployed to assist with production scale-up R&D.

Of the increase in administrative costs of £1,670,000 to £7,130,000 (2014: £5,460,000), £926,000 comprised that element of the costs associated with the move to the main market charged to the Consolidated statement of comprehensive income.

After deducting operating costs the adjusted operating loss* for the year ending 31 July 2015 was £9,452,000 (2014: adjusted operating loss* of £8,676,000).

The Group aims to incentivise and retain key staff through the use of equity-settled share awards. The IFRS2 (share-based payment) charge in respect of share schemes totalled £619,000 (2014: £573,000). This increase in the charge reflects the additional options awarded in the year, which totalled 380,000 (2014: 444,000). The total number of share options in issue as at 31 July 2015 were 12.0 million (31 July 2014: 13.4 million). Of these, 8.7 million (2014: 4.1 million) have met their performance criteria and are therefore capable of being exercised. During the year 1.5 million options were exercised (2014: no options exercised) and 0.25 million (2014: 0.1 million) options lapsed or were forfeited. In addition to the above options, a further 0.5 million (31 July 2014: 0.9 million) of shares are jointly owned by the Group's Employee Benefit Trust ("EBT") and certain senior management through a Jointly Owned Agreement ("JOA"). Under the JOA, the employee beneficiaries have the option to acquire the trustee's shares at an agreed option price subject to meeting certain performance criteria. At 31 July 2015, all of the JOA shares had met their performance criteria and were capable of being acquired from the trustees. 0.3 million JOA shares (2014: no JOA shares) were exercised during the year. Details on the various share schemes are provided in note 19 to the accounts.

With interest income (net of interest payments) of £116,000 (2014: £189,000), a decrease of £73,000, the loss before tax was £10,881,000 (2014: loss of £9,060,000).

The tax credit for the year is £1,906,000 (2014: £1,249,000). The tax credit to be claimed, in respect of R&D spend, is £1,800,000 (2014: £1,210,000). There was also a £113,000 credit in respect of the prior year R&D tax claim (2014: £48,000 credit). Overseas corporation tax in respect of the US subsidiary, Nanoco US Inc., was £7,000 during the year (2014: £9,000). There was no deferred tax credit or charge (2014: nil).

Adjusted basic loss* per share was 3.36 pence (2014: adjusted loss* of 3.38 pence). Basic loss per share was 4.05 pence (2014: loss of 3.65 pence).

No dividend has been proposed (2014: nil).

Cash flow and balance sheet

During the year cash, cash equivalents, deposits and short-term investments increased by £12,129,000 to £24,311,000 (2014: £12,182,000). The Company raised gross proceeds of £20,000,000 from a placing on 1 May 2015 through the issue of 19,047,619 new ordinary shares at an issue price of 105 pence per share. Issue costs associated with the placing charged to share premium totalled £560,000.

The Group reduced its capital spend in the year, to a total of £385,000 (2014: £494,000). Expenditure incurred in registering patents totalled £533,000 (2014: £536,000) during the year reflecting the Group's continued focus on developing and registering intellectual property. Capitalised patent spend is amortised over ten years in line with the Group's accounting policy.

Treasury activities and policies

The Group manages its cash deposits prudently and invests its funds across a number of financial institutions which have investment grade credit ratings. The deposits range from instant access to 12 month term deposits and are regularly reviewed by the board. Cash forecasts are updated monthly to ensure that there is sufficient cash available for foreseeable requirements. More details on the Group's treasury policies are provided in note 23 to the financial statements.

Credit risk

The Group only trades with recognised, creditworthy third parties. Receivable balances are monitored on an on-going basis and any late payments are promptly investigated to ensure that the Group's exposure to bad debts is not significant.

Foreign exchange management

The Group invoices most of its revenues in US Dollars. The Group is therefore exposed to movements in the US Dollar relative to Sterling. The Group uses forward currency contracts to fix the exchange rate on invoiced or confirmed foreign currency receipts. The Group does not take out forward contracts against uncertain or forecast income. There were no open forward contracts as at 31 July 2015 (2014: none). At the year end the Group had net USD assets of £51,000 (2014: net USD assets of £135,000). The Group's net profit and its equity are exposed to movements in the value of Sterling relative to the US Dollar. The indicative impact of movements in the Sterling exchange rate on profits and equity based on the re-translation of the closing balance sheet are summarised in note 23 to the financial statements and were based on the year-end position. As US Dollar revenues increase so will the exposure of the Group's profit and loss and equity to movements in the Sterling/US Dollar exchange rate.

Summary

The Group is in a strong financial position to exploit the exciting opportunities ahead.

David Blain

Chief Financial Officer

13 October 2015

* adjusted figures are stated before the share-based payment charge and that element of the costs associated with the move to the main market charged to the Consolidated statement of comprehensive income.

Consolidated statement of comprehensive income

for the year ended 31 July 2015

The loss for the year arises from the Group's continuing operations and is attributable to the equity holders of the parent.

The basic and diluted loss per share are the same as the effect of share options is anti-dilutive.

The notes below form an integral part of these financial statements.

Consolidated statement of changes in equity

Company statement of changes in equity

for the year ended 31 July 2015

Statements of financial position at 31 July 2015

Approved by the board and authorised for issue on 13 October 2015.

Michael Edelman

Director

13 October 2015

Cash flow statements

For the year ended 31 July 2015

Notes to the preliminary results

For the year ended 31 July 2015

1. Reporting entity

Nanoco Group plc ("the Company") is on the premium list of the London Stock Exchange and is incorporated and domiciled in the UK.

These preliminary results consolidate those of the Company and its subsidiaries (together referred to as the 'Group' and individually as 'Group entities') for the year ended 31 July 2015.

The preliminary results for the year ended 31 July 2015 were authorised for issue by the Board of Directors on 13 October 2015 and the Statement of Financial Position was signed on the Board's behalf by Dr Michael Edelman.

The preliminary results do not constitute statutory financial statements within the meaning of section 435 of the Companies Act 2006. A copy of the statutory financial statements for the year ended 31 July 2015 has not been delivered to the Registrar of Companies. The Auditors' opinion on those financial statements was unqualified, did not draw attention to any matters by way of an emphasis of matter paragraph, and it contained no statement under section 498(2) or section 498(3) of the Companies Act 2006.

The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the parent Company's income statement. The parent Company's result for the period ended 31 July 2015 was a profit of £82,000 (2014: profit of £39,000). There were no other recognised gains or losses in either the current or prior year.

The significant accounting policies adopted by the Group are set out in note 3.

2. Basis of preparation

(a) Statement of compliance

The preliminary results are derived from the Group's financial statements which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") and International Financial Reporting Committee ("IFRIC") interpretations as they apply to the financial statements of the Group for the period ended 31 July 2015.

(b) Basis of measurement

The parent Company and Group financial statements have been prepared on the historical cost basis.

The methods used to measure fair values of assets and liabilities are discussed in the respective notes in note 3 below.

(c) Going concern

The Chairman's and chief executive officer's review outlines the business activities of the Group along with the factors which may affect its future development and performance. The Group's financial position is discussed in the Financial review along with details of its cash flow and liquidity. Note 23 to the financial statements sets out the Group's financial risks and the management of those risks.

Having prepared management forecasts and made appropriate enquiries, the directors are satisfied that the Group has adequate resources for the foreseeable future. Accordingly they have continued to adopt the going concern basis in preparing the Group and Company financial statements.

(d) Functional and presentational currency

These financial statements are presented in pounds sterling, which is the Company's functional currency. All financial information presented has been rounded to the nearest thousand.

 (e) Use of estimates and judgements

The preparation of financial statements requires management to make estimates and judgements that affect the amounts reported for assets and liabilities as at the reporting date and the amounts reported for revenues and expenses during the year. The nature of estimation means that actual amounts could differ from those estimates. Estimates and judgements used in the preparation of the financial statements are continually reviewed and revised as necessary. While every effort is made to ensure that such estimates and judgements are reasonable, by their nature they are uncertain and, as such, changes in estimates and judgements may have a material impact on the financial statements.

In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements.

· Equity-settled share-based payments

The determination of share-based payment costs requires: the selection of an appropriate valuation method; consideration as to the inputs necessary for the valuation model chosen; judgement regarding when and if performance conditions will be met. Inputs required for this arise from judgements relating to the future volatility of the share price of Nanoco and comparable companies, the Company's expected dividend yields, risk free interest rates and expected lives of the options. The directors draw on a variety of sources to aid in the determination of the appropriate data to use in such calculations. The share-based payment expense is most sensitive to vesting assumptions and to the future volatility of the future share price factor. Further information is included in note 3.

· Taxation

Management judgement is required to determine the amount of tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with an assessment of the effect of future tax planning strategies. Further information is included in note 8.

· Research and development

Careful judgement by the directors is applied when deciding whether the recognition requirements for development costs have been met. This is necessary as the economic success of any product development is uncertain until such time as technical viability has been proven and commercial supply agreements are likely to be achieved. Judgements are based on the information available at each reporting date which includes the progress with testing and certification and progress on, for example, establishment of commercial arrangements with third parties. In addition, all internal activities related to research and development of new products are continuously monitored by the directors. Further information is included in note 3.

· Revenue recognition

Judgements are required as to whether and when contractual milestones have been achieved and in turn the period over which development revenue should be recognised. Management judgements are similarly required to determine whether services or rights under licence agreements have been delivered so as to enable licence revenue to be recognised. Further information is included in note 3.

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting 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 those relating to the estimation of the number of share options that will ultimately vest (note 19). The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

3. Significant accounting policies

The accounting policies set out below are consistent with those of the previous financial year and are applied consistently by Group entities.

(a) Basis of consolidation

The Group financial statements consolidate the financial statements of Nanoco Group plc and the entities it controls (its subsidiaries) drawn up to 31 July each year.

Subsidiaries are all entities over which the Group has the power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee), exposure, or rights, to variable returns from its involvement with the investee and the ability to use its power over the investee to affect its returns. All Nanoco Group plc's subsidiaries are 100% owned. Subsidiaries are fully consolidated from the date control passes.

The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The costs of an acquisition are measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at fair value at acquisition date irrespective of the extent of any minority interest. The difference between the cost of acquisition of shares in subsidiaries and the fair value of the identifiable net assets acquired is capitalised as goodwill and reviewed annually for impairment. Any deficiency in the cost of acquisition below the fair value of identifiable net assets acquired (i.e., discount on acquisition) is recognised directly in the Consolidated statement of comprehensive income.

All intra-group transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation. Subsidiaries' accounting policies are amended where necessary to ensure consistency with the policies adopted by the Group.

(b) Foreign currency transactions

Transactions in foreign currencies are initially recorded in the functional currency by applying the spot rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to the Consolidated statement of comprehensive income.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

(c) Segmental reporting

An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. As at the reporting date the Company operated with only a single segment.

(d) Revenue recognition

Revenue is recognised to the extent that it is probable that economic benefits will flow to the group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable for the sale of goods or services, excluding discounts, rebates, VAT and other sales taxes or duties.

The Group's revenues to date comprise amounts earned under joint development agreements and individual project development programmes, material supply and licence agreements and revenue from the sale of quantum dot products.

Revenues received in advance of work performed, from development programmes, are recognised on a straight line basis over the period that the development work is being performed as measured by contractual milestones. Revenue is not recognised where there is uncertainty regarding the achievement of such milestones and where, either revenue has not been paid, or where the customer has the right to recoup advance payments.

Contractual payments received from licence agreements are recognised as revenue when goods, services or rights and entitlements are supplied or when contractual rights for the customer to recoup such payments have lapsed.

Revenue from the sale of products is recognised at the point of transfer of risks and rewards of ownership which is generally on shipment of product.

(e) Government grants

Government grants are recognised when it is reasonable to expect that the grants will be received and that all related conditions are met, usually on submission of a valid claim for payment.

Government grants of a revenue nature are recognised as (rendering of services) revenue in the Consolidated statement of comprehensive income in line with the terms of the underlying grant agreement.

Government grants relating to capital expenditure are deducted in arriving at the carrying amount of the asset.

(f) Cost of sales

Historically, the Company has disclosed all R&D materials as cost of sales and included all R&D labour costs within administrative expenses. As the revenue from product sales begins to come on stream and with the aim of providing greater transparency, the Company now sets out to disclose as cost of sales, those materials, labour and ancillary costs attributable to product sales and to government grants included within revenue from the rendering of services.

Accordingly the comparatives have been restated and the figure previously reported as cost of sales has been reduced by £1,259,000 and the aggregate sum of administrative expenses and R&D expenses increased by an equivalent amount; with administrative expenses increasing by £1,518,000 and R&D expenses being reduced by £259,000. There has been no impact on the reported loss for the year.

In the current period, cost of sales has reduced by £977,000 and the aggregate sum of administrative expenses and R&D expenses increased by an equivalent amount; with administrative expenses increasing by £1,293,000 and R&D expenses being reduced by £316,000. There is no impact on the reported loss for the year-ended 31 July 2015. Cost of sales comprises the labour, materials and power costs incurred in the generation of revenue from products sold and government grants.

Revenue from royalties and licences and revenue from the rendering of services which comprise payments from customers to gain preferential treatment in terms of supply or pricing do not have an associated cost of sale.

(g) Research and development

Research costs are charged in the Consolidated statement of comprehensive income as they are incurred. Development costs will be capitalised as intangible assets when it is probable that future economic benefits will flow to the Group. Such intangible assets will be amortised on a straight-line basis from the point at which the assets are ready for use over the period of the expected benefit, and will be reviewed for impairment at each reporting date based on the circumstances at the reporting date.

The criteria for recognising expenditure as an asset are:

· it is technically feasible to complete the product;

· management intends to complete the product and use or sell it;

· there is an ability to use or sell the product;

· it can be demonstrated how the product will generate probable future economic benefits;

· adequate technical, financial and other resources are available to complete the development, use and sale of the product; and

· expenditure attributable to the product can be reliably measured.

Development costs are currently charged against income as incurred since the criteria for their recognition as an asset are not met.

(h) Lease payments

Rentals payable under operating leases, which are leases where the lessor retains a significant proportion of the risks and rewards of the underlying asset, are charged in the Consolidated statement of comprehensive income on a straight-line basis over the expected lease term.

Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

(i) Finance income and expense

Finance income comprises interest income on funds invested. Interest income is recognised as interest accrues using the effective interest rate method.

Finance expense comprises interest expense on borrowings. All borrowing costs are recognised using the effective interest method.

(j) Income tax

Income tax expense comprises current and deferred tax. Income tax expense is recognised in the Consolidated statement of comprehensive income except to the extent that it relates to items recognised directly in equity or in other comprehensive income.

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to, the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements with the following exceptions:

· where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination, that at the time of the transaction affects neither accounting nor taxable profit nor loss; and

· in respect of taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are measured on an undiscounted basis using the tax rates and tax laws that have been enacted or substantially enacted by the date and which are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be available against which differences can be utilised. An asset is not recognised to the extent that the transfer or economic benefits in the future is uncertain.

Deferred income tax assets and liabilities are offset, only if a legally enforceable right exists to set off current tax assets against current tax liabilities, the deferred income taxes relate to the same taxation authority and that authority permits the Group to make a single payment.

(k) Property, plant and equipment

Property, plant and equipment assets are recognised initially at cost. After initial recognition, these assets are carried at cost less any accumulated depreciation and any accumulated impairment losses. Cost comprises the aggregate amount paid and the fair value of any other consideration given to acquire the asset and includes costs directly attributable to making the asset capable of operating as intended.

Depreciation is computed by allocating the depreciable amount of an asset on a systematic basis over its useful life and is applied separately to each identifiable component.

The following bases and rates are used to depreciate classes of assets:

Laboratory infrastructure - straight line over remainder of lease period

Fixtures and fittings - straight line over five years

Office equipment - straight line over three years

Plant and machinery - straight line over five years

The carrying values of tangible fixed assets are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable, and are written down immediately to their recoverable amount. Useful lives and residual values are reviewed annually and where adjustments are required these are made prospectively.

A tangible fixed asset item is de-recognised on disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the de-recognition of the asset is included in the Consolidated statement of comprehensive income in the period of de-recognition.

(l) Intangible assets

Intangible assets acquired either as part of a business combination or from contractual or other legal rights are recognised separately from goodwill provided they are separable and their fair value can be measured reliably. This includes the costs associated with acquiring and registering patents in respect of intellectual property rights.

Where intangible assets recognised have finite lives, after initial recognition their carrying value is amortised on a straight line basis over those lives. The nature of those intangibles recognised and their estimated useful lives are as follows:

Patents - straight line over ten years

(m) Impairment of assets

At each reporting date the Group reviews the carrying value of its plant, equipment and intangible assets to determine whether there is an indication that these assets have suffered an impairment loss. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an assessment of the asset's recoverable amount.

An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying value of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. 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. In determining fair value less costs of disposal, an appropriate valuation model is used, these calculations corroborated by valuation multiples, or other available fair value indicators. Impairment losses on continuing operations are recognised in the Consolidated statement of comprehensive income in those expense categories consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the Consolidated statement of comprehensive income unless the asset is carried at re-valued amount, in which case the reversal is treated as a valuation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

The carrying values of plant, equipment and intangible assets as at the reporting date have not been subjected to impairment charges.

(n) Investments in subsidiaries

Investments in subsidiaries are stated in the Company statement of financial position at cost less provision for any impairment.

(o) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost based on latest contractual prices includes all costs incurred in bringing each product to its present location and condition. Net realisable value is based on estimated selling price less any further costs expected to be incurred to disposal. Provision is made for slow-moving or obsolete items.

(p) Trade and other receivables

Trade receivables, which generally have 30 to 60 day terms, are recognised and carried at the lower of their original invoiced value and recoverable amount. The time value of money is not material.

Provision is made when there is objective evidence that the Group will not be able to recover balances in full. Significant financial difficulties faced by the customer, probability that the customer will enter bankruptcy or financial reorganisation and default in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying value of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the Consolidated statement of comprehensive income within administrative expenses.

When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables.

(q) Cash, cash equivalents and short-term investments

Cash and cash equivalents comprise cash at hand and deposits with maturities of three months or less. Short-term investments comprise deposits with maturities of more than three months, but no greater than twelve months.

(r) Trade and other payables

Trade and other payables are non-interest bearing and are initially recognised at fair value. They are subsequently measured at amortised cost using the effective interest rate method. 

(s) Share capital

Proceeds on issue of shares are included in shareholders' equity, net of transaction costs. The carrying amount is not re-measured in subsequent years.

(t) Shares held by the Employee Benefit Trust

The Employee Benefit Trust is consolidated in the financial statements and the shares are reported as treasury shares in the Group's Statement of financial position. Shares are treated as though they had been cancelled when calculating earnings per share until such time that the shares are exercised.

(u) Share-based payments

Equity settled share-based payment transactions are measured with reference to the fair value at the date of grant, recognised on a straight line basis over the vesting period, based on the Company's estimate of shares that will eventually vest. Fair value is measured using a suitable option pricing model.

At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions and the number of equity instruments that will ultimately vest. The movement in cumulative expense since the previous reporting date is recognised in the Consolidated statement of comprehensive income, with a corresponding entry in equity.

Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognised if this difference is negative.

Where awards are granted to the employees of the subsidiary Company, the fair value of the awards at grant date is recorded in the Company's financial statements as an increase in the value of the investment with a corresponding increase in equity via the share-based payment reserve.

(v) Defined contribution pension scheme

The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Company in an independently administered fund. The amounts charged against profits represent the contributions payable to the scheme in respect of the accounting period.

(w) New accounting standards and interpretations

The following new and amended IFRS, IAS and IFRIC interpretations were mandatory for accounting periods ending 31 July 2015 and thereafter, but have no material effect on the Group's financial statements.

· IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements

· IFRS 11 Joint Arrangements, IAS 28 Investments in Associates and Joint Ventures

· IFRS 12 Disclosure of Interests in Other Entities

· IFRS 10, IFRS 12 and IAS 27 Investment Entities - Amendments to IFRS 10, IFRS 12 and

IAS 27

· IAS 32 Offsetting Financial Assets and Financial Liabilities (Amendments)

· IAS 36 Recoverable Amount Disclosures for Non-Financial Assets (Amendments)

· IAS 39 Novation of Derivatives and Continuation of Hedge Accounting (Amendments)

· Annual Improvements to IFRSs 2010 to 2012 Cycle (endorsed for use in the EU on 17 and

18 December 2014)

· Annual Improvements to IFRSs 2011 to 2013 Cycle (endorsed for use in the EU on 17 and

18 December 2014)

A number of new standards, amendments to standards and interpretations are effective for annual periods ending 31 July 2016 or thereafter and have not been applied in preparing these consolidated financial statements and those that are relevant to the Group are summarised below. None of these are expected to have a significant effect on the consolidated financial statements of the Group in the period of initial application.

The following standards and interpretations have an effective date after the date of these financial statements.

4. Segmental information

Operating segments

At 31 July 2015 the Group operated as one segment, being the provision of high performance nano- particles for research and development purposes. This is the level at which operating results are reviewed by the chief operating decision maker (i.e. the Chief Executive) to make decisions about resources, and for which financial information is available. From 1 August 2015, the manner in which operating results are reported to the CEO have been revised and now isolate those of the newly formed lighting division. All revenues have been generated from continuing operations and are from external customers.

Included within rendering of services is revenue from one material customer amounting to £106,000 (2014: one material customer amounting to £754,000) and £129,000 (2014: £184,000) from government grants. Revenue from royalties and licences is from one material customer (2014: there was no revenue from royalties and licences).

The Group operates in four main geographic areas, although all are managed in the UK. The Group's revenue per geographical segment based on the customer's location is as follows:

All the Group's assets are held in the UK and all of its capital expenditure arises in the UK.

5. Operating loss

** Included within research and development expenses are staff costs totalling £4,150,000 (Restated 2014: £3,229,000) also included in note 6.

6. Staff costs

Directors' emoluments (excluding social security costs and long term incentives, but including benefits in kind) disclosed above include £322,000 paid to the highest paid director (2014: £293,000).

Aggregate gains made by directors during the year following the exercise of share options and jointly owned EBT shares were £27,000 (2014: £nil).

An analysis of the highest paid director's remuneration is included in the Directors' remuneration report.

The average number of employees during the year (including directors), was as follows:

7. Finance income and expense

Bank interest receivable includes £44,000 (2014: £25,000) which is receivable after the year end.

8. Income tax

The tax credit is made up as follows:

The Group has accumulated losses available to carry forward against future trading profits of £19.2m (2014: £15.3m).

The Group also has deferred tax assets, measured at a standard rate of 20% (2014: 20%) in respect of share based payments of £247,000 (2014: £18,000) and tax losses of £3,842,000 (2014: £3,070,000) which have not been recognised as an asset as it is not probable that future taxable profits will be available against which the assets can be utilised.

9. Earnings per share

Diluted loss per share has not been presented above as the effect of share options issued is anti-dilutive.

10. Property, plant and equipment

11. Intangible assets

12. Investment in subsidiaries

By subsidiary

Loans to subsidiary undertakings carry no interest and are repayable on demand. Further information in relation to these loans is given in note 24.

With the exception of the companies noted below all other shareholdings are owned by Nanoco Group plc.

*Share capital is owned by Nanoco Tech Limited.

**Nanoco US Inc. is a wholly owned subsidiary of Nanoco Tech Limited. It was formed in July 2013 primarily in order to provide the services of U.S. located staff to the rest of the Group.

13. Inventories

14. Trade and other receivables

The directors consider that the carrying amount of trade and other receivables approximates to their fair value.

Trade receivables are denominated in the following currency:

At 31 July the analysis of trade receivables that were past due but not impaired was as follows:

15. Cash, cash equivalents and deposits

Under IAS 7, cash held on long-term deposits (being deposits with maturity of greater than three months and no more than twelve months) that cannot readily be converted into cash has been classified as a short-term investment. The maturity on this investment was less than twelve months at the reporting date.

Cash and cash equivalents at 31 July 2015 include deposits with original maturity of three months or less of £4,311,000 (2014: £6,391,000).

An analysis of cash, cash equivalents and deposits by denominated currency is given in note 23.

16. Trade and other payables

The directors consider that the carrying amount of trade and other payables approximates to their fair value.

17. Financial liabilities

The directors consider that the carrying amount of financial liabilities approximate to their fair value, in so far as this is an arm's length transaction taken out at a market rate of interest.

The loan is unsecured, bears interest at 2% above base rate, is repayable in quarterly instalments and will be fully repaid in 2017.

18. Issued equity capital

The Company raised gross proceeds of £20,000,000 from a placing on 1 May 2015 through the issue of 19,047,619 new ordinary shares at an issue price of 105 pence per share. Issue costs associated with the placing totalled £560,000.

The balances classified as share capital and share premium include the total net proceeds (nominal value and share premium respectively) on issue of the Company's equity share capital, comprising ordinary shares.

The retained loss and other equity balances recognised in the Group financial statements reflect the consolidated retained loss and other equity balances of Nanoco Tech Limited immediately before the business combination which was reported in the year ended 31 July 2009. The consolidated results for the period from 1 August 2008 to the date of the acquisition by the Company are those of Nanoco Tech Limited. However, the equity structure appearing in the Group financial statements reflects the equity structure of the legal parent, including the equity instruments issued under the share for share exchange to effect the transaction. The effect of using the equity structure of the legal parent gives rise to an adjustment to the Group's issued equity capital in the form of a reverse acquisition reserve.

Shares issued on exercise of options

The Company issued 784,947 shares on 22 October 2014, 15,000 shares on 5 November 2014 and a further 699,576 on 26 June 2015 on the exercise of options, the shares issued had an average exercise price of 55.1 pence (2014: no shares were issued on the exercise of options).

19. Share-based payment reserve

The share-based payment reserve accumulates the corresponding credit entry in respect of share-based payment charges. Movements in the reserve are disclosed in the Consolidated statement of changes in equity.

A charge of £619,000 has been recognised in the Consolidated statement of comprehensive income for the year (2014: £573,000).

Share option schemes

The Group operates the following share option schemes all of which are operated as Enterprise Management Incentive ("EMI") schemes in so far as the share options being issued meet the EMI criteria as defined by HM Revenue & Customs. Share options issued that do not meet EMI criteria are issued as unapproved share options, but are subject to the same exercise performance conditions.

Nanoco Tech Share Incentive Plan

Share options issued under the Nanoco Tech Share Incentive Plan had been issued to staff who were employed by Nanoco Tech Limited in the period from 1 September 2006 up to the date of the reverse take-over on 1 May 2009. These options were conditional on achievement of share price performance criteria and either a sale or listing of the Company. All of the relevant vesting conditions have been successfully met and options are capable of being exercised at any time from 1 August 2010 to 31 August 2016. Following the reverse take-over the number of share options in issue were increased in line with the terms of the reverse acquisition by a factor of 4.55 times and the exercise price decreased by 4.55 times. This was reflected as a reverse acquisition adjustment in the 2009 accounts.

As at 31 July 2015 no share options remain exercisable under the Nanoco Tech Share Incentive Plan.

Nanoco Group plc Long Term Incentive Plan ("LTIP")

- Grant in November 2011

Share options were granted to staff and executive directors on 25 November 2011. The options granted to executive directors were subject to commercial targets being achieved. The exercise price was set at 50 pence, being the average closing share price on the day preceding issue of the share options. The fair value benefit is measured using a binomial model, taking into account the terms and conditions upon which the share options were issued. Share options issued to staff vest over a three year period from the date of grant but are not subject to performance conditions.

- Grant in October 2012

Share options were granted to staff and executive directors on 22 October 2012. The options granted to executive directors were subject to commercial targets being achieved. The exercise price was set at 57 pence, being the average closing share price on the day preceding issue of the share options. The fair value benefit is measured using a binomial model, taking into account the terms and conditions upon which the share options were issued. Share options issued to staff vest over a three year period from the date of grant but are not subject to performance conditions.

- Grant in May 2014

Share options were granted to certain staff on 23 May 2014. The exercise price was set at 89 pence, being the average closing share price on the day preceding issue of the share options. The fair value benefit is measured using a binomial model, taking into account the terms and conditions upon which the share options were issued. The options vest at the end of three years from the date of grant and are exercisable until the tenth anniversary of the award. The awards are not subject to performance conditions. Exercise of the award is subject to the employee remaining a full time member of staff at the point of exercise. No options were granted to executive directors.

- Grant in October 2014

Share options were granted to an executive director on 14 October 2014. The exercise price was set at 10 pence, being the nominal value of the share. The fair value benefit is measured using a binomial model, taking into account the terms and conditions upon which the share options were issued. The options vest at the end of three years from the date of grant and are exercisable until the tenth anniversary of the award. The awards are subject to performance conditions which have been amended so as to be in line with the new LTIPs scheme. Exercise of the award is subject to the employee remaining a full time member of staff at the point of exercise.

- Other awards

Share options are awarded to management and key staff as a mechanism for attracting and retaining key members of staff. The options are issued at either market price on the day preceding grant or in the event of abnormal price movements at an average market price for the week preceding grant date. These options vest over a three year period from the date of grant and are exercisable until the tenth anniversary of the award. Exercise of the award is subject to the employee remaining a full time member of staff at the point of exercise. The fair value benefit is measured using a binomial valuation model, taking into account the terms and conditions upon which the share options were issued.

Shares held in the Employee Benefit Trust ("EBT")

The Group operates a jointly owned EBT share scheme for senior management under which the trustee of the Group-sponsored EBT has acquired shares in the Company jointly with a number of employees. The shares were acquired pursuant to certain conditions set out in jointly owned agreements ("JOA"). Subject to meeting the performance criteria conditions set out in the JOA, the employees are able to exercise an option to acquire the trustee's interests in the jointly owned EBT shares at the option price. The jointly owned EBT shares issued on 1 September 2006 had met the option conditions on 1 August 2010 and are capable of being exercised at any time until 31 August 2016.

The fair value benefit is measured using a binomial valuation model, taking into account the terms and conditions upon which the jointly owned shares were issued.

The following tables illustrate the number and weighted average exercise prices of, and movements in, share options and jointly owned EBT shares during the year.

Weighted average exercise price of options

The weighted average fair value of options granted during the year to 31 July 2015 was 10 pence (2014: 89 pence). The range of exercise prices for options and jointly owned EBT shares outstanding at the end of the year was nil -146 pence, (2014: nil - 146 pence).

For the share options outstanding as at 31 July 2015, the weighted average remaining contractual life is 6.8 years (2014: 7.6 years).

The weighted average share price at the date of exercise for those share options exercised during the year to 31 July 2015 was 109 pence (2014: no share options exercised).

The following table lists the inputs to the models used for the years ended 31 July 2015 and 31 July 2014.

The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

No other features of options granted were incorporated into the measurement of fair value.

20. Merger reserve and capital redemption reserve

Merger reserve

The merger reserve arises under section 612 of the Companies Act 2006 on the shares issued by Nanoco Tech Limited to acquire Nanoco Technologies Limited as part of a simple Group re-organisation on 27 June 2007.

Capital redemption reserve

The capital redemption reserve arises from the off-market purchase of deferred shares on 4 May 2005 and their subsequent cancellation.

21. Movement in revenue reserve and treasury shares

No jointly owned EBT shares were granted during the year (2014: no shares).

During the year, 320,411 jointly owned EBT shares were exercised for an aggregate consideration of £297,000 (2014: no shares).

Retained deficit represents the cumulative loss attributable to the equity holders of the parent Company.

Treasury shares include the value of Nanoco Group plc shares issued as jointly owned equity shares and held by the Nanoco Group sponsored Employee Benefit Trust ("EBT") jointly with a number of the Group's employees. At 31 July 2015 530,089 shares in the Company were held by the EBT (2014: 850,500). In addition there are 12,222 (2014: 12,222) treasury shares not held by the EBT.

22. Commitments

Operating lease commitments

The Group leases premises under non-cancellable operating lease agreements. The future aggregate minimum lease and service charge payments under non-cancellable operating leases are as follows: