Seeing Machines Regulatory News (SEE)

15 Mar 2006 07:01

Seeing Machines Limited15 March 2006 15th March 2006 SEEING MACHINES LIMITED ("Seeing Machines" or "the Company") REVIEWED INTERIM RESULTS FOR SIX MONTHS TO 31 DECEMBER 2005 Seeing Machines Limited (AIM: SEE) announces its reviewed interim results forthe six months to 31 December 2005. Financial Highlights • Admission to AIM, raising £1.65m on 1 December 2005 • Revenue increased 14% to A$1.345m (31 December 2004: A$1.182m) • Sales of faceLABTM grew by 55% to A$1.152m (31 December 2004: A$0.744m) Operational Highlights • faceLABTM 4.2 released • Completion of a number of scientific trials and the first clinical trial for the glaucoma diagnostic device, including validation of underlying methodology • Significant progress on prototype driver monitoring system for the automotive Orignial Equipment Manufacturer (OEM) market with Hella AG • Agreement with Schlumberger to conduct field trial of Fatigue Detections System • First sales of the Noah Basketball System in the USA • US Patent Office allows Seeing Machines' core patent on Facial Image Processing Fulton Muir, Chairman stated, 'The success of the Company's IPO in December 2005means that we have secured the capital that will enable us to significantlyprogress the Company's research and development and commercialisation activitiesfundamental to the strategy to deploy our computer vision technology into newmarkets and generate diversified revenue streams.' Copies of this announcement will be available from the Company's registeredoffice, Innovations Building, Level 3, Corner Eggleston & Garran Roads, ActonACT 2601, Australia. Enquiries:Seeing Machines Limited Insinger de Beaufort Parkgreen CommunicationsNick Cerneaz, CEO Simon Fox Justine Howarth/Victoria Thomas+61 (0) 2 6125 6501 +44 (0) 20 7190 7018 +44 (0) 20 7493 3713www.seeingmachines.com Director's Report Your directors submit their report for the half-year ended 31 December 2005. DIRECTORS The names of the company's directors in office during the half-year and until the date of this report are as below.Directors were in office for this entire period unless otherwise stated. James Fulton Muir, AO Non Executive ChairmanDavid Gaul Non Executive DirectorRob Sale Non Executive DirectorTrent Victor Non Executive DirectorAlex Zelinsky Non Executive DirectorAnthony Kinnear Non Executive DirectorNicholas Cerneaz Executive Director (appointed 6 October 2005) REVIEW AND RESULTS OF OPERATIONS Review of 1st Half of Our Sixth Year of Operations The first half of the 2006 financial year was one of achieving many of the goals that will provide the foundation forthe ongoing development and growth of Seeing Machines. The success of the Company's IPO in December 2005 means that we have secured the capital that will enable us tosignificantly progress the Company's research and development and commercialisation activities fundamental to thestrategy to deploy our computer vision technology into new markets and generate diversified revenue streams. Operational highlights for the half-year included: • Obtained £1.65 million / A$3.8m in IPO funds through the AIM listing; • faceLABTM 4.2 released and sales of over A$1.1 million for the half-year; • Completion of a number of scientific trials for the Glaucoma diagnostic device including T5 which validated the scientific method underpinning the device; • Completion of the 1st clinical trial at the Canberra Eye Hospital for the Glaucoma diagnostic device which demonstrated that the technology successfully detects the loss of the visual field associated with glaucoma and successfully differentiates between those patients with visual field loss and those without, thus providing the basis for a reliable and accurate diagnostic instrument; • Significant progress on the prototype driver monitoring system for the automotive Original Equipment Manufacturer (OEM) market with Hella AG; • Agreement with Schlumberger to conduct a field trial of the Fatigue Detection System; • First sales of the Noah Basketball System; and, • Notice from the US Patent Office that Seeing Machines core patent on Facial Image Processing was allowed; Financial Results Total revenue for the half year to December 31 2005 was A$1.345 million, A$162,452 higher than the period to 31December 2004 (A$1.182 million). The increase in revenue is due to increased sales of faceLABTM to A$1.152 million upby A$408,809 on the prior year (A$0.744 million). This increase in faceLABTM sales follows three releases of theproduct (versions 4, 4.1 and 4.2) since August 2004. A reduction in other income of A$248,551 is due to theaccounting treatment of government grants for capitalized R&D. Net expenditure for the half year was A$1.432 million down by A$129,000 on the prior year (A$1.561 million),reflecting management's tight control of expenditure during the period. The cost of goods sold has increased in linewith the increase in faceLABTM sales. Research and development continued to be a significant area of investment,particularly the glaucoma and automotive projects which have both made significant progress during the half year. Asignificant amount of the investment in R&D has been capitalized and is therefore not identified in expenditure. Thecosts of the IPO in December 2005 have been offset against equity and are therefore not reflected in expenditure. As a result of the introduction of the A-IFRS (International Financial Reporting Standards) the company has had torecognize an expense for share based payments in relation to employee share options. The loss for the half year to 31 December 2005 was a loss of A$.087 million compared to a loss of A$0.379 million forthe half year to 31 December 2004. The company expects losses to continue for the year to 30 June 2006. No interimdividend had been declared on the ordinary shares (2004 - nil). The Company had A$3.126 million in cash at 31 December 2005 compared to A$299,462 at 31 December 2004. Net assetsincreased to A$3,851,615 at 31 December 2005 compared to A$425,721 as at 31 December 2004. Operational Highlights faceLAB In August 2005 we released faceLABTM 4.2 which includes: • New, small form factor digital camera support; • Improved laptop support; • Improved gaze accuracy and quality; and • Improved Graphical User Interface (GUI) support. During the first half of 2006 we will release a version which adds "Scene camera" functionality to the product - anability to embed a live video-feed of the subject's actual view into the data feed from the device. We have alsocommenced development of a major new feature that will greatly expand the field of view of the device by allowing anyconfiguration and space to be monitored no matter how spatially complex. Medical Devices Significant progress has been made on our project to develop the world's first non-contact objective device fordetecting and managing glaucoma. This project was commenced in FY2005 and during the first half of FY2006 we havecompleted a number of scientific trials which demonstrated that the fundamental technology could detect glaucoma inpatients with known disease. A clinical trial completed at the end of 2005 showed that the device could discriminatebetween those patients with and those without glaucoma. We have a busy 2nd half of the year with the start of a much larger clinical trial, industrial design work for theproduction device, further software development and the preparation work required for regulatory approvals. We remain on track for the product to be launched in 2007. Automotive Our project with German Tier -1 supplier Hella to develop a commercial grade fatigue detection device has made verygood progress and the results of the project are being evaluated by a major automotive manufacturer who is currentlyexamining the feasibility from a marketing and production perspective of including the fatigue device in its cars. We reached agreement with oil field services company Schlumberger to trial the driver state sensing technology intheir transport fleet to allow them to evaluate the technology prior to potentially rolling-out the technology acrosstheir fleet. We have also progressed projects in Australia with National ICT Australia (NICTA) to develop a new measure to detectfatigue and also with the Co-operative Research Centre for Advanced Automotive Technology (AutoCRC) on vision basedcollision avoidance. Sports In FY2005 we signed a licensing agreement with Pillar Vision in the US for the use of our technology in theirbasketball training device Noah Select. During the first half of FY2006 the first shipments of the Noah product weremade to customers and Pillar expects to ship significant numbers of the product in the coming years which will resultin an ongoing revenue stream for Seeing Machines. New Markets The business model pursued with Pillar Vision (licensed access to our technology as an enabler in OEM products) isbeing developed further in other industries and applications. To facilitate this we have commenced work on a projectto enable us to make the core technology available through an easy to use interface so that it can be used byapplication developers. We have had strong interest from a large player in the games industry and a company in thecomputer industry renowned for its innovation. We will continue to pursue both of these opportunities through the 2ndhalf of the year. Patents In August 2005 the company was advised by the US Patents and Administration that its application to patent its corefacial image processing technology was to be allowed. In November 2005 the company filed a new patent application relating to the robust tracking of subjects wearing eyeglasses. This will be a key patent for the company and robust tracking of subjects wearing eye glasses is fundamentalto having an acceptable solution for many applications of the core Seeing Machines technology particularly those inthe automotive industry. Staff Dr Nick Cerneaz took over from Tony Kinnear as Chief Executive in September 2005. Paul Day joined the company in October 2005 as Development Manager and Technical Architect for the glaucoma project. Funding The company achieved a significant milestone in December 2005 when it completed a listing on the AlternativeInvestment Market (AIM) of the London Stock Exchange. The company raised £1.65 million /A$3.8 million in funds thatwill be primarily used to progress key projects. We have obtained an independence declaration from our auditors, Ernst & Young. The signed declaration is includedafter this report. Non-Audit Services The following non-audit services were provided by the company's auditor, Ernst & Young. The directors are satisfiedthat the provision of non-audit services is compatible with the general standard of independence for auditors imposedby the Corporations Act. The nature and scope of each type of non-audit service provided means that auditorindependence was not compromised. Ernst & Young received or are due to receive the following amounts for the provision of non-audit services: Tax compliance services A$8,000Accounting advice A$15,000 Signed at Canberra this 14th day of March 2006 in accordance with a resolution of the directors made pursuant tosection 306(3) of the Corporations Act 2001. Fulton Muir Nick CerneazChairman Chief Executive Officer andDirector Auditor's Independence Declaration to the Directors of Seeing Machines Limited In relation to our review of the financial report of Seeing Machines Limited forthe half-year ended 31 December 2005, to the best of my knowledge and belief,there have been no contraventions of the auditor independence requirements ofthe Corporations Act 2001 or any applicable code of professional conduct. Ernst & YoungJames PalmerPartnerCanberra14 March 2006 Condensed Income StatementHALF-YEAR ENDED 31 DECEMBER 2005 Notes 31 DECEMBER 31 DECEMBER 2005 2004 A$ A$ Revenue 2 1,166,578 755,485 Cost of sales (353,674) (284,401) Gross Profit 812,904 471,084 Other income 2 178,434 426,985 Other expenses (1,016,521) (1,241,372) LOSS BEFORE FINANCE AND INCOME TAX COSTS (25,183) (343,303)Finance costs (61,895) (35,355) LOSS BEFORE INCOME TAX (87,078) (378,658)Income tax expense - -NET LOSS AFTER TAX (87,078) (378,658) NET LOSS AFTER TAX ATTRIBUTABLE TO THE MEMBERS OF SEEING MACHINES (87,078) (378,658)LIMITED Earnings per share (cents per share)- Basic for loss for the half year (0.0017) (50.05)- Diluted for loss for the half year (0.0017) (50.05) Condensed Balance SheetAS AT 31 DECEMBER 2005 Notes AS AT AS AT 31 DECEMBER 30 JUNE 2005 2005 A$ A$ CURRENT ASSETS Cash and cash equivalents 3,126,142 663,213Trade and other receivables 550,857 292,396Inventories 97,878 99,099Other 7,045 485,718TOTAL CURRENT ASSETS 3,781,922 1,540,426 NON-CURRENT ASSETS Property, plant and equipment 144,671 174,335Intangible assets 556,194 225,107Other 2,635 2,454TOTAL NON-CURRENT ASSETS 703,500 401,896TOTAL ASSETS 4,485,422 1,942,322 CURRENT LIABILITIES Trade and other payables 537,563 935,048Deferred revenue - 10,454Provisions 72,989 96,242TOTAL CURRENT LIABILITIES 610,552 1,041,744 NON-CURRENT LIABILITIES Interest bearing loans and borrowings - 471,526Provisions 23,255 3,331TOTAL NON-CURRENT LIABILITIES 23,255 474,857TOTAL LIABILITIES 633,807 1,516,601 NET ASSETS 3,851,615 425,721 EQUITY Contributed equity 3 6,550,345 3,394,946 Accumulated losses (3,107,369) (3,020,291) Other reserves 408,639 51,066TOTAL EQUITY 3,851,615 425,721 Condensed Cash Flow StatementHALF-YEAR ENDED 31 DECEMBER 2005 Notes 31 DECEMBER 31 DECEMBER 2005 2004 A$ A$ CASH FLOWS FROM /(USED IN) OPERATING ACTIVITIES Receipts from customers 974,864 521,743Grants received 175,776 426,985Payments to suppliers and employees (953,795) (1,322,877)Interest received 13,916 11,632Finance costs paid (83,421) (84,645)NET CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES 127,340 (447,162) CASH FLOWS USED IN INVESTING ACTIVITIES Purchases of plant and equipment (15,802) (51,186)Payments for intangible assets (19,859) (83,978)Payments for research and development costs (334,149) -NET CASH FLOWS (USED IN) INVESTING ACTIVITIES (369,810) (135,164) CASH FLOWS FROM FINANCING ACTIVITIES Exercise of options 16,373 -Issue of shares 3,848,550 - Costs of listings on AIM (1,159,524) - NET CASH FLOWS FROM FINANCING ACTIVITIES 2,705,399 - NET INCREASE IN CASH AND CASH EQUIVALENTS 2,462,929 (582,326) Cash and cash equivalents at beginning of period 663,213 881,788CASH AND CASH EQUIVALENTS AT END OF PERIOD 5 3,126,142 299,462 Condensed Statement of Changes in Equity HALF-YEAR ENDED 31 DECEMBER 2005 Attributable to equity holders of the company Issued Accumulated Employee Equity Capital Losses Benefits Reserve Total Equity A$ A$ A$ A$ At 1 July 2004 2,295,146 (1,796,383) 37,960 536,723 Loss for the period - (378,658) 7,279 (371,379)At 31 December 2004 2,295,146 (2,175,041) 45,239 165,344 Issued Accumulated Employee Equity Total Equity Capital Losses Benefits Reserve A$ A$ A$ A$ At 1 July 2005 3,394,946 (3,020,291) 51,066 425,721 Profit for the period - (87,078) - (87,078)Exercise of options 16,373 - - 16,373Issues of ordinary shares during thehalf-year:Issue of share capital 3,848,550 - - 3,848,550Transaction costs (1,159,524) - - (1,159,524)Conversion of Convertible Notes 450,000 - - 450,000Cost of share-based payment - - 357,573 357,573At 31 December 2005 6,550,345 (3,107,369) 408,639 3,851,615 Notes to the Half-Year Financial Statements FOR THE HALF-YEAR ENDED 31 DECEMBER 2005 1. BASIS OF PREPARATION OF THE HALF-YEAR FINANCIAL REPORT The half-year financial report does not include all notes of the type normally included within the annualfinancial report and therefore cannot be expected to provide as full an understanding of the financialperformance, financial position and financing and investing activities of the company as the full financialreport. The half-year financial report should be read in conjunction with the Annual Financial Report of SeeingMachines Limited as at 30 June 2005, which was prepared based on Australian Accounting Standards applicablebefore 1 January 2005 ('AGAAP'). (a) Basis of accountingThe half-year financial report is a general-purpose financial report, which has been prepared in accordancewith the requirements of the Corporations Act 2001, applicable Accounting Standards including AASB 134 "InterimFinancial Reporting" and other mandatory professional reporting requirements. The half-year financial report has been prepared on a historical cost basis. For the purpose of preparing the half-year financial report, the half-year has been treated as a discretereporting period. (b) Statement of compliance The half-year financial report complies with Australian Accounting Standards, which include Australianequivalents to International Financial Reporting Standards ('AIFRS'). Compliance with AIFRS ensures that thehalf-year financial report, comprising the financial statements and notes thereto, complies with InternationalFinancial Reporting Standards ('IFRS'). This is the first half-year financial report prepared based on AIFRS and comparatives for the half-year ended31 December 2004 and full-year ended 30 June 2005 have been restated accordingly. A summary of the significantaccounting policies of the Company under AIFRS are disclosed in Note 1(c) below.Reconciliations of: - AIFRS equity as at 1 July 2004, 31 December 2004 and 30 June 2005; - AIFRS profit for the half-year 31 December 2004 and full year 30 June 2005, to the balances reported in the 30 June 2005 full-year financial report prepared under AGAAP are detailed inNote 1(e) below. (c) Summary of significant accounting policies (i) Property, plant and equipment Plant and equipment is stated at cost less accumulated depreciation and any impairment in value.Plant and equipment, computer software, furniture & fittings, and plant and equipment used exclusively forresearch & development, are depreciated so as to write off the cost of each asset over its expected usefullife. The diminishing value method or the straight line method of depreciation is used for each asset class asdeemed appropriate by the directors. Management have determined that the depreciation and amortisation rates to be applied against plant andequipment during the period are as follows: 2005 2004Leased computers N/A 37.5%Computer software 40% 40%Furniture and fittings 7.5% - 37.5% 7.5% - 37.5%Plant and equipment 7.5% - 50% 7.5% - 50%Low Value Pool 37.5% 37.5%R & D Equipment 33.3% 33.3% Impairment The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstancesindicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined forthe cash-generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assetsor cash-generating units are written down to their recoverable amount. The recoverable amount of plant and equipment is the greater 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 apre-tax discount rate that reflects current market assessments of the time value of money and the risksspecific to the asset. (ii) Borrowing Costs Borrowing costs are recognised as an expense when incurred. (c) Summary of significant accounting policies (iii) Intangible assets Patent, trademarks and licences Patents, trademarks and licences acquired separately are capitalised at cost. The useful lives of patents,trademarks and licences are assessed to be finite. Where amortisation is charged on assets with finite lives,the expense is taken to the income statement. Research and development costs Research costs are expensed as incurred. Development expenditure incurred on an individual project is carried forward when its future recoverability canreasonably be regarded as assured. Following the initial recognition of the development expenditure, the costmodel is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulatedimpairment losses. Any expenditure carried forward is amortised over the period of expected future sales fromthe related project. The carrying value of development costs is reviewed for impairment annually when the asset is not yet in use,or more frequently when an indicator of impairment arises during the reporting year indicating that thecarrying value may not be recoverable. Where recognition criteria are not met development costs are recognisedin the income statement as incurred. A summary of the policies applied to the company's intangible assets is as follows: Patents and Trademarks Licences Development Costs Useful lives Finite Finite Finite Method used 15-20 years - Straight line 4 - 20 years - Straight 20 years - Straight line line Internally Acquired Acquired Internally generatedgenerated/acquired Impairment test / Annually and where an Annually and where an Amortisation methodRecoverable amount indicator of impairment indicator of impairment reviewed at each financialtesting exists exists year-end; Reviewed annually for indicator of impairment Gains or losses arising from derecognition of intangible assets are measured as the difference between the netdisposal proceeds and the carrying amount of the asset and are recognised in the income statement when theasset is derecognised. (iv) Recoverable amount of assetsAt each reporting date, the company assesses whether there is any indication that an asset may be impaired.Where an indicator of impairment exists, the company makes a formal estimate of recoverable amount. Where thecarrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written downto its recoverable amount. Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for anindividual asset, unless the asset's value in use cannot be estimated to be close to its fair value less coststo sell and it does not generate cash inflows that are largely independent of those from other assets orcompany of assets, in which case, the recoverable amount is determined for the cash-generating unit to whichthe asset belongs. In assessing value in use, the estimated future cash flows are discounted to their present value using apre-tax discount rate that reflects current market assessments of the time value of money and the risksspecific to the asset. (v) Inventories Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each productto its present location and condition are accounted for as follows; Raw materials - purchase cost on a first-in, first-out basis; Finished goods and work in progress - cost of direct materials and labour and a proportion of manufacturingoverheads based on normal operating capacity but excluding borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs ofcompletion and the estimated costs necessary to make the sale. (vi) Trade and other receivables Trade receivables are carried at original invoice amount less an allowance for any uncollectible debts. Anestimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts arewritten off as incurred. (vii) Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits withan original maturity of three months or less. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents asdefined above, net of outstanding bank overdrafts. (viii) Interest-bearing loans and borrowings All loans and borrowings are initially recognised at cost, being the fair value of the consideration receivednet of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised costusing the effective interest method. Amortised cost is calculated by taking into account any issue costs, andany discount or premium on settlement. Gains and losses are recognised in the income statement when the liabilities are de-recognised as well asthrough the amortisation process. (c) Summary of significant accounting policies (continued) (ix) Provisions Provisions are recognised when the company has a present obligation (legal or constructive) as a result of apast event, it is probable that an outflow of resources embodying economic benefits will be required to settlethe obligation, and a reliable estimate can be made of the amount of the obligation. Where the company expects some or all of a provision to be reimbursed, for example under an insurance contract,the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Theexpense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expectedfuture cash flows at a pre-tax rate that reflects current market assessments of the time value of money and,where appropriate, the risks specific to the liability. Where discounting is used, the increase in theprovision due to the passage of time is recognised as a finance cost. (x) Share-based payment transactions The company provides benefits to employees (including directors) of the company in the form of share-basedpayment transactions, whereby employees render services in exchange for shares or rights over shares ('equity-settled transactions'). The cost of these equity-settled transactions with employees is measured by reference to the fair value at thedate at which they are granted. The fair value is determined by using a Trinomial model. In valuing equity-settled transactions, no account is taken of any performance conditions, other thanconditions linked to the price of the shares of Seeing Machines Limited ('market conditions'). The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, overthe period in which the performance conditions are fulfilled ending on the date on which the relevant employeesbecome fully-entitled to the award ('vesting date'). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting datereflects (i) the extent to which the vesting period has expired; and (ii) the number of awards that, in the opinion of the directors of the Company, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the affect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditionalupon a market condition. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, andany expense not yet recognised for the award is recognised immediately. However, if a new award is substitutedfor the cancelled award, and designated as a replacement award on the date that it is granted, the cancelledand new award are treated as if they were a modification of the original award. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in thecomputation of earnings per share. (xi) Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the company andthe revenue can be reliably measured. The following specific recognition criteria must also be met beforerevenue is recognised: Sale of Goods Control of the goods has passed to the buyer. Interest Revenue is recognised as the interest accrues using the effective interest method to the net carrying amount ofthe financial asset. (xii) Government Grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will bereceived and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the periods necessary to match thegrant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released tothe income statement over the expected useful life of the relevant asset by equal annual instalments. (xiii) Income tax Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases ofassets and liabilities and their carrying amounts for financial reporting purposes.Deferred income tax liabilities are recognised for all taxable temporary differences: • except where the deferred tax liability arises from the initial recognition of an asset or liability ina transaction that is not a business combination and, at the time of the transaction, affects neither theaccounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated withinvestments in subsidiaries, except where the timing of the reversal on the temporary differences can be controlled and it is probable thatthe temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of the unusedtax assets and unused tax losses, to the extent that it is probable that taxable profit will be availableagainst which the deductible temporary differences, and the carry-forward of unused tax assets and unused taxlosses can be utilised: • except where the deferred income tax asset relating to the deductible temporary difference arises fromthe initial recognition of an asset or liability in a transaction that is not a business combination and, atthe time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of deductible temporary differences associated with investments in subsidiaries, deferredtax assets are only recognised to the extent that it is probable that the temporary differences will reverse inthe foreseeable future and taxable profit will be available against which the temporary differences can beutilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to theextent that it is no longer probable that sufficient taxable profit will be available to allow all or part ofthe deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the yearwhen the asset is realised or the liability is settled, based on tax rates (and tax laws) that have beenenacted or substantively enacted at the balance sheet date. Income taxes relating to items recognised directlyin equity are recognised in equity and not in the income statement. (xiv) Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: • where the GST incurred on a purchase of goods and services is not recoverable from the taxationauthority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part ofthe expense item as applicable; and • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part ofreceivables or payables in the balance sheet. Cash flows are included in the Cash Flow Statement on a grossbasis and the GST component of cash flows arising from investing and financing activities, which is recoverablefrom, or payable to, the taxation authority are classified as operating cash flows. (xiv) Other taxes (continued)Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, thetaxation authority. (d) AASB 1 Transitional exemptionsThe company has made its election in relation to the transitional exemptions allowed by AASB 1 'First-timeAdoption of Australian Equivalents to International Financial Reporting Standards' as follows: Exemption from the requirements to restate comparative information for AASB 132 and AASB 139 The company has elected to adopt this exemption and has not applied AASB 132 'Financial Instruments:Presentation and Disclosure' and AASB 139 'Financial Instruments: Recognition and Measurement' to itscomparative information. In the period to December 2005, the convertible notes were recognised at face value and interest was accrued asincurred. At 1 July 2005, the accounting policies relating to the convertible note was to recognise as fairvalue on the effective interest rate method. The difference between these two accounting policies has resultedin no material impact. (e) Impacts of adoption of AIFRS The impacts of adopting AIFRS on the total equity and profit after tax as reported under Australian AccountingStandards applicable before 1 January 2005 (AGAAP) are illustrated below. (i) Reconciliation of total equity as presented under AGAAP to that under AIFRS NOTES 30 June 2005 31 Dec 2004 1 July 2004 (**) (**) (*) A$ A$ A$Total equity under AGAAP 822,412 412,539 805,568Adjustments to equityDerecognition of deferred research costs (A) (396,691) (247,195) (268,845)Recognition of option reserve (B) 51,066 45,239 37,960Share based payments expense (51,066) (45,239) (37,960) Total equity under AIFRS 425,721 165,344 536,723 * This column represents the adjustments as at the date of transition to AIFRS. ** This column represents the cumulative adjustments as at the date of transition to AIFRS and those forthe periods ended 31 December 2004 and 30 June 2005. (i) Reconciliation of total equity as presented under AGAAP to that under AIFRS (continued) A Intangible Assets - deferred research and development costUnder AASB 138 Intangible Assets, costs incurred in the research phase of an internally generated intangibleasset would be expensed. The company has reversed all previous research costs capitalised to retainedearnings. B SHARE BASED PAYMENTS Under AASB 2 Share Based Payments, the company would recognize the fair value of options granted to employeesas remuneration as an expense on a pro-rata basis over the vesting period in the income statement with acorresponding adjustment to equity. (e) Impacts of adoption of AIFRS (continued) (ii) Reconciliation of loss after tax under AGAAP to that under AIFRS NOTES 30 June 2005 31 Dec 2004 A$ A$ Loss after Tax previously under AGAAP (1,082,956) (393,029)Derecognition of deferred research costs A (127,846) 21,650Fair value of share options issued to employees B (13,106) (7,279) Loss after Tax under AIFRS (1,223,908) (378,658)A Intangible Assets - deferred research and development cost Under AASB 138 Intangible Assets, costs incurred in the research phase of an internally generated intangibleasset would be expensed. The company has reversed all previous R&D capitalization to retained earnings.B SHARE BASED PAYMENTSUnder AASB 2 Share Based Payments, the company would recognize the fair value of options granted to employeesas remuneration as an expense on a pro-rata basis over the vesting period in the income statement with acorresponding adjustment to equity. (iii) Explanation of material adjustments to the cash flow statementsThere were no material differences between the condensed cash flow statement presented under AIFRS and thosepresented under AGAAP. FOR THE HALF-YEAR ENDED 31 DECEMBER 2005 31 December 31 December 2005 2004 A$ A$2. REVENUE AND EXPENSES Specific ItemsProfit from continuing activities before income tax expense includesthe following revenues and expenses whose disclosure is relevant inexplaining the financial performance of the company:(i) RevenuesSale of goods 1,152,662 743,853Interest received 13,916 11,632 1,166,578 755,485 (ii) Other incomeProceeds from grants 175,777 426,985Foreign exchange gain 2,657 - 178,434 426,985 (iii) ExpensesDepreciation of non-current assets 45,464 81,400Amortisation of intangible assets 24,600 11,600 70,064 93,000 Employee benefits 425,158 747,815Finance costs 61,895 35,355Marketing 9,710 13,409Professional fees 60,643 164,624Minimum lease payment - operating leases 61,527 58,905Foreign exchange loss - 11,553Share based payments 357,573 - FOR THE HALF-YEAR ENDED 31 DECEMBER 2005 31 December 30 June 2005 2005 A$ A$ 3. CONTRIBUTED EQUITY Ordinary shares Issued and fully paid 6,550,345 3,394,946 Movements in ordinary shares in issueAt July 1 2005 3,394,946 3,394,946Issue of share capital 3,848,550 -Transaction costs (1,159,524) -Exercise of options 16,373 -Conversion of Convertible Notes 450,000 - 6,550,345 3,394,946 4. SEGMENT INFORMATION The company operates in one business segment being research, development and production of computer visiontechnology in Australia. The company's primary product is faceLAB which is marketed internationally. 5. RECONCILIATION OF CASH For the purposes of the Condensed Cash Flow Statement, cash and cash equivalents comprise the following at31 December 2005: 31 December 31 December 2005 2004 A$ A$ Cash at bank and in hand 3,111,588 285,404Short term deposits 14,554 14,058 3,126,142 299,462 6. EVENTS SUBSEQUENT TO BALANCE SHEET DATE There have been no significant events that have occurred since the balance sheet date. 7. NO INTERIM DIVIDEND HAD BEEN DECLARED ON THE ORDINARY SHARES (2004 - nil). 8. COPIES OF THIS ANNOUNCEMENT WILL BE AVAILABLE FROM THE COMPANY'S REGISTERED OFFICE, INNOVATIONSBUILDING, LEVEL 3, CORNER EGGLESTON & GARREN ROADS, ACTON ACT 2601, AUSTRALIA. In accordance with a resolution of the directors of Seeing Machines Limited, I state that: In the opinion of the directors: (a) the financial statements and notes of the company: (i) give a true and fair view of the financial position as at 31 December 2005 and the performance forthe half-year ended on that date of the company; and (ii) comply with Accounting Standard AASB 134 "Interim Financial Reporting" and the CorporationsRegulations 2001; and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and whenthey become due and payable. On behalf of the Board Director Canberra, 14 March 2006 Independent Review Report To the members of Seeing Machines Limited Scope The financial report and directors' responsibility The financial report comprises the balance sheet, income statement, cash flowstatement, statement of changes in equity and accompanying notes to thefinancial statements for Seeing Machines Limited (the company), and thedirectors' declaration for the company, for the period ended 31 December 2005. The directors of the company are responsible for preparing a financial reportthat gives a true and fair view of the financial position and performance of thecompany, and that complies with Accounting Standard AASB 134 "Interim FinancialReporting", in accordance with the Corporations Act 2001. This includesresponsibility for the maintenance of adequate accounting records and internalcontrols that are designed to prevent and detect fraud and error, and for theaccounting policies and accounting estimates inherent in the financial report. Review approach We conducted an independent review of the financial report in order to make astatement about it to the members of the company, and in order for the companyto lodge the financial report with the AIM London Stock Exchange and theAustralian Securities and Investments Commission. Our review was conducted in accordance with Australian Auditing Standardsapplicable to review engagements, in order to state whether, on the basis of theprocedures described, anything has come to our attention that would indicatethat the financial report is not presented fairly in accordance with theCorporations Act 2001, Accounting Standard AASB 134 "Interim Financial Reporting" and other mandatory financial reporting requirements in Australia, so as topresent a view which is consistent with our understanding of the company'sfinancial position, and of its performance as represented by the results of itsoperations and cash flows. A review is limited primarily to inquiries of company personnel and analyticalprocedures applied to the financial data. These procedures do not provide allthe evidence that would be required in an audit, thus the level of assurance isless than given in an audit. We have not performed an audit and, accordingly,we do not express an audit opinion. Independence We are independent of the company, and have met the independence requirements ofAustralian professional ethical pronouncements and the Corporations Act 2001.We have given to the directors of the company a written Auditor's IndependenceDeclaration, a copy of which is included in the Directors' Report. Statement Based on our review, which is not an audit, we have not become aware of anymatter that makes us believe that the financial report of Seeing MachinesLimited is not in accordance with: (a) the Corporations Act 2001, including: (i) giving a true and fair view of the financial position of thecompany at 31 December 2005 and of its performance for the half-year ended onthat date; and (ii) complying with Accounting Standard AASB 134 "Interim Financial Reporting"and the Corporations Regulations 2001; and (b) other mandatory financial reporting requirements in Australia. Ernst & Young James PalmerPartnerCanberra Date: 14 March 2006 This information is provided by RNS The company news service from the London Stock Exchange