Sphere Medical Holding Regulatory News (SPHR)

27 February 2014

Sphere Medical Holding plc

Preliminary Results for the year ended 31 December 2013

Cambridge, UK, 27 February 2014: Sphere Medical Holding plc (AIM: SPHR.L), ("Sphere" or "Sphere Medical" or the "Company") a leading developer of innovative monitoring and diagnostic devices for the critical care setting, is pleased to announce its audited preliminary results for the year ended 31 December 2013.

Key business highlights for 2013 and post-year end highlights

· During 2013, significant advances were made towards achieving CE Mark for the Proxima system as a medical device. Since the year end, the completed files have been transferred to TÜV Product Service GmbH in Munich for formal review and anticipated issue of CE Mark certificates

· Successful Proxima system usability study completed at Queen Elizabeth Hospital, Birmingham

· Approval received from Queen Elizabeth Hospital, Birmingham Research Ethics Committee for the Proxima system Post Market Clinical Follow-up Study. The study is scheduled to commence following CE Mark approval

· Collaboration agreement entered into with Ortho-Clinical Diagnostics, Inc. for the development of Proxima and enhancement of Sphere's operational and production capabilities

· Completion of the Pelorus 1500 pivotal study at Great Ormond Street Hospital for Children; an important step towards the improved management of propofol dosing during surgery

Financial highlights

· Completion of £9.0 million (before expenses) equity fundraising in June 2013

· Total operating expenses £5.7 million (2012: £8.0 million) and Loss after taxation £4.8 million (2012: £7.4 million)

· Reduced Loss per share 10.1p (2012: 20.0p)

· Cash and short-term investments at year end of £9.3 million (2012: £5.4 million)

Board changes

· To continue the transformation of Sphere Medical into a commercial company focused on serving customers and generating revenues, profits and growth, the Board is pleased to announce the appointment of Dr Wolfgang Rencken as CEO - see separate announcement issued today

Commenting on today's announcement, Dr. Anthony Martin, Non-Executive Chairman of Sphere Medical, said:

"Throughout 2013 we have progressed our principal strategic objective of transforming Sphere Medical from a research and development orientated company into a commercially-focussed medical devices business.

We have been notified that TÜV Product Service GmbH is in the final stages of reviewing the CE Mark Proxima system documentation which we anticipate will lead to CE Mark approval. This marks the successful completion of a significant milestone for the Company and is the beginning of Proxima's commercial future.

The CE Mark will also enable us to begin work on our Post Market Clinical Follow-up Study at Queen Elizabeth Hospital, Birmingham for which we have already received Research Ethics Committee approval.

We also announced today the appointment of Dr Wolfgang Rencken as CEO. We are delighted that we have attracted someone of Wolfgang's calibre to succeed Dr Stuart Hendry. On behalf of the Board, I thank Stuart and wish him well in his future endeavours.

We thank our shareholders for their continued support and look forward to reporting on Sphere Medical's progress during 2014."

For further information, please contact:

Notes for Editors

Sphere Medical (AIM: SPHR.L), is a medical device company developing a range of innovative monitoring and diagnostic devices designed to significantly improve patient care.

Sphere Medical's products deliver real time analysis of blood gases, electrolytes and drug levels with laboratory accuracy, at the patient's bedside. Sphere Medical's products can be used in a wide range of medical applications, enabling faster clinical decision making and improved patient outcomes, whilst reducing costs for healthcare payers.

Sphere Medical has entered into a collaboration agreement with Ortho-Clinical Diagnostics, Inc. for the development of Proxima and enhancement of Sphere's operational and production capabilities.

Sphere Medical has a number of partnerships with industry leading medical device companies and has received strategic investments from Johnson & Johnson Development Corporation and Sorin Group.

For further information, please visit www.spheremedical.com

STRATEGIC REPORT

Introduction and Strategy

The Board's principal strategic objective is to transform Sphere Medical into a commercial company centred on serving our customers and generating revenues, profits and growth. Proxima, the Group's lead medical device, is key to delivering this strategy and so the Board is focussed on ensuring the success of Proxima and the growth of this product to serve the specific needs of our customers.

The securing of the European CE Mark for Proxima is a prerequisite to delivering commercial success over the long term. We are therefore pleased to have been notified that TÜV Product Service GmbH in Munich is formally reviewing the Proxima CE system documentation.

We announced in late June 2013 that we had concluded a collaboration agreement for Proxima with Ortho-Clinical Diagnostics, Inc. ("OCD") and a £9.0 million (before expenses) equity fundraising which was cornerstoned by Life Sciences Partners and Johnson & Johnson Development Corporation. On 16 January 2014 it was announced that Carlyle Group has agreed to acquire OCD. We continue our regular dialogue and engagement with OCD in connection with the collaboration agreement and the development programme remains on plan.

Proxima System

Proxima is Sphere Medical's lead product and is being developed for critical care applications and uses our patented proprietary microanalyser technology. Proxima is a disposable patient-attached, point-of-care arterial blood gas analyser for use in the intensive care and high dependency units and operating theatres in hospitals. The device is integrated into existing patient arterial and fluid lines at the bedside to allow the rapid measurement of a panel of blood parameters, including blood gases and electrolytes required for the optimum management of critically ill patients. Proxima is also a "closed system" where the blood samples can be re-infused into the patient after a blood gas measurement is taken, helping to reduce blood loss caused by frequent sampling and decreasing the risk of transmission of blood-borne infections.

Rapid feedback will support more efficient and effective control of therapies such as ventilation, which is expected to improve patient outcome and reduce the cost of care.

Once Proxima has demonstrated clinical and commercial success it is expected to lead to a range of successor products based on new therapeutic applications.

Proxima CE Marking Regulatory Update

Over the past six months we have been actively engaged in the CE marking process for the Proxima system which has involved complying with Annex 1 of the Essential Requirements of the EU Medical Device Directive 93/42/EEC. In order better to manage our internal resources and to optimise the timetable for the overall CE mark approvals, the CE marking process has been approached on a modular basis involving four separate CE marking reviews and approvals for each of the key Proxima system elements, namely the flush, sensor, monitor and vials. The specific areas of review by TÜV Product Service GmbH, our Notified Body, have been:

· Flush CE Mark - a Class III infused medical device solution. This has involved the review of our design dossier containing a Clinical Evaluation Report (CER). The CER contains all the clinical aspects, including safety and performance of the flush.

· Calibration vials CE Mark - a Class I sterile medical device solution. This has involved the preparation of a Technical File and a review of the sterilisation and packaging aspects of the device.

· Proxima sensor CE Mark - a Class IIa medical device. This has involved the preparation of a Technical File which has been reviewed and contains separate reports on FMEA (Failure Mode Effect Analysis), usability studies, biological, EMC (electrical magnetic compatibility), clinical performance, microbial, sterilisation and packaging aspects of the device.

The Company has already received the CE Mark for the Monitor, a Class I medical device, from the UK Medicines and Healthcare products Regulatory Agency. This involved the preparation of a Technical File which contained reports on FMEA, software verification, usability studies, EMC, clinical performance and packaging aspects of the device.

Clinical Trials and Usability Studies

In October 2013, we announced the successful completion of a comprehensive Proxima system usability study at the Queen Elizabeth Hospital, Birmingham. Results from the study, the largest of its kind undertaken to date by Sphere Medical and conducted by an independent third party, found that all of the usability targets for the Proxima system were met and that, of the 50 participants that rated the system, 42 said it was either "Very Easy" or "Easy" to use, while eight were "Neutral" on ease of use. The positive results from this study not only formed part of the CE Marking process but also significantly added to our understanding of how the Proxima system will be used in a clinical environment, post CE Mark.

In January 2014, we received Research Ethics Committee approval from Queen Elizabeth Hospital, Birmingham, conditional on receiving CE Mark approval for the Proxima system, for our Post Market Clinical Follow-up Study. This study will commence soon after approval and will take approximately three months to complete; the timing being largely dependent upon patient recruitment. Two further studies, a Time and Motion Study and a Clinical Utility Study, are planned for later in 2014.

Production

We have continued to invest time and resource on our production facility at Harston. We are planning for the scale-up of commercial production focussing on quality, reliability and yield. During the year we also completed the process qualification for the in-house manufacture of calibration vials and work is ongoing to improve shelf life and lower the cost of manufacture of the vials.

Commercial launch in the UK

In anticipation of receiving the Proxima system CE Marks, work has been undertaken by our business development team in preparation for the UK launch in 2014. To strengthen our sales capability we intend to recruit a sales director. We will initially target the key strategic UK teaching hospitals in specific clinical application areas suitable for early adoption of the Proxima system. The results from the Post Market Clinical Follow-up Study will be incorporated into the sales support materials as will, in due course, the data from the Time and Motion and Clinical Utility Studies.

OCD Collaboration Agreement

Since signing the Collaboration Agreement we have formed the Joint Steering Group and the Project Team which continues to meet on a regular basis. The Proxima Project Plan has also been finalised which includes the agreed Proxima Target Product Profile. OCD personnel have been involved with the development of our Proxima sales and marketing plan for the upcoming commercial launch in the UK. Work is ongoing on expanding the range of analytes capable of being measured by the sensor and connecting Proxima into the Laboratory Information Systems and Hospital Information Systems.

Alongside entering into the Collaboration Agreement, the Company raised £9.0 million (before expenses) by way of an equity fundraising which was cornerstoned by Life Sciences Partners and Johnson & Johnson Development Corporation.

Pelorus

In December 2013 we announced the results from a study undertaken at Great Ormond Street Hospital for Children in which it was demonstrated that the Pelorus analyser can accurately measure propofol concentrations and thus identify significant dosing errors in anaesthesiology. The results from this study provide an important step towards improved management of propofol dosing during surgery.

A further study is being planned which will investigate ways to improve the control of propofol dosing, including the use of rapid propofol measurement during surgery utilising the Pelorus analyser to personalise the Total Control Infusion system algorithm to the patient. Sphere Medical is currently collaborating with the Department of Anaesthesiology at the University Medical Centre Groningen in the Netherlands to investigate the real time adaptation of dosing models to the individual patient using rapid propofol measurements provided by the Pelorus analyser.

Cardiopulmonary Bypass Monitor

The development of the dedicated in-line blood monitoring system for cardiopulmonary bypass procedures and its supply to Sorin Group Italia S.r.l. remains secondary to the product requirements of Proxima. Discussions with Sorin continue.

Intellectual Property

Our intellectual property portfolio is a key asset and we continue to invest in the maintenance and development of our IP estate. We currently have 26 patent families covering chip design, manufacture of miniaturised sensor arrays, sensor design, monitoring and analytical systems and calibration. The Group continues to charge its research and development programme to profit and loss until such time as the criteria for capitalisation are met.

Research and development

Research and development has formed a core element of the Group's strategy for success, as a significant proportion of the activities within the Group is research and development based. Expenditure on research and development during the year was £2.9 million (2012: £3.9 million).

Sphere's Quality System

Sphere Medical successfully completed an audit of its Quality System in November 2013.

Financial Review

In the year ended 31 December 2013 Sphere recorded product revenue of £40,000 (2012: £46,000), representing the sale of Pelorus consumables.

Operating expenses were £5.7 million (2012: £8.0 million). Included in operating expenses are Product Development and Product Realisation costs of £3.9 million (2012: £5.8 million) associated with the development of the Proxima disposable patient-dedicated arterial blood gas analyser. Administrative, selling and marketing expenses were £1.8 million (2012: £2.2 million).

Finance income (net) was £138,000 (2012: £265,000) representing primarily interest earned on cash deposits.

During the year £753,000 was received in respect of research and development tax claims for 2012 (2012: £410,000 based on 2011 claims). No accrual has been made for any research and development tax claim for the 2013 year.

The loss and total comprehensive income for the year was £4.8 million (2012: £7.4 million). The basic and fully diluted loss per share for the year was 10.1p (2012: 20.0p).

Cash and short-term investments as at the end of the year were £9.3 million (2012: £5.4 million).

The Sphere Medical Team

Sphere Medical continues to benefit from the hard work and expertise of its employees who, with the Board, are fully committed to transforming Sphere Medical into a successful commercial medical device company.

The Company is pleased to announce the appointment of Dr Wolfgang Rencken as CEO. Wolfgang has over 15 years' experience in the healthcare and medical devices industries and has a proven track record in developing and commercialising medical devices and driving significant product revenue growth.

The Board extends its gratitude to Dr Stuart Hendry for his contribution to the Group which he founded in 2002. Stuart has agreed to continue to assist the Group for a period of time to ensure an orderly handover.

The Board would like to take this opportunity to thank all our employees and management for their continued commitment and shareholders for their ongoing support to Sphere Medical.

The Medical Advisory Board (chaired by Dr John Ulatowski, The Johns Hopkins Hospital, Baltimore; Dr Peter Glass, Stony Brook University Hospital, New York; and Dr Tom Clutton-Brock, University Hospitals Birmingham, UK) continues to be instrumental in guiding Sphere Medical's clinical programme and increasingly on preparations for product launches.

Outlook

We will continue to progress our principal strategic objective of transitioning Sphere Medical from a research & development orientated group into a commercial company centred on serving our customers and generating revenues, profits and growth.

Securing the Proxima CE Mark is key to the future commercial success of Sphere Medical and therefore we are pleased to report the CE Marking of the Proxima system is well advanced.

The Post Market Clinical Follow-up Study at Queen Elizabeth Hospital, Birmingham will begin following receipt of the CE Mark. In parallel we will prepare for the market introduction of Proxima into the UK by developing the operational capabilities to deliver a quality product and by establishing a small sales and marketing team.

We are pleased to announce the appointment of Wolfgang Rencken as CEO to execute the Board's strategy. Wolfgang brings considerable experience and a proven track record in developing, launching and commercialising products in the medical devices and healthcare industries. We welcome him and look forward to working with him during this exciting time in the Group's development.

Dr. Anthony Martin Matthew Hall

Non-Executive Chairman Chief Financial Officer

Consolidated statement of comprehensive income

For the year ended 31 December 2013

Consolidated statement of financial position

At 31 December 2013

Consolidated statement of cash flow

For the year ended 31 December 2013

Consolidated statement of changes in equity

For the year ended 31 December 2013

Notes to preliminary results announcement

For the year ended 31 December 2013

1. General information

Sphere Medical Holding plc (the "Company" or "Sphere Medical") and its sole subsidiary Sphere Medical Limited (together the "Group") undertake research and development and the manufacture of products within the medical device area. The Group has a manufacturing facility at its Harston Mill site and seeks to commercialise its technology and products within the UK and other countries.

The Company is a public limited company and is registered in England and Wales. It was incorporated on 14 March 2001 as a private limited company, GG 105 Limited, under the Companies Act 1985. It changed its name to Sphere Medical Holding Limited on 14 January 2004 and on 10 November 2006 the Registrar of Companies issued a certificate of change of name to Sphere Medical Holding plc and the Company became a public limited company. The address of its head office and registered office is Harston Mill, Harston, Cambridge CB22 7GG, UK.

On 17 November 2011 the Company floated on the AIM market of the London Stock Exchange plc.

These consolidated financial statements have been approved for issue by the Board of Directors on 26 February 2014.

2. Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and as applied in accordance with the Companies Act 2006.

The financial statements have been prepared under the historical cost convention except for financial derivatives held at fair value.

The preparation of financial statements in accordance with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a high degree of judgement or complexity or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3.

These financial statements are presented in pounds sterling (GBP) because that is the currency of the primary economic environment in which the Company and its subsidiary operate.

The financial information in this preliminary results announcement does not constitute the Group's statutory accounts for the year ended 31 December 2013 or the year ended 31 December 2012 but is derived from those accounts.

Going Concern

At 31 December 2013 the cash balance available to the Group was £9,251,000 while for the year the cash outflow from operating activities was £4,630,000 (2012 - outflow of £6,623,000).

Sphere Medical's revenues from sales of products are not expected to be sufficient for the Group to become cash generative from commercial operations over the next 12 months. Nevertheless, the Board's confidence that the development and commercialisation of the Group's products, in particular Proxima, will prove to be successful has been increased very considerably by the notification that TÜV Product Service GmbH in Munich is undertaking its formal review process ahead of an anticipated issue of the Proxima system CE Mark certification under the EU Medical Devices Directive. The Group intends to launch Proxima in the UK in 2014, initially in key strategic teaching hospitals and subsequently in targeted clinical application areas suitable for early adoption of the Proxima system. Furthermore, the Group has received Research Ethics Committee approval at Queen Elizabeth Hospital, Birmingham to undertake a Proxima clinical study to compare data from a conventional blood gas analyser with those obtained from the CE Marked Proxima system. This study is expected to commence following receipt of the CE Mark approval.

Based on the £9.3 million of cash and amounts on deposit as at 31 December 2013 together with the 2014 budget approved by the Board of Directors and the business plan for 2014, the Group will have sufficient funding for the next 12 months from the date these consolidated financial statements have been approved for issue by the Board of Directors.

3. Principal accounting policies

The principal accounting policies applied in the preparation of these Group financial statements are set out below. These policies have been consistently applied to all the years presented unless otherwise stated.

New accounting standards and interpretations

During the year the following standards and interpretations came into effect:

The adoption of these changes has not had a material impact on the Group's financial statements in this period of initial application.

New standards and interpretations not applied

The IASB and IFRIC have issued a number of standards and interpretations with an effective date after the date of these financial statements:

The Directors do not believe that the adoption of any of the above standards and interpretations will have a material impact on the Group's financial statements in the period of initial application.

Basis of consolidation

The Group financial statements incorporate the financial statements of Sphere Medical Holding plc and its subsidiary undertaking Sphere Medical Limited made up to 31 December each year. Subsidiary undertakings are entities over which the Group has power to control the financial and operating policies. The Group obtains and exercises control through voting rights. Unrealised gains and losses on internal transactions between the Company and its subsidiary are eliminated on consolidation.

Revenue recognition

Revenue represents the fair value of amounts received or receivable for product sales, net of trade discounts, VAT and other sales-related taxes. The Group's policy is to recognise revenue when:

• there is persuasive evidence that an arrangement exists;

• pricing is fixed or determinable;

• delivery has occurred;

• collectability is probable; and

• there are no material outstanding conditions or contingencies attaching to the receipt of monies due.

Product sales - Revenue is recognised on delivery of product, ensuring the full specification is satisfied in accordance with the customer's order

Share-based payment transactions

The Company issues equity-settled share-based payments to several of its Directors, as well as employees (including Directors) of its subsidiary, Sphere Medical Limited. In accordance with IFRS 2, for all grants of share options and awards the cost of the equity-settled share-based payments are measured at fair value at the date of grant. Where employees are rewarded using share-based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. The fair value is appraised at the grant date and excludes the impact of non-market vesting conditions. That fair value is expensed over the vesting period for the related options based upon the Company's estimate of the shares that will eventually vest, with a corresponding credit to "Other reserve".

A modification to a share option is accounted for by continuing with the existing accounting for the old option scheme and in addition recognising the increment in fair value of the new option scheme over the vesting periods. The incremental fair value granted is the difference between the fair value of the replacement equity instruments and the net fair value of the cancelled equity instruments at the date the replacement equity instruments are granted. The net fair value of the cancelled instruments is their fair value immediately before the cancellation, less the amount of any payment made to the employee on cancellation of the equity instruments.

No expense is recognised for awards that do not ultimately vest as a result of the relevant employee ceasing to be employed by the Group or that do not vest as a result of performance conditions not being met.

Fair value is measured using the Black Scholes Option Pricing Model. The expected life used in the model is the expiry date of the options.

Upon exercise of share options, the proceeds received net of any directly attributable transaction costs up to the value of the shares issued are allocated to share capital with any excess being recorded as share premium.

Foreign currency

Transactions denominated in foreign currencies are recorded in GBP at the actual exchange rates as of the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end are reported in GBP at the then prevailing rates of exchange. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in profit or loss.

Research and development expenditure

Expenditure on research (or the research phase of an internal project) is charged to profit or loss in the period in which it is incurred.

Development expenditure is capitalised when the criteria for recognition as an asset are met, that is when the Group can demonstrate:

• the technical feasibility of completing the project so that it will be able to use the asset for use or sale,

• its intention to complete and its ability to use the asset,

• how the asset will generate future economic benefits,

• the availability of resources to complete, and

• that costs associated with the asset and its development can be measured reliably.

Amortisation is provided to write off the capitalised research and development to its residual value on a straight-line basis over its expected useful economic life.

Development expenditure which is not capitalised because it fails to meet one or more of the above criteria for being capitalised is charged to profit or loss in the period in which it occurs.

Management monitors the progress of internal research and development projects by using a project management system.

Property, plant and equipment

Property, plant and equipment is carried at acquisition cost less accumulated depreciation and any provision for impairment. Depreciation is provided to write off the cost of all property, plant and equipment to its residual value on a straight-line basis over its expected useful economic lives as follows:

• Plant and equipment 3-4 years.

Residual values and useful lives are reviewed annually.

Intangible assets

Intangible assets are capitalised on the basis of the costs incurred to acquire. These costs are amortised over the estimated useful life of the asset:

• Software 2 years.

Residual values and useful lives are reviewed annually.

Impairment of property, plant and equipment

At each balance sheet date the carrying amounts of property, plant and equipment and intangible assets are reviewed for any indication that those assets have suffered an impairment loss. For the purpose of this review assets are grouped into cash‑generating units. If any indication of impairment exists, an impairment review is performed and any impairment loss is recognised for the amount by which the assets or the cash-generating unit's carrying amount exceeds its recoverable amount. To determine the recoverable amount, management estimates expected future cash flows from each cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for the Group's impairment testing are directly linked to the Group's latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancement.

Financial assets

The category of a financial asset is assigned on initial recognition, depending on the characteristics of the instrument and its purpose. A financial instrument's category is relevant for the way it is measured and whether any resulting gains and losses are recognised in the profit or loss or in other comprehensive income.

The Group's financial assets all fall into the category of loans and receivables.

Interest receivable is accrued on a daily basis at the interest rate applicable to each deposit.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition these are measured at amortised cost using the effective interest method, less provision for impairment. The Group's trade and other receivables fall into this category of financial instruments. Discounting, however, is omitted where the effect of discounting is immaterial.

Significant receivables are considered for impairment on a case-by-case basis when they are past due at the balance sheet date or when objective evidence is received that a specific counterparty will default.

Inventories

Inventories comprise directly attributable costs on incomplete projects or products and are held in the statement of financial position at cost. Costs of ordinarily interchangeable items are assigned using the first in, first out cost formula. Inventories are recognised in the consolidated statement of comprehensive income as cost of sales or to the department which acquired them.

Income taxes

Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting periods that are unpaid at the balance sheet date.

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future.

In addition, tax losses available to be carried forward as well as other income tax credits are assessed for recognition as deferred tax assets.

Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the reporting date. Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be available to offset against any future taxable income.

Management bases its assessment of the probability of future taxable income on the Group's latest approved budget forecast, which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. If a positive forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilised without a time limit, that deferred tax asset is recognised in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by management based on the specific facts and circumstances.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in profit or loss, except tax relating to items recognised in other comprehensive income and tax relating to items recognised directly in equity, in which case the related deferred tax is also recognised on other comprehensive income or equity, respectively.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in profit or loss, except tax relating to items recognised in other comprehensive income and tax relating to items recognised directly in equity.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value and accrued interest thereon.

Investments

Cash held on long-term deposit of more than three months and therefore not readily converted into cash is recognised as an investment.

Post-employment benefits

The Group provides post-employment benefits through different defined contribution plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into an independent entity. The Group has no legal or constructive obligations to pay further contributions after its payment of the fixed contribution.

The Group contributes to defined contribution plans, operated by independent life assurance companies, for the benefit of substantially all employees. Employer's contributions range from 6% to 12% of pensionable payroll dependent upon the age of the employee and are generally contingent upon employees' contributions. The amount charged to the profit or loss is the total of contributions payable in the year.

Financial liabilities

The Group's financial liabilities include borrowings, trade and other payables and derivative financial instruments and on initial recognition they are measured at fair value. Financial liabilities other than derivatives are subsequently measured at amortised cost using the effective interest rate method except for derivatives that are subsequently measured at fair value.

Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest-related charges and fair value movements are included in the statement of comprehensive income lines "finance costs" or "finance income". A finance liability is derecognised when it is extinguished, discharged, cancelled or expires.

Within financial liabilities are warrants classified as derivative liabilities, carried at their fair value. Fair value is measured using the Black Scholes Model. The expected life is the expiry date of the warrant. Changes in fair value are recognised in profit or loss.

Leased assets

In accordance with IAS 17 "Leases", the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is then recognised at the inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental payments, if any. A corresponding amount is recognised as a finance leasing liability, irrespective of whether some of these lease payments are payable up-front at the date of inception of the lease.

Subsequent accounting for assets held under finance lease agreements, i.e. depreciation methods and useful lives, correspond to those applied to comparable assets which are legally owned by the Group. The corresponding finance leasing liability is reduced by lease payments less finance charges, which are expensed to finance costs.

The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to profit or loss over the period of the lease.

All other leases are treated as operating leases.

Operating lease agreements

Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged to the profit or loss net of any incentives received from the lessor on a straight-line basis over the period of the lease. Associated costs, such as maintenance and insurance, are expensed as incurred.

Share capital

The Company's Ordinary Shares and non-financial derivative instruments are classified as equity. Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.

Share premium

Share premium represents the excess over nominal value of the fair value of consideration received for equity shares, net of the expenses of the share issue.

Other reserve

The other reserve represents equity-settled share-based payments made to Directors and employees.

Profit and loss account

This represents all current and prior period results as disclosed in profit or loss.

Significant accounting estimates and judgements

i. Share Options and Warrants

The fair value of options and warrants is determined using the Black Scholes valuation model, which requires a number of estimates and assumptions. The significant inputs into the model are the share price at the date of grant, the exercise price, the expected option life, the expected volatility and the risk-free interest rate. The key estimate in the model, being volatility, is based on the historical volatility in the company's share price.

ii. Research and Development Expenditure

The Board uses its judgement in the assessment of the extent, if any, to which expenditure is identified as development expenditure eligible for capitalisation rather than research expenditure. Key to this judgement is the point at which the technical feasibility and commercial success can be demonstrated. The Group continues to progress it's technical developments however the Board recognises that there remains significant regulatory and commercial risks.

iii. Deferred Tax Asset

The Board uses it judgement as to the timing and levels of future profits to assess as to when sufficient taxable profits will be generated to relieve the losses when providing for the deferred tax asset. No deferred tax asset is recognised at 31 December 2013 due to the uncertainty regarding the timing of future profits.

4. Loss per share

Diluted loss per share is calculated after showing the effect of outstanding options in issue. As the effect of the options would be to reduce the loss per share, the diluted loss per share is the same as the basic loss per share.

Calculation of loss per share is based on the following loss and numbers of shares:

5. Share capital

Share issue

22,403,016 Ordinary Shares of £0.01 were allotted fully paid for cash at £0.40 each and admitted to trading on AIM on 17 July 2013.

Warrants to subscribe for Ordinary Shares

During the year a total of 4,547,936 Warrants to subscribe Ordinary Shares were issued. 50% of the warrants entitle the holder to subscribe for one Ordinary Share at a subscription price of £0.44 and the remaining 50% at a subscription price of £0.925 in each case at any time up to 21 July 2018. These warrant instruments are classified as equity. None of the subscription rights attaching to the Warrants were exercised during the year.

Further Copies

Copies of this announcement and, on finalisation, the full annual report and accounts will be available, free of charge, for a period of one month from the Company's Nominated Adviser and Broker, Peel Hunt LLP, Moor House, 120 London Wall, London EC2Y 5ET, Tel: 020 7418 8900 or from Sphere Medical Holding plc, Harston Mill, Harston Cambridgeshire CB22 7GG, Tel: 01223 875222. Copies of the full financial statements will be made available to shareholders in due course.