Final Results

RNS Number : 4771B
Nanoco Group PLC
28 October 2009
 




For immediate release 


28 October 2009



NANOCO GROUP PLC

("Nanoco" or "the Company")


Final Results for the year ended 31 July 2009  



Nanoco Group plc (AIM: NANO), a world leader in the development and manufacture of commercial quantities of quantum dots, is pleased to announce its final results for the year ended 31 July 2009. 



Highlights


  • Successful flotation on AIM in May 2009

  • Distribution agreement signed with Japan-based Kisco Ltd, a major electronic materials supplier in Asia

  • Supply and licence agreement signed with major Japanese LED manufacturer active in the LCD backlight and general lighting markets - a further US$8 million in milestones expected by the end of December 2010

  • Manufacturing scale-up progressing well

  • Increase in cash and cash equivalents to £6.59 million at 31 July 2009 (2008: £2.53 million)

  • Joint development agreement signed in September 2009 with a major Japanese electronics company in connection with quantum dots for LEDs as the backlight in LCD TVs


Commenting on the results, Dr Peter Rowley, Nanoco's Chairman, said: 


"The current financial year has started well, with a new joint development agreement with a major Japanese electronics company active in the LCD TV market being signed in September 2009. 


"We are making substantial progress in the scale-up of manufacturing and are well on our way to producing our first kilograms of quantum dots. Our strategic relationships are also progressing well, and we anticipate the receipt of further milestone payments during the current half."




For further information please contact:


Nanoco

+ 44 (0) 161 603 7900

Michael Edelman, Chief Executive Officer


Michael Bretherton, Chief Financial Officer




Zeus Capital 

+ 44 (0) 161 831 1512

Alex Clarkson 


Nick Cowles




Buchanan Communications

+ 44 (0) 20 7466 5000

Mark Court / Jennie Spivey / Miranda Higham 





Notes for editors:


About Nanoco Group plc

Nanoco is a world leader in the development and manufacture of commercial quantities of quantum dots for use in multiple applications including lighting, solar cells and biological imaging. Nanoco's quantum dots, which are free of heavy metals and comply with RoHS legislation, can be combined into a wide range of materials including liquids, polymers and glass.


Nanoco forms strategic partnerships with major end users across a range of applications.


Nanoco was founded in 2001 and is based in ManchesterUK. Nanoco began trading on the AIM market of the London Stock Exchange in May 2009 under the ticker symbol NANO.


About quantum dots

Quantum dots are fluorescent nano-sized particles of semiconductor material which have the ability to emit light in a specific colour dependent on the size of the particle. 

  Chairman's Statement 


I am pleased to present Nanoco's maiden financial results as a quoted company, and to provide an introduction to our world-class technology and manufacturing capabilities. Our technology has multiple potential applications in many different industrial and consumer segments. To harness this diverse breadth of opportunities, we have chosen a collaborative business model through which we already have revenue-generating relationships with global companies.


Before discussing our strategy, I would like to give a brief summary of our technology, quantum dots, in which we have a strong global position.


Quantum dots are nano-sized particles of semiconductor material, each being around eighty thousandth of the width of a human hair. At this size, semiconductors develop a new property: the ability to emit intense light of a very specific colour, with the colour dependent on the size of the dot. These dots can be stimulated to fluoresce through excitation by light energy or by electricity and have the potential to make major improvements to commonly used products, including a substantial reduction in power consumption.


The academic understanding of quantum dots is not new, nor is an awareness of their commercial potential. However, this potential has not yet been realised because of the complexity of manufacturing quantum dots in commercial quantities. Nanoco's technology provides the solution to this problem, paving the way for quantum dots to be used in multiple applications. Nanoco has also overcome another key obstacle to the widespread use of quantum dots: the manufacture of dots that do not use heavy metals such as cadmium.


We are focusing initially on four substantial markets for our quantum dots: LED lighting, computer and mobile displays, solar cells and bio-imaging. Each of these markets represents a very substantial opportunity for Nanoco. 


Our strategy is to access these markets through partnerships with major global end users, under a business model in which we receive revenues during the development phase followed by revenues from the manufacture and supply of quantum dots and additionally from a royalty payment on end-product sales.


This business model is exemplified by our partnership with a major Japanese corporation, which manufactures LEDs for the LCD display and general lighting markets. Following a successful joint development agreement with the corporation under which we received a total of US$1.2 million, a supply and licence agreement was signed in November 2008, which included a US$2 million upfront payment and from which a further US$8 million in milestone payments is expected by 31 December 2010. A royalty of 5 per cent will be paid to Nanoco on the net sales of the corporation's resulting products.

 

The use of LEDs as the backlight for LCD displays and in general lighting allows a substantial reduction in the power consumed. Quantum dots offer key advantages over the phosphors currently used to create white light from LEDs including superior colour performance. The potential market is considerable.


Further details of our technology and target markets, and of the progress made in our commercial relationships, are included in the Chief Executive Officer's Review of Operations.


In way of background, Nanoco was founded in 2001 from technology developed at Manchester University and at Imperial CollegeLondonNanoco made significant technical and commercial progress as a private company, including the signing of distribution agreements with Kisco, a leading Asian electronic materials and trading company, and Sigma-Aldrich Corporation, the world's largest supplier of research chemicals.


Flotation on AIM, via the reverse takeover of a cash shell, was one of the Company's key milestones during the year to 31 July 2009. This transaction strengthened the Company's financial resources for use in the continued development of our quantum dot technology and in the formation of further strategic partnerships. Nanoco shares began trading on AIM on 1 May 2009.


  Financial results


Our revenues in the year to 31 July 2009 were £1.99 million (2008: £1.08 million), comprising primarily of milestone payments from strategic partners but including some income from the sale of products by our distribution partners. The loss before tax was £0.78 million (2008: loss of £0.70 million). Cash, and cash equivalents, at the year end were £6.59 million (31 July 2008: £2.53 million).


People


Nanoco has a team of 41 people, the great majority of whom have PhDs in quantum physics or chemistry. As the scale-up towards the mass production of quantum dots progresses, we envisage employing further staff, particularly in production. 


I would like to take this opportunity to thank all at Nanoco for their energy and hard work and for their commitment to making Nanoco a world-class company. I would also like to thank our strategic partners, distributors and advisers for their contribution to the development of the Company during the course of the financial year.


Outlook


The current financial year has started well, with a new joint development agreement with a major Japanese electronics company active in the LCD TV market being signed in September 2009. 


We are making substantial progress in the scale-up of manufacturing and are well on our way to producing our first kilograms of quantum dots. Our strategic relationships are also progressing well, and we anticipate the receipt of further milestone payments during the current half.


We are currently at discussion stages with further potential commercial partners, and look forward to announcing additional signed agreements with companies active in Nanoco's core markets in due course. 



P Rowley

Non-executive Chairman

27 October 2009

  CEO's Review of Operations



Nanoco's key strength is the world-class technology on which the company is based. This technology has multiple potential applications across diverse end-user markets, bringing a very substantial commercial opportunity. It is our responsibility as a management team to ensure that we commercialise this technology successfully for the benefit of all stakeholders.


Our technology, which is protected by an extensive patent portfolio, provides the solution to the challenging problem of manufacturing quantum dots in commercial quantities at economic pricing. This technology has positioned Nanoco as a world leader in the development and manufacture of quantum dots, with the additional benefit that the Company's manufacturing process allows quantum dots to be made from semiconductors that do not include heavy metals. 


Owing to the scale of the opportunity presented to us, we have adopted a partnership strategy focused initially on four target markets: LED lighting, displays, solar cells and bio-imaging.


Before discussing these markets in detail, I would like to provide a review of the rapid progress we have made since the formation of Nanoco in 2001focusing particularly on our partnership strategy and manufacturing scale-up.


Commercial agreements


Since the Company was founded we have used our technology to manufacture small quantities of quantum dots of around 50 grams per batch. Whilst our objective is to manufacture industrial quantities of quantum dots, our small-scale manufacturing has allowed us to sign two revenue-generating distribution agreements and enter into partnership with global corporations interested in using quantum dots in end-use applications. The first distribution deal was signed in 2007 with US-based Sigma-Aldrich Corporation, one of the world's largest suppliers of chemicals to the research market. The second distribution agreement was signed in 2008 with Japan-based Kisco Ltd, a major, privately owned electronic materials supplier to Asian markets.


Both of these distribution agreements contributed to Nanoco's revenues in the year to 31 July 2009 and have brought other benefits such as visibility in the nanomaterials industry, access to new application development programs and the business discipline of delivering products to fixed specifications.


Quantum dot development is one of the key strengths of Nanoco. Our scientists are able to design quantum dots of very specific size, which determines the wavelength of light they emit, and to modify their surface to allow the quantum dots to be incorporated into many different materials, such as water, glass and a variety of different polymers. They can also be developed into inks and printed using ink jet, screen and other conventional printing techniques.


Our business is to work with customers and potential customers in developing quantum dots to bespoke specifications for the customers' particular end use. Our business model is to efficiently tailor the quantum dots to meet a specific customer's end use application in a joint development where the customer covers a portion of the Nanoco development costs. Once the joint development is successful, a material supply and licence agreement is signed under which Nanoco receives payment for the manufacture and supply of quantum dots and receives a royalty on sales of the quantum dot containing product.


We are currently already working with customers or are in initial discussions with multiple potential customers in our four key target markets. We also have a number of joint development agreements under way.


In November 2008 Nanoco signed a major supply and license agreement with a large Japanese corporation to develop our quantum dots onto their LEDs for use in the general lighting and LCD backlight market. This agreement followed the successful completion of a joint development agreement signed in December 2007, worth US$1.2 million to Nanoco. The new agreement gives Nanoco US$10 million in upfront revenue based on hitting specific milestones.  US$2 million of the US$10 million has already been paid and we expect to complete all milestones and receive the balance of US$8 million by 31 December 2010. Amongst other targets, this agreement requires the commercial supply of 1kg batches of quantum dots made without heavy metals. 


Once the products are commercialised, a royalty of 5 per cent will be paid to Nanoco on the net sales of the corporation's products, which will comprise aLED chip, quantum dots and an encapsulant. The packaged LEDs will be sold by the corporation to LCD TV and display makers and to solid state lighting manufacturers. The world market for these LEDs is expected to be 167 billion units by 2012 (DisplaySearch, report: "Display LEDs: Lighting up the World").


In the current financial year, we recently announced a further agreement in the LED-backlight TV market.



Manufacturing scale-up


Nanoco's technology allows the industrial scale-up of the manufacture of quantum dots and is focused on producing quantum dots without heavy metals. This enables Nanoco's customers to comply with legislation that restricts hazardous heavy metals in electrical and electronic goods. Conforming to these regulations is a prerequisite for the large scale adoption of quantum dots into TVs and other electronic equipment.


During the financial year to 31 July 2009, and post the period end, we have made substantial progress in the scaling up of our manufacturing. Our flotation on AIM in May 2009 provided additional funds to support this growth.


The first of a suite of reactors capable of producing large batches of quantum dots was installed in our Manchester facility in September 2009 and is currently being commissioned on smaller batches of quantum dots. Throughout the current financial year we are working to scale up to 1kg per batch and then on to 25kg per batch. We do not anticipate inherent difficulties in scaling up to 25kg, which is a relatively small amount compared with many production processes, but intend to manage the scale-up carefully.


LED lighting


The use of quantum dots to produce white light from blue LEDs has significant advantages compared with currently used fluorescent lighting and phosphor technology. These advantages include superior colour performance and less energy used in future quantum dot products such as backlights for LCD TVs. 


LEDs use less power than traditional light sources and also benefit from compact size, shock resistance and a very long service life. They have the potential to replace traditional light sources in many applications, including household and commercial lighting.


LEDs are particularly suited for use as the backlight in LCD TVs, owing to reduced power consumption. Legislation is being introduced in California forcing manufacturers to reduce the power consumed by their TVs by 33 per cent from 2011.


Nanoco is working with a number of global companies involved in the LCD TV market and the first TVs to include Nanoco quantum dots could be on the market as early as 2012. We also anticipate signing further agreements with companies active in the LED market.


Displays


Quantum dots can be lit up electronically which makes them well suited for next generation displays used on mobile devices, computer and laptop screens and TVs. 


The benefits would include low power consumption, high colour quality and simple manufacturing. These displays would be very thin, as there would be no requirement for a backlight, and they could be printed by an ink-jet printer.


Nanoco is currently in discussions with a number of multinational companies with the objective of developing and commercialising quantum dots in electroluminescent displays.


Solar power


Quantum dots, owing to their ability to absorb light efficiently, have the potential to improve the efficiency of converting solar energy into electricity. Nanoco works with a range of quantum dot materials destined for different solar cell applications which could eventually improve efficiencies and reduce the cost per watt of solar energy produced.  


Nanoco has developed quantum dots capable of capturing the full spectrum of wavelengths of light and which can be printed to form thin films by conventional printing technology.


We are working with a number of companies with relevant experience in this area and evaluation samples of quantum dots in thin films are under evaluation by potential partners.


Bio-imaging


The use of quantum dots for in vitro imaging of cells was the first market in which quantum dots were used as the application required only small quantities of materials. As Nanoco can produce large quantities our focus has been on higher volume applications such as electronics. With Nanoco's strategic focus on quantum dots free of heavy metals there has been an increasing demand to use our quantum dots for in vivo imaging.  


Other markets


Whilst we intend to maintain our focus on our four key target markets, there are many other potential areas of use for quantum dots. In some of these we already have patent protection, including the security and anti-counterfeiting markets. Other markets such as functional decoration and printing have shorter development cycles and the opportunity to enter commercial production quickly. Given suitable commercial partnerships we would consider pursuing these, and other, markets. 


Summary


Nanoco made excellent progress in the year to 31July 2009 in the development of its technology, commercial relationships and manufacturing. Through joining AIM in May 2009, we have strengthened our balance sheet and gained greater visibility as a world-leading company at the forefront of quantum dot commercialisation.


In the current financial year, we have already signed a significant joint development agreement with a Japanese electronics giant, and we are in multiple discussions with other potential partners across our chosen end-user markets.  


The Company will continue to move forward by focusing on execution of our manufacturing scale-up plans and delivery of commercial product to our customers which will drive business growth.


M Edelman

Chief Executive Officer

27 October 2009


Consolidated Income statement

for the year ended 31 July 2009



Notes

2009

2008



£000

£000





Revenue

4

1,994

1,078

Cost of sales


(161)

(118)

Gross profit


1,833

960

Administrative expenses


(2,450)

(1,745)

Cost of reverse acquisition

23

(195)

-

Operating loss

5

(812)

(785)

Finance income

7

57

122

Finance costs

7

(25)

(35)

Loss on ordinary activities before taxation


(780)

(698)

Tax on loss on ordinary activities

8

240

147

Loss on ordinary activities after taxation attributable to members of the parent entity


(540)

(551)

Loss per share:




Basic loss for the year

9

(0.31)

(0.37)

Diluted loss for the year

9

(0.31)

(0.36)


The loss for the year arises from the Group's continuing operations.

Consolidated statement of changes in equity

for the year ended 31 July 2009 



Attributable to equity holders


Issued equity capital

Share based payment reserve

Merger reserve

Revenue reserve

Total


£000

£000

£000

£000

£000







At 1 August 2007

4,839

42

(1,242)

(869)

2,770

Loss for the year

-

-

-

(551)

(551)

Issue of share capital

1,705

-

-

(545)

1,160

Share based payments

-

53

-

-

53

At 31 July 2008

6,544

95

(1,242)

(1,965)

3,432

Loss for the year

-

-

-

(540)

(540)

Exercise of warrant

108

-

-

-

108

Share based payments

-

72

-

-

72

Reallocation of reserves on reverse acquisition

6,154

-

-

-

6,154

Expenses on issue of shares

(455)

-

-

-

(455)

At 31 July 2009

12,351

167

(1,242)

(2,505)

8,771



Company statement of changes in equity 

for the year ended 31 July 2009



Attributable to equity holders


Issued equity capital

Share based payment reserve


Capital redemption reserve

 Revenue reserve

Total


£000

£000

£000

£000

£000







At 1 January and 31 December 2008

27,037

-

4,804

(26,050)

5,791

Treasury shares reclassified to EBT

(20)

-

-

20

-

Profit for the period

-

-

-

287

287

Share based expense

-

167

-

-

167

Shares issued on acquisition of Nanoco Tech Limited (see note 18)

63,255

-

-

-

63,255

Expenses on issue of shares

(455)

-

-

-

(455)

At 31 July 2009

89,817

167

4,804

(25,743)

69,045



  Balance sheets

As at 31 July 2009




Notes

31 July 2009

31 July 

2009

31 July 

2008

31 December 2008



Group

Company

Group

Company



£000

£000

£000

£000







Assets






Non-current assets






Plant and equipment

10

2,127

-

1,150

-

Intangible assets

11

376

-

279

-

Investment in subsidiary

12

-

63,422

-

5,791



2,503

63,422

1,429

5,791

Current assets






Inventories

13

17

-

9

-

Trade and other receivables

14

378

-

236

-

Income tax asset


135

-

147

-

Cash and cash equivalents

15

6,589

5,939

2,528

-



7,119

-

2,920

-

Total assets


9,622

69,361

4,349

5,791







Liabilities






Current liabilities






Trade and other payables

16

376

-

379

-

Short-term financial liabilities

17

63

-

63

-



439

-

442

-

Non-current liabilities






Long-term financial liabilities

17

412

(316)

475

-

Total liabilities


851

(316)

917

-

Net assets


8,771

69,045

3,432

5,791







Capital and reserves






Issued equity capital

18

12,351

89,817

6,544

27,037

Share based payment reserve

19

167

167

95

-

Merger reserve

20

(1,242)

-

(1,242)

-

Capital redemption reserve


-

4,804

-

4,804

Revenue reserve

21

(2,505)

(25,743)

(1,965)

(26,050)

Total equity 


8,771

69,045

3,432

5,791


   

Approved by the board and authorised for issue on 27 October 2009.

Dr M Edelman

Director  Cash flow statements

for the year ended 31 July 2009



Notes

31 July 2009

31 July 2009

31 July 2008

31 December 2008



Group

Company

Group

Company



£000

£000

£000

£000







(Loss)/profit before interest and tax


(812)

287

(785)

-

Adjustments for:






Depreciation

10

233

-

167

-

Amortisation of intangible assets

11

39

-

19

-

Cost of reverse acquisition

23

195

-

-

-

Movement in share payment reserve

19

72

-

53

-

Impairment of investment in subsidiary

12

-

5,338

-

-

Net reversal of provision for non-recovery of loan to subsidiary

12

-

(5,744)

-

-

Changes in working capital (excluding the effects of acquisition):






Inventories 


(8)

-

6

-

Decease/(increase) in trade and other receivables


162

-

(92)

-

(Decease)/increase in trade and other payables


(124)

312

(150)

-

Cash (out)/inflow from operating activities


(243)

193

(782)

-

Interest paid

7

(25)

-

(35)

-

Research and development tax credit received 


136

-

135

-

Net cash (out)/inflow from operating activities


(132)

193

(682)

-







Cash flows from investing activities






Purchases of plant and equipment

10

(1,242)

-

(312)

-

Related grant received

10

32

-

50

-

Net purchases of plant and equipment


(1,210)

-

(262)

-

Purchases of intellectual property

11

(136)

-

(145)

-

Loan repayment received from subsidiary

12

-

6,197

-

-

Interest received

7

57

4

103

-

Net cash (out)/inflow from investing activities


(1,289)

6,201

(304)

-







Cash flows from financing activities






Cash acquired on reverse acquisition

23

5,892

-

-

-

Net proceeds from issues of ordinary share capital


108

-

1,160

-

Expenses on issue of shares

18

(455)

(455)

-

-

Loan repayment


(63)

-

(62)

-

Net cash in/(out)flow from financing activities


5,482

(455)

1,098

-

Increase in cash and equivalents


4,061

5,939

112

-

Cash and cash equivalents at the start of the period


2,528

-

2,416

-

Cash and cash equivalents at the end of the period

15

6,589

5,939

2,528

-



Notes to the financial statements


1.         Authorisation of financial statements and statement of compliance with IFRSs 

The financial statements of Nanoco Group PLC (formerly Evolutec Group PLC) and its subsidiaries (the "Group") for the year ended 31 July 2009 were authorised for issue by the Board of Directors on 27 October 2009 and the balance sheet was signed on the board's behalf by Dr M A Edelman.


Nanoco Group PLC ("the Company") is an AIM listed company incorporated and domiciled in the UK.


The Company's financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") and International Financial Reporting Committee ("IFRIC") interpretations as they apply to the financial statements of the Group for the period ended 31 July 2009.


            The principal accounting policies adopted by the Group are set out in note 2.


2.         Accounting policies 

                Basis of preparation

These financial statements have been prepared in accordance with IFRS and IFRIC interpretations as they apply to the financial statements of the Group for the year ended 31 July 2009 and applied in accordance with the Companies Act 2006.


The accounting policies which follow set out those policies which apply in preparing the financial statements for the year.


The financial statements are prepared under the historical cost convention, except where otherwise stated.  


The Company has elected to take the exemption under section 230 of the Companies Act 2006 not to present the parent company's income statement. The parent company's result for the period ended 31 July 2009 was a profit of £287,000 (year to 31 December 2008: £nil).


The Group financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£000) except where otherwise indicated.


                Basis of consolidation

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


                Reverse acquisition of Evolutec Group PLC

On 30 April 2009, Evolutec Group PLC completed the acquisition of Nanoco Tech Limited (formerly Nanoco Tech PLC) in a share for share consideration exchange as detailed in note 23, at which time the Company also changed its name to Nanoco Group PLC.


The combination has been accounted for as a reverse acquisition equity transaction as if Nanoco Tech Limited had issued new shares in exchange for Evolutec Group PLC's cash and other assets. Although these Group financial statements have been issued in the name of the legal parent, the Group's activity is in substance a continuation of that of the legal subsidiary, Nanoco Tech Limited, because after the transaction the former Board of Nanoco Tech Limited were deemed to have control of the Group and of the legal parent. The following accounting treatment has been applied in respect of the transaction.

  2.            Accounting policies (continued)

               Acquisition of Nanoco Tech Limited by Evolutec Group PLC (continued)


  • The retained loss and other equity balances recognised in the Group financial statements reflect the consolidated retained loss and other equity balances of Nanoco Tech Limited immediately before the transaction, and the consolidated results for the period from 1 August 2008 to the date of the transaction are those of Nanoco Tech Limited. However, the equity structure appearing in the Group financial statements reflects the equity structure of the legal parent, including the equity instruments issued under the share for share exchange to effect the transaction. The effect of using the equity structure of the legal parent gives rise to an adjustment to the Group's issued equity capital ("the reverse acquisition reserve"), see note 18.

  • Comparative numbers presented in the Group financial statements are those reported in the consolidated financial statements of the legal subsidiary, Nanoco Tech Limited, for the year ended 31 July 2008.

  • The fair value of the shares issued by Nanoco Group PLC has been determined from the perspective of Nanoco Tech Limited on the basis set out in note 23.

  • The Company's financial statements and related notes are for the legal parent for the period from 1 January 2009 to 31 July 2009 and present comparative information for the year from 1 January 2008 to 31 December 2008.


                Pooling of interests method of consolidation

The purchase of Nanoco Technologies Limited by Nanoco Tech Limited on 27 June 2007 has been treated as a re-organisation using the pooling of interests method of accounting. It has therefore been presented as if the entities had always been combined. Therefore, on consolidation the assets and liabilities were reflected at carrying value rather than fair value. No goodwill arose on the combination, and the difference between the nominal value of shares issued by Nanoco Group PLC and the nominal value of the ordinary shares of Nanoco Technologies Limited, together with the capital and reserves of Nanoco Technologies Limited at the time of the pooling of interests, are shown as "merger reserve" in the consolidated financial statements.


                Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than half of the voting rights. The existence and effects of potential voting rights are considered when assessing whether the Group controls the entity. Subsidiaries are fully consolidated from the date control passes.


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


All intra-group transactions, balances, and unrealised gains on transactions between group companies are eliminated on consolidation. Subsidiaries' accounting policies are amended where necessary to ensure consistency with the policies adopted by the Group. All financial statements are made up to 31 July 2009.


                Foreign currency translation

Items included in the financial statements of each entity are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The financial statements are presented in sterling, being the Group's presentational currency.


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


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

  

2.            Accounting policies (continued)


                Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or a service within a particular environment that are subject to risks and returns that are different from those segments operating in other economic environments.


                Revenue recognition

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


The Group's revenues to date comprise amounts earned under joint development agreements and individual project development programmes, revenue from the sale of quantum dot products and grant income recognised. Revenues from development programmes are recognised following contractual entitlement. This typically comprises either time based fees, time and materials expended or time and technical milestones achieved, as agreed between the parties. Grant income is recognised as earned based on contractual conditions, generally as expenses are incurred.


                Interest income

                Interest income is recognised as interest accrues using the effective interest rate method.


                Research and development

Research costs are charged against the statement of comprehensive income as they are incurred. Certain development costs will be capitalised as intangible assets when it is probable that the future economic benefits will flow to the Company. Such intangible assets will be amortised on a straight-line basis from the point at which the assets are ready for use over the period of the expected benefit, and are reviewed for impairment at each balance sheet date. Other development costs are charged against income as incurred since the criteria for their recognition as an asset are not met.


        The criteria for recognising expenditure as an asset are:


  • it is technically feasible to complete the product;

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

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

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

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

  • expenditure attributable to the product can be reliably measured.


The costs of an internally generated intangible asset comprise all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Directly attributable costs include employee costs incurred on technical development, testing and certification, materials consumed and any relevant third party cost. The costs of internally generated developments are recognised as intangible assets and are subsequently measured in the same way as externally acquired intangible assets. However, until completion of the development project, the assets are subject to impairment testing only.


Careful judgement by the Directors is applied when deciding whether the recognition requirements for development costs have been met. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems at the time of recognition. Judgements are based on the information available at each Balance Sheet date which includes the progress with testing and certification and progress on, for example, establishment of commercial arrangements with third parties. In addition, all internal activities related to research and development of new products are continuously monitored by the Directors.


        No development costs to date have been capitalised as intangible assets.


        Leases

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

  

2.    Accounting policies (continued) 


        Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.


The expense relating to any provision is presented in the income statement, net of any expected reimbursement, but only where recoverability of such reimbursement is virtually certain.  


Provisions are discounted using a current pre tax rate that reflects, where appropriate, the risk specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.


        Financial assets and liabilities

Financial assets are recognised when the Group becomes party to the contracts that give rise to them and are classified as financial assets at fair value through the profit and loss; loans and receivables; held-to-maturity investments; or as available-for-sale financial assets, as appropriate. The Group determines the classification of its financial assets at initial recognition and re-evaluates this designation at each financial year end.  


At the year end, the Group had no financial assets or liabilities designated as at fair value through the profit and loss (2008: nil).


        Derecognition of financial assets and liabilities

A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.


        Taxation

        Current income tax

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


        Deferred income tax

Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, except to the extent that the directors do not anticipate that the timing differences will crystallise in the foreseeable future, and with the following exceptions:


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

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

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


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

  2.    Accounting policies (continued)


        Investments in subsidiaries

        Investments in subsidiaries are stated in the Company balance sheet at cost less provision for any impairment.


        Plant and equipment

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


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


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


        Laboratory infrastructure                                 -    straight line over ten years

        Plant and machinery, fixtures and fittings    -    straight line over five years

        Office equipment                                              -    straight line over three years


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


An item of plant and equipment is derecognised on disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the derecognition of the asset is included in the income statement in the period of derecognition.


        Intangible assets

Intangible assets acquired either as part of a business combination or from contractual or other legal rights are recognised separately from goodwill provided they are separable and their fair value can be measured reliably.  


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


        Patents                    -    straight line over ten years


        Impairment of assets

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


An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying value of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used, these calculations corroborated by valuation multiples, or other available fair value indicators. Impairment losses on continuing operations are recognised in the income statement in those expense categories consistent with the function of the impaired assets.

  2.            Accounting policies (continued)


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


                Inventories

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


                Trade and other receivables

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


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


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


               Government grants

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


Government grants of a revenue nature are deferred and recognised in the income statement in line with the terms of the underlying grant agreement.


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


                Cash and cash equivalents

Cash and cash equivalents comprise cash at hand and deposits with an original term of not greater than 3 months.


                Trade and other payables

Trade and other payables are not interest bearing and are initially recognised at fair value. They are subsequently measured at amortised cost using the effective interest rate method.


                Borrowings

Borrowings are recognised when the Group becomes party to the related contracts and are measured initially at fair value, net of directly attributable transaction costs incurred. After initial recognition, borrowings are stated at amortised cost.


Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.


                Share capital

Proceeds on issue of shares are included in shareholder's equity, net of transaction costs. The carrying amount is not remeasured in subsequent years.

  Shares held by Employee Benefit Trust

Where an employee acquires an interest in shares in the Company jointly with the Nanoco Tech Employee Share Trust, the fair value benefit of these attributable to the employee at the purchase date is recognised as a company expense, with a corresponding increase to equity share based payments reserve, over the period to the earliest date on which the employee becomes entitled to exercise an option to acquire the Trustees interest in the jointly owned shares at the option price.


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


Share-based payments

The Company undertakes equity settled share-based payment transactions with certain employees.  


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


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


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


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


Accounting standards and interpretations not applied

At the date of authorisation of these financial statements, the following Standards and Interpretations relevant to the operations of the Group that have not been applied in these financial statements were in issue but not yet effective or endorsed (unless otherwise stated).


The effective dates stated here are those given in the original IASB standards and interpretations. As the Group prepares its financial statements in accordance with IFRS, the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU Endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Group's discretion to early adopt standards: 




Effective Date




IFRS 2

Share based payment (amendments)

1 January 2009

IFRS 3 

Business Combinations (revision)

1 July 2009

IFRS 7 

Financial Instruments: Disclosures (amendments)

1 January 2009

IFRS 8 

Operating Segments

1 January 2009

IFRS 8 

Operating Segments (amendments)

1 January 2010

IAS 1 

Presentation of Financial Statements (revision)

1 January 2009

IAS 1

Presentation of Financial Statements (amendments)  

1 January 2009

IAS 7

Statement of Cash Flows (amendments)

1 January 2009

IAS 16

Property, plant and equipment (amendments)

1 January 2009

IAS 17

Leases (amendments)

1 January 2010

IAS 18

Revenue (amendments)

1 January 2009

IAS 19

Employee Benefits (amendments)

1 January 2009

IAS 27

Consolidated and Separate Financial Statements (revision)

1 July 2009

IAS 27

Consolidated and Separate Financial Statements (amendments)

1 January 2009

IAS 32

Financial Instruments: Presentation (amendments)

1 January 2009

IAS 36

Impairment of Assets (amendments)

1 January 2009

IAS 38

Intangible Assets (amendments)

1 January 2009

IAS 39

Financial Instruments: Recognition and Measurement (amendments)

1 January 2009


The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.

  3.    Judgements and key sources of estimation uncertainty 


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


The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.


Fair value of shares issued in reverse acquisition of Evolutec Group PLC

As described in note 23, the shares that were deemed to have been issued as consideration for the assets of Evolutec Group PLC have been recorded at the directors' estimate of fair value at 30 April 2009. In estimating fair value, the directors concluded that the quoted market price of the Evolutec Group PLC shares at 30 April 2009 were not a reliable basis of measurement due to limited liquidity in the market for such shares. The directors have based their estimate of fair value on forecast financial information, supported by the terms on which the reverse acquisition was agreed with Evolutec Group PLC and approved by the Nanoco Tech shareholders.


Equity settled share-based payments

The estimation of share-based payment costs requires the selection of an appropriate valuation method, consideration as to the inputs necessary for the valuation model chosen and the estimation of the number of awards that will ultimately vest, inputs for which arise from judgements relating to the future volatility of the share price of comparable companies, the Company's expected dividend yields, risk free interest rates and expected lives of the options. The Directors draw on a variety of sources to aid in the determination of the appropriate data to use in such calculations. 


Provisions for irrecoverable receivables

Provisions for irrecoverable receivables are based on extensive historical evidence, and the best available information in relation to specific issues, but are nevertheless inherently uncertain.


4.    Segmental information 


Primary reporting format - business segments

At 31 July 2009 the Group operated in one business segment, being the provision of high performance nano particles for research and development purposes. All revenues have been generated from continuing operations and are from external customers.

Secondary reporting format - geographical segments

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

 


31 July 2009

31 July 2008


£000

£000

Revenue



UK

170

86

Europe (excluding UK)

63

15

Asia

1,697

946

USA

64

31


1,994

1,078


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

  

5.    Operating loss



31 July 2009

31 July 2008

The Group

£000

£000

Operating loss is stated after charging/(crediting):



Depreciation on plant and equipment (see note 10)

233

167

Amortisation of intangible assets (see note 11)

39

19

Cost of reverse acquisition (see note 23)

195

-

Staff costs (see note 6)

981

875

Foreign exchange (gains)/loss

(4)

5

Grants receivable

(168)

(84)

Operating lease rentals (see note 22):



Land and buildings

122

100

Auditor's remuneration:



Audit services



- Fees payable to company auditor for the audit of the parent and
  the consolidated accounts

11

15

 Fees payable to company auditor for other services



- Auditing the accounts of subsidiaries pursuant to legislation

14

-

- Other services* 

28

31

Total auditor’s remuneration

53

46


*In addition £65k of fees are payable to the company auditors in relation to the re-admission to AIM.  

        


  6.    Staff costs


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


31 July 2009

31 July 2008

The Group

Number

Number

Executive directors

2

2

Laboratory and administrative staff

24

16


26

18




31 July 2009

31 July 2008


£000

£000

Wages and salaries

828

740

Social security costs

81

82

Share based payments

72

53


981

875




Directors' remuneration included in the aggregate remuneration above comprised:



Emoluments for qualifying services

335

286


Directors emoluments disclosed above include £192,000 paid to the highest directors (2008: £166,000).

7.    Finance income/(cost)



31 July 2009

31 July 2008

The Group

£000

£000

Finance income



Bank interest receivable

57

122

Finance cost:



Loan interest payable

(25)

(35)


32

87


  

8.    Taxation



31 July 2009

31 July 2008

The Group

£000

£000

Current tax:



UK corporation tax losses in the year



Research and development tax credit receivable

(254)

(147)

Prior year adjustment

14

-

Current deferred tax

-

-

Tax credit on loss on ordinary activities

(240)

(147)



31 July 

2009

31 July 

2008

The Group

£000

£000

Factors affecting tax charge for the year:



The tax assessed for the year varies from the standard rate of corporation tax as explained below:



Loss on ordinary activities before taxation

(780)

(698)

Tax at standard rate of 28.0% (2008: 29.3 %)

(218)

(205)

Effects of:



Expenses not deductible for tax purposes

75

26

Capital allowances in excess of depreciation

(47)

(7)

Additional reduction for research and development expenditure

(190)

(90)

Surrender of research and development relief for repayable tax credit

380

269

Research and development tax credit receivable

(254)

(147)

Tax losses brought forward

-

7

Prior year adjustment

14

-

Current tax credit

(240)

(147)


The effective rate of tax in both the year end and the prior year takes account of the decrease in the standard rate of corporation tax in the UK to 28% from 30% from April 2008.


The Group has accumulated losses available to carry forward against future trading profits. No deferred tax asset has been recognised in respect of tax losses since it is uncertain at the balance sheet date as to whether future profits will be available against which the unused tax losses can be utilised. The estimated value of the deferred tax asset not recognised, measured at a standard rate of 28% (2008: 28%) is £270,000 (2008: £237,000). 


The Group also has accelerated capital allowances of £258,000 for which no deferred tax liability has been provided (2008: £94,000).

   

9.    Earnings per share

    Basic


31 July 2009

31 July 2008

The Group

£000

£000

Loss attributable to the equity holders of the Company

(540)

(551)


Number

Number


000

000

Weighted average number of shares



Weighted average number of ordinary shares in issue during the period

171,646,252

149,367,039

Loss per share



Basic on loss for the year

(0.31)p

(0.37)p

The weighted average number of shares for the year ended 31 July 2009 is based on the number of shares issued by Nanoco Group PLC to acquire Nanoco Tech Limited for the period up to acquisition (adjusted for the impact of shares issued by Nanoco Tech Limited in the year) and the weighted average number of shares in issue for the period since the acquisition. The weighted average number of shares for the year ended 31 July 2008 reflects the number of ordinary shares issued by Nanoco Group PLC to acquire Nanoco Tech Limited, adjusted for shares issued by Nanoco Tech Limited in that year.


Diluted


31 July 2009

31 July 2008

The Group

£000

£000

Loss attributable to the equity holders of the Company

(540)

(551)


Number

Number


000

000

Weighted average number of shares



Weighted average number of ordinary shares in issue during the period

171,646,252

149,367,039

Adjustments for:



Share options

4,370,927

2,799,804

Weighted average number of ordinary shares for diluted earnings per share 

176,017,179

152,166,843

Loss per share



Diluted on loss for the year

(0.31)p

(0.36)p


Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares in issue during the period to a assume conversion of all dilutive potential ordinary shares.


   10.    Plant and equipment 



Laboratory infrastructure

Office equipment, fixtures and fittings

Plant and machinery

Total

The Group

£000

£000

£000

£000

Cost





At 1 August 2007

905

28

176

1,109

Additions

-

172

140

312

Grant received

(50)

-

-

(50)

At 31 July 2008

855

200

316

1,371

Additions

837

65

340

1,242

Grant received

(32)

-

-

(32)

Reclassification

-

(106)

106

-

At 31 July 2009

1,660

159

762

2,581

Depreciation





At 1 August 2007

33

4

17

54

Provided during the year

87

37

43

167

At 31 July 2008

120

41

60

221

Provided during the year

94

68

71

233

Reclassification

-

(41)

41

-

At 31 July 2009

214

68

172

454

Net book value:





At 31 July 2009

1,446

91

590

2,127

At 31 July 2008

735

159

256

1,150

At 31 July 2007

872

24

159

1,055


11.    Intangible assets



Patents

The Group

£000

Cost


At 1 August 2007

178

Additions

145

At 31 July 2008

323

Additions

136

At 31 July 2009

459

Amortisation


At 1 August 2007

25

Provided during the year

19

At 31 July 2008

44

Provided during the year

39

At 31 July 2009

83

Net book value:


At 31 July 2009

376

At 31 July 2008

279

At 3 July 2007

153

  

12.    Investment in subsidiaries



Shares

Loans

Loan Provision

Total

The Company

£000

£000

£000

£000

At 1 January 2008 and 31 December 2008

5,338

26,483

(26,030)

5,791

Additions

-

167

-

167

Impairment

(5,338)

-

-

(5,791)

Repayment of loan

-

(6,197)

6,197

-

Increase in loan provision

-

-

(453)

(453)

Acquisition of subsidiary

63,255

-

-

63,255

At 31 July 2009

63,255

20,453

(20,286)

63,422


On 30 April 2009 the Company acquired 100 per cent. of the issued share capital of Nanoco Tech Limited for a consideration satisfied by the issue of 158,138,036 ordinary shares of 10p each credited as a fully paid at 40p each, being the quoted market price of the Company's shares on completion of the acquisition and re-admission to AIM (see note 23).


Loans to subsidiary undertakings carry no interest and are repayable on demand and carry interest. Further information in relation to these loans is given in note 25.






Share of issued ordinary share capital

Subsidiary undertakings

Country of incorporation

Principal Activity

31 July 2009

31 December 2008

Nanoco Life Sciences Limited (formerly Evolutec Limited)

England and Wales

Research and development

100%

100%

Nanoco Tech Limited

England and Wales

Holding company

100%

-

Nanoco Technologies Limited*

England and Wales

Research and develop nano particles

100%

-


*Share capital is owned by Nanoco Tech Limited. All other shareholdings are owned by Nanoco Group PLC.

13.    Inventories



31 July 2009

31 July 2009

31 July 2008

31 December 2008


Group

Company

Group

Company


£000

£000

£000

£000

Raw materials and consumables

17

-

9

-


  

14.    Trade and other receivables



31 July 2009

31 July 2009

31 July 2008

31 December 2008


Group

Company

Group

Company


£000

£000

£000

£000

Trade receivables

101

-

12

-

Less: provision for doubtful debts

-

-

(5)

-

Net trade receivables

101

-

7

-

Prepayments 

118

-

188

-

Other receivables

159

-

41

-


378

-

236

-


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


Trade receivables are denominated in the following currencies:



31 July 2009

31 July 2009

31 July 2008

31 December 2008


Group

Company

Group

Company


£000

£000

£000

£000

Sterling

84

-

1

-

US dollars

17

-

6

-


101

-

7

-


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



Total

Neither past due or impaired

<30 days

Past due but not impaired 30 to 60 days


£000

£000

£000

£000

2009

101

101

-

-

2008

7

7

-

-


Movements in the provision for doubtful debts were as follows:



31 July 2009

31 July 2009

31 July 2008

31 December 2008


Group

Company

Group

Company


£000

£000

£000

£000

At beginning of period

5

-

4

-

Amounts written off

-

-

(5)

-

Unused amounts reversed

(5)

-

6

-

At end of period 

-

-

5

-







  15.    Cash and cash equivalents



31 July 2009

31 July 2009

31 July 2008

31 December 2008


Group

Company

Group

Company


£000

£000

£000

£000

Cash at bank and on hand

6,589

5,939

2,528

-


An analysis of cash at bank and on hand denominated currency is given in note 24

 

16.    Trade and other payables



31 July 2009

31 July 2009

31 July 2008

31 December 2008


Group

Company

Group

Company


£000

£000

£000

£000

Trade payables

144

-

149

-

Other payables

72

-

63

-

Accruals

160

-

167

-


376

-

379

-


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


17.    Financial liabilities



31 July 2009

31 July 2009

31 July 2008

31 December 2008


Group

Company

Group

Company


£000

£000

£000

£000

Non-current





Other loan

412

-

475

-

Loan from subsidiary

-

316

-

-

Current





Other loan

63

-

63

-


475

316

538

-


The Directors consider that the carrying amount of financial liabilities approximate to their fair value.


Loans from subsidiaries bear no interest and have no formal terms of repayment in place, see note 25 for further details.


The other loan is unsecured, bears interest at 2 per cent. above base rate and is repayable in quarterly instalments.

  18. Issued equity capital




Share capital

Share premium

Reverse acquisition reserve

Total

The Group

Number

£000

£000

£000

£000

Authorised ordinary shares of 10p:






Nanoco Tech Limited






As at 31 July 2008 and 31 July 2007

100,000,000

10,000

-

-

10,000

Nanoco Group PLC






As at 1 August 2008 

77,000,000

7,700

-

-

7,700

Increase in authorised share capital

173,000,000

17,300

-

-

17,300

At 31 July 2009

250,000,000

25,000

-

-

25,000

Allotted, issued and fully paid ordinary shares of 10p:






Nanoco Tech Limited






As at 1 August 2007 

31,551,983

3,151

1,688

-

4,839

Issue of shares

2,583,632

258

1,447

-

1,705

As at 31 July 2008

34,095,615

3,409

3,135

-

6,544

Nanoco Group PLC






As at 1 August 2008 

25,949,996

2,595

24,442

-

27,037

Share premium on treasury shares reclassified to EBT (see note 21)

-

-

(20)

-

(20)

Shares issued to acquire Nanoco Tech Limited (see note 12)

158,138,036

15,814

47,441

-

63,255

Arising on reverse acquisition of Nanoco Tech Limited

-

-

-

(77,466)

(77,466)

Expenses of issue of shares

-

-

(455)

-

(455)

At 31 July 2009

184,088,032

18,409

71,408

(77,466)

12,351


As outlined in note 2, the retained loss and other equity balances recognised in the Group financial statements reflect the consolidated retained loss and other equity balances of Nanoco Tech Limited immediately before the business combination, and the consolidated results for the period from 1 August 2008 to the date of the acquisition by Nanoco Group PLC are those of Nanoco Tech Limited. However, the equity structure appearing in the Group financial statements reflects the equity structure of the legal parent, including the equity instruments issued under the share for share exchange to effect the transaction. The effect of using the equity structure of the legal parent gives rise to an adjustment to the Group's issued equity capital in the form of a reverse acquisition reserve.


On 30 April 2009 the authorised share capital was increased from £7,700,000 to £25,000,000 by the creation of 173,000,000 ordinary shares of 10p each. On 30 April 2009 the Company issued 158,138,036 ordinary shares of 10p each as consideration for the acquisition of Nanoco Tech Limited.

  18. Issued equity capital (continued)




Share Capital

Share Premium

Total

The Company

Number

£000

£000

£000

Authorised ordinary shares of 10p:





As at 1 January, 31 July and 31 December 2008

77,000,000

7,700

-

7,700

Increase in authorised share capital

173,000,000

17,300

-

17,300

At 31 July 2009

250,000,000

25,000

-

25,000

Allotted, issued and fully paid ordinary shares of 10p:





As at 1 January, 31 July and 31 December 2008

25,949,996

2,595

24,442

27,037

Share premium on treasury shares reclassified to EBT (see note 21)

-

-

(20)

(20)

Shares issued to acquire Nanoco Tech Limited (see note 12)

158,138,036

15,814

47,441

63,255

Expenses of issue of shares

-

-

(455)

(455)

At 31 July 2009

184,088,032

18,409

71,408

89,817



19. Share based payments


Share options and shares held in employee benefit trust ("EBT")


The Group operates an EMI scheme for the benefit of employees. Share options are granted to all employees. The exercise price of the options is equal to the estimated market price of the shares on the date of grant. The options vest 3 years from the date of grant. The options are accounted for as equity settled share based payment transactions. Share options have also been granted to non employees, these have been measured using the indirect method.


The Group also operates a jointly owned EBT share scheme for senior management under which the trustee of the Group sponsored EBT has acquired shares in the Company jointly with a number of employees. The shares were acquired pursuant to certain conditions, set out in Jointly Owned Equity agreements ("JOE's"). Subject to meeting the performance criteria conditions set out in the JOE's, the employees are able to exercise an option to acquire the trustee interests in the jointly owned EBT shares at the option price. All of the relevant conditions had been successfully met by 31 July 2009 and the option to acquire the trustee interests are capable of being exercised at anytime from 31 October 2009 to 31 August 2016. The fair vale benefit is measured using the Black Scholes valuation model, taking into account the terms and conditions upon which the jointly owned shares were purchased. 


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



2009

2008


EMI

EBT

Unapproved

Total

Total

The Group

Number

Number

Number

Number

Number

Outstanding at 1 August

1,610,000

826,209

85,000

2,521,209

2,366,209

Granted during the year

163,000

-

-

163,000

185,000

Exercised during the year

(15,000)

-

-

(15,000)

-

Forfeited during the year

-

-

-

-

(30,000)

Adjustment on reverse acquisition

6,240,900

2,933,042

301,750

9,475,692

-

Outstanding at 31 July

7,998,900

3,759,251

386,750

12,144,901

2,521,209

Exercisable at 31 July 

-

-

-

-

-


  

19. Share based payments (continued) 


Weighted average exercise price of options



2009

2008

The Group

pence

pence

Outstanding at 1 August

20.8

17.9

Granted during the year

66.0

66.0

Exercised during the year

66.0

-

Adjustment on reverse acquisition

(18.5)

-

Outstanding at 31 July

5.2

20.8


On 30 April the Company acquired 100 per cent. of the issued share capital of Nanoco Tech Limited for consideration satisfied by the issue of 158,138,036 ordinary shares of 10 pence each in a ratio of 1:4.55. Consequentially the number of share options and jointly owned shares held by the EBT has increased by 4.55 times, and the exercise price has decreased by 4.55 times and reflected as an adjustment on reverse acquisition, see note 23 for further details.


The weighted average fair value of options granted during the year was 14.5p (66p pre adjustment on reverse acquisition), (2008: 66p). The range of exercise prices for options and jointly owned EBT shares outstanding at the end of the year was 3.52p-14.5p (16p-66p pre adjustment on reserve acquisition), (2008: 16p-66p).


For the share options outstanding as at 31 July 2009, the weighted average remaining contractual life is 170 days (2008: 535 days).


The fair value of equity-settled share options and jointly owned EBT shares granted is estimated as at the date of grant using the Black Scholes model, taking into account the terms and conditions upon which the options were granted.  


A charge of £72,000 has been recognised in the income statement for the year (2008: £95,000).  


The following table lists the inputs to the Black Scholes model used for the years ended 31 July 2009 and 31 July 2008.



The Group

Granted year to 31 July 2009

Granted year to 31 July 2008

Dividend yield

-

-

Expected volatility

50.0

50.0

Risk free interest rate

4.5

4.5

Expected vesting life of options (years)

3.0

3.0

Weighted average exercise price (pence)

66.0

66.0

Weighted average share price at date of grant (pence)

66.0

66.0


During the year no shares obtained under unapproved options were replaced by jointly owned shares transferred to the Employee Benefit Trust (2008: 826,209 shares were transferred, at 66p per share for a value of £545,000).


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


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

  

20.    Merger reserve


The Group

£000

At 1 August 2007

-

Arising on reorganisation (see note 2) 

1,242

At 31 July 2008 and 31 July 2009

1,242

As disclosed in note 2, the merger reserve arises under section 131 of the Companies Act 1985 on the shares issued by Nanoco Tech Limited to acquire Nanoco Technologies Limited as part of a simple Group re-organisation on 27 June 2007.

21.    Movement in revenue reserve and treasury shares


The Group

Retained deficit

Treasury shares

Revenue reserve


£000

£000

£000

Ordinary shares of 10p:




As at 1 August 2007 

(869)

-

(869)

Loss for the year

(551)

-

(551)

Purchase of treasury shares

-

(545)

(545)

As at 31 July 2008

(1,420)

(545)

(1,965)

Loss for the year

(540)

-

(540)

Arising on reverse acquisition of Nanoco Tech Limited

20

(20)

-

At 31 July 2009

(1,940)

(565)

(2,505)


Shares in the Company that are held by the Group-sponsored Employee Benefit Trusts ("EBT") are included in the Group financial statements and classified as Treasury Shares. At 31 July 2009 3,771,473 shares in the Company were held by EBTs (31 July 2008: 826,209 shares).




Retained deficit

Treasury Shares

Revenue reserve

The Company

£000

£000

£000

Ordinary shares of 10p:




Nanoco Group PLC




As at 1 January 2008 and 31 December 2008 

(26,030)

(20)

(26,050)

Treasury shares reclassified to EBT (see note 18)

-

20

20

Profit for the period

287

-

287

At 31 July 2009

(25,743)

-

(25,743)


  22.    Commitments

Operating lease commitments


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



31 July 2009

31 July 2009

31 July 2008

31 December 2008


Group

Company

Group

Company


£000

£000

£000

£000

Land and buildings:





Not later than one year

134

-

100

-

After one year but not more than five years

400

-

400

-

After five years

367

-

467

-


901

-

967

-

 

23.   Acquisition of subsidiary undertaking


On 30 April 2009 the Company acquired 100 per cent. of the issued share capital of Nanoco Tech Limited ("Nanoco Tech") for consideration satisfied by the issue of 158,138,036 ordinary shares of 10 pence each. The directly attributable costs of the transaction amounted to £455,000.  


As described in note 2, the transaction has been accounted for as a reverse acquisition equity transaction as if Nanoco Tech Limited had issued new shares in exchange for Evolutec Group PLC's cash and other assets. The substance of the transaction is that of a share issue fund raising under which Nanoco Tech received cash and bank balances of £5,892,000 representing 98.9 per cent. of the value of the net assets of Evolutec Group PLC and the associated costs of the transaction have therefore been charged directly against equity share capital.


The fair value of the shares issued has been determined from the perspective of Nanoco Tech. The directors of Nanoco Tech negotiated the acquisition terms on the basis that Nanoco Tech had a total fair value worth of £37.5 million and that its shareholders would be diluted to 14.1 per cent. in the enlarged Group. This gives an implied fair value of shares issued of £6,154,000 which is £195,000 higher than the value of the net assets deemed acquired as set out below: 



Evolutec Group PLC


£000

Net assets acquired:


Bank and cash

5,892

Trade and other receivables

308

Trade and other payables

(241)


5,959

Cost of reverse acquisition

195

Fair value of reverse acquisition

6,154


The difference between the fair value of the transaction and the net assets acquired has been recorded as a cost of reverse acquisition in the income statement.


The fair value of the assets deemed to have been acquired has been assessed as the book value on the acquisition date. 


As described in note 2, the results of Evolutec Group PLC have been included in the consolidated financial statements from 30 April 2009. Evolutec Group PLC and its subsidiary, Evolutec Limited, did not contribute any material revenues or profits and/losses since the date of acquisition. If Evolutec Group PLC had been a member of the Group from 1 August 2008 it would have likewise not contributed any material revenues or profits and losses.


Evolutec Group PLC changed its name to Nanoco Group PLC on completion of the acquisition on 30 April 2009 and was re-admitted to AIM on 1 May 2009.


24.    Financial instruments


Capital risk management

The Company manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders.  


The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising issued share capital, reserves and retained earnings as disclosed in notes 18, 20 and 21 and in the Group Statement of Changes in Equity.


The Group's principal financial liabilities comprise trade payables and loans given. The main purpose of these financial liabilities is to raise finance for the Group's operations. The Group has various financial assets such as trade receivables and cash and short-term deposits, which arise directly from its operations.


The Group does not currently enter into derivative transactions such as interest rate swaps and forward currency contracts.


Categorisation of financial instruments

 
Loans and receivables
Financial liabilities at amortised cost
Total
Financial assets/liabilities
£000
£000
£000
31 July 2009
 
 
 
Trade and other receivables
101
-
101
Cash and cash equivalents
6,589
-
6,589
Trade and other payables
-
(376)
(376)
Financial liabilities
-
(475)
(475)
 
6,690
(851)
5,839
31 July 2008
 
 
 
Trade and other receivables
7
-
7
Cash and cash equivalents
2,528
-
2,528
Trade and other payables
-
(379)
(379)
Financial liabilities
-
(538)
(538)
 
2,535
(917)
1,618


The main risks arising from the Group's financial instruments are credit risk and foreign currency risk. The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.


Other loans are subject to interest at base rate plus 2 per cent., however as the Group's cash deposits which attract interest at floating rates, are of a greater amount, any increase in base rate and thus interest payable would be more than offset by higher interest income.


  24.    Financial instruments (continued)

Credit risk

The Group's principal financial assets are cash and cash equivalents. The Group seeks to limit the level of credit risk on the cash balances by only depositing surplus liquid funds with counterparty banks that have high credit ratings.


The company trades only with recognised, creditworthy third parties. Receivable balances are monitored on an ongoing basis with the result that the group's exposure to bad debts is not significant. The Group's maximum exposure is the carrying amount as disclosed in note 14. 


There are no significant concentrations of credit risk within the group.


Foreign currency risk

The company has transactional as well as translational currency exposures. Such exposure arises from sales or purchases in currencies other than the functional currency. There are no material sensitivities which require disclosure.



31 July 2009

31 July 2008


GBP

USD

Total

GBP

USD

Total

The Group

£000

£000

£000

£000

£000

£000

Cash and cash equivalents

6,566

23

6,589

2,268

260

2,528

Trade receivables

84

17

101

1

6

7


6,650

40

6,690

2,269

266

2,535

Interest rate risk

As the Group has no significant borrowings the risk is limited to the reduction of interest received on cash surpluses held at bank which receive a floating rate of interest. The principal impact to the Group is the result of interest-bearing cash and cash equivalent balances held as set out below:



31 July 2009

31 July 2008


Fixed rate

Floating rate

Total

Fixed rate

Floating rate

Total

The Group

£000

£000

£000

£000

£000

£000

Cash and cash equivalents

5,896

693

6,589

2,169

359

2,528


As the majority of cash and cash equivalents are held on fixed deposit the exposure rate is immaterial.

Maturity profile

Set out below is the maturity profile of the Group's financial liabilities at 31 July 2009 based on contractual undiscounted payments.



Less than 1 year

1 to 5 years

Greater than 5 years

Total

2009

£000

£000

£000

£000

Financial liabilities





Trade and other payables

376

-

-

376

Other loans

63

253

159

475


439

253

159

851


  24.    Financial instruments (continued)



Less than 1 year

1 to 5 years

Greater than 5 years

Total

2008

£000

£000

£000

£000

Financial liabilities





Trade and other payables

149

-

-

149

Other loans

63

253

222

538


213

253

222

688


The Directors consider that the carrying amount of the financial liabilities to approximates to their fair value.


The Group's policies in respect of managing liquidity risk are set out in the Directors' report.


As all financial assets are expected to mature within the next twelve months an aged analysis of financial assets has not been presented.


25.    Related party transactions


Terms and conditions of transactions with related parties:


The Group:

There are no sales to related parties. Purchases from related parties are made at normal market prices. Outstanding balances at the year end are unsecured, interest free and settlement occurs in cash.


Included within borrowings is an amount of £475,000 (2008: £538,333) as set out in note 17 that is owing to The University of Manchester, a substantial shareholder in Nanoco Group PLC. There is a formal interest-bearing loan agreement in place which confirms that the loan is wholly repayable by 2017.


During the year ended 31 July 2009, consultancy fees of £22,000 (2008: £36,000) have been charged through the income statement in respect of Paul O'Brien, a former director of Nanoco Tech Limited. The outstanding balance at 31 July 2009 was £1,000 (2008: Nil).


During the year ended 31 July 2009, no monitoring fees (2008: £16,867) have been charged through the income statement in respect of Ora Capital Partners Limited which is a substantial shareholder in Nanoco Group PLC.  


During the year ended 31 July 2009, monitoring fees of £10,000 and arrangement fees of £25,000 (2008: £13,145 and £nil) have been charged through the income statement in respect of Aquarius Equity Partners Limited. The outstanding balance as at 31 July 2009 was nil (2008: £12,500). Aquarius Equity Partners Limited is the manager of a seed fund, which was a substantial shareholder in Nanoco Group PLC during the period.

 

The Company:

As detailed in note 12, there is an amount of £20,286,000 (2008: £26,483,000) owing from Nanoco Life Sciences Limited to Nanoco Group PLC. A write down provision of £20,286,000 (2008: £26,030,000) is held against this loan.  


In addition, there is an amount owing from Nanoco Technologies Limited of £167,000 (2008: £nil). 


There are no formal terms of repayment in place for either of the loans and it has been confirmed by the directors that the loans will not be recalled within the next twelve months.


In addition, an amount of £316,000 is owed to Nanoco Technologies Limited (2008: £nil). This amount is repayable within the next twelve months. The loan in non-interest bearing.


Directors' remuneration. 

The remuneration of the individual Directors is provided in the Directors' Remuneration Report and disclosed in note 6 of the financial statements.

  25.    Related party transactions (continued)




 Year ended 31 July 2009

Year ended 31 December 2008

Short-term employment benefits

Total Benefits

Employer's National Insurance Contribution

Total Cost to Company

Total Cost to Company


£000

£000

£000

£000

Dr P Rowley

10

2

12

-

Dr M Edelman

192

20

212

182

Dr N Pickett

127

13

140

121

Mr M Bretherton

3

-

3

-

Mr G Hall

3

-

3

12




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