Final Results
Embargoed Release: 07:00hrs Tuesday 26 June 2007
Nanoscience Inc.
('Nanoscience' or 'the Group')
Preliminary Results
Nanoscience, the specialist niche investor in emerging technologies with focus
on the growing nanotechnology sector, is pleased to announce its preliminary
results for the year ended 31 December 2006 ('the period'). During the period,
the Group channelled its resources on accelerating the technical and commercial
activities of its two main investee companies; its wholly owned subsidiary
Toumaz Technology Limited ('Toumaz'), and Future Waves Pte. Limited ('Future
Waves') in which it holds a 28.9 per cent. interest.
Highlights:
Toumaz successfully developed and tested the first fully integrated single chip
version of its pioneering Sensium platform and subsequently made available a
variety of wireless remote patient monitoring applications to a range of
customers in both the healthcare and pharmaceutical sectors. Strong
relationships are now being formed as a result that should offer significant
commercial opportunities
Future Waves won a number of 'design-ins' for its Fenix 1 chip with a variety
of MP3, GPS and multimedia systems manufacturers. The order book is building as
a result in both the Far East and Europe
Nanoscience's board was strengthened, most notably by the appointment of Guy
Spelman as Group CEO. Guy has held a number of senior industry positions
including Vice President of IBM Global Services and Managing Director of the
Reuter's account for BT Global Services
Guy Spelman, CEO, commented:
'Throughout the period we focussed our efforts and resources on assisting both
Toumaz and Future Waves in their ambitions to become major players in their
respective commercial markets. Both Toumaz and Future Waves operate within
multibillion dollar global markets and it is our firm belief that they have
very realistic chances of becoming significant commercial entities. Our
confidence in the ability of these two companies to achieve such ambitious
goals is founded, not least, on the substantial commercial and technical
progress achieved by them in the period.'
Further Information:
Richard Rose Nanoscience Inc. 07836 250 474
Guy Spelman Nanoscience Inc. 07767 338 967
Andrew Tan Hansard Group 020 7245 1100
Chairman's Statement
The twelve month period to 31 December 2006 was an extremely important one for
the Group, during which we were successful in significantly building upon the
value of our investment activities in the prior year.
Following the acquisition of Toumaz in November 2005 for wholly share
consideration of approximately £16m we are now positioned to make substantial
progress on this investment as Toumaz continues to move towards
commercialisation. By making available to Toumaz the commercial, managerial and
financial experience contained within the Nanoscience management team we have
been able to actively contribute to its development and further demonstrate our
strength as value-add investors.
In the period we were also successful in providing similar support to our
second most significant investment, Future Waves, which achieved progress in
excess of our initial expectations.
The period of focussed effort and determination has led to a number of
substantial developments being achieved by these companies including the launch
of Toumaz's first fully integrated chip and a number of design-ins and
commercial orders won by Future Waves.
Consequently, both Toumaz and Future Waves, are maturing into rapidly emerging
commercial entities in their own right. With leading-edge technologies targeted
at very large and growing global markets the work undertaken with key partners
to position these companies at the forefront of change has been extremely
productive. Coupled with a growing understanding of the range of applications
available for Toumaz's technology and a developing order book for Future Waves,
this provides me with much confidence for the future of these two companies.
Furthermore, our other investments continue to offer the prospect of good
returns.
The accounts for the year ended 31 December 2006 were prepared under the
International Financial Reporting Standards (IFRSs) for the first time. The
results again demonstrate our ongoing commitment to the development of the
Toumaz and Future Waves' businesses. The loss for the Group reflects the
pre-revenue stage of the investments and a focus on producing working
technology remained the foremost deliverable for both companies. A goal that
was achieved. A further expense was incurred in connection with the Toumaz
share option plan which is in line with our commitment to implementing
incentive based plans for our key employees.
As we further develop our plans for commercialisation, the Directors have
obtained from certain existing shareholders intentions to provide total
financing facilities of £3.5 million, to be drawn upon as necessary, to take
advantage of further opportunities for growth.
Once again this has been a period of significant activity for the Group and I
would like to thank everybody for their continuing efforts and support.
Richard Rose
Chairman
26 June 2007
Chief Executive Officer's Report
It is with great pleasure that I present my first operational report as CEO of
the Group on a period that has seen our key investments make significant
progress towards commercial maturity.
As detailed below our, focus has been to commit our resources to the
commercialisation of the core AMx technology platform of our wholly owned
subsidiary Toumaz in order to capitalize on the significant potential value it
could have through applications in a number of industries including healthcare,
homeland security, digital broadcasting and sport. Throughout the period a
number of key milestones were met culminating in further interest and
partnerships for the technology platform developed by Toumaz and the launch of
a consumer digital broadcasting product into the Korean markets. These
achievements, coupled with a number of significant commercial collaborations
and ongoing commercial discussions, leave us highly confident of reaping
significant value from our efforts in the coming year.
The first two commercial sectors in which the AMx platform can be exploited
were identified as being healthcare and digital audio and video broadcasting.
Since then within the last eighteen months a growing range of opportunities
with commercial potential in the care home market have been identified, which
we intend to undertake through a joint venture called Sentinel established in
January 2007, and in the sports field through our partnership with Healthe
International Pte Limited ("Healthe").
Toumaz created the Sensium which represents the integration of its underlying
AMx technologies with micro and nano scale bio-sensors to create a generic,
locally intelligent, self configuring and flexible wireless body sensor
platform, that has ultra-low power consumption, miniature size and low cost.
The Sensium solution includes silicon chips and the Toumaz proprietary nano
power sensor protocol that, simply and without user effort, automatically
configures Sensium chips to operate as an end-to-end network capable of
connecting to new and existing healthcare IT systems.
The Sensium will be used as a body attached (or implanted) wireless monitoring
device, configurable to operate with a range of physical, chemical and
bio-chemical sensors to measure parameters including temperature, ECG, sound
and pressure levels, motion, oxygen saturation (SpO2), real-time blood glucose
and creatine as well as other bio-markers.
The Sensium fundamentally changes the dynamics of personalized healthcare by
effectively shrinking bulky instruments onto a disposable, wireless enabled
silicon chip.
Also during the period, Future Waves, a spin-out from Toumaz formed in January
2005 concentrated on the development of the Fenix 1 chip, built around the same
underlying AMx technology, specifically for commercial applications within
digital broadcasting. Commercial development is advanced with orders won in
five different Asian countries. Future Waves' competitiveness is further
demonstrated via commercial relationships being developed with industry leaders
including Pure Digital, the UK market leader in digital radios and a wholly
owned subsidiary of Imagination Technologies plc, Sunplus Technology Co. Ltd.,
and Maxscend Technologies Inc. Fenix based products including GPS, MP3 and
digital radios are expected to be in the retail shops from summer 2007.
The digital broadcasting landscape is characterized by fragmented
standardization, which necessitates multi-standard chipset solutions operating
on a range of distinct frequencies. The Future Waves IP portfolio targets
multi-band and multi-standard radio frequency solutions on a global basis. The
immediate intent is to combine the RF solution with digital processing to
produce a single 'system on chip' solution which has the lowest cost and
ultra-low power usage.
It is important to note that the patented AMx technology that Toumaz has
developed, and upon which Toumaz and Future Waves' products are based, offers
many benefits in performance and cost which your directors believe are not
currently available from competitors' offerings. This affords considerable
competitive advantage in very large and growing global markets.
Key Business Milestones
Toumaz' and Future Waves' technology, based around the same underlying AMx
platform, has been validated in a number of products that have demonstrated
enhanced commercial performance levels thereby significantly reducing the risk
profile of the businesses and enhancing the value of the group's overall IP
portfolio.
The Group has identified and validated routes to markets and commercial
roadmaps. Toumaz is now actively targeting at least six market segments with
healthcare remaining the key focus.
We have successfully established positive commercial collaboration arrangements
with a number of industry leaders and are targeting further such relationships
for Toumaz, Future Waves and Sentinel.
Additional commercial applications for the respective technology and Group IP
continue to be evaluated and opportunities remain extensive (for example, care
homes, sports and media, homeland security).
Toumaz' and Future Waves' existing commercial collaborations serve to
demonstrate the potential addressable markets and validates Nanoscience's
strategy for the exploitation of its IP portfolio.
Validating Commercial Progress
Toumaz Technology
In collaboration with Infineon, (a top ten international semiconductor business
with annual revenues in excess of €7.9bn), the original design for the Sensium
solution is being customised to meet market and specific customer requirements
as well as in preparation for mass production. Infineon remain a key partner in
this process and the first Sensium chip was shipped back to Toumaz from
Infineon's facilities in December 2006 and has subsequently passed a long
series of functional tests. In the intervening period, Toumaz had delivered its
first medical application solution based on an earlier embodiment of its
proprietary technology; the ECG Sensium module with a proprietary Zoum radio
chip. This model has been sold as a demonstrator for clinical trials to
customers. Customer satisfaction with these modules has convinced Toumaz's most
active partners to engage in good faith discussions with Toumaz concerning
sizeable joint commercial opportunities.
Toumaz has now established a clear segmentation of its target medical market;
Disposables, Clinical Trials, Medical Devices, Home Health, Wellness/Fitness,
Homeland Security, Sports and Entertainment and has relationships in place with
major commercial entities in each of these segments. Toumaz has established
close relationships with well renowned, multi-billion dollar revenues,
healthcare companies, leveraging their experience and broad and established
customer base. An increasing number of smaller companies offering remote
monitoring services are also being created across Europe. For both Nanoscience
and Toumaz, the existence of these companies, their own business models, their
requests for Toumaz products and technology and their market input confirm the
sizable potential of the end-user markets. Toumaz is frequently their initial
port of call in developing new product and service offerings owing to the
enabling nature of the Sensium technology.
Initial corporate collaborations are currently underway for example with a
US-based leader in the supply of pharmaceuticals, equipment and consumables for
the healthcare industry. With sales of multi-billions of USD, its medical
devices design and manufacturing arm has been mandated to lead the way in the
search for the next ground-breaking technology, capable of bringing sustainable
and profitable growth to that group. Based on this relationship and their
comprehensive due diligence, the directors believe that Toumaz is the leader in
ultra-low power wireless based platform technologies that can provide higher
margin applications in current operating areas and could be applied across
multiple commercial divisions. Toumaz is currently engaged in discussions
towards agreeing terms for the use of its Sensium platform within vital signs
monitoring products, the manufacturing of digital plasters and other
development projects. The partner's customer base and knowledge of the market
should ensure a complete commitment to the technology and enable major trials
to commence in various centres throughout the world as early as 2008 as a
precursor to significant sales among the millions of devices they ship to their
markets shortly thereafter.
A further commercial opportunity has arisen from a top 10 pharmaceuticals group
which is very active in the medical devices marketplace. This company has
clearly expressed its intent to enhance its commercial activities within the
blood glucose monitoring field for a number of years and now has the ambition
to establish a more dominant market position. In order to achieve this goal,
the group in question has identified Toumaz's technology as a key enabler and
has stated its commitment to the rapid development of a commercial relationship
with Toumaz. This was evidenced by this company being the first customer to
take Sensium development kits. It is the belief of the Director's of
Nanoscience that this ongoing relationship presents a major commercial
opportunity for Toumaz and the Group.
Amongst other opportunities available to Toumaz, another global pharmaceutical
group has expressed its intention to leverage Toumaz's technology across all of
its ongoing clinical trials. To that effect, one of the world's most successful
companies in the IT field has also been approached by the group and is now
working with Toumaz as the IT technology partner in this project. The
relationship is on-going and the first trial for foetal cardiac monitoring
solutions in a South of England healthcare institution is expected to begin
shortly, having recently passed ethics and device approvals.
Future Waves
Future Waves has made exciting progress throughout the period culminating in
the successful launch of commercial product in Korea. After several re-designs,
Fenix 1 has now reached its final, commercially accepted version. This chip not
only delivers superior performance compared to previous versions and
competitors products but also provides solutions for a wide range of commercial
digital radio, TV and multimedia signals. Commercial transactions were
initiated in April 2006 with a number of reputable manufacturers buying Future
Waves' development kits to experiment with the integration of Fenix 1 in their
consumer products. These tests have resulted in some significant orders for
2007 and the first product incorporating Fenix 1 is now being put on sale in
the Korean market. We currently anticipate consumer product being made
available in Europe this coming Christmas.
In addition we also announced that Future Waves had won a significant design
win with Pure Digital Limited, the market leader in digital radios and a wholly
owned subsidiary of Imagination Technologies plc. Pure Digital is the number
one supplier of radios to the UK and we look forward to developing and
maintaining this relationship.
Future Waves has established a commercial customer base in the form of the
OEM's (original equipment manufacturers) serving the significant MP3, GPS and
mobile phone markets. Taiwan is a strategic location for this sector as the
bulk of these companies are in the APAC region. Communication with industry
leaders, which has been ongoing for more than one year, has confirmed the
appetite for Future Waves technology, as the industry is acutely aware of the
varying digital standards applied in different regions of the world. The
fundamental reconfigurable functionality of the AMxTM and Future Waves'
technology enables solutions to be progressively developed for roll-out and
geographical distribution whilst adhering to current and emerging digital
standards.
The Directors estimate that Future Waves is some six to nine months ahead of
Toumaz in terms of its stage of market development.
Sentinel Health Care Solutions
Sentinel Healthcare Solutions Limited ("Sentinel") is a 50/50 joint venture
between Nanoscience and Continum, an IT and communications engineering group
based in Manchester, England. Sentinel was established in January 2007
specifically as an early business demonstrator and channel to the end-user
market for Toumaz's product range in the less sophisticated end of the
healthcare sector. The initial focus has been on the elderly, care home,
nursing homes, sheltered housing and 'worried well' segments. Sentinel intends
to complement Toumaz's technology platform with communication, decision and
notification engines for the chosen health application.
Following a review of possible applications and potential markets, Sentinel
decided to focus initially on the development of dementia-related monitoring
devices. Currently, 700,000 people (one in every 88 of the UK population)
suffer from dementia, incurring a rising annual cost of approximately £17bn in
related care requirements. There is no cure for dementia, and sufferers require
increasing levels of care and monitoring as the disease progresses. Toumaz's
mobile monitoring platform is an ideal solution for care givers, enabling them
to monitor their patients whereabouts and movements from off-site locations.
Two products are under development; one a location tracking device, the other
an activity levels monitor and fall detection device. The former is currently
undergoing trials in an elderly care home in the North East of England.
Feedback from the nursing staff and management of the home is extremely
positive. They have been advising the business on a variety of end-user
applications and systems. Decision and notification engines are being
calibrated in response to users' comments and initial steps towards
commercialization have been taken. Concurrently, Sentinel is completing the
development of the activity level monitor and fall detection device and will
initiate field trials in the coming months.
Other Market Trends and Observations
Increasing recognition by global companies of the changing dynamics in how
healthcare must be addressed is illustrated in the establishment of the
Continua Alliance which is a worldwide consortium dedicated to the development
of standards for remote healthcare monitoring in the home. Toumaz is an active
participant. Invitations to participate in several European programmes under
the current FP7 directive, with large multinational companies including IBM
(Switzerland), Infineon (Germany), Novo Nordisk (Denmark) and Thomson (France)
demonstrate how important new innovation is to the healthcare industry and the
key role that Toumaz can play by bringing the economics of the semiconductor
industry into healthcare sector.
As noted above, a number of smaller companies are emerging specifically to
develop offerings around Toumaz's platform. In Sweden a new company supported
by a consortium of well established names, is seeking to develop a new service
based around the ECG Sensium. Further relationships in France, Germany, Italy,
Switzerland and Spain have resulted in the requirement to create a European
presence for Toumaz to manage these opportunities and we expect this office to
be fully functional in the fourth quarter of this year.
The other significant area of development is within the sporting industry. An
initial letter of intent has been signed with Healthe, an internationally
recognised leader in the field of sports healthcare management, , with the
intention of collaborating on the development of Sensium solutions for the
sports market. Healthe have a growing reputation in supporting elite athletes
utilizing its state of the art sports performance Oracle HTB database system
which is already fully utilized by the Australian Olympic and Paralympic teams.
Further sports collaborations are underway and we expect strong progress over
the rest of this year with broadband providers, broadcasting 'rights' owners
and leading brands.
The directors believe that the Group's AMx technology and its radio /
transceiver embodiment have the potential to become the "industry standard"
within the digital healthcare market for wireless devices and we hope to
ultimately become the "Bluetooth" equivalent standard in our chosen field.
Outlook
Digital broadcasting is recognized to be the next wave in delivering high
quality audio, video and content to portable consumer products. Markets for
digital, audio and video broadcasting are projected to grow at rates of up to
500 per cent. in 2007 and then 100 per cent. or more thereafter. In addition,
the digital radio market is expected to reach 38 million units by 2010.
Likewise, the digital medical market is forecast to grow substantially over the
next few years as the understanding of how the economies of the semiconductor
industry can be deployed brings substantial change to the economics of
healthcare.
Nanoscience is well placed to take full advantage of these developments.
To continue to build on the Group's success to date, we have set ourselves the
following targets over the next twelve months:-
TOUMAZ TECHNOLOGY
1. Sensium II with further enhanced low power characteristics designed and
ready for testing with Infineon by October 2007.
2. Full approval under the European Medical Devices Directive and CE marking
for the deployment of Sensium I in clinical trials by December 2007.
3. Production of the first fully operational digital plaster incorporating the
Sensium platform by February 2008.
4. A signed agreement by March 2008 with a significant commercial partner for
the launch of a mass market product.
5. Approval from the US regulatory body for full deployment of temperature
modules by June 2008.
FUTURE WAVES
1. 2007 commercial revenue of $US3m.
2. Completion of the first system on chip solution combining RF and digital
processing by March 2008.
3. Expansion of the geographical outlets for product across Europe throughout
the fourth quarter of 2008.
SENTINEL
1. A commercial product launched through the planned distributor network and
generating revenue by the forth quarter of 2007.
2. A second product incorporating greater functionality from the Sensium
platform by March 2008
SPORT
1. To have completed one field trial by November 2007 to prove the business
model and commercial application
We have made much progress in the period under review and are excited by the
opportunities that are currently available for us to capitalise upon. Our two
main investments are moving from their development stages into fully fledged
commercial operations with significant potential. We intend to exploit that
potential to the full.
Guy Spelman
Chief Executive Officer
26 June 2007
CONSOLIDATED INCOME STATEMENT
Year ended Period ended
31 December 31 December
2006 2005
Note £'000 £'000
Revenue 364 72
Cost of sales (352) (283)
Gross profit/(loss) 12 (211)
Administrative expenses - amortisation of
intellectual property (534) (95)
Administrative expenses - other (3,594) (446)
Total administrative expenses (4,128) (541)
Loss from operations (4,116) (752)
Result from equity accounted investment (635) (53)
Finance income 157 50
Loss before taxation (4,594) (755)
Taxation 3 436 -
Loss after taxation and retained loss
attributable to the equity holders of the
company (4,158) (755)
Loss per ordinary share (pence) 4
Basic and diluted (2.26)p (1.23)p
There were no recognised gains or losses other than the loss for the financial
year.
The consolidated income statement for the period ended 31 December 2005
incorporates the results of Toumaz Technology Limited with effect from the date
of acquisition of 3 November 2005.
consolidated statement of changes in equity
Share
based
Share Share payment Profit and Total
capital premium reserve loss account equity
£'000 £'000 £'000 £'000 £'000
At 14 February 2005 - - - - -
Loss for the period - - - (755) (755)
Issue of share 459
capital 23,383 - - 23,842
Cost of issue of -
share capital (555) - - (555)
Share based payments - (20) 126 - 106
At 31 December 2005 459 22,808 126 (755) 22,638
Loss for the year - - - (4,158) (4,158)
Issue of share 3
capital 29 - - 32
Share based payments - - 285 - 285
Transfer on exercise -
of options - (6) 6 -
At 31 December 2006 462 22,837 405 (4,907) 18,797
CONSOLIDATED BALANCE SHEET
As at As at
31 31
December December
2006 2005
£000 £000
ASSETS
Non-current assets
Intangible assets 13,969 14,503
Property, plant and equipment 78 87
Interests in associate 2,368 2,329
Available for sale investments 391 323
16,806 17,242
Current assets
Tax receivable 414 -
Trade and other receivables 329 322
Cash and cash equivalents 2,291 6,087
Total current assets 3,034 6,409
Total assets 19,840 23,651
LIABILITIES
Current liabilities
Trade and other payables 434 404
Total current liabilities 434 404
Non-current liabilities 609 609
Total liabilities 1,043 1,013
EQUITY
Share capital 462 459
Share premium 22,837 22,808
Share based payment reserve 405 126
Profit and loss account (4,907) (755)
Total equity attributable to equity holders of the
Company 18,797 22,638
Total equity and liabilities 19,840 23,651
CONSOLIDATED cashflow statement
Year ended Period ended
31 December 31 December
2006 2005
£000 £000
Cash flows from operating activities
Loss before taxation (4,594) (755)
Amortisation 534 95
Depreciation 66 3
Share of loss of associate 635 53
Loss on disposal of non current assets 1 -
Share based payments 285 106
Interest received (157) (50)
(Increase)/decrease in trade and other
receivables (7) 17
Increase/(decrease) in trade and other payables 30 (294)
Tax refund 22 -
Net cash outflow from operating activities (3,185) (825)
Cash flows from investing activities
Purchase of and loans to investments and
associates (742) -
Purchase of other non current assets (58) (323)
Interest received 157 50
Acquisition of subsidiary - net of cash acquired - (447)
Net cash used in investing activities (643) (720)
Cash flows from financing activities
Proceeds from issue of share capital 32 8,187
Share issue costs - (555)
Net cash inflow from financing activities 32 7,632
Net change in cash and cash equivalents (3,796) 6,087
Cash and cash equivalents at beginning of period 6,087 -
Cash and cash equivalents at end of period 2,291 6,087
The consolidated cashflow statement for the period ended 31 December 2005
incorporates the cashflows of Toumaz Technology Limited with effect from the
date of acquisition of 3 November 2005.
general information and accounting policies
The preliminary announcement has been prepared in accordance with applicable
accounting standards and under the historical cost convention. The Company
was incorporated as a Corporation in the Cayman Islandswhich does not prescribe
the adoption of any particular accounting framework. The Board had previously
resolved that the Company would follow United Kingdom Accounting Standards and
apply the Companies Act 1985 when preparing its annual financial statements.
The Board have now resolved that Nanoscience Inc. will adopt International
Financial Reporting Standards as adopted by the European Union (IFRS), as
developed and published by the International Accounting Standards Board (IASB),
for the first time in its financial statements for the year ended 31 December
2006. This financial report has therefore been prepared under the historical
cost convention and in accordance with the requirements of International
Financial Reporting Standard 1 "First Time Adoption of International Reporting
Standards" relevant to financial reports.
GOING CONCERN
The Directors have prepared cashflow forecasts through to 30 June 2008which
assume that Toumaz Technology Limited commences to earn revenue from the
commercial exploitation of its technology in late 2007 and continues to incur
costs at the same rate as 2006. The forecasts also assume no further
financial support is provided to the associated undertaking, Future Waves UK
Limited. The Directors have also secured total finance facilities of £
3.5 million from two shareholders. On this basis the Directors have a
reasonable expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. For this reason they
continue to adopt the going concern basis in preparing the financial
statements.
The principal accounting policies of the Group are set out below.
BASIS OF CONSOLIDATION
The Group financial statements consolidate those of the Company and all of its
subsidiary undertakings drawn up to the balance sheet date. Subsidiaries are
entities over which the Group has the power to control the financial and
operating policies so as to obtain benefits from their activities. The Group
obtains and exercises control through voting rights.
Unrealised gains on transactions between the Group and its subsidiaries are
eliminated. Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred. Amounts reported
in the financial statements of subsidiaries have been adjusted where necessary
to ensure consistency with the accounting policies adopted by the Group.
Acquisitions of subsidiaries are dealt with by the purchase method. The
purchase method involves the recognition at fair value of all identifiable
assets and liabilities, including contingent liabilities of the subsidiary, at
the acquisition date, regardless of whether or not they were recorded in the
financial statements of the subsidiary prior to acquisition. On initial
recognition, the assets and liabilities of the subsidiary are included in the
consolidated balance sheet at their fair values, which are also used as the
bases for subsequent measurement in accordance with the Group accounting
policies. Goodwill is stated after separating out identifiable intangible
assets. Goodwill represents the excess of acquisition cost over the fair value
of the Group's share of the identifiable net assets of the acquired subsidiary
at the date of acquisition.
REVENUE
The Group follows the principles of IAS18 "Revenue" in determining the
appropriate revenue recognition policies. In principle therefore, revenue is
recognised to the extent that the Group has obtained the right to consideration
through its performance.
Revenue excluding VAT comprises revenue arising from development contracts.
Development contracts are designed to meet the specific requirements of each
customer. Revenue on such contracts is recognised on a percentage to
completion basis over the period from signing the agreement to customer
acceptance that the contract deliverables have been fulfilled.
When invoicing milestones on development contracts are such that the proportion
of work performed is greater than the proportion of total contract value, the
Group evaluates whether it has obtained, through its performance to date, the
right to the uninvoiced consideration and therefore whether revenue should be
recognised.
ASSOCIATES AND JOINTLY CONTROLLED ENTITIES
Entities whose economic activities are controlled jointly by the Group and by
other ventures independent of the Group are accounted for using the equity
method.
A jointly controlled entity is an entity which operates under a contractual
agreement whereby the Group and other parties undertake an economic activity
that is subject to joint control and exists only when the strategic, financial
and operating decisions relating to the activity require the unanimous consent
of the venturers.
Associates are those entities over which the Group has significant influence
but which are neither subsidiaries nor interests in joint ventures.
The Group's interests in associates or jointly controlled entities are
recognised initially at cost and subsequently accounted for using the equity
method. Acquired investments in associates or jointly controlled entities are
also subject to purchase method accounting. However, any goodwill or fair
value adjustment attributable to the share in the associate or jointly
controlled entities is included in the amount recognised as investment in
associates or jointly controlled entities.
All subsequent changes to the share of interest in the equity of the associate
or jointly controlled entity are recognised in the Group's carrying amount of
the investment. The consolidated financial statements include the Group's
share of the post acquisition, post tax results for the year, including any
impairment loss on goodwill relating to the interest in associates or jointly
controlled entities and movements of reserves of jointly controlled entities on
an equity accounting basis.
Items that have been recognised directly in the associate's equity are
recognised in the consolidated equity of the Group. However, when the Group's
share of losses in an associate or jointly controlled entities equals or
exceeds its interest in the associate or jointly controlled entity, including
any unsecured receivables, the Group does not recognise further losses, unless
it has incurred obligations or made payments on behalf of the associate or
jointly controlled entity. If the associate or jointly controlled entity
subsequently reports profits, the investor resumes recognising its share of
those profits only after its share of the profits equals the share of losses
not recognised.
Unrealised gains on transactions between the Group and its associates or
jointly controlled entities are eliminated to the extent of the Group's
interest in the associates or jointly controlled entities. Unrealised losses
are also eliminated unless the transaction provides evidence of an impairment
of the asset transferred. Amounts reported in the financial statements of
associates or jointly controlled entities have been adjusted where necessary to
ensure consistency with the accounting policies adopted by the Group.
GOODWILL
Goodwill, representing the excess of the cost of acquisition over the fair
value of the Group's share of the identifiable net assets acquired, is
capitalised and reviewed annually for impairment. Goodwill is carried at cost
less accumulated impairment losses. Any excess in the net fair value of an
acquiree's identifiable net assets over the cost of acquisition is recognised
immediately after acquisition in the income statement.
TAXATION
Current income tax assets and/or liabilities comprise those obligations to, or
claims from, fiscal authorities relating to the current or prior reporting
period, that are unpaid at the balance sheet date. They are calculated
according to the tax rates and tax laws applicable to the fiscal periods to
which they relate, based on the taxable result for the year. All changes to
current tax assets or liabilities are recognised as a component of tax expense
in the income statement.
Deferred income taxes are calculated using the liability method on temporary
differences. This involves the comparison of the carrying amounts of assets
and liabilities in the consolidated financial statements with their respective
tax bases. In addition, tax losses available to be carried forward as well as
other income tax credits to the Group are assessed for recognition as deferred
tax assets.
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 able to be
offset against future taxable income. 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 balance sheet date.
Most changes in deferred tax assets or liabilities are recognised as a
component of tax expense in the income statement. Only changes in deferred tax
assets or liabilities that relate to a change in value of assets or liabilities
that is charged directly to equity are charged or credited directly to equity.
INTANGIBLE ASSETS
Intellectual property rights
The costs of creating and protecting internally generated property, patents and
know-how are written-off to the income statement in the period in which they
are incurred.
The costs of acquiring rights to the use of third party intellectual property
are capitalised and, subject to impairment reviews, amortised over the
estimated economic life of the intellectual property concerned. Amortisation
is calculated so as to write off the cost of an asset, less its estimated
residual value on a straight line basis over the useful economic life of the
asset as follows:
Intellectual property rights 4 - 9 years
Assets acquired as part of a business combination
In accordance with IFRS 3 "Business Combinations", an intangible asset acquired
in a business combination is deemed to have a cost to the Group of its fair
value at the acquisition date. The fair value of the intangible asset reflects
market expectations about the probability that the future economic benefits
embodied in the asset will flow to the Group. The fair value is then amortised
over the economic life of the asset as detailed above. Where an intangible
asset might be separable, but only together with a related tangible or
intangible asset, the Group of assets is recognised as a single asset
separately from goodwill where the individual fair values of the assets in the
Group are not reliably measurable. Where the individual fair value of the
complimentary assets are reliably measurable, the Group recognises them as a
single asset provided the individual assets have a similar useful lives.
RESEARCH AND DEVELOPMENT
Expenditure on research activities is recognised in the income statement as an
expense as incurred.
Expenditure on development activities is capitalised if the product or process
is technically and commercially feasible and the Group has sufficient resources
to complete development. The expenditure capitalised includes the cost of
materials, direct labour and an appropriate proportion of overheads. Other
development expenditure is recognised in the income statement as an expense as
incurred. Capitalised development expenditure is stated at cost less
accumulated amortisation and impairment losses.
IMPAIRMENT TESTING OF GOODWILL, OTHER INTANGIBLE ASSETS, PROPERTY, PLANT AND
EQUIPMENT, INTERESTS IN ASSOCIATE AND OTHER INVESTMENTS
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating
units). As a result, some assets are tested individually for impairment and
some are tested at cash-generating unit level. Goodwill is allocated to those
cash-generating units that are expected to benefit from synergies of the
related business combination and represent the lowest level within the Group at
which management monitors the related cash flows.
Goodwill, other individual assets or cash-generating units that include
goodwill, other intangible assets with an indefinite useful life, and those
intangible assets not yet available for use are tested for impairment at least
annually. All other individual assets or cash-generating units are tested for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset's or
cash-generating unit's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of fair value, reflecting market conditions
less costs to sell, and value in use based on an internal discounted cash flow
evaluation. Impairment losses recognised for cash-generating units, to which
goodwill has been allocated, are credited initially to the carrying amount of
goodwill. Any remaining impairment loss is charged pro rata to the other
assets in the cash generating unit. With the exception of goodwill, all assets
are subsequently reassessed for indications that an impairment loss previously
recognised may no longer exist.
FINANCIAL ASSETS
The Group's financial assets include investments in shares, cash and trade and
other receivables.
All financial assets are recognised when the Group becomes party to the
contractual provisions of the instrument. All financial assets are initially
recognised at fair value, plus transaction costs.
Non-compounding interest and other cash flows resulting from holding financial
assets are recognised in profit or loss when received, regardless of how the
related carrying amount of financial assets is measured.
Available for sale financial assets are measured subsequently at fair value
with changes in value recognised in equity through the statement of changes in
equity. Where the fair value cannot be measured reliably such financial assets
are held at cost.
Trade and other receivables are provided against when objective evidence is
received that the Group will not be able to collect all amounts due to it in
accordance with the original terms of the receivables. The amount of the
write-down is determined as the difference between the asset's carrying amount
and the present value of estimated future cash flows.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash at bank and in hand, bank deposits
repayable on demand and other short-term highly liquid investments with
original maturities of three months or less from the date of acquisition.
EQUITY
Share capital is determined using the nominal value of shares that have been
issued.
The share premium account represents premiums received on the initial issuing
of the share capital. Any transaction costs associated with the issuing of
shares are deducted from share premium, net of any related income tax benefits.
Share based payment reserve represents the cumulative amount which has been
expensed in the income statement in connection with share based payments, less
any amounts transferred to the profit and loss account on the exercise of share
options.
Profit and loss account earnings include all current and prior period results
as disclosed in the income statement.
SHARE BASED PAYMENTS
All share based payment arrangements are recognised in the financial
statements. The Group operates equity-settled share based remuneration plans
for remuneration of its employees and has issued a share warrant.
All services received in exchange for the grant of any share-based remuneration
are measured at their fair values. These are indirectly determined by reference
to the fair value of the share options/warrants awarded. Their value is
appraised at the grant date and excludes the impact of any non-market vesting
conditions (for example, profitability and sales growth targets).
Share based payments are ultimately recognised as an expense in profit or loss
or included as part of the cost of share issues with a corresponding credit to
the share based payment reserve, net of deferred tax where applicable. If
vesting periods or other vesting conditions apply, the expense is allocated
over the vesting period, based on the best available estimate of the number of
share options/warrants expected to vest. Non-market vesting conditions are
included in assumptions about the number of options that are expected to become
exercisable. Estimates are subsequently revised, if there is any indication
that the number of share options/warrants expected to vest differs from
previous estimates. No adjustment is made to the expense or share issue cost
recognised in prior periods if fewer share options/warrants ultimately are
exercised than originally estimated.
Upon exercise of share options/warrants, the proceeds received net of any
directly attributable transaction costs up to the nominal value of the shares
issued are allocated to share capital with any excess being recorded as share
premium.
FINANCIAL LIABILITIES
The Group's financial liabilities include trade and other payables. Financial
liabilities are obligations to pay cash or other financial assets and are
recognised when the Group becomes a party to the contractual provisions of the
instrument.
All financial liabilities are recognised initially at fair value, net of direct
issue costs, and are subsequently recorded at amortised cost using the
effective interest method with interest related charges recognised as an
expense in the income statement.
Dividend distributions to shareholders are included in 'other short term
financial liabilities' when the dividends are approved by the shareholders'
before the year end.
OTHER PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
Other provisions are recognised when present obligations will probably lead to
an outflow of economic resources from the Group and they can be estimated
reliably. Timing or amount of the outflow may still be uncertain. A present
obligation arises from the presence of a legal or constructive commitment that
has resulted from past events, for example, legal disputes or onerous
contracts.
Provisions are measured at the estimated expenditure required to settle the
present obligation, based on the most reliable evidence available at the
balance sheet date, including the risks and uncertainties associated with the
present obligation. Any reimbursement expected to be received in the course of
settlement of the present obligation is recognised, if virtually certain as a
separate asset, not exceeding the amount of the related provision. Where there
are a number of similar obligations, the likelihood that an outflow will be
required in settlement is determined by considering the class of obligations as
a whole. In addition, long term provisions are discounted to their present
values, where time value of money is material. All provisions are reviewed at
each balance sheet date and adjusted to reflect the current best estimate.
In those cases where the possible outflow of economic resource as a result of
present obligations is considered improbable or remote, or the amount to be
provided for cannot be measured reliably, no liability is recognised in the
balance sheet. Probable inflows of economic benefits to the Group that do not
yet meet the recognition criteria of an asset are considered contingent assets.
PROPERTY, PLANT AND EQUIPMENT
Measurement bases
Property, plant and equipment are stated at cost less accumulated depreciation
and impairment losses. The cost of an asset comprises its purchase price and
any directly attributable costs of bringing the asset to the working condition
and location for its intended use. Subsequent expenditure relating to
property, plant and equipment is added to the carrying amount of the assets
only when it is probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured reliably. All
other costs, such as repairs and maintenance are charged to the income
statement during the period in which they are incurred.
When assets are sold, any gain or loss resulting from their disposal, being the
difference between the net disposal proceeds and the carrying amount of the
assets, is included in the income statement.
Depreciation
Depreciation is calculated so as to write off the cost of property, plant and
equipment, less its estimated residual value, which is revised annually, over
its useful economic life as follows:
Leasehold improvements - 33.3% straight line
Office equipment - 33.3% straight line
Fixtures and fittings - 25% straight line
Computer equipment - 33.3% straight line
RETIREMENT BENEFIT SCHEME
The Group operates a defined contribution retirement benefit scheme. The
assets of the scheme are held separately from those of the Group in
independently administered funds. Entrants into this scheme are entitled to
have a percentage of their basic salary paid into the scheme by the Group.
These contributions are charged to the income statement as an employee benefit
expense in respect of the accounting period in which they become payable.
FOREIGN CURRENCIES
The financial statements are presented in UK Sterling which is the functional
and presentational currency of the Group. Monetary assets and liabilities in
foreign currencies are translated into sterling at the rates of exchange ruling
at the balance sheet date. Transactions in foreign currencies are translated
into sterling at the rate of exchange ruling at the date of the transaction.
Exchange differences are taken into account in arriving at the operating profit
or loss.
SEGMENTAL REPORTING
A segment is a distinguishable component of the Group that is engaged either in
a particular business (business segment) or conducting business in a particular
geographical area (geographical segment), which is subject to risks and rewards
that are different from those of other segments.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
(i) Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next accounting year are discussed below:
Impairment of assets
The Group conducts impairment reviews of assets when events or changes in
circumstances indicate that their carrying amounts may not be recoverable
annually, or in accordance with the relevant accounting standards. An
impairment loss is recognised when the carrying amount of an asset is lower
than the greater of its net selling price or the value in use. In determining
the value in use, management assesses the present value of the estimated future
cash flows expected to arise from the continuing use of the asset and from its
disposal at the end of its useful life. Estimates and judgments are applied in
determining these future cash flows and the discount rate. Details of the
estimates and assumptions made in respect of the potential impairment of
intellectual property and goodwill on consolidation are detailed in Note 6 to
the financial statements.
Valuations of share options granted
The fair value of share options granted was calculated using the Binomial
option pricing model which requires the input of highly subjective assumptions,
including the volatility of share price. Because changes in subjective input
assumptions can materially affect the fair value estimate, in the opinion of
Directors of the Company, the existing model will not always necessarily
provide a reliable single measure of the fair value of the share options.
Details of the inputs are set out in Note 17 to the financial statements.
(ii) Critical judgements in applying the Group's accounting policies
Management in applying the accounting policies, which are described above,
considers that the most significant judgement they have had to make is whether
any impairment provision is required against the intellectual property and
goodwill on consolidation.
Adoption of new or amended IFRS
The Group has not early adopted the following new standards, amendments or
interpretations that have been issued but are not yet effective. Except for
IFRS 7 and IFRS 8 which may result in changes in the future as to how the
Group's financial performance and financial position are prepared and
presented, the Directors anticipate that the adoption of these other standards
will not result in significant changes to the Group's accounting policies. The
Group has commenced its assessment of the impact of IFRS 7 an IFRS 8 but it is
not yet in a position to state whether these standards would have a material
impact on its results of operations and financial position.
IAS 1 Capital Disclosures Effective for annual
(Amendment) periods beginning on or
after 1 January 2007
IFRS 7 Financial Instruments : Disclosures Effective for annual
periods beginning on or
after 1 January 2007
IFRS 8 Operating Segments Effective for annual
periods beginning on or
after 1 January 2009
IFRIC 7 Applying the Restatement Approach Effective for annual
under IAS 29 Financial Reporting in periods beginning on or
Hyperinflationary Economies after 1 March 2006
IFRIC 8 Scope IFRS 2 Effective for annual
periods beginning on or
after 1 March 2006
IFRIC 9 Reassessment of Embedded Derivatives Effective for annual
periods beginning on or
after 1 June 2006
IFRIC 10 Interim Financial Reporting and Effective for annual
Impairment periods beginning on or
after 1 November 2006
IFRIC 11 Group and Treasury Share Transactions Effective for annual
periods beginning on or
after 1 March 2007
IFRIC 12 Service Concession Arrangements Effective for annual
periods beginning on or
after 1 January 2008
IAS 23 Borrowing costs Effective for annual
periods beginning on or
after 1 January 2009
2 TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
The transition to IFRS reporting has resulted in a number of changes in the
reported financial statements, notes thereto and accounting principals compared
to the previous annual report. This note 2 provides further details on the
transition from UK GAAP to IFRS. The following reconciliations and explanatory
notes thereto describe the effects of the transition for the financial period
ended 31 December 2005. All explanations should be read in conjunction with the
IFRS accounting policies of Nanoscience Inc.
The re-measurement of the balance sheet and income statement as at 31 December
2005is summarised as follows:
Effect of
Reconciliation of balance sheet presentation at 31 UKGAAP transition IFRS
December 2005 £'000 £'000 £'000
ASSETS
Non-current assets
Intangible assets 14,451 52 14,503
Property, plant and equipment 87 - 87
Interests in associate 2,329 - 2,329
Investments 323 - 323
17,190 52 17,242
Current assets
Trade and other receivables 322 - 322
Cash and cash equivalents 6,087 - 6,087
6,409 - 6,409
Total assets 23,599 52 23,651
LIABILITIES
Current liabilities
Trade and other payables 404 - 404
Non current liabilities 609 - 609
Total liabilities 1,013 - 1,013
EQUITY
Share capital 459 - 459
Share premium account 22,828 (20) 22,808
Share based payment reserve - 126 126
Profit and loss account (701) (54) (755)
Total equity 22,586 52 22,638
Total equity and liabilities 23,599 52 23,651
The Group has also modified its former balance sheet, income statement and
cashflow structure on transition to IFRS. £3,738,000 originally categorised as
goodwill under UK GAAP, on transition to IFRS, has been redesignated as
intellectual property in accordance with IFRS3 "Business combinations".
Reconciliation of income statement presentation at 31 Effect of
December 2005 UKGAAP transition IFRS
£'000 £'000 £'000
Revenue 72 - 72
Cost of sales (283) - (283)
Gross loss (211) - (211)
Amortisation (147) 52 (95)
Administrative expenses (340) (106) (446)
Loss from operations (698) (54) (752)
Result from equity accounted investment (53) - (53)
Finance income 50 - 50
Loss before taxation (701) (54) (755)
Taxation - - -
Loss for the period (701) (54) (755)
The difference between the retained deficit reported under UK GAAP for the
period ended 31 December 2005 and the retained deficit as reported under IFRS
is represented by a reduction in the amortisation charge of £52,000 and a
provision for share based payments of £106,000 resulting in a net charge of £
54,000.
The share based payment in connection with the warrants issued to the Company's
Nominated Adviser as part of their fee for services provided in connection with
the Admission of the Company to the AIM market in March 2005 is £20,000 which
has been charged to share premium as a cost of issuing shares.
3 Taxation
The tax credit for the period is as follows:
Year ended Period ended
31 December 31 December
2006 2005
£'000 £'000
Current tax
UK corporation tax at 19% (22) -
UK research and development tax credit (414) -
(436) -
3 TAXATION (CONTINUED)
The tax assessed for the period differs from the standard rate of corporation
tax in the UK as follows:
Year Period
ended ended
31 31
December December
2006 2005
£'000 £'000
Loss before tax (4,594) (755)
Loss multiplied by standard rate of corporation tax
in the UK of 30% (1,378) (226)
Effect of:
Disallowable expenses 130 42
Depreciation in excess of capital allowances 20 8
Research and development tax credit adjustment 103 (20)
Prior year adjustment (22) -
Losses not utilised 711 196
Current tax credit for year (436) -
The Group has tax losses in the UK, subject to Her Majesty's Revenue and
Customs approval, of approximately £4.4 million (31 December 2005: £3.6
million) available for offset against future operating profits. The Group has
not recognised any deferred tax asset in respect of these losses, which would
amount to £1,320,000 (2005: £1,080,000) due to there being insufficient
certainty regarding its recovery.
4 LOSS PER SHARE
The calculation of the basic loss per share is based on the loss after tax of £
4,158,000 (period ended 31 December 2005: £755,000) divided by the weighted
average number of ordinary shares in issue during the year of 183,891,674
(period ended 31 December 2005: 61,206,224).
The impact of the share options and share warrant is anti dilutive.
5 PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information set out in this preliminary announcement does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985.
The consolidated balance sheet at 31 December 2006 and the consolidated income
statement, consolidated statement of changes in equity, consolidated cash flow
statement and associated notes for the year then ended have been extracted from
the Group's 2006 statutory financial statements upon which the auditors opinion
is unqualified and does include any statement under Section 237 of the
Companies Act 1985.
The annual report for the year ended 31 December 2006 will be sent to
shareholders shortly.