Final Results

Immersion Technologies Intl PLC 28 December 2007 IMMERSION TECHNOLOGIES INTERNATIONAL PLC ('Immersion' or the 'Company') FINAL RESULTS FOR PERIOD ENDED 30 JUNE 2007 Immersion Technologies International plc, which specialises in the design, manufacture and supply of high definition acoustic 'HD-ATM' technology, announces its results for the period from 2 March 2006 to 30 June 2007. HIGHLIGHTS â€¢ Listing on AIM achieved in April 2007 via reverse takeover of St. James' Energy plc â€¢ Order worth up to US$12.1 million secured from Nakamichi Corporation Limited â€¢ Nanjing manufacturing facility commissioned and completed â€¢ New sales office established in Singapore â€¢ New licence agreement secured with Alpine Electronics (UK) Limited â€¢ New prototypes developed, proving depth and quality of technology and providing significant scope for product differentiation for CE manufacturers Craig Evans, Immersion's CEO, commented: 'This has been a busy year. We have advanced the business at a corporate, financial and operational level. New products have been developed, built upon our unique sound technology. We have also added manufacturing capability to this technology, so we are not purely reliant on licensing revenue. The Company is now listed on a recognised stock exchange, giving investors across the world the opportunity to take part in the next generation of audio technology.' Enquiries: Immersion Technologies International plc Craig Evans / Blair Snowball +44 (0)20 7016 5107 Pelham Public Relations Archie Berens / Hugh Barker +44 (0)20 7743 6679 St. Helens Capital - Nominated Broker Ruari McGirr +44 (0)20 7628 5582 Nabarro Wells - Nominated Adviser Hugh Oram +44 (0)20 7710 7400 Company number 05542880 IMMERSION TECHNOLOGIES INTERNATIONAL PLC REPORT AND FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2007 TABLE OF CONTENTS Pages Directors, advisers and officers 2 Chairman's statement 4 Directors' report 7 Independent auditors' report 12 Consolidated income statement 13 Company income statement 14 Consolidated statement of changes in equity 15 Company statement of changes in equity 15 Consolidated balance sheet 16 Company balance sheet 17 Consolidated cash flow statement 18 Company cash flow statement 19 Notes to the financial statements 20 IMMERSION TECHNOLOGIES INTERNATIONAL PLC Incorporated, registered and domiciled in England and Wales Company No. 5542880 DIRECTORS Gregory Turnidge, aged 54 (Non-executive Chairman) Mr Turnidge has had a diverse range of experience in his 30 year career. After working for the Reserve Bank of Australia, Mr Turnidge took up a senior policy advisory role for the Victorian Chamber of Manufactures. He was seconded to work in the Office of Management and Budget in the Victorian Government in 1982 and was subsequently appointed Managing Director of Aluvic Pty Ltd, a company he grew to an annual revenue base of A$250 million before being sold in 1998 for A$500 million. Mr Turnidge has undertaken capital raisings, public listings, major foreign exchange transactions and cross border financings. He has established and operated joint ventures in the USA, France and China and engaged extensively in international commercial and trade arrangements, especially in commodities. He has developed detailed experience in financial administration, human resource management systems and employee motivation programs, and continues to act as a mentor to a number of senior executives. Craig Douglas Evans, aged 40 (Chief Executive Officer) Mr Evans studied engineering at RMIT (Royal Melbourne Institute of Technology) and has a background of more than 15 years' experience as an executive for various private companies and has spent the past 5 years as a General Manager for Tyco International. He has a strong operational background in manufacturing, strategic development, operational excellence, program implementation, acquisition opportunities and plant rationalisation, development and expansion both in Australia and China. Prior to his appointment as CEO of Immersion Technology International Limited, he acted as General Manager of Winovate Pty Ltd, being the private company that developed the ESL technology, and is a co-inventor of the manufacturing patents for the HD-ATM Technology. Vincent Fodera, aged 37 (Executive Director) Mr Fodera holds a Bachelor of Laws degree from Bond University. He is a Barrister and Solicitor of the High Court of Australia and the Supreme Court of Victoria. He has over 10 years experience in Commercial and Intellectual Property Law, providing key strategic, contractual and corporate advice. He has developed key marketing strategies and overseen the industrial relations and financial management of several private companies, including the development and implementation of commercial operating plans. Mr Fodera has a genuine interest in and an understanding of Immersion's technology and developed the HD-ATM trademark. Blair Snowball, aged 34 (Finance Director) Mr Snowball, based in London, has 14 years of international experience in finance and advisory roles. He is a qualified accountant and an Associate of the Institute of Chartered Accountants of Australia. After completing his Bachelor of Commerce at the University of Western Australia, Mr Snowball worked for four years at KPMG in Audit & Advisory. He then moved to Ireland where he helped establish Barclays Insurance (Dublin) Ltd for the Barclays Group. Prior to joining the Immersion Group in May 2006 he spent six years with Cable & Wireless plc in various finance management roles in both Europe and the Caribbean. Kiran Morzaria, aged 33 (Non-executive Director) Mr Mozaria holds a Bachelor of Engineering (Industrial Geology) from the Camborne School of Mines and an MBA (Finance) from CASS Business School. He has six years exploration mining and civil engineering experience. Currently he is the Finance Director of River Diamonds plc, overseeing the development of its mining and exploration projects in Brazil. During this period Kiran has been involved in valuations, independent experts' reports, due diligence, capital raisings and mergers and acquisitions. Alexander Barblett, aged 40 (Non-executive Director) Mr Barblett has extensive experience in sales and marketing having previously worked for the last ten years at Pace Micro Technology plc, where he was employed in senior executive management roles in the US, Asia Pacific and also Europe, Middle East and Africa. Mr Barblett holds a Bachelor of Laws from University of Queensland and a Bachelor of Business from Curtin University of Technology. Mr Barblett acts in various corporate advisory roles for start-up technology companies and is currently a non-executive director of Apogee Power, Inc and was previously a director of AIM traded company Microfuze International plc. COMPANY SECRETARY REGISTERED OFFICE John Bottomley 30 Farringdon Street 30 Farringdon Street London London EC4A 4HJ EC4A 4HJ NOMINATED ADVISOR BROKER Nabarro Wells & Co. Limited St Helen's Capital plc Saddlers House 15 St Helen's Place Gutter Lane London London EC3A 6DE EC2V 6BR AUDITORS SOLICITORS BDO Stoy Hayward LLP Wedlake Bell LLP 8 Baker Street 52 Bedford Row London London W1U 3LL WC1R 4LR PUBLIC RELATIONS REGISTRARS Pelhams Public Relations Limited Share Registrars Limited No 1 Cornhill Craven House, West Street London Farnham EC3V 3ND Surrey GU9 7BR CHAIRMAN'S STATEMENT The Company has experienced significant change in the past few months as a result of the reverse takeover by Immersion Technology International Limited (formerly named Immersion Technology International plc), which was completed on 12 April 2007. The Company, which previously held the name St James's Energy plc, was established to make investments in the upstream energy and utilities sector. Having considered a number of opportunities the Board was unable to identify a transaction that would meet its investment criteria. However, the directors saw a number of potential transactions in the technology sector - a sector which they believed to have been relatively undervalued since 2001. The directors considered the acquisition of Immersion Technology International Limited as an excellent opportunity to enter the audio technology market where its unique patented technologies could be exploited to increase market share, particularly in electro-static loudspeakers. FINANCIAL RESULTS The Group's loss for the period from 2 March 2006 to 30 June 2007 was Â£2,627,005, in which it earned license revenue and interest income of Â£17,971 and Â£38,278 respectively. The most significant charge against the Group's results is an extraordinary share-based payment charge of Â£992,850 as compensation to the vendors of Whise Acoustics Limited as per the terms of the acquisition agreement. The total share-based payment charge for the period is Â£1,019,302, after accounting for options issued at a value of Â£26,452. During the period the Group also spent Â£188,668 on research and development of the Nakamichi Corporation Limited ('Nakamichi') product and building a broad product range. Amortisation of intangible assets, such as intellectual property, is Â£234,941 for the period and the employee and director remuneration costs totalled Â£567,850. REVIEW OF OPERATIONS Since completing the reverse takeover, the Company has focused upon the establishment of its manufacturing facility in Nanjing, China, and a sales office in Singapore, where several of the larger Consumer Electronic customers ('CEs') are located. The Company has also concentrated on promoting its technology to a number of leading CEs. Manufacturing Facility - China The establishment of the manufacturing facility in China was critical in underpinning the Company's ability to generate product and revenue. The facility is located in the Nanjing Jiangning Economic and Technological Development Zone ('the Zone') located approximately 200 kilometres south west of Shanghai. It is a relatively new zone that covers approximately 300 square kilometres. The Zone is a world class business zone that has attracted major international corporations such as Ford, Mazda, Pepsi Cola and Sony Ericsson. The Company's facility is located in a restricted embargo area designated for export driven companies. The benefit of being located in this part of the Zone is that the Company is exempt from the payment of local duties and tariffs on components. This has obvious cost benefits, as well as improving overall working capital. The facility is approximately 4000 square metres and incorporates the production and assembly lines, painting facilities, testing and demonstration facilities and offices for management, engineers and industrial designers. It has taken several months to source the right employees with appropriate skills. The Company now has the ability to design, develop and produce prototypes as well as finished product. The prototypes are created for the sales team for demonstrations to CEs. Technology The Company is continuing to improve its technologies in electrostatic ('ESL') and electromagnetic ('EML') loudspeakers. Access to new materials and, in particular, new driver design has enabled the Company to push the boundaries of conventional box speaker design. For example, the directors believe that an Immersion subwoofer will outperform any competing subwoofer given the same volume/size. Although this is a bold statement, the Company has yet to find a competing product to challenge this belief. The Company has also enhanced its ESL technology significantly by improving tolerances in design and construction giving higher sound pressure level (volume) than ever achieved before. This makes the Immersion ESL much more sensitive allowing it to be driven harder and louder. The research and development teams in conjunction with it's manufacturing teams have identified new moulding techniques that enable products to be produced stronger and lighter than conventional materials. It has also given the Company a significant advantage in production enabling it to create unconventional designs not previously possible. CHAIRMAN'S STATEMENT (CONTINUED) Nakamichi The first design, development and manufacturing contract with Nakamichi has progressed with the first shipment in December 2007. This follows the signing of a contract with Nakamichi for supply of approximately US$12.1 million of the hybrid speaker, which incorporates electro-static and electro-magnetic loudspeaker technology into a single product. The product premiered, under the name Phoenix, at IFA in Berlin in September 2006 and at CES in Las Vegas in January 2007 where it was awarded a 2007 Innovation Design & Engineering Honouree Award - Home Theatre Audio. The Company will build upon this and its other accolades when demonstrating and promoting its new prototypes to Consumer Electronics companies. The Company has developed and is developing additional product lines that will be demonstrated to Nakamichi in order to add to the Nakamichi product portfolio for ESL products. Alpine Electronics (UK) Ltd The Company has renewed its licensing contract with Alpine Electronics of UK Ltd ('Alpine') for the use of the VRTM technology incorporated into several of Europe's most prestigious automobiles. The Company is also promoting its new Immersion 3 Way SystemTM for automotive audio. This is a new concept in loudspeaker design and has the advantage of using less space and power than conventional automotive audio systems, yet giving significantly improved performance. The Company plans to build upon its relationships with Alpine and other automotive audio suppliers to secure new supply contracts for finished product incorporating the Immersion 3 Way System(TM) The Company is aiming to vary its relationship with Alpine from that of a licensing regime to a development and manufacture relationship now that the Company has manufacturing facilities in Nanjing. New Prototypes The Company has developed several new prototypes that clearly demonstrate the advantages of its technologies: ESL & Woofer LCD TV The Group has developed its first ESL & Woofer LCD TV that produces exceptional audio performance. The LCD TV incorporates both electrostatic and a conventional cone woofer technology that enables a frequency response as low as 60Hz - a world first in a flat screen TV. In order to achieve this, the woofer had to be constructed in a balanced configuration to remove vibration. As a result, the TV can be placed securely on a wall without damaging internal components. This prototype demonstrates the Company's ability to produce ESL panels in small thin designs whilst maintaining both sound pressure level (i.e. volume) and sound quality. It has the potential to be highly attractive to CE's, as it provides a new means of differentiating their products. Home Theatre Systems The Company has developed several variations of home theatre systems. These variations include combinations of either 5 x flat ESL panels and a subwoofer or 5 x CCL pods (40mm) and subwoofer. The 5 x flat ESL panels vary in size from heights of 1800mm, 1500mm, 1200mm, 600mm and 380mm. The creation of this range of prototypes was critical in proving the technology as well as being used for demonstration purposes to CE customers. The Company has developed a system which is considered to be a high performance micro-system. The system comprises of 5 CCL pods that are only 40mm in diameter. These are then tuned with the Company's Hybrid Acoustic Filters(TM) The accompanying subwoofer also offers a considerable advantage in that it is significantly smaller in size than comparable products of equivalent performance. This combination is a major technical achievement in this product segment and provides the basis for differentiating the performance of Company's products from all other manufacturers of micro-systems. CHAIRMAN'S STATEMENT (CONTINUED) OUTLOOK Having now established the manufacturing facility in Nanjing, the Group is better able to provide a significantly enhanced level of service. Customers are increasingly seeking an end to end solution with design, development and manufacture being the key elements to a successful partnership. Our experience with Nakamichi has shown the importance of backing up technical expertise with appropriate infrastructure. We intend to replicate this with other customers in the future. In addition to this combination of technical development with manufacturing capability, the Group has established a sales office in Singapore which is a base of many of the world's leading CEs. The Company will recruit a senior sales executive in order to expedite the sale process with new and existing customers. The directors are therefore excited about the prospects for the Company and would like to take the opportunity to thank the shareholders for their support. Greg Turnidge CHAIRMAN 28 December 2007 DIRECTORS' REPORT The directors submit their report together with the audited financial statements for the period ended 30 June 2007. On 12 April 2007 the Company was re-admitted to AIM under the new name of Immersion Technologies International plc, being the date that it completed a reverse acquisition of Immersion Technology International Limited (formerly Immersion Technology International plc). Up to this date, and since its last Company accounts, being 31 August 2006, the Company had the name of St James's Energy plc. RESULTS AND DIVIDENDS The Group Income Statement is set out on page 13. The directors have not declared a dividend for the period. PRINCIPAL ACTIVITIES The principal activity of the Group is the product development, design and manufacture of unique and high performance audio solutions. Prior to the reverse takeover, the principal activity of the Company was to review investment opportunities in the upstream energy and utilities sector. However the board was unable to identify a transaction that would meet its investment criteria. BUSINESS REVIEW In order to appreciate the review of the business the reporting period must first be explained. In accordance with reverse acquisition accounting (International Financial Reporting Standard 3) the Group reporting period is the same as that of Immersion Technology International Limited, being sixteen months since its incorporation on 2 March 2006. Immersion Technologies International plc, the Company, is consolidated from the date of reverse acquisition, being 12 April 2007. However the reporting period for the Company's financial statements is different because it commenced 1 September 2006, given its previous reporting date was 31 August 2006. The Group based its key performance indicators on key corporate, commercial and operational objectives, which were set at the beginning of the period. These objectives were to acquire and expand the Groups suite of unique and high performance audio technologies; to prove the technology was commercial by winning key sales contracts and by setting-up manufacturing operations, and; to obtain the necessary funds. The following paragraphs explain the Group's performance in meeting these objectives. During the reporting period, from 2 March 2006 to 30 June 2007, the Group raised Â£1,015,000 through the issue of Immersion Technology International Limited shares. On 25 June 2006 the same company acquired Electrostatic Loudspeaker intellectual property from Winovate Pty Ltd for shares and A$1,250,000. Then it acquired Whise Acoustics Limited, an Australian group with unique Conventional Cone Loudspeaker technology, on 20 October 2006 for shares consideration. On 22 December 2006, the Group signed a manufacture and supply agreement for the supply of product incorporating both the Electrostatic and Conventional Cone Loudspeaker technology with a premier audio/ visual and multimedia equipment provider, Nakamichi Corporation Limited. In January 2007, at the Consumer Electronics Show in Las Vegas, the product produced for Nakamichi won an Innovations Design and Engineering Award. In April 2007 a wholly owned subsidiary was incorporated in China, a manufacture and assembly plant was identified and fitted out. Â£111,860 was spent on the fit out, equipment and tooling for the Nakamichi product. Following the reverse acquisition, which completed on 12 April 2007, the Group had approximately Â£3 million in funds after deducting transaction costs of Â£575,290. DIRECTORS' REPORT (CONTINUED) The financial key performance indicator used by the Group will be the Board approved budget for the period with particular focus on revenue and product gross margin. The budget prepared at the start of this period is not a relevant performance indicator because in the Group's first year it has changed dramatically through various acquisitions and expansions. Similarly, revenue and gross margin are not relevant performance indicators for this reporting period because revenue of Â£17,971 was derived from license royalties, which is not the Group's strategic focus for revenue and does not incur a cost of sale. Further review of the Group's current results and future developments are presented in the Chairman's Statement. FINANCIAL RISK MANAGEMENT The Group's operations expose it to financial risks that include liquidity, interest rate, foreign exchange and credit risk. The Group does not have any debt and is not therefore required to use derivative financial instruments to manage interest rate costs nor is hedge accounting applied. Given the size of the Group, the directors have not delegated the responsibility of monitoring financial risk management to a sub-committee of the board. The Group's finance department implements policies set by the board of directors. Foreign exchange risk The Group has operations in United Kingdom, Singapore, China and Australia and its customer market is global. The board has assessed its exposure using value at risk methodology and it does not currently consider the risk of exposure to these currencies to be material. As such the directors do not currently consider it necessary to enter into forward exchange contracts. This situation is monitored on a regular basis. Credit risk The Group has implemented policies that require appropriate credit checks to be carried out. Where debt finance is utilised, this is subject to pre-approval by the board of directors and such approval is limited to financial institutions with a high rating. The amount of exposure to any individual counterparty is subject to a limit, which is reassessed annually by the board. Liquidity risk The Group actively maintains its working finance that is designed to ensure the Group has sufficient available funds for operations and planned expansions. Interest rate cash flow risk The Group has only interest bearing assets, being cash balances that earn interest at a floating rate. The Group has a policy of holding debt at a floating rate. The directors will revisit the appropriateness of this policy should the Group's operations change in size or nature. The directors do not consider there to be a material cash flow risk. DIRECTORS' INSURANCE The Company has taken out an insurance policy to indemnify the directors and officers of the Group against liability when acting on its behalf. POST BALANCE SHEET EVENTS On 1 July 2007 Immersion Technology International Limited issued 1,731,645 shares (representing 0.97 per cent. of the subsidiary's issued share capital), to two shareholders who, as described in the Company's Admission Document (12 April 2007), did not waive their rights under the Whise Acoustics Share Purchase Agreement. On 11 December 2007 the Group negotiated the purchase of the minority interest by issuing one Immersion Technologies International plc share in exchange for each Immersion Technology International Limited share. DIRECTORS' REPORT (CONTINUED) RESEARCH AND DEVELOPMENT ACTIVITIES A principal activity of the Group is to develop its existing patented technology to achieve new and unique, high performance applications for customers. Without taking the focus off this principal activity it will also continue to research and develop the next generation of audio products. POLICY ON PAYMENT OF CREDITORS The Group's policy is to ensure that, in the absence of dispute, all suppliers are dealt with in accordance with its standard payment practice whereby all outstanding trade accounts are settled within the terms agreed with the supplier at the time of the supply or otherwise 30 days from receipt of the relevant invoice. Creditor days of the Company for the period ended 30 June 2007 were 40 days based on the ratio of Company creditors at the end of the period to the amounts invoiced during the year by creditors. DIRECTORS AND DIRECTOR'S INTERESTS The following directors have held office in Immersion Technologies International plc since its previous year end, 31 August 2006: Gregory Turnidge - Non-executive Chairman (appointed to the Board on 11 April 2007 and as Chairman on 9 July 2007) Christopher Lambert - Non-executive Chairman (resigned 1 July 2007) Kiran Morzaria - Non-executive Director Timothy Wall - Non-executive Director (resigned 11 April 2007) Blair Snowball - Executive Director (appointed 11 April 2007) Craig Evans - Executive Director (appointed 11 April 2007) Vincent Fodera - Executive Director (appointed 11 April 2007) Alexander Barblett - Non-executive Director (appointed 11 April 2007) Directors' interests in the shares of the Company, including family interests, were as follows:- At 30 June 2007 At 31 August 2006 At 30 June 2007 Number of Percentage (%) Number of Percentage (%) Number of Shares Shares Options Beneficial and non-beneficial Craig Douglas Evans 3 52,950,000 23.55 3,000,000 - - Vincent David Fodera 4 1,560,000 0.69 2,750,000 - - Kiran Morzaria 1 and 7 711,428 0.32 4,000,000 1.17 - Timothy Wall 2 and 7 1,121,429 0.50 4,000,000 1.17 - Christopher Lambert 7 428,571 0.19 2,000,000 0.58 - Blair Francis Snowball 5 750,000 0.33 2,750,000 - - Alexander John Barblett 6 600,000 0.27 1,500,000 - - Gregory Elliot Turnidge 4 3,700,585 1.85 1,500,000 - - Notes 1) Of which 571,428 of the current shareholding are held on account with TD Waterhouse Nominees (Europe) Limited and 40,000 shares are held by Cornell De Beer Morzaria who is a related party to Kiran Caldes Morzaria. 2) All shares are registered in a third party company, Horseford Limited, over which Mr Wall has an option to acquire the whole or part of the issued share capital therein. DIRECTORS' REPORT (CONTINUED) 3) Of which 38,050,000 are held by the E.D. Evans Trading Trust of which Craig Evans is a potential beneficiary,12,000,000 shares are held through Miami Properties Pty Ltd for which Mr Evans is a director, and 2,900,000 shares are held through Miami Superannuation Fund of which Mr Evans is trustee. 4) All shares are beneficially held through Security Transfer Registrars Pty Ltd. 5) Of which 750,000 shares are registered in a third party company, (Bluemax Consulting Limited), over which Mr Snowball has an option to acquire the whole or part of the issued share capital therein. 6) Of which 400,000 shares are registered in a third party company, (Entopia Consulting Limited), over which Mr Barblett has an option to acquire the whole or part of the issued share capital therein, and 200,000 are held by Lisa Mitchell who is a related party to the Director. 7) On 11 April 2007 the Company consolidated each 7 ordinary shares at Â£0.001 into 1 ordinary share at Â£0.007 and increased the authorised share capital to 1,000,000,000 ordinary shares at Â£0.007. The table presents shares held by directors as at 31 August 2006 in pre-consolidation numbers. SUBSTANTIAL SHAREHOLDINGS As at 27 December 2007 the Company has been notified of the following interests of 3% or more in the issued ordinary share capital of the Company: Number of Percentage of shares issued share capital ED Evans Pty Ltd 38,050,000 16.79% Security Transfer Registrars Pty Ltd 34,563,671 15.25% Fitel Nominees Limited 13,830,632 6.10% Pershing Keen Nominees Limited 12,401,897 5.47% Miami Properties Pty Ltd 12,000,000 5.30% Lindsay Alfred Champion 8,150,000 3.60% Vidacos Nominees Limited 8,000,000 3.53% Charles Van Dongen 7,950,000 3.51% Janet Patricia Green 7,800,000 3.44% AUDITORS BDO Stoy Hayward LLP were appointed as auditors to the Group and in accordance with section 385 of the Companies Act 1985, a resolution to reappoint them as auditors will be put to the members at the annual general meeting. MRI Moores Rowland LLP were the auditors of St James's Energy plc but resigned after the completion of the reverse acquisition. In accordance with section 394 of the Companies Act 1985, MRI Moores Rowland LLP provided a statement to the Company with respect to its resignation confirming that there were no circumstances that needed to be brought to the attention of shareholders. DIRECTORS' RESPONSIBILITIES IN THE PREPARATION OF FINANCIAL STATEMENTS The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company, for safeguarding the assets of the Company, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Directors' Report which complies with the requirements of the Companies Act 1985. The directors are responsible for preparing the annual report and the financial statements in accordance with the Companies Act 1985. The directors have chosen to prepare financial statements for the Group and the Company in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs). DIRECTORS' REPORT (CONTINUED) International Accounting Standard 1 requires that financial statements present fairly for each financial year the company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the financial statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. A fair presentation also requires the Directors to: â€¢ consistently select and apply appropriate accounting policies; â€¢ present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and â€¢ provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance. Financial statements are published on the group's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the group's website is the responsibility of the directors. The directors' responsibility also extends to the ongoing integrity of the financial statements contained therein. STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS So far as the directors are aware, there is no relevant audit information of which the Group's auditors are unaware, and they have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the Group's auditors are aware of that information. By order of the board Blair Snowball Finance Director 28 December 2007 AUDIT REPORT Independent Auditors' Report To The Shareholders Of Immersion Technologies International Plc We have audited the Group and Parent Company financial statements (the ''financial statements'') of Immersion Technologies International Plc for the periods ended 30 June 2007 which comprise the Group and Parent Company Income Statement, the Group and Parent Company Balance Sheets, the Group and Parent Company Cash Flow Statements, the Group and Parent Company Statements of Changes in Shareholders' Equity and the related notes. These financial statements have been prepared under the accounting policies set out therein. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors' Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance with the Companies Act 1985 and whether the information given in the Directors' Report is consistent with those financial statements. We also report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Directors' Report and the Chairman's Statement. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of the Companies Act 1985 or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group's and Company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion: â€¢ the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group's affairs as at 30 June 2007 and of its loss for the period then ended; â€¢ the parent Company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent Company's affairs as at 30 June 2007 and of its loss for the period then ended; â€¢ the financial statements have been properly prepared in accordance with the Companies Act 1985; and â€¢ the information given in the Directors' Report is consistent with the financial statements. BDO Stoy Hayward LLP Chartered Accountants and Registered Auditors London 28 December 2007 CONSOLIDATED INCOME STATEMENT For the period Notes 2 March 2006 to 30 June 2007 Â£ Revenue 2 17,971 Cost of Sales (592) Gross Profit 17,379 Administrative expenses 3 (2,613,438) Loss from operations (2,596,059) Finance Income 8 38,278 Loss before tax (2,557,781) Tax expense 6 (69,224) Loss for the period attributable to shareholders (2,627,005) LOSS PER SHARE Notes Period ended 30 June 2007 Basic 10 4.63 pence Diluted 10 4.63 pence The notes on pages 20 to 44 form part of these financial statements COMPANY INCOME STATEMENT For the period For the period 1 September 2006 22 August 2005 30 June 2007 to 31 August 2006 Notes Â£ Â£ Revenue - - Cost of Sales - - Gross Profit - - Administrative expenses 4 (395,292) (146,648) Loss from operations (395,292) (146,648) Finance Income 9 132,078 61,951 Loss before tax (263,214) (84,697) Tax expense 7 (11,771) - Loss for the period attributable to shareholders (274,985) (84,697) The notes on pages 20 to 44 form part of these financial statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Share Share Based Foreign Other Accumulated Capital Premium Payments Exchange Reserves Losses Total Â£ Â£ Â£ Â£ Â£ Â£ Â£ Balance at 2 March 2006 - - - - - - - Gain in revaluation of - - - - - - intangibles Foreign translation - - - 51,288 - - 51,288 differences Net income recognised - - - 51,288 - - 51,288 directly in equity Loss for the period - - - - - (2,627,005) (2,627,005) Total recognised income and - - - 51,288 - (2,627,005) (2,575,717) expense for the period Share issue 175,904 5,743,257 (13,153) - - - 5,906,008 Cost of share issue - (28,717) - - - - (28,717) Reverse acquisition 1,398,183 (2,890,423) - - 5,933,629 - 4,441,389 Share-based payments - - 1,019,302 - - - 1,019,302 Balance at 30 June 2007 1,574,087 2,824,117 1,006,149 51,288 5,933,629 (2,627,005) 8,762,265 COMPANY STATEMENT OF CHANGES IN EQUITY Share Share Share Based Foreign Other Accumulated Capital Premium Payments Exchange Reserves Losses Total Balance at 22 August 2005 - - - - - - - Loss for the period - - - - - (84,697) (84,697) Total recognised income and - - - - - (84,697) (84,697) expense for the period Share issue 342,762 3,937,087 - - - - 4,279,849 Cost of share issue - (537,680) - - - - (537,680) Share-based payment - - 53,183 - - - 53,183 Balance at 31 August 2006 342,762 3,399,407 53,183 - - (84,697) 3,710,655 Net loss for the period - - - - - (274,985) (274,985) Total recognised income and - - - - - (274,985) (274,985) expense for the period Share issue 1,231,325 - - - - - 1,231,325 Reverse acquisition - - - - 16,798,801 - 16,798,801 Cost of share issue - (575,290) - - - - (575,290) Share-based payment - - 6,618 - - - 6,618 Balance at 30 June 2007 1,574,087 2,824,117 59,801 - 16,798,801 (359,682) 20,897,124 The notes on pages 20 to 44 form part of these financial statements CONSOLIDATED BALANCE SHEET As at Notes 30 June 2007 Â£ Non-current assets Intangible assets 12 6,683,505 Plant and equipment 14 68,758 6,752,263 Current assets Trade and other receivables 15 260,136 Cash and cash equivalents 2,121,858 2,381,994 Total assets 9,134,257 Current liabilities Trade and other payables 17 360,221 Corporation tax liability 11,771 Total liabilities 371,992 Net assets 8,762,265 Equity Share capital 20 1,574,087 Share premium reserve 21 2,824,117 Foreign exchange reserve 21 51,288 Other reserves 21 5,933,629 Share-based payments 21 1,006,149 Accumulated loss 21 (2,627,005) 8,762,265 The financial statements were approved by the board of directors and authorised for issue on 28 December 2007. They were signed on its behalf by ; Blair Snowball Finance Director 28 December 2007 The notes on pages 20 to 44 form part of these financial statements COMPANY BALANCE SHEET As at As at 30 June 2007 31 August 2006 Notes Â£ Â£ Non-Current assets Investments 27 18,683,895 - Amounts due from subsidiaries 27 763,688 - 19,447,583 - Current assets Trade and other receivables 16 114,865 34,205 Cash and cash equivalents 1,999,166 3,728,679 2,114,031 3,762,884 Total assets 21,561,614 3,762,884 Current liabilities Trade and other payables 18 186,050 52,229 Corporation tax liability 11,771 - Amounts payable to subsidiaries 27 466,669 - Total liabilities 664,490 52,229 Net assets 20,897,124 3,710,655 Equity Share capital 20 1,574,087 342,762 Share premium 22 2,824,117 3,399,407 Share-based payment reserve 22 59,801 53,183 Other reserves 22 16,798,801 - Accumulated loss 22 (359,682) (84,697) 20,897,124 3,710,655 The financial statements were approved by the board of directors and authorised for issue on 28 December 2007. They were signed on its behalf by ; Blair Snowball Finance Director 28 December 2007 The notes on pages 20 to 44 form part of these financial statements CONSOLIDATED CASH FLOW STATEMENT For the period Notes 2 March 2006 to 30 June 2007 OPERATING ACTIVITIES Loss after tax for the period (2,627,005) Adjustments for: Depreciation 3 2,784 Amortisation 3 234,941 Share-based payments 3 1,019,302 Finance income (38,278) Income tax expense 69,224 Decrease/(Increase) in receivables 111,541 (Decrease)/Increase in payables 90,116 CASH USED IN OPERATING ACTIVITIES (1,137,375) Income tax paid - NET CASH USED IN OPERATING ACTIVITIES (1,137,375) INVESTING ACTIVITIES Interest received 38,278 Cash acquired from business combinations 3,434,766 Purchase of patents (509,652) Purchase of plant and equipment (63,864) NET CASH USED IN INVESTING ACTIVITIES 2,899,528 FINANCING ACTIVITIES Proceeds on issuing of ordinary shares 1,015,000 Cost of issue of ordinary shares (604,007) NET CASH FROM FINANCING ACTIVITIES 410,993 NET DECREASE IN CASH AND CASH EQUIVALENTS 2,173,146 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD - Exchange loss on cash and cash equivalents (51,288) CASH AND CASH EQUIVALENTS AT END OF PERIOD 2,121,858 The notes on pages 20 to 44 form part of these financial statements COMPANY CASH FLOW STATEMENT For the period For the period 1 September 2006 22 August 2005 to 30 June 2007 to 31 August 2006 Notes Â£ Â£ OPERATING ACTIVITIES Loss after tax for the period (274,985) (84,697) Adjustments for: Share-based payments 6,618 - Finance income (132,078) (61,951) Income tax expense 11,771 - (Increase) in receivables 16 (80,661) (34,204) Increase in payables 18 133,821 52,229 CASH USED IN OPERATING ACTIVITIES (335,514) (128,623) Income tax paid - - NET CASH USED IN OPERATING ACTIVITIES (335,514) (128,623) INVESTING ACTIVITIES Interest received 132,078 61,951 Loans to subsidiaries (763,687) - Investment in Subsidiaries (187,100) - NET CASH (USED IN) / FROM INVESTING ACTIVITIES (818,709) 61,951 FINANCING ACTIVITIES Proceeds on issuing of ordinary shares - 4,279,848 Cost of issue of ordinary shares (575,290) (484,497) NET CASH (USED IN) / FROM FINANCING ACTIVITIES (575,290) 3,795,351 NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS (1,729,513) 3,728,679 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,728,679 - CASH AND CASH EQUIVALENTS AT END OF PERIOD 1,999,166 3,728,679 The notes on pages 20 to 44 form part of these financial statements 1 SIGNIFICANT ACCOUNTING POLICIES The following account policies are those of the Group and apply to the consolidated financial statements. Accounting period - Group In accordance with reverse acquisition accounting (IFRS 3) the Group reporting period is the same as that of Immersion Technology International Limited which commenced from the date of its incorporation, being 2 March 2006, and this is the first period of accounts. Hence the financial statements are prepared for the sixteen month period to 30 June 2007. Accounting period - Company The reporting period of the Company commenced on 1 September 2006 as its previous reporting date was 31 August 2006. The Company has changed its accounting reference date to 30 June 2007 to match that of the Group and hence has prepared financial statements for the ten month period ended 30 June 2007. The comparative financial statements for the Company are of the year ended 31 August 2006. Basis of preparation The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the periods presented, unless otherwise stated. The financial statements have been prepared in accordance with and comply with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and with those parts of the Companies Act 1985 applicable to companies preparing their accounts under IFRS. These financial statements are presented in Sterling since that is the currency in which the majority of the Company's transactions are denominated. The measurement basis used in the preparation of the financial statements is historical cost, except for financial instruments, which are measured at fair value. Basis of consolidation Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the Company and its subsidiaries ('the Group') as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full. Business combinations and goodwill On acquisition, the assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Reverse acquisition On 11th April 2007 the shareholders of the Company approved the business combination with Immersion Technology International Limited and it acquired 100% of the voting equity instruments. The business combination completed on 12 April 2007 when the Company was re-admitted to AIM. IFRS 3 defines the acquirer in a business combination as being the entity that obtains control of the other combining entities and defines control as being held by the combining entity that has the power to govern the financial and operating policies of the other entity so as to obtain benefits from its activities. 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In the case of the Group, Immersion Technology International Limited (the legal subsidiary and formerly named Immersion Technology International plc) is identified as the acquirer because its shareholders effectively control the combined Group and its board of directors dominate the combined Group's board. IFRS 3 deems such a business combination is being a reverse acquisition because the acquirer is the entity whose equity interests have been acquired (ie the legal subsidiary) and the issuing entity (ie the legal parent) is the acquiree. The reverse acquisition requires that the consolidated financial statements represent a continuation of the legal subsidiary's financial statements and the acquisition of the legal parent. Therefore the assets and liabilities of the legal subsidiary (the 'acquirer') are recognised and measured in the consolidated financial statements at their pre-combination carrying amounts and the assets, liabilities and contingent liabilities of the legal parent (the 'acquiree'), which satisfy IFRS 3's recognition criteria, are fair valued at the acquisition date. Any excess of the combination's cost over the acquirer's interest in the net fair value of those items is accounted for as goodwill in accordance with IFRS 3. The retained earnings and other reserves recognised in the consolidated financial statements should be those of the legal subsidiary immediately before the business combination. The amount recognised as issued equity instruments in the consolidated financial statements is determined by adding the combination's cost to the legal subsidiary's issued equity immediately before the business combination. However, the equity structure shown in the consolidated financial statements should reflect the legal parent's equity structure, including the equity instruments issued by the legal parent to effect the combination. Revenue recognition Revenue is recognised to the extent that the right to consideration is obtained in exchange for performance. Payment received in advance of performance is deferred on the balance sheet as a liability and released as services are performed or products are exchanged as per the agreement with the customer. Revenue during the period was derived from the license royalties, which are recognised on notification of payment by the licensee. In the future the majority of revenue will be derived from the sale of manufactured products and recognised when delivered to the customer in accordance with the specific supply contract terms. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount. Foreign currencies Transactions in currencies other than Sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in the income statement for the period. On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of the overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the balance sheet date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in equity (the 'foreign exchange reserve'). Taxation The tax expense represents the sum of the current tax and deferred tax. The current tax is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the balance sheet date. 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Internally-generated Intangible Assets - Research and Development Expenditure Expenditure on internally developed products is capitalised if it can be demonstrated that: â€¢ it is technically feasible to develop the product for it to be sold; â€¢ adequate resources are available to complete the development; â€¢ there is an intention to complete and sell the product; â€¢ the Group is able to sell the product; â€¢ sale of the product will generate future economic benefits; and â€¢ expenditure on the project can be measured reliably. Capitalised development costs are amortised over the periods the Group expects to benefit from selling the products developed. The amortisation expense is included within the administrative expenses in the consolidated income statement. Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the consolidated income statement as incurred. Externally acquired intangible assets Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives. The amortisation expense is included within the administrative expenses line in the consolidated income statement. Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques. The significant intangibles recognised by the Group, their useful economic lives and the methods used to determine the cost of intangibles acquired in a business combination are as follows: Intangible asset Useful economic life Valuation method Intellectual property Patent life (20 years) Estimated royalty stream if the rights were to be licensed Licenses 10 years Estimated discounted cash flow Impairment of tangible and intangible assets excluding goodwill At each balance sheet date the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If there is such indication then an estimate of the asset's recoverable amount is performed and compared to the carrying amount. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) If the recoverable amount of an asset is estimated to be less that its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Property, plant and equipment Items of property, plant and equipment are initially recognised at cost and subsequently at depreciated cost. As well as the purchase price, cost includes directly attributable costs and the estimated present value of any future costs of dismantling and removing items. The corresponding liability is recognised within provisions. Depreciation is provided on all of property, plant and equipment to write off the carrying value of items over their expected useful economic lives. It is applied at the following rates: Plant and equipment - 15%-25% per annum straight line Office equipment - 20%-25% per annum straight line Provisions Provisions are recognised for liabilities of uncertain timing or amount that have arisen as a result of past transactions and are discounted at a pre-tax rate reflecting current market assessments of the time value of money and the risks specific to the liability. Financial instruments Financial assets and financial liabilities are recognised on the balance sheet when the Group has become a party to the contractual provisions of the instrument Cash and cash equivalents Cash and cash equivalents comprise cash in hand, cash at bank and short term deposits with banks and similar financial institutions. Trade and other receivables Trade and other receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Financial liability and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Trade and other payables Trade and other payables are non interest bearing and are stated at their nominal value. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Share-based payments Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated income statement over the remaining vesting period. Where equity instruments are granted to persons other than employees, the consolidated income statement is charged with the fair value of goods and services received. Equity-settled share-based payments are measured at fair value at the date of grant except if the value of the service can be reliably established. The fair value determined at the grant date of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company's estimate of shares that will eventually vest. Critical accounting estimates and judgements The Group makes estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. 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 financial year are discussed below. Impairment of goodwill The Group is required to test, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows - actual outcomes may vary. If the carrying amount exceeds the recoverable amount then an impairment is made. Useful lives of intangible assets and property, plant and equipment Intangible assets and property, plant and equipment are amortised or depreciated over their useful lives. Useful lives are based on the management's estimates of the period that the assets will generate revenue, which are based on judgement and experience and periodically reviewed for continued appropriateness. Changes to estimates can result in significant variations in the carrying value and amounts charged to the consolidated income statement in specific periods. Share-based payments The Group utilised an equity-settled share-based remuneration scheme for employees. Employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments at the date of grant, excluding the impact of any non-market vesting conditions. The fair value of share options are estimated by using Black-Scholes valuation method as at the date of grant. The assumptions used in the valuation are described in note 23 and include, among others, the expected volatility, expected life of the options and number of options expected to vest. Warranty claims The Group may offer warranties on its products. The Group will estimate the amount and cost of future warranty claims for its sales. These estimates will be used to record accrued warranty provisions for product shipments. Factors that could impact the estimated claim information include the success of the Group's productivity and quality initiatives, as well as parts and labour costs. 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Identifying the acquirer in business combinations IFRS 3 defines the acquirer in a business combination as being the entity that obtains control of the other combining entities and defines control as being held by the combining entity that has the power to govern the financial and operating policies of the other entity so as to obtain benefits from its activities. The Group considers all relevant facts and circumstances to determine which of the combining entities has control, including the voting rights of shareholders, composition of combined entities board and management. Determination of fair values of intangible assets acquired in business combinations The fair value of patents and trademarks acquired in a business combination is based on the discounted estimated royalty payments that would have been avoided as a result of the trademark or a patent being owned. The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the asset. Income taxes The Group is subject to income tax in several jurisdictions and significant judgement is required in determining the provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, the Group recognises tax liabilities based on estimates of whether additional taxes and interest will be due. The Group believes that its accruals for tax liabilities are adequate for all open audit years based on its assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. To the extent that the final tax outcome of such matters is different than the amounts recorded, the differences will impact income tax expense in the period in which such determination is made. Deferred taxation Deferred tax assets are recognised when it is judged more likely than not that they will be recovered. Significant accounting policies for the Company - supplement The Company financial statements are presented separately as required by the Companies Act 1985. As permitted by the act, the separate financial statements have been prepared in accordance with International Financial Reporting Standards. The financial statements have been prepared on the historical cost basis. The principal accounting policies are the same as those outlined for the Group except that investments in subsidiaries are stated at cost less any provisions for impairment, if applicable. Accounting standards issued but not adopted The following new standards and interpretations, which have been issued by the International Accounting Standards Board ('IASB') and the International Financial Reporting Interpretations Committee ('IFRIC'), are effective for future periods and have not been adopted early in these financial statements. A description of these standards and interpretations, together with (where applicable) an indication of the effect of adopting them, is set out below. Standards and interpretations that are not expected to affect the Group's reported results or financial position: IFRS 8 Operating Segments was issued in November 2006 and is effective for annual periods beginning on or after 1 January 2009. It requires reportable operating segments to be based on the Group's own internal reporting structure. It also extends the scope and disclosure requirements of IAS 14 Segmental Reporting. The adoption of IFRS 8 will not affect the results or net assets of the Group. IFRIC 7 Applying the restatement approach under IAS 29 Financial Reporting in Hyperinflationary Economies was issued in November 2005 and is effective for annual periods beginning on or after 1 March 2006. It clarifies how to account for non-monetary assets and deferred tax when hyperinflation is first identified. IFRIC 10 Interim Financial Reporting and Impairment was issued in July 2006 and is effective for periods beginning on or after 1 November 2006. IFRIC 10 prohibits impairment losses recognised in Interim Reports from being reversed in the next annual financial statements. 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) IFRIC 11: IFRS 2 - Group and Treasury Share Transactions was issued in November 2006 and is effective for periods beginning on or after 1 March 2006. IFRIC 11 clarifies the accounting for share based transactions which fall within the scope of IFRS 2, and its adoption could reduce reported profits. Net assets will only be reduced if a transaction is classified as a cash-settled share-based payment. IFRIC 12 Service Concession Arrangements was issued in November 2006 and is effective for periods beginning on or after 1 January 2008. IFRIC 12 prohibits private sector operators from recognising as their own those infrastructure assets which are owned by the grantor. Revenues and costs are recognised in accordance with IAS 11 and amounts receivable by the operator are recognised as financial or intangible assets, depending on whether certain criteria are met. IFRS 7 Financial Instruments: Disclosures and Amendment to IAS 1: Capital Disclosures were issued in August 2005 and are effective for annual periods beginning on or after 1 January 2007. They revise and enhance previous disclosures required by IAS 32 Financial Instruments: Disclosure and Presentation and IAS 30 Disclosures in the Financial Statements of Banks and similar Financial Institutions. Their adoption will not affect the results or net assets of the Group. Status of EU-endorsement Entities in EU Member States which report in accordance with EU-endorsed IFRS can only apply IFRSs and IFRICs where the endorsement process has been completed at the date of approval of their financial statements. Of the standards and interpretations listed above, the following had not yet been endorsed by the European Union at the date these financial statements were authorised for issue: â€¢ IFRIC 12 Service Concession Arrangements. 2 SEGMENT REPORTING For management purposes the Group is organised into 4 operating divisions: Corporate; Product Research, Development and Design; Product Manufacture, and; Sales. These divisions are the basis on which the Group reports its primary segment information. Secondary segment information is presented on a geographic basis. The primary segment information corresponds closely to geographical segments as operational segments reside in distinct locations of the United Kingdom, Australia and Asia. For the period ended 30 June 2007 Corporate Product Product Sales Unallocated Total Business segments R&D and Manufacture or Design Eliminated Â£ Â£ Â£ Â£ Â£ Â£ Revenue External sales - 17,971 - - - 17,971 Total revenue from continuing - 17,971 - - - 17,971 operations Result Segment result from continuing (1,079,804) (1,258,405) (62,272) 2,244 (197,822) (2,596,059) operations Operating loss from continuing (2,596,059) operations Finance income 38,278 Loss before tax (2,557,781) Income tax expense (69,224) Loss for the period from continuing (2,627,005) operations 2 SEGMENT REPORTING (CONTINUED) For the period ended 30 June 2007 Corporate Product Product Sales Unallocated Total Business segments (continued) R&D and Manufacture or Design Eliminated Â£ Â£ Â£ Â£ Â£ Â£ Other segment items included in the income statement are as follows: Depreciation (note 14) 781 2,003 - - - 2,784 Amortisation (note 12) 220,423 14,518 - - - 234,941 Balance sheet Assets Segment assets 10,224,965 92,200 152,811 117,994 (1,453,713) 9,134,257 Liabilities Segment liabilities 1,418,232 594,632 49,792 81,530 (1,772,194) 371,992 Net assets 8,806,733 (502,432) 103,019 36,464 318,481 8,762,265 For the period ended 30 June 2007 United Australia Asia Unallocated Total Geographical segments Kingdom Â£ Â£ Â£ Â£ Â£ Revenue External sales - 17,971 - - 17,971 Total revenue from continuing - 17,971 - - 17,971 operations Result Segment result from continuing (1,079,804) (1,258,405) (60,028) (197,822) (2,596,059) operations Operating loss from continuing operations (2,596,059) Finance income 38,278 Loss before tax (2,557,781) Income tax expense (69,224) Loss for the period from continuing (2,627,005) operations 2 SEGMENT REPORTING (CONTINUED) For the period ended 30 June 2007 United Australia Asia Unallocated Total Geographical segments (continued) Kingdom Or Eliminated Â£ Â£ Â£ Â£ Â£ Balance sheet Assets Segment assets 10,224,965 92,200 270,805 (1,453,713) 9,134,257 Liabilities Segment liabilities 1,418,232 594,632 131,322 (1,772,194) 371,992 Net assets 8,806,733 (502,432) 139,483 318,481 8,762,265 Inter-segment transfers are priced along the same lines as sales to external customers, except that an appropriate discount is applied to encourage use of group resources at a rate accepted to local tax authorities. 3 CONSOLIDATED LOSS FROM OPERATIONS Period ended 30 June 2007 Loss from operations has been arrived at after charging: Â£ Directors fees 441,000 Salaries and wages 126,850 Consultancy costs 82,470 Audit fees 84,135 Other professional fees 22,555 Amortisation of intangible assets 234,941 Depreciation 2,784 Research and development 188,668 Equity settled share-based payments 1,019,302 Other expenses 410,733 2,613,438 Amounts payable to BDO Stoy Hayward LLP and their associates in respect of both audit and non-audit services: Audit services - group statutory audit 36,000 Other services - company statutory audits 25,000 Other services - tax review 6,000 3 CONSOLIDATED LOSS FROM OPERATIONS (CONTINUED) Period ended 30 June 2007 Â£ Amounts payable to previous auditors MRI Moores Rowland LLP and their associates in respect of both audit and non-audit services: Other services - interim audit review 4,120 Due diligence on acquisition of Whise Acoustics Limited 9,232 Amounts payable to previous auditors of Whise Acoustics Limited, Leydin Freyer Corporate Pty Ltd: Other services - interim audit review 3,783 84,135 4 COMPANY LOSS FROM OPERATIONS Period ended Period ended 30 June 2007 31 August 2006 Loss from operations has been arrived at after charging: Â£ Â£ Directors fees 95,000 26,000 Consultancy costs 30,728 24,217 Office rent 41,000 33,000 Foreign exchange losses 1,262 - Irrecoverable vat 3,529 36,458 Audit fees 44,120 8,000 Legal fees 51,757 6,138 Nominated advisor fees 37,637 4,277 Equity settled share-based payments 6,618 - Other expenses 83,641 8,558 395,292 146,648 Amounts payable to BDO Stoy Hayward LLP in respect of both audit and non-audit services: Audit services - group statutory audit 26,000 - Other services - company statutory audits 10,000 - Other services - tax review 4,000 - Amounts payable to previous auditors MRI Moores Rowland LLP and their associates in respect of both audit and non-audit services: Other services - interim audit review 4,120 8,000 Tax services compliance services - 2,000 44,120 10,000 5 STAFF COSTS Group Company Company Period ended Period ended Period ended 30 June 2007 30 June 2007 31 August 2006 The average number of employees (including 19 4 3 executive directors) was : Their aggregate remuneration comprised : Â£ Â£ Â£ Wages and salaries 479,850 77,000 25,744 Social security costs 29,048 3,659 256 Share-based payments 21,010 6,618 0 529,908 87,277 26,000 The accounting period for the Group is from 2 March 2006 to 30 June 2007 and for the Company it is from 1 September 2006 to 30 June 2007. The Company was consolidated into the Group as at date of reverse acquisition, being 12 April 2007. Refer to Note 1, Accounting policies, for more detail about the accounting periods. Consolidated Directors' emoluments Salary & fees Bonus Share-based Total payments Â£ Â£ Â£ Â£ Christopher Lambert 9,000 - - 9,000 Craig Evans 121,000 15,000 5,443 141,443 Vincent Fodera 99,000 15,000 4,988 118,988 Blair Snowball 88,000 15,000 4,988 107,988 Sandy Barblett 33,000 15,000 2,721 50,721 Kiran Morzaria 1,500 - - 1,500 Gregory Turnidge 19,500 10,000 2,721 32,221 371,000 70,000 20,861 461,861 Company Directors' emoluments for the Salary & fees Bonus Share-based Total period ending 31 August 2007 payments Â£ Â£ Â£ Â£ Christopher Lambert 23,000 - - 23,000 Craig Evans 11,000 - 1,361 12,361 Vincent Fodera 9,000 - 1,248 10,248 Blair Snowball 8,000 - 1,248 9,248 Sandy Barblett 3,000 - 681 3,681 Kiran Morzaria 15,500 - - 15,500 Gregory Turnidge 4,500 - 681 5,181 Tim Wall 21,000 - - 21,000 95,000 - 5,219 100,219 5 STAFF COSTS (CONTINUED) Company Directors' emoluments for the Salary & fees Bonus Share-based Total period ending 31 August 2006 payments Â£ Â£ Â£ Â£ Christopher Lambert 8,000 - - 8,000 Kiran Morzaria 8,000 - - 8,000 Tim Wall 10,000 - - 10,000 26,000 - - 26,000 6 CONSOLIDATED INCOME TAX EXPENSE Period ended 30 June 2007 Â£ Current tax expense UK corporation tax and income tax of overseas operations on profits 69,224 for the period Deferred tax expense Origination and reversal of temporary differences - Total income tax expense 69,224 The reasons for the difference between the actual tax charge for the period and the standard rate of corporation tax in the UK applied to profits for the year are as follows: Loss for the period (2,557,781) Expected tax charge based on the standard rate of corporation tax in (767,334) the UK of 30% Expenses not deductible for tax purposes 57,804 Capital items expensed (64,738) Capital allowances in (excess)/deficit of depreciation - Share based payments 7,936 Losses unutilised 574,238 Utilisation of previously unrecognised tax losses 261,318 Under provision for prior year - Different tax rates applied in overseas jurisdictions - Total tax expense 69,224 The Group also has a potential deferred tax asset in respect of losses carried forward of Â£679,392. This has not been recognised due to uncertainty over the amount and timing of future taxable profits against which the asset could be recovered. 7 COMPANY INCOME TAX EXPENSE Period ended Period ended 30 June 2007 31 August 2006 Current tax expense Â£ Â£ UK corporation tax and income tax of overseas operations on profits - - for the period Adjustment for under/(over) provision in prior periods 11,771 - Total income tax expense 11,771 - The reasons for the difference between the actual tax charge for the period and the standard rate of UK corporation tax applied to profits for the year are as follows: Loss for the period (263,214) (84,697) Expected tax charge based on the standard rate of corporation tax in (78,964) (25,409) the UK of 30% Expenses not deductible for tax purposes - 6,911 Capital items expensed 314 - Capital allowances in (excess)/deficit of depreciation - (85) Share based payments 1,985 - Losses unutilised 76,665 18,583 Under provision for prior year 11,771 - Total tax expense 11,771 - The Company also has a potential deferred tax asset in respect of losses carried forward of Â£76,665. This has not been recognised due to uncertainty over the amount and timing of future taxable profits against which the asset could be recovered. 8 CONSOLIDATED FINANCE INCOME Period ended 30 June 2007 Â£ Interest on bank deposits 38,278 The accounting period for the Group is from 2 March 2006 to 30 June 2007 and for the Company it is from 1 September 2006 to 30 June 2007. The Company was consolidated into the Group as at date of reverse acquisition, being 12 April 2007. Refer to Note 1, Accounting policies, for more detail about the accounting periods. 9 COMPANY FINANCE INCOME Period ended Period ended 30 June 2007 31 August 2006 Â£ Â£ Interest on bank deposits 132,078 61,951 The accounting period for the Group is from 2 March 2006 to 30 June 2007 and for the Company it is from 1 September 2006 to 30 June 2007. The Company was consolidated into the Group as at date of reverse acquisition, being 12 April 2007. Refer to Note 1, Accounting policies, for more detail about the accounting periods. 10 CONSOLIDATED LOSS PER SHARE The calculation of the basic and diluted loss per share is based on Period ended the following data: 30 June 2007 Â£ Loss Loss for the purposes of basic and diluted loss per share (2,627,005) Number of shares Weighted average number of ordinary shares for the purposes of basic 56,796,033 and diluted loss per share Basic and diluted loss per share 4.63 pence The diluted loss per share is equal to the basic loss per share because all of the 17,891,424 options (weighted average being 8,465,681) on issue were considered not potentially dilutive. That is, all options have an exercise price far greater than the weighted average share price during the year (ie they are out-of the-money) and therefore would not be advantageous for the holders to exercise those options. 11 COMPANY LOSS PER SHARE The calculation of the basic and diluted loss per share is based on Period ended Period ended the following data: 30 June 2007 31 August 2006 Â£ Â£ Loss Loss for the purposes of basic and diluted loss per share (274,985) (84,697) Number of shares Weighted average number of ordinary shares for the purposes of basic 94,828,616 182,171,649 and diluted loss per share Basic and diluted loss per share 0.29 pence 0.05 pence The diluted loss per share is equal to the basic loss per share because all of the 17,891,424 options (weighted average being 8,465,681) on issue were considered not potentially dilutive. That is, all options have an exercise price far greater than the weighted average share price during the year (ie they are out-of the-money) and therefore would not be advantageous for the holders to exercise those options. 12 CONSOLIDATED INTANGIBLE ASSETS Intellectual Goodwill Property Licences Total Â£ Â£ Â£ Â£ Balance at 2 March 2006 - - - - Additions - externally acquired 1,768,417 4,978,173 171,856 6,918,446 Balance at 30 June 2007 1,768,417 4,978,173 171,856 6,918,446 Accumulated amortisation and impairment Balance at 2 March 2006 - - - - Amortisation charge for the period - 223,484 11,457 234,941 Balance at 30 June 2007 - 223,484 11,457 234,941 Net book value Balance at 30 June 2007 1,768,417 4,754,689 160,399 6,683,505 Goodwill was acquired during the period through two separate business combinations. More detail is provided in note 24. Intellectual property consists of acquired patents, for which amortisation commenced from the date of acquisition. All but three patents have an average remaining useful life of approximately 20 years. One patent has only 8 years remaining and two patents have 13 years useful life remaining. 13 GOODWILL AND IMPAIRMENT The directors have concluded that in accordance with IAS 36 the Group as a whole is the smallest cash generating unit, given its current structure. Therefore the recoverable amount for the entire goodwill of the Group is determined from value in use calculations based on cash flow projections from formally approved budgets covering a three year period to 30 June 2010. Management has based its cash flow projections on prior experience and assumptions about various market sectors that are based on independent surveys. The major assumptions are: that in the next three years the Group assumes to gain market share of 1.41% of discrete loudspeakers, 0.39% of speakers for the automotive sector and 0.18% of the market for the flat screen televisions; management have assumed an operating profit margin of 22%, based on prior experience; and the discount rate used is 30%, which is conservatively high because of the early stage of the Group (Weighted Average Cost of Capital assessment was independently determined as being approximately 25%). Post the three year budget period an assumption of growth is based on the lowest growth rate between the three major markets that is provided by independent surveys, which is 3% growth for the automotive sector. Management believes this assumption to be extremely conservative given the early stage position of the Group would naturally expect to grow more rapidly and because the industry estimate for growth in flat screen televisions is approximately 27% and 4% for the discrete loudspeaker sector. As a result of this valuation the directors are satisfied that the goodwill of the Group does not require impairment. 14 CONSOLIDATED PLANT AND EQUIPMENT Plant and Office equipment equipment Total Â£ Â£ Â£ Balance at 2 March 2006 - - - Additions 68,319 3,223 71,542 Balance at 30 June 2007 68,319 3,223 71,542 Accumulated depreciation and impairment Balance at 2 March 2006 - - - Depreciation for the period 2,197 587 2,784 Balance at 30 June 2007 2,197 587 2,784 Net book value Balance at 30 June 2007 66,122 2,636 68,758 15 CONSOLIDATED TRADE AND OTHER RECEIVABLES Period ended 30 June 2007 Â£ Trade debtors 304 Prepayments 95,647 Deferred expenses 14,771 Tax Receivable 141,692 Other debtors 7,722 260,136 The directors consider that the carrying amount of trade and other receivables approximates their fair value. 16 COMPANY TRADE AND OTHER RECEIVABLES Period ended Period ended 30 June 2007 31 August 2006 Â£ Â£ Prepayments 13,384 34,205 Other debtors 101,481 - 114,865 34,205 17 CONSOLIDATED TRADE AND OTHER PAYABLES Period ended 30 June 2007 Â£ Trade payables 117,583 Accruals 161,108 Deferred income 81,530 360,221 The directors consider that the carrying amount of trade payables approximates to their fair value. 18 COMPANY TRADE AND OTHER PAYABLES Period ended Period ended 30 June 2007 31 August 2006 Â£ Â£ Trade payables 46,366 19,376 Accruals 139,684 22,217 Other payables - 5,950 Other tax and social security - 4,686 186,050 52,229 19 FINANCIAL INSTRUMENTS - RISK MANAGEMENT The Group is exposed through its operations to one or more of the following financial risks: â€¢ Fair value or cash flow interest rate risk â€¢ Foreign currency risk â€¢ Liquidity risk â€¢ Credit risk Policy for managing these risks is set by the Board following recommendations from the Finance Director. Certain risks are managed centrally, while others are managed locally following guidelines communicated from the centre. The policy for each of the above risks is described in more detail below. Fair value and cash flow interest rate risk Currently the Group does not have external borrowings. However, the Group has a policy of holding debt at a floating rate. The directors will revisit the appropriateness of this policy should the Group's operations change in size or nature. Operations are not permitted to borrow long-term from external sources locally. 19 FINANCIAL INSTRUMENTS - RISK MANAGEMENT (CONTINUED) Foreign currency risk Foreign exchange risk arises because the Group has operations located in various parts of the world whose functional currency is not the same as the functional currency in which the Group companies are operating. The Group's net assets are exposed to currency risk giving rise to gains or losses on retranslation into sterling. Only in exceptional circumstances will the Group consider hedging its net investments in overseas operations as generally it does not consider that the reduction in volatility in consolidated net assets warrants the cash flow risk created from such hedging techniques. Foreign exchange risk also arises when individual Group operations enter into transactions denominated in a currency other than their functional currency. It is Group policy that where the risk to the Group is considered significant, Group treasury will enter into a forward contract with a reputable bank. Liquidity risk The liquidity risk of each Group entity is managed centrally by the Group treasury function. Each operation has a facility with Group treasury, the amount of the facility being based on budgets. The budgets are set locally and agreed by the board annually in advance, enabling the Group's cash requirements to be anticipated. Where facilities of Group entities need to be increased, approval must be sought from the Group finance director. Where the amount of the facility is above a certain level agreement of the board is needed. All surplus cash is held centrally to maximise the returns on deposits through economies of scale. The type of cash instrument used and its maturity date will depend on the Group's forecast cash requirements. Credit risk The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts. Such credit ratings are taken into account by local business practices. The Group does not enter into complex derivatives to manage credit risk, although in certain isolated cases may take steps to mitigate such risks if it is sufficiently concentrated. 20 SHARE CAPITAL Consolidated Company Company Period ended Period ended Period ended 30 June 2007 30 June 2007 31 August 2006 Number Â£ Number Â£ Number Â£ Authorised: Ordinary shares of Â£0.001 each - - - - 1,000,000,000 1,000,000 Ordinary shares of Â£0.007 each 1,000,000,000 7,000,000 1,000,000,000 7,000,000 - - Issued and Fully Paid: At the beginning of the period - - 342,761,601 342,762 - - Reverse acquisition 48,965,943 342,762 - - - - Issued ordinary shares of - - - - 342,761,601 342,762 Â£0.001 each Consolidation of share capital - - (293,795,658) - - - Issued ordinary shares of 175,903,671 1,231,325 175,903,671 1,231,325 - - Â£0.007 each At the end of the period 224,869,614 1,574,087 224,869,614 1,574,087 342,761,601 342,762 At the beginning and the end of the period there were no shares issued that were not fully paid. 20 SHARE CAPITAL (CONTINUED) All of the following share capital was issued in order to incorporate the Company, provide working capital and as consideration for acquisitions. (1) On 22 August 2005 the Company issued 2 ordinary shares at Â£0.001 per share for cash consideration. (2) On 27 October 2005 the Company issued 53,299,998 ordinary shares at Â£0.001 per share for cash consideration. (3) On 15 November 2005 the Company issued 98,700,000 ordinary shares at Â£0.001 per share for cash consideration. (4) On 21 March 2006 the Company issued 55,000,000 ordinary shares at Â£0.001 per share for cash consideration. (5) On 19 May 2006 the Company issued 135,761,601 ordinary shares at Â£0.03 per share for cash consideration. (6) On 11 April 2007 the Company consolidated each 7 ordinary shares at Â£0.001 into 1 ordinary share at Â£0.007 and increased the authorised share capital to 1,000,000,000 ordinary shares at Â£0.007. (7) On 12 April 2007 the Company issued 175,903,671 ordinary shares at Â£0.1025 as consideration for the acquisition of Immersion Technology International Limited. 21 CONSOLIDATED RESERVES Share Foreign Other Share-Based Accumulated Premium Exchange Reserve Payments Losses Balance at 2 March 2006 - - - - - Shares issued - - - (13,153) - Premium on shares issued 5,743,257 - - - - Cost of share issue (28,717) - - - - Reverse acquisition (2,890,423) - 5,933,629 - - Translation differences on overseas - 51,288 - - - operations Share-based payments in the period - - - 1,019,302 - Net loss for the period - - - - (2,627,005) Balance at 30 June 2007 2,824,117 51,288 5,933,629 1,006,149 (2,627,005) The following describes the nature and purpose of each reserve within owners' equity Reserve Description and purpose Share premium Amount subscribed for share capital in excess of nominal value. Foreign exchange Gains/losses arising on retranslating the net assets of overseas operations into sterling. Share-based payments Amount of fair value of equity instruments granted and charged to the income statement. Other Reserves The excess of fair value over nominal value of shares issued to acquire equity investments, for example in the reverse acquisition, adjusted for fair value adjustments in the parent company's books. Accumulated Losses Cumulative net gains and losses recognised in the consolidated income statement. 22 COMPANY RESERVES Share Other Share-Based Accumulated Premium Reserves Payments Losses Â£ Â£ Â£ Â£ Balance at 22 August 2005 - - - - Share issue 3,937,087 - - - Cost of share issue (537,680) - - - Share-based payment - - 53,183 - Net loss for the period - - - (84,697) Balance at 31 August 2006 3,399,407 - 53,183 (84,697) Reverse acquisition - 16,798,801 - - Cost of share issue (575,290) - - - Share-based payment - - 6,618 - Net loss for the period - - - (274,985) Balance at 30 June 2007 2,824,117 16,798,801 59,801 (359,682) The following describes the nature and purpose of each reserve within owners' equity Reserve Description and purpose Share premium Amount subscribed for share capital in excess of nominal value. Share-based payments Amount of fair value of equity instruments granted and charged to the income statement. Other Reserves The excess of fair value over nominal value of shares issued to acquire equity investments. Accumulated Losses Cumulative net gains and losses recognised in the consolidated income statement. 23 SHARE-BASED PAYMENTS During the period Immersion Technology International Limited issued options to key management and employees. As part of the reverse acquisition these options were replaced with options in the Company. As per IFRS 2 the grant date for replacement options is the reverse acquisition date. A charge to the consolidated income statement has been made for the period and presented in the financial statements. Group Company Period Ended Period Ended 30 June 2007 30 June 2007 Weighted Weighted average average exercise price Number exercise price Number Outstanding at 2 March 2006 - - - - Granted during the period - - Â£0.21 734,489 Outstanding at 31 August 2006 Â£0.21 734,489 Â£0.21 734,489 Granted during the period Â£0.125 12,750,000 Â£0.125 12,750,000 Forfeited during the period - - - - Exercised during the period - - - - Lapsed during the period - - - - Outstanding at the end of the Â£0.13 13,484,489 Â£0.13 13,484,489 period 23 SHARE-BASED PAYMENTS (CONTINUED) The exercise price of options outstanding at the end of the period ranged between 12.5p and 21p and their weighted average contractual life was 9.7 years. Of the total number of options outstanding at the end of the period, 734,489 were exercisable. They were granted by the Company and vested in the period prior to the reverse acquisition. Therefore they are not granted in the period of Group. The weighted average fair value of each option granted during the period was 0.48p. The Group used the Black-Scholes model to determine the value of the options and the inputs were as follows: Period ended Period ended 30 June 2007 31 August 2006 Weighted average share price Â£0.051 Â£0.21 Weighted average exercise price Â£0.125 Â£0.21 Expected volatility 30% 30% Expected life 5 years 5 years Risk free rate 5.00% 4.25% Expected dividends Â£nil Â£nil Expected volatility was determined by using the volatility rate used by listed companies in similar industries and those companies with similar sizes. On 12 February 2007 Immersion Technology International Limited also issued 13,153,671 shares as compensation payment to the vendors of Whise Acoustics Limited and accrued a final instalment of 1,731,645 compensation shares, which were issued on 1 July 2007. The total share-based payment charge for the compensations shares is Â£992,850, which was valued at the date of acquisition of Whise Acoustics Limited and based on a valuation of 6.67 pence per share. The total share-based payment expense in the period for the Group was Â£1,019,302, of which Â£26,452 pertained to options to employees and directors. 24 ACQUISITIONS DURING THE PERIOD On 20 October 2006 the Immersion Technology International Limited, an unlisted company, acquired 100% of the voting equity instruments of Whise Acoustics Limited and its two subsidiaries ('the Whise group'). The principal activity of the Whise group was the product development and design of unique Conventional Cone Loudspeaker technology. The fair value of consolidated identifiable assets and liabilities, the purchase consideration and the goodwill are as follows: Book value Adjustments Fair value Â£ Â£ Â£ Cash and cash equivalents 1,812 - 1,812 Plant and equipment 7,679 - 7,679 Receivables 32,747 (12,175) 20,572 Inventory 7,087 - 7,087 Deferred tax benefit 71,770 (71,770) - Intellectual property 433,851 91,826 525,677 Licenses - 171,856 171,856 Payables (33,161) 3,700 (29,461) Consideration paid in 17,400,000 ordinary shares 991,007 Goodwill 285,785 24 ACQUISITIONS DURING THE PERIOD (CONTINUED) The fair value of the unlisted shares that were issued was determined by reference to the previous fund raising share issue, at 6.67p, approximately one month prior to the date of acquisition. This share price was then discounted 5.67p to account for shares being held in escrow for up to two years. The intangible assets of the Whise group were independently valued, which found that licenses and intellectual property could be individually identified and measurable. The goodwill portion of intangible assets included brand names and customer relationships, which were identified but were not able to be reliably measured, and the assembled workforce of the acquired entity, which does not qualify for separate recognition. The fair values of plant and equipment, inventory, receivables and payables are the same as the IFRS carrying amounts immediately prior to the acquisition. However a loan receivable and sales tax receivable were all written-off. Since the acquisition of the Whise group it contributed a net loss of Â£997,366 to the Group for the period. It is not practical to determine what contribution the Whise group would have made to the Group turnover and net loss if it had been acquired at the start of the period because since that time, 2 March 2006, the Whise group has undergone much corporate restructuring. REVERSE ACQUISITION On 11th April 2007 the shareholders of the Company approved the business combination with Immersion Technology International Limited and acquired 100% of the voting equity instruments. The date of completion was 12 April 2007 when the Company was re-admitted to AIM. Under the AIM rules and IFRS 3 this business combination is deemed a reverse acquisition whereby the legal subsidiary, Immersion Technology International Limited, is the acquirer and the legal parent, Immersion Technologies International plc ('the Company') is the acquiree. Refer to Note 1, Accounting policies, for more detail about the application of reverse acquisition accounting. The reverse acquisition requires that the consolidated financial statements represent a continuation of the legal subsidiary's financial statements and the acquisition of the legal parent. Therefore the assets and liabilities of the legal subsidiary (the 'acquirer') are recognised and measured in the consolidated financial statements at their pre-combination carrying amounts and the assets, liabilities and contingent liabilities of the legal parent (the 'acquiree'), which satisfy IFRS 3's recognition criteria, are fair valued at the acquisition date. Any excess of the combination's cost over the acquirer's interest in the net fair value of those items is accounted for as goodwill in accordance with IFRS 3. Accordingly the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows: Book value Adjustments Fair value Â£ Â£ Â£ Receivables 64,570 - 64,570 Prepayments 279,497 - 279,497 Cash and cash equivalents 3,432,954 - 3,432,954 Payables (240,644) - (240,644) Consideration deemed to be 48,965,943 ordinary shares 5,019,009 Goodwill 1,482,632 The fair value of the shares issued was determined by reference to their closing quoted market price of 10.25p at the date of acquisition. As the acquiree was an investment company prior to the reverse acquisition there are no identifiable intangibles other than goodwill. The fair values of receivables, prepayments and payables are the same as the IFRS carrying amounts immediately prior to the acquisition. Since the acquisition of the Company has contributed a net loss of Â£98,379 to the Group for the period. If the acquisition had occurred on 2 March 2006 then the Company would have contributed zero turnover and a net loss of Â£301,353 to the Group for the period. 25 SUBSIDIARIES The principal subsidiaries of Immersion Technologies International plc, all of which have been included in these consolidated financial statements, are as follows: Name Country of Proportion of incorporation ownership interest Immersion Technologies UK Limited UK 100% Immersion Technology Property Limited UK 100% Immersion Technology International Limited UK 100% Immersion Technologies (Singapore) Pte Limited Singapore 100% Immersion Technology (Nanjing) Co. Limited China 100% Immersion Technologies Australia Pty Limited Australia 100% Whise Acoustics Limited Australia 100% Whise Technologies Pty Limited Australia 100% 26 GROUP RELATED PARTY TRANSACTIONS Transactions between the parent and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associates are disclosed below. Details of directors remuneration, being the only key personnel, are given in note 5. Directors transactions During the period, Immersion Technology International Limited, acquired patents, trademarks and other intellectual property with respect to Electrostatic Loudspeakers from Winovate Pty Limited, a company owned by ED Evans the father of Craig Evans, for consideration valued at Â£4,408,461. During the period, the Group incurred Â£179,904 of expenses payable to Winovate Pty Limited, a company owned by ED Evans the father of Craig Evans, for services rendered relating to research and development labour and materials, of which Â£26,285 was outstanding at the end of the period. During the period, the Group incurred rent payable to ED Evans Holdings Pty Limited, a company owned by ED Evans the father of Craig Evans. The total payable for the period was Â£11,301, all of which was outstanding at the end of the period. 27 COMPANY RELATED PARTY TRANSACTIONS This note makes disclosure of transactions and balances between the Company and its subsidiaries. Other related party disclosures are presented in note 26 and details of directors' remuneration are given in note 5. During the period the Company made investments of Â£18,683,895 in the following subsidiaries: Immersion Technology International Limited Whise Acoustics Limited Immersion Technology (Nanjing) Co. Limited Immersion Technologies (Singapore) Pte Limited Immersion Technology Property Limited Immersion Technologies UK Limited 27 COMPANY RELATED PARTY TRANSACTIONS (CONTINUED) During the period the Company made loans to the following subsidiaries. The loans provide necessary funds for the subsidiaries to invest in setting up operations. The Company will continue to fund the subsidiaries, in this way, through the set up phase. The Directors believe the loans are fully recoverable but do not expect to make repayment calls within the next reporting period, however these loans are repayable on demand: As at 30 June 2007 Â£ Immersion Technology International 627,482 Limited Immersion Technologies Australia Pty 136,206 Limited 763,688 During the period the Company entered into transactions which resulted in loans payable to the following subsidiaries: As at 30 June 2007 Â£ Immersion Technology International 466,469 Limited Immersion Technology Property Limited 100 Immersion Technologies UK Limited 100 466,669 28 ULTIMATE CONTROLLING PARTY In the opinion of the directors there is no controlling party. 29 OPERATING LEASES The Group leases all of its properties. The terms of property leases vary from country to country, although the majority are tenant repairing with rent reviews every 3 years and many have break clauses. The total future of minimum lease payments are due as follows: Period ended 30 June 2007 Â£ Not later than one year 64,456 Later than one year and not later than five years 108,889 Later than five years - 173,345 30 RETIREMENT BENEFIT SCHEME The Group does not operate either a defined contribution or defined benefit retirement scheme. 31 COMMITMENTS The Company has a commitment to make an equity investment of US$1,500,000 into its Chinese subsidiary, Immersion Technology (Nanjing) Co. Limited, by the end of April 2009. This commitment is required by rules for establishing a Foreign Controlled Company in Nanjing, China. If the Company ceases to require a subsidiary in Nanjing prior to April 2009 then it does not have an obligation to complete the investment. However the Company expects to complete the commitment in stages over the 2008 year, although precise dates are not yet determined. As at the date of publishing the financial statements the Company has invested US$850,000 (US$300,000 as at 30 June 2007) and therefore is expected to have a further commitment of US$650,000 to be made over the next 18 months. 32 POST BALANCE SHEET EVENTS On 1 July 2007, 1,731,645 shares in Immersion Technology International Limited (representing 0.97% of its issued share capital), were issued to two shareholders who, as described in the Company's Admission Document (12 April 2007) did not waive their rights to compensation shares under the Whise Acoustics Share Purchase Agreement and thus became entitled to the shares on this date. On 11 December 2007 the Group negotiated the purchase of the minority interest by issuing one Immersion Technologies International plc share in exchange for each Immersion Technology International Limited share. The financial statements were authorised for issue by the board as a whole following their approval on 28 December 2007. This information is provided by RNS The company news service from the London Stock Exchange KRGGNZM

Companies

Scirocco Energy (SCIR)

Friday, 8th November 2024

COMPANIES COVERED:

IAG SRP VTY

A busy end to the week with IAG shares taking off after news of a share buyback, but Serco slips on Australian contract loss and UK wage pressures, whilst Vistry revises up the extent of its accounting issues.

Full Archive

UK 100

Latest directors dealings

10 hours ago Conduit Holdings Limited Com Shs (DI)
10 hours ago Conduit Holdings Limited Com Shs (DI)
10 hours ago National Grid
10 hours ago Vistry Group
10 hours ago Vistry Group

All directors dealings today