Annual Financial Report and Notice of AGM

FOR IMMEDIATE RELEASEÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 8 April 2011 Hygea VCT plc ("Hygea" or the "Company") Annual Report and Accounts Notice of Annual General Meeting The directors are pleased to announce the audited results of the Company for the year ended 31 December 2010 and a copy of the Annual Report and Accounts is expected to be sent to Shareholders on 15 April 2011. Set out below are extracts of the audited Report and Accounts. In addition the Notice of Annual General Meeting is attached at the end of the Report and Accounts and is set out below. The AGM will be held at the offices of Matrix Corporate Capital LLP, 1 Vine Street, London, W1J OAH on Wednesday, 11 May 2010 at 11.30am. This will be sent out with the Report and Accounts. A copy of both documents is available from the registered office of the Company at 39 Alma Road, St Albans AL1 3AT. Financial Summary Â Year to 31 December 2010 Year to 31 December 2009 -------------------------------------------------------------------------------- Net assets (Â£'000s) 6,282 7,404 Return on ordinary activities after tax (Â£'000s) 94 2,070 Earnings per share 1.2p 25.8p Net asset value per share 77.4p 91.2p Dividends paid since inception 16.25p 1.25p Total return (NAV plus dividends paid) 93.65p 92.45p -------------------------------------------------------------------------------- Chairman's Statement I am pleased to present the 2010 annual report to shareholders in Hygea vct plc. Following the realisation in 2009 of two of our investments, the focus of our attention in 2010 has been the reinvestment of the cash proceeds in the best possible opportunities while maintaining our VCT qualifying position. Our net asset value at 31 December 2010 was 77.4p which, after taking account of the dividends paid to shareholders in 2010 of 15p, represents a total return of 1.2p for the year. In the light of the economic circumstances which prevailed during 2010, we view this outcome as encouraging. Introduction 2010 was a year of significant change in the UK, with a new government being elected resulting in the implementation of a substantial public sector cost cutting programme. Â There was also a general tightening up of the normal sources of venture capital funding and trade exits to major companies. Against this background and increasing life expectations, your board believes that rather than individuals spending some one third of their lives in retirement, they will have to work well beyond current retirement ages, which provides an attractive backdrop for MedTech companies delivering better patient outcomes at lower total cost. In response to this challenging economic climate and the tough fundraising environment, your board is proactively working on several projects which are expected to assist portfolio companies seeking to raise further funds. We will provide further details as and when the projects come to fruition. Results and Dividends During the year our revenue return on ordinary activities was a slightly increased loss of 1.6p per share compared to 0.2p last year. This resulted from a reduction in income (which had been unexpectedly high in 2009 due to the receipt of loan interest from DxS, following the realisation of the investment), as well as an increase in expenses due to administrative charges associated with the payment of two dividends, the previously approved increase in Directors' fees and a full year's charge for our new advisers. The total expense ratio remains below 3% and we intend that, subject to unforeseen circumstances, this will continue. As previously reported, we have received further proceeds from the DxS disposal as the company reached agreed milestones. Â This amounted to Â£596,056 during the period, being Â£331,000 in respect of the first instalment of the escrow fund and Â£264,856 in respect of the earn-out. This has led us to achieve a capital return in the year of 2.8p (2009: 26.0p). We have accrued a further Â£300,000 in respect of the final instalment of the escrow fund given that we are now within six months of this becoming due. We will receive additional proceeds should DxS achieve further milestones, which would further confirm the success of the DxS deal to all parties. As I wrote in my last report, we intend to maintain an annual dividend of 5p per share and I am pleased to confirm that the Directors are proposing a final dividend of 5p per share payable on 1 July 2011 to shareholders on the register on 27 May 2011, subject to approval at the annual general meeting. Portfolio Review Follow on investments in existing investee companies It is our policy to continue to support our existing investee companies where a good business case continues to be made for further investment. In particular we aim to maintain our percentage holding where our liquid cash resources allow but the rules for maintaining our VCT qualifying percentage, which are particularly difficult for small funds such as Hygea, often limit our ability in this regard. During the year under review we have invested further funds in Arecor (Â£106,020), Freehand (Â£335,000), Glide (Â£100,400), Hallmarq (Â£231,208), Insense (Â£200,000) and Omega Diagnostics (Â£230,868). New investments During the year we invested into three AIM companies, EKF Diagnostics (Â£51,286), Reneuron (Â£50,000) and Tristel (Â£55,481), and four unquoted companies, Axon (Â£100,001), Eykona (Â£100,051), Exosect (Â£250,005) and Quotient Diagnostics (Â£200,000). Quotient was acquired later in 2010 by AIM quoted EKF Diagnostics and our holding (including rolled-up loan note interest) was exchanged for shares in EKF Diagnostics. Since the year end we have invested Â£72,340 into Archimed, a woundcare business spun out of Insense, Â£250,000 into Freehand 2010, and a further Â£50,000 into Axon, Selected operational highlights Further details of our most significant investments are included in the Investment Review but I would like to mention the following investments in particular: Freehand (laparoscopic camera holders): this has been a turbulent year for Freehand with the Board electing to take the company into administration at the end of 2010. Â However, after considerable debate, your Board decided to invest in a new vehicle, Freehand 2010 which bought the Freehand IPR and stock from the administrator. Â We believe that the principles of the business are still sound and that the new vehicle's simplified structure and reduced cost base has a good chance of success. Glide (direct injections of solid formulations): a clinical trial during 2010 successfully demonstrated the equivalence of the Glide formulation with the liquid, commercial standard in humans. Â However the trial also highlighted flaws with the delivery system and the company has had to regroup to solve them, causing delays. Hallmarq (MRI scanners for horses): continues to make excellent progress building up an installed base of scanners. Â The new business model has been embraced by the equine vets in Europe and, although initially cash hungry, this model generates increased recurring revenues. Â The team are now actively re- entering the US market and exploring means of expanding into the larger market in companion animals. Scancell (developing vaccines to target various types of cancer): in early 2010 Â£2.5 million was raised (accompanied by a transfer from PLUS Markets to AIM) to fund Phase I/II trials of the melanoma treatment - in June 2010 the trial was started - safety data in respect of the first three patients was approved by the Cohort Review Committee in January 2011. VCT Qualifying Status PricewaterhouseCoopers LLP continues to provide the Board with advice on the ongoing compliance with HMRC rules and regulations concerning VCTs. The Board has been advised that the Company continues to comply with the conditions laid down by HMRC for maintaining approval as a VCT. In the recent Budget, the Chancellor increased both the amount that any single company can receive under the EIS or from VCTs as well as increasing the rate of tax relief on EIS. Â These moves combined with a consultation process to focus on 'genuine risk capital investments' are a welcome move to encourage investment in companies such as those in the Hygea portfolio. Auditors During the year our Auditors, Hyman Capital Services Limited, resigned following their deregistration as Statutory Auditor. Â The Directors appointed James Cowper LLP in their place. James Cowper currently audit a number of smaller VCTs. Annual General Meeting The Company's Annual General Meeting will take place on Wednesday 11th May 2011 at 11.30 a.m. I look forward to welcoming you to the meeting which will be held at the offices of Matrix, 1 Vine Street, London, W1J 0AH. Outlook We now have a balanced portfolio of 6 AIM quoted companies and 10 unquoted companies. Many companies in the Medtech sector are continuing to find the fund raising climate challenging and so we are using our resources to help those in our portfolio, which we believe have a strong business case and prospects for the future, Â by contributing to their requests for further funds. Â As you can see from the accounts, we are effectively fully invested for the moment, but will seek to realise funds from our AIM portfolio when we consider such requests provide a strong case for further investment. However the economic climate continues to be especially challenging for small growing companies, with many companies responding to the tightening up of the funding prospects by focussing on reaching self-sufficiency, rather than racing towards technical goals. Your Board remain cautiously optimistic about the prospects for the MedTech sector, especially for our investee companies which conform to the Company's investment template, as providing better health outcomes at lower cost provides a sound foundation, even in a tougher economic climate. James Otter Chairman 8 April 2011 Investment Review Investment Portfolio Carrying Movement in Unrealised value at the year to Unquoted Investment at profit/(loss) 31 December 31 December Investments cost (Â£'000) (Â£'000) 2010 (Â£'000) 2010 (Â£'000) -------------------------------------------------------------------------------- ImmunoBiology - Limited 818 244 1,062 -------------------------------------------------------------------------------- Hallmarq Veterinary 27 Imaging Limited 1,116 (257) 859 -------------------------------------------------------------------------------- Insense Limited 509 (112) 397 - -------------------------------------------------------------------------------- Exosect Limited 250 - 250 - -------------------------------------------------------------------------------- Arecor Limited 114 - 114 - -------------------------------------------------------------------------------- Eykona Technologies - Limited 100 - 100 -------------------------------------------------------------------------------- Axon Limited 100 - 100 - -------------------------------------------------------------------------------- Glide (420) Pharmaceutical Technologies Limited 306 (206) 100 -------------------------------------------------------------------------------- Wound Solutions (88) Limited 350 (262) 88 -------------------------------------------------------------------------------- Freehand Surgical Limited (holding (688) company of Prosurgics Limited)1 1,225 (1,225) - -------------------------------------------------------------------------------- Purely Proteins - Limited 372 (372) - -------------------------------------------------------------------------------- Total unquoted (1,169) investments 5,260 (2,190) 3,070 -------------------------------------------------------------------------------- Quoted Investments -------------------------------------------------------------------------------- Scancell plc 1,061 23 1,084 375 -------------------------------------------------------------------------------- EKF Diagnostics plc 260 152 412 151 -------------------------------------------------------------------------------- Omega Diagnostics (19) plc 356 (12) 344 -------------------------------------------------------------------------------- EpiStem Holdings (24) plc 66 126 192 -------------------------------------------------------------------------------- Reneuron plc 50 13 63 13 -------------------------------------------------------------------------------- Tristel plc 55 5 60 5 -------------------------------------------------------------------------------- York Pharma plc 90 (90) - - -------------------------------------------------------------------------------- Total quoted 501 investments 1,938 217 2,155 -------------------------------------------------------------------------------- Total investments 7,198 (1,973) 5,225 (668) -------------------------------------------------------------------------------- Note: 1. Freehand Surgical Limited was placed into administration on 20 December 2010. Objective and Investment Policy The Company's objective is to provide shareholders with an attractive income and capital return by investing its funds in a portfolio of unquoted and quoted UK MedTech companies which meet the relevant criteria under the VCT Rules and conform to the investment template. The Company's investment policy is designed to deliver absolute returns on its investments rather than a performance measured against the market indices. On an ongoing basis, it is intended that at least 80% of the Company's assets will be invested in qualifying holdings, with the remainder held in cash and money market securities. The Board does not intend to vary the Company's investment policy. However, should a material change be deemed appropriate this will be done with shareholders' approval by the passing of an ordinary resolution and in accordance with the Listing Rules. The Directors control the overall risk of the portfolio by ensuring that the Company has exposure to a diversified range of quoted and unquoted companies from the MedTech sector. The Directors will continually monitor the investment process and ensure compliance with the investment policy. Valuation Methodology Quoted and unquoted investments are valued in accordance with the accounting policy, which takes account of current industry guidelines for the valuation of venture capital portfolios and is compliant with International Private Equity and Venture Capital Valuations guidelines and current financial reporting standards. If you would like to find out more regarding the International Private Equity and Venture Capital (IPEVC) Valuation Guidelines, please visit their website at: www.privateequityvaluation.com. Ten largest holdings (by value) Scancell plc Background: Scancell is a Nottingham-based biotechnology company that is developing a pipeline of vaccines to target various types of cancer, with the first target being melanoma. The platform technology, in effect, educates the immune system how to respond - this means that the technology can also be licensed to pharmaceutical companies to assist the development of their own therapeutic vaccines. Scancell listed on PLUS Markets in September 2008, raising Â£1.6 million - in July 2010, it transferred to AIM. Update since 2009: In early 2010 Â£2.5 million was raised to fund Phase I/II trials of the melanoma treatment through to a stage where negotiations could be held with potential commercialisation partners - in June 2010 the trial was started. Â In January 2011 the safety data on the first three patients was reviewed by the Cohort Review Committee, which approved escalation of the dose and recruitment of the next cohort of patients. Initial investment date: December 2003 Cost: Â£1,061,000 Valuation: Â£1,084,000 Equity held: 9.35% Last audited accounts: 30 April 2010 Loss before tax: Â£1.8 million Net assets: Â£6.0 million ImmunoBiology Limited Background: ImmunoBiology is a biotechnology company that is focused on developing treatment areas such as meningitis, tuberculosis, influenza and hepatitis C. The company's technology is based on Â the discovery that a group of proteins known as 'heat shock proteins' has a pivotal role in controlling the normal immune response to infections - it has also licensed in Scancell's immunobody technology (see above) for use in certain treatments - both approaches seek to educate the immune system how to respond. Update since 2009: the company has made scientific progress and is now planning for its first project to start clinical trials. Initial investment date: November 2005 Cost: Â£818,000 Valuation: Â£1,062,000 Equity held: 5.8% Last audited accounts: 31 May 2010 Profit before tax: Â£1.6 million Net liabilities: Â£1.0 million Hallmarq Veterinary Imaging Limited Background: Hallmarq specialises in developing low cost magnetic resonance imaging systems for the vet market. The first application is for equine vets to enable the diagnosis of causes of lameness in horses that are not identifiable by any other method - this was the first MRI scanner in the world for standing horses - the business model relies principally on a share of scan fees (ie recurring income) rather than systems sales. The next development project is an MRI scanner for companion animals, a market which is significantly larger than the equine market Update since 2009: Hallmarq has continued to expand its installed base, implementing its changed business model to secure more revenue after installation. Â The audited accounts to August 2010 showed sales of Â£2.7 million (2009: Â£2.2 million) and operating profit of Â£50,280 (2009: Â£63,234 loss), with scan Â fee recurring income of Â£1.3 million almost covering fixed overheads. The critical next hurdles are the development and launch of the companion animal scanner and to build equine installations in the USA. Initial investment date: August 2005 Cost: Â£1,116,000 Valuation: Â£859,000 Equity held: 11.0% Last audited accounts: 31 August 2010 Loss before tax: Â£129,000 Net assets: Â£2.4 million EKF Diagnostics Holdings plc Background: EKF is an AIM listed company which David Evans (formerly chairman of, inter alia, DxS) and Julian Baines took board control of in Q4 2009, with the objective of building a leading diagnostic business with a particular focus on the needs of diabetic patients - messrs Evans and Baines had been chairman and CEO respectively of AIM listed point of care diagnostics business BBI, which listed on AIM in 2004 and was acquired by Inverness Medical for Â£84 million in late 2007. EKF completed its first acquisition in July 2010, which has been followed by two smaller acquisitions - one of the latter was Quotient Diagnostics, in which Hygea invested in January 2010 and exchanged its investment for EKF shares in October 2010. Initial investment date: June 2010 Cost: Â£260,000 Valuation: Â£412,000 Equity held: <1% Last audited accounts: 31 December 2009 Loss before tax: Â£277,000 Net assets: Â£5.6 million Insense Limited Background: Insense was a spin-out from Unilever with a platform technology which Insense has deployed in the fields of chronic wound care (now spun-out as Archimed LLP in which Insense has a 49% interest), protein stabilisation (spun- out as Arecor Ltd - see below) and dermatology Update since 2009: The key events were the spinning out of the chronic wound care division and continuing negotiations with major multinationals regarding dermatology applications. Initial investment date: July 2003 Cost: Â£509,000 Valuation: Â£397,000 Equity held: 9.2% Last audited accounts: 31 December 2009 Loss before tax: Â£1.2 million Net assets: Â£88,000 Omega Diagnostics plc Background: Omega listed on AIM via a reverse acquisition in 2006. It is a healthcare diagnostics business providing IVD products for use in hospitals, blood banks, clinics and laboratories in over 100 countries - it specialises in the areas of Food Intolerance, Autoimmune Disease and Infectious Disease. One of its products is Food Detective for home testing of allergies brought about by 59 commonly eaten foods. Update since 2009: In December 2010 Allergopharma was acquired for Â£7.75 million - it produces manual assays for testing for allergies - part of the strategy for developing the business is to leverage off Omega's distribution reach, and take the assays into the much larger automated market using Omega's Genarrayt platform and the IDS-iSYS platform. This will be licensed from AIM listed Immunodiagnostic Systems Holdings. The interim results to September 2010 showed sales of Â£3.3 million (2009: Â£2.9 million) and adjusted operating profit of Â£413,000 (2009: Â£176,000). Initial investment date: August 2007 Cost: Â£356,000 Valuation: Â£344,000 Equity held: <1% Last audited accounts: 31 March 2010 Profit before tax: Â£210,000 Net assets: Â£5.6 million Exosect Limited Background: Exosect was established in 2001 as a spin-out from the University of Southampton to develop a platform technology and range of natural bio-control products for the protection of food from pests and disease - the objective is to develop intelligent solutions to pest management and overcome the drawbacks of conventional pesticides. Hygea invested in Exosect in January 2010. Initial investment date: January 2010 Cost: Â£250,005 Valuation: Â£250,005 Equity held: 2.7% Last audited accounts: 31 December 2010 Lossbefore tax: Â£1.6 million Net assets: Â£5.8 million EpiStem Holdings plc Background: EpiStem listed on AIM in April 2007. Its knowledge is based on over 30 years research at Christies Hospital, Manchester on the behaviour of adult epithelial stem cells - epithelial cancers account for over 80% of adult cancers. It has the attractive business model of a profitable Contract Research Organisation division, and a Personalised Medicine division. In March 2009, a R&D collaboration agreement was signed with Novartis, under which Epistem received an upfront cash payment of $4 million and research funding for two years. Update since 2009: A key event has been the development of Genedrive, a point- of-care molecular diagnostic instrument. The final results to June 2010 showed sales of Â£5.7 million (2009: Â£4.0 million) and pre-tax profit of Â£350,000 (2009: Â£669,000 loss). Initial investment date: April 2007 Cost: Â£66,000 Valuation: Â£192,000 Equity held: <1% Last audited accounts: 30 June 2010 Profit before tax: Â£360,000 Net assets: Â£5.8 million Arecor Limited Background: Arecor was a spin-out from Insense (see above) to commercialise technology developed by Insense for enabling biologics to maintain their integrity without the need for refrigeration - this both reduces cost and also helps deployment in developing countries where temperature monitored cold storage facilities are in short supply. The technology also assists in maintaining the integrity and function of proteins exposed to ionizing radiation as the means of sterilisation. Initial investment date: December 2008 Cost: Â£114,000 Valuation: Â£114,000 Equity held: 2.6% Last audited accounts: 31 May 2010 Loss before tax: Â£697,000 Net assets: Â£301,000 Eykona Limited: Background: Eykona was founded in 2007 to deploy computer vision technology (essentially 3D imaging) developed within Oxford University for developing a hand held camera to measure the volume of chronic wounds - this is a vital measurement for obtaining an understanding of whether a wound is getting better or worse, and hence assist determining the treatment to be applied. The first production version of the camera was delivered in May 2010 - sales are expected to start in early 2011. The company is pursuing a recurring income business model. The 3D imaging technology also has potential applications outside MedTech. Initial investment date: March 2010 Cost: Â£100,051 Valuation: Â£100,051 Equity held: 3.8% Last audited accounts: 31 August 2009 Loss before tax: Â£352,000 Net assets: Â£350,000 Update in Freehand Background: Â As at 31 December 2010, Hygea's investment was in Freehand Surgical. Freehand 2010 is the successor company to Freehand Surgical - the latter was placed in administration in Q4 2010 due to last minute difficulties in finding new investors at an acceptable valuation. Freehand's purpose is to improve the productivity in operating rooms used for keyhole surgery (which is itself a productivity improvement over open surgery) - its first product, Freehand, is a camera holding robot for keyhole surgery - this both removes the need for a human to hold the camera and makes longer operations easier for the surgeon because, unlike a human camera holder, the robot does not get tired. The business model is free placement of the system and sales of consumables to generate recurring income. Update since 2009: The above business model was launched in June 2010 and so against the background of the financial constraints within the NHS has taken some time to start gaining traction - however, York Healthcare Economics issued a report confirming the attractive economic benefits which Freehand brings. The company enters 2011 with a very strong team for commercializing the selected market opportunity and a new CEO with considerable experience of selling to surgeons. Disposals During the year, the holding in Stemcells was fully disposed of by way of its administration. Â The loss was reflected in the income statement for the year to 31 December 2009, and was transferred to the Capital Reserve - Realised during the year to 31 December 2010. Carrying value at 31 Cost of Proceeds of Â December 2009 investment investment Total loss Realisations (Â£'000) (Â£'000) (Â£'000) (Â£'000) -------------------------------------------------------------------------------- Stemcells plc 9 250 9 (241) -------------------------------------------------------------------------------- Total 9 250 9 (241) -------------------------------------------------------------------------------- In addition, a further Â£896,000 was received or accrued by way of additional proceeds from the previous investment in DxS, which was disposed of in 2009. Directors' Report The Directors present their report and the audited financial statements for the year ended 31 December 2010. This report has been prepared by the Directors in accordance with the requirements of s415 of the Companies Act 2006. Â The Company's independent auditor is required by law to report on whether the information given in the Directors' Report (including the Business Review) is consistent with the financial statements. Â The auditor's opinion is included in their report. Principal Activity and Status The principal activity of the Company is to provide shareholders with an attractive income and capital return by investing its funds in a portfolio of unquoted and quoted UK MedTech companies which meet the relevant criteria under the VCT Rules. On 21 January 2010, the Company revoked investment company status. The Company has been granted full approval as a Venture Capital Trust by HMRC. Â In order to maintain approved status, the Company must comply on a continuing basis with the provisions of s274 of the Income Tax Act 2007; in particular, the Company is required at all times to hold at least 70% of its investments (as defined in the legislation) in VCT qualifying holdings, of which at least 30% must comprise eligible ordinary shares. For this purpose, a "VCT qualifying holding" consists of up to Â£1 million invested in any one year in new shares or securities of a UK AIM quoted company or an unquoted company which is carrying on a qualifying trade, and whose gross assets and number of employees at the time of investment do not exceed a prescribed limit. Â The definition of "qualifying trade" excludes certain activities such as property investment and development, financial services and asset leasing. The accounts have been prepared in accordance with the requirements of the Companies Act 2006. Â The Directors are required by the articles of association to propose an ordinary resolution at the Company's annual general meeting in 2012 that the Company should continue as a Venture Capital Trust for a further three year period, and at three yearly intervals thereafter. Â If any such resolution is not passed, the Directors shall within four months convene a general meeting to consider the proposals for the reorganisation or winding-up of the Company. Review of Business Activities The Directors are required by s417 of the Companies Act 2006 to include a Business Review to shareholders. Â The Business Review is set out below and also includes the Chairman's Statement and the Investment Review by reference. The purpose of this review is to provide shareholders with a snapshot summary setting out the business objectives of the Company, the Board's strategy to achieve those objectives, the risks faced, the regulatory environment and the key performance indicators used to measure performance. Since the year end the following significant post balance sheet events have occurred; * January 2011 - Â£72,340 investment in Archimed LLP for a 3.57% share in the partnership * March 2011 - Â£250,000 investment in Freehand 2010 Limited for the interest of 250,000 shares * April 2011 - Â£50,000 investment in Axon Limited for the interest of 2,500 shares Performance and Key Performance Indicators The Board has a number of performance measures to assess the Company's success in meeting its objectives. Performance, measured by the change in NAV and total return per share, is also measured against the FTSE All-Share index. Â This is shown in the graph in the Directors' Remuneration Report. This index has been adopted as an informal benchmark. The Chairman's Statement includes a review of the Company's activities and future prospects; further details are also provided within the Investment Review. Results and dividend Year ended Year ended Â 31 December 2010 31 December 2009 Â Â£'000 Â£'000 -------------------------------------------------------------------------------- Net return attributable to shareholders 94 2,070 -------------------------------------------------------------------------------- Appropriations: Interim dividend paid since the year end - 0p per share (2009 - 10p) - Final dividend proposed - 5p per Â Â Â Â 405 Â Â Â Â Â Â Â Â 811 share (2009 - 5p) Â Â Â Â Â Â Â Â Â Â Â Â Â 405 -------------------------------------------------------------------------------- The proposed final dividend will, if approved by shareholders, be paid on 1 July 2011 to shareholders on the register on 27 May 2011. Objective and Investment Policy The Company's objective is to provide shareholders with an attractive income and capital return by investing its funds in a portfolio of unquoted and quoted UK MedTech companies which meet the relevant criteria under the VCT Rules. The Company's investment strategy is designed to deliver absolute returns on its investments rather than a performance measured against the market indices. Â On an ongoing basis, it is intended that at least 80% of the Company's assets will be invested in qualifying holdings, with the remainder held in cash and money market securities. Â The Board does not intend to vary the Company's investment policy. However, should a material change be deemed appropriate this will be done with shareholders' approval by the passing of an ordinary resolution and in accordance with the Listing Rules. The Directors control the overall risk of the portfolio by ensuring that the Company has exposure to a diversified range of quoted and unquoted companies from the MedTech sector. Â The Directors will continually monitor the investment process and ensure compliance with the investment policy. VCT regulation Compliance with required rules and regulations is considered with all investment decisions made. The company is further monitored on a continual basis to ensure compliance. The main criteria to which the company must adhere include: * At least 70% of investments must be made in qualifying shares or securities * At least 30% of the 70% of qualifying investments must be invested into Ordinary shares with no preferential rights * No single investment made can exceed 15% of the total company value at the time the investment is made * A minimum of 10% of each qualifying investment must be in Ordinary shares with no preferential rights Principal Risks, Risk Management and Regulatory Environment The Board carries out a regular review of the risk environment in which the Company operates. Â The main areas of risk identified by the Board are as follows: VCT qualifying status risk: the Company is required at all times to observe the conditions laid down in the Income Tax Act 2007 for the maintenance of approved VCT status. Â The loss of such approval could lead to the Company losing its exemption from corporation tax on capital gains, to investors being liable to pay income tax on dividends received from the Company and, in certain circumstances, to investors being required to repay the initial income tax relief on their investment. The Board keeps the Company's VCT qualifying status under regular review. Â The Board has also retained PricewaterhouseCoopers LLP to undertake an independent VCT status monitoring role. Investment risk: the majority of the Company's investments are in quoted and unquoted companies which are VCT qualifying holdings, which by their nature entail a higher level of risk and lower liquidity than investments in large quoted companies. Â The Directors aim to limit the risk attached to the portfolio as a whole by careful selection and timely realisation of investments, by carrying out due diligence procedures and by maintaining a spread of holdings in terms of financing stage. Â The Board reviews the investment portfolio on a regular basis. Financial risk: by its nature, as a Venture Capital Trust, the Company is exposed to market price risk, credit risk, liquidity risk, fair value and cash flow interest rate risks. All of the Company's income and expenditure is denominated in sterling and hence the Company has no foreign currency risk. The Company is financed principally through equity and has occasionally used a working capital facility. The Company does not use derivative financial instruments. Regulatory risk: the Company is required to comply with the Companies Acts, the rules of the UK Listing Authority and United Kingdom Accounting Standards. Breach of any of these might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report. Reputational: inadequate or failed controls might result in breaches of regulation or loss of shareholder trust. Internal control risk: the Board reviews annually the system of internal controls, financial and non-financial, operated by the Company. Â These include controls designed to ensure that the Company's assets are safeguarded and that proper accounting records are maintained. The Board seeks to mitigate the internal risks by setting policy, regular review of performance, enforcement of contractual obligations and monitoring progress and compliance. In the mitigation and management of these risks, the Board applies rigorously the principles detailed in the 'Turnbull' guidance. Details of the Company's internal controls are contained in the Corporate Governance section. Due to the nature of the Company, environmental, social and employee issues do not apply and therefore no disclosures in respect of these have been included in the Directors report. Further details of the Company's risk management policies are provided in note 14 to the financial statements. Directors The Directors of the Company during the period and their interests (in respect of which transactions are notifiable under Disclosure and Transparency Rule 3.1.2R) in the issued ordinary shares of 50p are shown in the table below: Â 31 December 2010 31 December 2009 -------------------------------------------------------------- James Otter (Chairman) 14,050 14,050 John Hustler 102,500 92,500 Charles Breese 105,000 105,000 -------------------------------------------------------------- All of the Directors' shares were held beneficially. There have been no changes in the Director's share interests between 31 December 2010 and the date of this report. Under the Company's Articles of Association, one-third of the Directors are required to retire by rotation each year. Â The Chairman is satisfied that, following individual performance evaluations, Mr John Hustler continues to be effective and to demonstrate commitment to the role. Share Issues and Open Offers During the year, the Company did not issue any shares (2009 - 327,185 shares). Share Capital, Rights Attaching to the Shares and Restrictions on Voting and Transfer The Company's issued ordinary share capital as at 31 December 2010 is 8,115,376 ordinary shares of 50p each. Subject to any suspension or abrogation of rights pursuant to relevant law or the Company's Articles of Association, the shares confer on their holders the following principal rights: Â (a) the right to receive out of profits available for distribution such dividends as may be agreed to be paid (in the case of a final dividend in an amount not exceeding the amount recommended by the Board as approved by shareholders in a general meeting or in the case of an interim dividend in an amount determined by the Board). Â All dividends unclaimed for a period of 12 years after having become due for payment are forfeited automatically and cease to remain owing by the Company; (b) the right, on a return of assets on a liquidation, reduction of capital or otherwise, to share in the surplus assets of the Company remaining after payment of its liabilities pari passu with the other holders of Ordinary shares; and Â (c) the right to receive notice of and to attend and speak and vote in person or by proxy at any general meeting of the Company. On a show of hands every member present or represented and voting has one vote and on a poll every member present or represented and voting has one vote for every share of which that member is the holder; the appointment of a proxy must be received not less than 48 hours before the time of the holding of the relevant meeting or adjourned meeting or, in the case of a poll taken otherwise than at or on the same day as the relevant meeting or adjourned meeting, be received after the poll has been demanded and not less than 24 hours before the time appointed for the taking of the poll. These rights can be suspended. If a member, or any other person appearing to be interested in shares held by that member, has failed to comply within the time limits specified in the Company's Articles of Association with a notice pursuant to s793 of the Companies Act 2006 (notice by the Company requiring information about interests in its shares), the Company can until the default ceases suspend the right to attend and speak and vote at a general meeting and if the shares represent at least 0.25% of their class the Company can also withhold any dividend or other money payable in respect of the shares (without any obligation to pay interest) and refuse to accept certain transfers of the relevant shares. Shareholders, either alone or with other shareholders, have other rights as set out in the Company's Articles of Association and in company law. A member may choose whether his shares are evidenced by share certificates (certificated shares) or held in electronic (uncertificated) form in CREST (the UK electronic settlement system). Any member may transfer all or any of his shares, subject in the case of certificated shares, to the rules set out in the Company's Articles of Association or in the case of uncertificated shares to the regulations governing the operation of CREST (which allow the Directors to refuse to register a transfer as therein set out); the transferor remains the holder of the shares until the name of the transferee is entered in the register of members. The Directors may refuse to register a transfer of certificated shares in favour of more than four persons jointly or where there is no adequate evidence of ownership or the transfer is not duly stamped (if so required). Â The Directors may also refuse to register a share transfer if it is in respect of a certificated share which is not fully paid up or on which the Company has a lien provided that, where the share transfer is in respect of any share admitted to the Official List maintained by the UK Listing Authority, any such discretion may not be exercised so as to prevent dealings taking place on an open and proper basis, or if in the opinion of the Directors (and with the concurrence of the UK Listing Authority) exceptional circumstances so warrant, provided that the exercise of such power will not disturb the market in those shares. Whilst there are no squeeze-out and sell out rules relating to the shares in the Company's Articles of Association, shareholders are subject to the compulsory acquisition provisions in s974 to s991 of the Companies Act 2006. Appointment and Replacement of Directors A person may be appointed as a Director of the Company by the shareholders in general meeting by Ordinary Resolution (requiring a simple majority of the persons voting on the relevant resolution) or by the Directors; no person, other than a Director retiring by rotation or otherwise, shall be appointed or reappointed a Director at any general meeting unless he is recommended by the Directors or, not less than seven nor more than 42 clear days before the date appointed for the meeting, notice is given to the Company of the intention to propose that person for appointment or re-appointment in the form and manner set out in the Company's Articles of Association. Each Director who is appointed by the Directors (and who has not been elected as a Director of the Company by the members at a general meeting held in the interval since his appointment as a Director of the Company) is to be subject to election as a Director of the Company by the members at the first Annual General Meeting of the Company following his appointment. At each Annual General Meeting of the Company one third of the Directors for the time being, or if their number is not three or an integral multiple of three the number nearest to but not exceeding one-third, are to be subject to re-election. Â However in accordance with the UK Corporate Governance Code, all the Directors submit themselves for annual re-election by shareholders. The Companies Act allows shareholders in a general meeting by Ordinary Resolution (requiring a simple majority of the persons voting on the relevant Resolution) to remove any Director before the expiration of his or her period of office, but without prejudice to any claim for damages which the Director may have for breach of any contract of service between him or her and the Company. A person also ceases to be a Director if he or she resigns in writing, ceases to be a Director by virtue of any provision of the Companies Act, becomes prohibited by law from being a Director, becomes bankrupt or is the subject of a relevant insolvency procedure, or becomes of unsound mind, or if the Board so decides following at least six months' absence without leave or if he or she becomes subject to relevant procedures under the mental health laws, as set out in the Company's Articles of Association. Powers of the Directors Subject to the provisions of the Companies Act, the Memorandum and Articles of Association of the Company and any directions given by shareholders by Special Resolution, the Articles of Association specify that the business of the Company is to be managed by the directors, who may exercise all the powers of the Company, whether relating to the management of the business or not. In particular the directors may exercise on behalf of the Company its powers to purchase its own shares to the extent permitted by shareholders. International Financial Reporting Standards As the Company is not part of a group it is not mandatory for it to comply with International Financial Reporting Standards. Â The Company does not anticipate that it will voluntarily adopt International Financial Reporting Standards. Creditor Payment Policy The Company's payment policy for the forthcoming financial year is to agree terms of payment before business is transacted and to settle accounts in accordance with those terms. Â The Company does not follow any code or standard with regard to creditor payment practice. Â At 31 December 2010 there were no trade creditors (2009: Â£nil). Environmental Policy The Company always makes full effort to conduct its business in a manner that is responsible to the environment. This responsibility is always maintained in investment decisions where possible. Going Concern The Company's business activities and the factors likely to affect its future performance and position are set out in the Chairman's Statement and Investment Review. Further details on the management of financial risk may be found in note 14 to the Financial Statements. The Board receives regular reports from the Administration Manager and the Directors believe that, as no material uncertainties leading to significant doubt about going concern have been identified, it is appropriate to continue to adopt the going concern basis in preparing the financial statements. The assets of the Company consist mainly of cash resources and securities, some of which are readily realisable. Â As such, the Company has adequate financial resources to continue in operational existence for the foreseeable future. Substantial Shareholdings As at the date of this report, no disclosures of major shareholdings had been made to the Company under Disclosure and Transparency Rule 5 (Vote Holder and Issuer Notification Rules). Annual General Meeting Notice convening the 2011 Annual General Meeting of the Company and a form of proxy in relation to the meeting can each be found at the end of this document. Independent Auditor Hyman Capital Services Limited ceased to be the Company's auditor during the year. Â The Company has now engaged James Cowper LLP and they offer themselves for reappointment as auditor. A resolution to re-appoint James Cowper LLP will be proposed at the forthcoming Annual General Meeting. Directors' Authority to Allot Shares, to Disapply Pre-emption Rights Resolution 7 renews the Directors' authority to allot Ordinary shares. This would enable the Directors until May 2012, to allot up to 811,537 ordinary shares (representing approximately 10% of the Company's issued share capital as at 31 December 2010). Resolution 8 renews and extends the Directors' authority to allot equity securities for cash without pre-emption rights applying in certain circumstances. This Resolution would authorise the Directors, until the date falling 15 months after the date of the passing of the Resolution or, if earlier, the conclusion of the next Annual General Meeting of the Company, to issue Ordinary shares for cash without pre-emption rights applying by way of an offer to existing shareholders, or re-issuing shares out of Treasury up to a maximum of 811,537 Ordinary shares (representing approximately 10% of the Company's issued share capital as at 31 December 2010). This power will be exercised only if, in the opinion of the Directors, it would be in the best interests of shareholders, as a whole. By Order of the Board Craig Hunter Company Secretary 8 April 2011 Income Statement +---------------------+ | Year to 31 December | Â Â | 2010 | --------------------------------------------------+---------------------+ Â Â |Revenue Capital Total| | | Â Notes| Â£'000 Â£'000 Â£'000| --------------------------------------------------+---------------------+ Â Â | Â Â Â | | | Gain on disposal of fixed asset investments 9 | - 896 896| | | Â Â | Â Â Â | | | Loss on valuation of fixed asset investments 9 | - (668) (668)| | | Â Â | Â Â Â | | | Income 2 | 37 - 37| | | Â Â | Â Â Â | | | Other expenses 3 | (171) - (171)| | | Â Â | Â Â Â | --------------------------------------------------+---------------------+ Return on ordinary activities before tax Â | (134) 228 94| | | Â Â | Â Â Â | | | Taxation on return on ordinary activities 5 | - - -| | | Â Â | Â Â Â | --------------------------------------------------+---------------------+ Return Â on ordinary activities after tax Â | (134) 228 94| --------------------------------------------------+---------------------+ Earnings per share - basic and diluted 7 | (1.6p) 2.8p 1.2p| +---------------------+ * The 'Total' column of this statement is the profit and loss account of the Company; the supplementary revenue return and capital return columns have been prepared under guidance published by the Association of Investment Companies. * All revenue and capital items in the above statement derive from continuing operations * The accompanying notes are an integral part of the financial statements * The Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds The Company has no recognised gains or losses other than the results for the year as set out above. Income Statement +---------------------+ | Year to 31 December | Â Â | 2009 | ----------------------------------------------------+---------------------+ Â Â |Revenue Capital Total| | | Â Notes| Â£'000 Â£'000 Â£'000| ----------------------------------------------------+---------------------+ Â Â | Â Â Â | | | Gain on disposal of fixed asset investments Â | - 2,285 2,285| | | Â Â | Â Â Â | | | Loss on valuation of current asset investments Â | - (198) (198)| | | Â Â | Â Â Â | | | Income 2 | 113 - 113| | | Â Â | Â Â Â | | | Other expenses 3 | (130) - (130)| | | Â Â | Â Â Â | | | Â Â | Â Â Â | | | Â Â | Â Â Â | ----------------------------------------------------+---------------------+ Return on ordinary activities before tax Â | (17) 2,087 2,070| | | Â Â | Â Â Â | | | Taxation on return on ordinary activities 5 | - - -| | | Â Â | Â Â Â | ----------------------------------------------------+---------------------+ Return Â on ordinary activities after tax Â | (17) 2,087 2,070| ----------------------------------------------------+---------------------+ Earnings per share - basic and diluted 7 | (0.2)p 26.0p 25.8p| +---------------------+ * The 'Total' column of this statement is the profit and loss account of the Company; the supplementary revenue return and capital return columns have been prepared under guidance published by the Association of Investment Companies. * All revenue and capital items in the above statement derive from continuing operations. * The accompanying notes are an integral part of the financial statements. * The Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds. The Company has no recognised gains or losses other than the results for the year as set out above. Reconciliation of Movements in Shareholders' Funds +------------------------+------------------------+ | Year ended 31 December| Year ended 31 December| Â | 2010| 2009| | | | Â | Â£'000| Â£'000| -----------------------------+------------------------+------------------------+ Shareholders' funds at start | | | of year | 7,404| 5,155| -----------------------------+------------------------+------------------------+ Return on ordinary activities| | | after tax | 94| 2,070| | | | Issue of equity (net of | | | expenses) | -| 179| | | | Dividends paid | (1,216)| -| -----------------------------+------------------------+------------------------+ Shareholders' funds at end of| | | year | 6,282| 7,404| -----------------------------+------------------------+------------------------+ Balance Sheet +--------------+ | As at| As at | 31 December| 31 December Â Â | 2010| 2009 | | Â Notes| Â£'000 Â£'000| Â£'000 Â£'000 --------------------------------------------------+--------------+-------------- Â Â |Â Â | | | Fixed asset investments* 9 | Â 5,225| Â 3,359 | | Current assets: Â | Â Â | | | Debtors 10 | 323 Â | 29 | | Cash at bank Â | 764 Â | 4,036 --------------------------------------------------+--------------+-------------- Â Â | 1,087 Â | 4,065 | | Creditors: amounts falling due within one | | year 11 | (30) Â | (20) --------------------------------------------------+--------------+-------------- Net current assets Â | Â 1,057| Â 4,045 --------------------------------------------------+--------------+-------------- Â Â | Â Â | --------------------------------------------------+--------------+-------------- Net assets Â | Â 6,282| Â 7,404 --------------------------------------------------+--------------+-------------- Â Â | Â Â | | | Called up equity share capital 12 | 4,058 Â | 4,058 | | Share premium 13 | 1,737 Â | 1,737 | | Special distributable reserve 13 | 1,660 Â | 1,660 | | Capital redemption reserve 13 | 38 Â | 38 | | Capital reserve - gains and losses on | | disposals 13 | 1,694 Â | 2,256 | | Â Â Â Â Â Â Â Â Â Â Â Â Â - holding gains and | | losses 13 |(1,973) Â |(1,547) | | Revenue reserve 13 | (932) Â | (798) --------------------------------------------------+--------------+-------------- Total equity shareholders' funds Â | Â 6,282| Â 7,404 --------------------------------------------------+--------------+-------------- Net asset value per share 8 | Â 77.4p| Â 91.2p --------------------------------------------------+--------------+-------------- Â Â | Â Â | +--------------+ *At fair value through profit and loss The accompanying notes are an integral part of the financial statements. The statements were approved by the Directors and authorised for issue on 8 April 2011 and are signed on their behalf by: James Otter Chairman Company No: 04221489 Cash Flow Statement +----------------+----------------+ | Year to| Year to| Â Â |31 December 2010|31 December 2009| | | | Â Notes | Â£'000| Â£'000| ---------------------------------------------+----------------+----------------+ Â Â | Â | Â | | | | Net cash (outflow)/intflow from operating | | | activities Â | (418)| 21| | | | Â Â | Â | Â | | | | Financial investment: Â | Â | Â | | | | Purchase of fixed asset investments 9| (2,743)| (585)| | | | Disposal of fixed asset investments 9| 1,105| 4,455| | | | Â Â | Â | Â | | | | Financing: Â | Â | Â | | | | Issue of shares Â | -| 179| | | | Â Â | Â | Â | | | | Dividends paid Â | (1,216)| -| ---------------------------------------------+----------------+----------------+ (Decrease)/Increase in cash resources at | | | bank Â | (3,272)| 4,070| +----------------+----------------+ Reconciliation of Net Cash Flow to Movement in Net Funds +----------------+----------------+ | Year to| Year to| Â Â |31 December 2010|31 December 2009| | | | Â Â | Â£'000| Â£'000| ---------------------------------------------+----------------+----------------+ (Decrease)/increase in cash resources at Â | | | bank | (3,272)| 4,070| | | | Opening net funds Â | 4,036| (34)| ---------------------------------------------+----------------+----------------+ Net funds at 31 December* Â | 764| 4,036| +----------------+----------------+ * Net funds at 31 December 2009 and 31 December 2010 comprised cash at bank Reconciliation of Operating profit/(loss) before Taxation to Cash Flow from Operating Activities +------------------------+----------------+ | Year to| Year to| Â Â | 31 December 2010|31 December 2009| | | | Â Â | Â£'000| Â£'000| -------------------------------------+------------------------+----------------+ Return on ordinary activities Â | | | before tax | 94| 2,070| | | | Gain on disposal of fixed asset Â | | | investments | (896)| (2,285)| | | | Loss on valuation of fixed asset Â | | | investments | 668| 198| | | | (Increase)/decrease in debtors Â | (294)| 50| | | | Increase/(decrease) in creditors Â | 10| (12)| -------------------------------------+------------------------+----------------+ (Outflow)/inflow from operating Â | | | activities | (418)| 21| +------------------------+----------------+ Notes to the Financial Statements 1.Â Â Â Â Principal Accounting Policies Basis of accounting The financial statements have been prepared under the historical cost convention, except for the measurement at fair value of certain financial instruments, and in accordance with UK Generally Accepted Accounting Practice (UK GAAP), and the Statement of Recommended Practice (SORP) "Financial Statements of Investment Trust Companies" (revised 2009). The principal accounting policies have remained unchanged from those set out in the Company's 2009 Annual Report and financial statements. Â A summary of the principal accounting policies is set out below. The Company has designated all fixed asset investments as being held at fair value through profit and loss; therefore all gains and losses arising from investments held are attributable to financial assets held at fair value through profit and loss. Â Accordingly, all interest income, fee income, expenses and impairment losses are attributable to assets designated as being at fair value through profit and loss. The preparation of the financial statements requires the Board to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Estimates and assumptions mainly relate to the fair valuation of the fixed asset investments particularly unquoted investments. Estimates are based on historical experience and other assumptions that are considered reasonable under the circumstances. The estimates and the assumptions are under continuous review with particular attention paid to the carrying value of the investments. Capital valuation policies are those that are most important to the depiction of the Company's financial position and that requires the application of subjective and complex judgements, often as a result of the need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods. The critical accounting policies that are declared will not necessarily result in material changes to the financial statements in any given period but rather contain a potential for material change. The main accounting and valuation policies used by the Company are disclosed below. Â Whilst not all of the significant accounting policies require subjective or complex judgements, the Company considers that the following accounting policies should be considered critical. Although the Company believes that the assumptions concerning the business environment and estimate of future cash flows are appropriate, changes in estimates and assumptions could require changes in the stated values. This could lead to additional changes in fair value in the future. Investments Purchases and sales of investments are recognised in the financial statements at the date of the transaction (trade date). These investments will be managed and their performance evaluated on a fair value basis in accordance with a documented investment strategy and information about them has to be provided internally on that basis to the Board. Â Accordingly, as permitted by FRS 26, the investments will be designated as fair value through profit and loss (FVTPL) on the basis that they qualify as a group of assets managed, and whose performance is evaluated, on a fair value basis in accordance with a documented investment strategy. Â The Company's investments are measured at subsequent reporting dates at fair value. In the case of investments quoted on a recognised stock exchange, fair value is established by reference to the closing bid price on the relevant date or the last traded price, depending upon convention of the exchange on which the investment is quoted. Â This is consistent with the International Private Equity and Venture Capital (IPEVC) guidelines. In the case of unquoted investments, fair value is established by using measures of value such as the price of recent transactions, earnings multiple and net assets. This is consistent with IPEVC valuation guidelines. Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the income statement and allocated to the capital reserve - holding gains/(losses). In the preparation of the valuations of assets the Directors are required to make judgements and estimates that are reasonable and incorporate their knowledge of the performance of the investee companies. Current asset investments No current asset investments were held at 31 December 2010 or 31 December 2009. Â Should current assets be held, gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve - gains/(losses) on disposal. Income Investment income includes interest earned on bank balances and from unquoted loan note securities. Â Fixed returns on debt are recognised on a time apportionment basis so as to reflect the effective yield, provided there is no reasonable doubt that payment will be received in due course. Expenses All expenses are accounted for on an accruals basis. Â Expenses are charged wholly to revenue with the exception of the investment management fee (should there be one), which has been charged 25% to the revenue account and 75% to the capital reserve to reflect, in the Directors' opinion, the expected long-term split of returns in the form of income and capital gains respectively from the investment portfolio. Revenue and capital The revenue column of the income statement includes all income and revenue expenses of the Company. Â The capital column includes gains and losses on disposal and holding gains and losses on investments. Â Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the income statement and allocated to the appropriate capital reserve on the basis of whether they are readily convertible to cash in full at the balance sheet date. Taxation Corporation tax payable is applied to profits chargeable to corporation tax, if any, at the current rate. The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue return on the "marginal" basis as recommended in the SORP. Deferred tax is recognised on an undiscounted basis in respect of all timing differences that have originated but not reversed at the balance sheet date. Where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less tax, with the exception that deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing can be deducted. Cash and liquid resources Cash, for the purposes of the cash flow statement, comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand. Â Liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at or close to their carrying values or traded in an active market. Â Liquid resources comprise term deposits of less than one year (other than cash), government securities, investment grade bonds and investments in money market managed funds, as well as OEICs. Â At the year end, no liquid resources were held by the Company. Loans and receivables The Company's loans and receivables are initially recognised at cost and subsequently measured at fair value, being amortised cost using the effective interest rate method. Financing strategy and capital structure FRS 29 'Financial Instruments: Disclosures' comprises disclosures' relating to financial instruments. We define capital as shareholders' funds and our financial strategy in the medium term is to manage a level of cash that balances the risks of the business with optimising the return on equity. Financial instruments The Company's principal financial assets are its investments and the policies in relation to those assets are set out above. Â 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 entity after deducting all of its financial liabilities. Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument. Capital management is monitored and controlled using the internal control procedures set out on page 16 of this report. Â The capital being managed includes equity and fixed-interest investments, cash balances and liquid resources including debtors and creditors. The Company does not have any externally imposed capital requirements. Dividends Dividends payable are recognised as distributions in the financial statements when the Company's liability to make payment has been established. Â This liability is established for interim dividends when they are declared by the Board, and for final dividends when they are approved by the shareholders. 2.Â Â Â Â Income Â Year to 31 December 2010 Year to 31 December 2009 Â Â£'000 Â£'000 ------------------------------------------------------------------------------- Dividends received 1 - Underwriting fee 14 - Bank interest receivable 14 10 Loan note interest receivable 8 103 ------------------------------------------------------------------------------- Â 37 113 ------------------------------------------------------------------------------- 3.Â Â Â Â Other Expenses Â Year to 31 December 2010 Year to 31 December 2009 Â Â£'000 Â£'000 -------------------------------------------------------------------------------- Directors' remuneration 56 40 Fees payable to the Company's auditor for the audit of the financial statements 8 6 Fees payable to the Company's auditor for other services - tax compliance 2 2 Legal and professional expenses 52 42 Accounting and administration services 29 25 Other expenses 24 15 -------------------------------------------------------------------------------- Â 171 130 -------------------------------------------------------------------------------- For the year ended 31 December 2010 the running costs were 2.7% (2009: 1.8%) of net assets. 4.Â Â Â Â Directors' Remuneration Â Year to 31 December 2010 Year to 31 December 2009 Â Â£'000 Â£'000 ------------------------------------------------------------------------------ Directors' emoluments James Otter (Chairman) 20 16 John Hustler 18 12 Charles Breese 18 12 ------------------------------------------------------------------------------ Â 56 40 ------------------------------------------------------------------------------ None of the Directors received any other remuneration from the Company during the year. The Company has no employees other than non-executive Directors. Â The average number of non-executive Directors in the year was three (2009: three). 5.Â Â Â Â Tax on Ordinary Activities The corporation tax charge for the period was Â£nil (2009: Â£nil) The current rate of tax is the small companies' rate of corporation tax at 21% (2009: Â 21%) Current tax reconciliation: Year to 31 December 2010 Year to 31 December 2009 Â Â£'000 Â£'000 -------------------------------------------------------------------------------- Return on ordinary activities (134) (17) before tax Current tax at 21% (2009: 21%) (28) (4) Unrecognised tax losses 28 4 -------------------------------------------------------------------------------- Total current tax charge - - -------------------------------------------------------------------------------- Approved VCTs are exempt from tax on capital gains within the Company. Â Since the Directors intend that the Company will continue to conduct its affairs so as to maintain its approval as a VCT, no current deferred tax has been provided in respect of any capital gains or losses arising on the revaluation or disposal of investments. 6.Â Â Â Â Dividends Â Year to 31 December 2010 Year to 31 December 2009 Â Â£'000 Â£'000 -------------------------------------------------------------------------------- Recognised as distributions in the financial statements for the period Previous year's interim dividend 811 - Previous year's final dividend 405 - Current year's interim dividend - - -------------------------------------------------------------------------------- Â 1,216 - -------------------------------------------------------------------------------- Paid and proposed in respect of the year Interim dividend paid (post- year end) - 10p per share - 811 Proposed final dividend - 5p per share (2009: 5p per share) 405 405 -------------------------------------------------------------------------------- Â 405 1,216 -------------------------------------------------------------------------------- The final dividend of 5p per share for the year ended 31 December 2010, subject to shareholder approval at the annual general meeting, will be paid on 1 July 2011 to those shareholders on the register on 27 May 2011. 7.Â Â Â Â Earnings per Share The total earnings per share is based on 8,115,376 (31 December 2009: 8,017,636) shares, being the weighted average number of shares in issue during the year, and a return for the year totalling Â£94,000 (31 December 2009: Â£2,070,000). The revenue and capital earnings per share are based on 8,115,376 (31 December 2009: 8,017,636) shares, being the weighted average number of shares in issue during the year, and a revenue return for the year totalling Â£(134,000) (31 December 2009: Â£(17,000)) and a capital return for the year totalling Â£228,000 (31 December 2009: Â£2,087,000). There are no potentially dilutive capital instruments in issue and, therefore no diluted returns per share figures are relevant. The basic and diluted earnings per share are therefore identical. 8.Â Â Â Â Net Asset Value per Share The calculation of NAV per share as at 31 December 2010 is based on 8,115,376 (31 December 2009: 8,115,376) ordinary shares in issue at that date. 9.Â Â Â Â Fixed Asset Investments Level 1: Level 3: Level 3: AIM-quoted Unquoted Unquoted Â investments Â investments Â investments Equity Equity Loan Total Â investments investments investments investments 31 December 31 December 31 December Â 2010 31 December 2010 2010 2010 Â Â£'000 Â£'000 Â£'000 Â£'000 -------------------------------------------------------------------------------- Valuation and net book amount: Book cost as at 1 January 2010 1,287 3,062 557 4,906 Cumulative revaluation (525) (950) (72) (1,547) -------------------------------------------------------------------------------- Valuation at 1 January 2010 762 2,112 485 3,359 Movement in the year: Purchases at cost 902 1,641 200 2,743 Disposal proceeds (9) (1,096) - (1,105) Gain on disposal - 896 - 896 Loan converted to equity - 550 (550) - Revaluation in year 500 (1,168) - (668) -------------------------------------------------------------------------------- Valuation at 31 December 2010 2,155 2,935 135 5,225 -------------------------------------------------------------------------------- Book cost at 31 December 2010: 1,938 5,053 207 7,198 Revaluation to 31 December 2010: 217 (2,118) (72) (1,973) -------------------------------------------------------------------------------- Valuation at 31 December 2010 2,155 2,935 135 5,225 -------------------------------------------------------------------------------- Further details of the fixed asset investments held by the Company are shown within the Investment Review. All investments are designated as fair value through profit or loss at the time of acquisition, and all capital gains or losses on investments so designated. Â Given the nature of the Company's venture capital investments, the changes in fair value of such investments recognised in these financial statements are not considered to be readily convertible to cash in full at the balance sheet date and accordingly these gains are treated as holding gains or losses. When the Company revalues the investments still held during the period, any gains or losses arising are credited / charged to the Capital reserve - holding gains/(losses). When an investment is sold any balance held on the Capital reserve - holding gains/(losses) is transferred to the Capital reserve - gains/(losses) on disposal as a movement in reserves. At 31 December 2010, the investment in Freehand 2010 was committed to but had not yet completed. Â There were no further commitments in respect of investments approved by the Board but not yet completed. 10.Â Â Â Â Debtors Â 31 December 2010 31 December 2009 Â Â£'000 Â£'000 ---------------------------------------------------------------------- Prepayments and accrued income 323 29 ---------------------------------------------------------------------- Â 323 29 ---------------------------------------------------------------------- 11.Â Â Â Â Creditors: Amounts Falling Due Within One Year Â Â 31 December 2010 31 December 2009 Â Â Â£'000 Â£'000 ----------------------------------------------------------- Accruals Â 21 18 Other creditors Â 9 2 ----------------------------------------------------------- Â Â 30 20 ----------------------------------------------------------- 12.Â Â Â Â Share Capital Â 31 December 2010 31 December 2009 Â Â£'000 Â£'000 -------------------------------------------------------------------------------- Authorised: Â 50,000,000 Ordinary shares of 50p 25,000 25,000 -------------------------------------------------------------------------------- Allotted and fully paid up: 8,115,376 Ordinary shares of 50p (2009: 4,058 4,058 Â 8,115,376) -------------------------------------------------------------------------------- The capital of the Company is managed in accordance with its investment policy with a view to the achievement of its investment objective. Â The Company is not subject to any externally imposed capital requirements. During the year, the Company did not issue any shares. 13.Â Â Â Â Reserves Capital Capital Special Capital reserve reserve Share distributable redemption gains/(losses) Â holding Revenue Â Premium reserve reserve on disposal gains/(losses) reserve Â Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 ------------------------------------------------------------------------------------ As at 1 January 2010 1,737 1,660 38 2,256 (1,547) (798) Return on ordinary activities after tax - - - - - (134) Current period gains/losses on disposal - - - 896 - - Prior period holding gains/losses now Â crystallised - - - (242) 242 - Current period gains/losses on fair value of investments - - - - (668) - Dividends paid - - - (1,216) - - ------------------------------------------------------------------------------------ Balance as at 31 December 2010 1,737 1,660 38 1,694 (1,973) (932) ------------------------------------------------------------------------------------ When the Company revalues its investments during the period, any gains or losses arising are credited/ charged to the income statement. Â Changes in fair value of investments held are then transferred to the capital reserve - holding gains/(losses). Â When an investment is sold any balance held on the capital reserve - holding gains/(losses) reserve is transferred to the capital reserve - gains/(losses) on disposal as a movement in reserves. The purpose of the special distributable reserve was to create a reserve which will be capable of being used by the Company to pay dividends and for the purpose of making repurchases of its own shares in the market with a view to narrowing the discount at which the Company's shares trade to net asset value, providing shareholder authority has been granted. During the year, the Company revoked investment company status in order to allow payment of dividends from capital reserves. 14. Â Â Â Â Financial Instruments and Risk Management The Company's financial instruments comprise equity and loan note investments, cash balances and liquid resources including debtors and creditors. The Company holds financial assets in accordance with its investment policy of investing mainly in a portfolio of VCT-qualifying quoted and unquoted securities whilst holding a proportion of its assets in cash or near-cash investments in order to provide a reserve of liquidity. Fixed asset investments (see note 9) are valued at fair value. Unquoted investments are carried at fair value as determined by the Directors in accordance with current venture capital industry guidelines. The fair value of all other financial assets and liabilities is represented by their carrying value in the balance sheet. Â The Directors believe that the fair value of the assets are held at the year end is equal to their book value. In carrying on its investment activities, the Company is exposed to various types of risk associated with the financial instruments and markets in which it invests. The most significant types of financial risk facing the Company are price risk, interest rate risk, credit risk and liquidity risk. The Company's approach to managing these risks is set out below together with a description of the nature and amount of the financial instruments held at the balance sheet date. Market risk The Company's strategy for managing investment risk is determined with regard to the Company's investment objective. The management of market risk is part of the investment management process and is a central feature of venture capital investment. The Company's portfolio is managed with regard to the possible effects of adverse price movements and with the objective of maximising overall returns to shareholders. Investments in unquoted companies, by their nature, usually involve a higher degree of risk than investments in companies quoted on a recognised stock exchange, though the risk can be mitigated to a certain extent by diversifying the portfolio across business sectors and asset classes. The overall disposition of the Company's assets is regularly monitored by the Board. Details of the Company's investment portfolio at the balance sheet date. 48.9% (2009: 35.1%) by value of the Company's net assets comprises investments in unquoted companies held at fair value. Â The valuation methods used by the Company include the application of a price/earnings ratio derived from listed companies with similar characteristics, and consequently the value of the unquoted element of the portfolio can be indirectly affected by price movements on the London Stock Exchange. A 10% overall increase in the valuation of the unquoted investments at 31 December 2010 would have increased net assets and the total return for the year by Â£307,000 (2009: Â£260,000) an equivalent change in the opposite direction would have reduced net assets and the total return for the year by the same amount. 34.3% (2009: 10.3%) by value of the Company's net assets comprises equity securities listed on the London Stock Exchange or quoted on AIM or PLUS. A 10% increase in the bid price of these securities as at 31 December 2010 would have increased net assets and the total return for the year by Â£216,000 (2009: Â£76,000); a corresponding fall would have reduced net assets and the total return for the year by the same amount. Interest rate risk Some of the Company's financial assets are interest-bearing, of which some are at fixed rates and some variable. Â As a result, the Company is exposed to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates. Floating rate The Company's floating rate investments comprise cash held on interest-bearing deposit accounts, libor rate on one loan note and, where appropriate, within interest bearing money market securities. Â The benchmark rate which determines the rate of interest receivable on such investments is the bank base rate, which was 0.5% at 31 December 2010 (2009: Â 0.5%). Â The amounts held in floating rate investments at the balance sheet date were as follows: 31 December 2010 Â 31 December 2009 Â Â£000 Â£000 -------------------------------------------------------- Cash at bank 764 Â 4,036 -------------------------------------------------------- Â 764 Â 4,036 A 1% increase in the base rate would increase income receivable from these investments and the total return for the period by Â£7,640 (2009: Â£40,000); a corresponding fall would have reduced net assets and the total return for the year by the same amount. Credit risk There were no significant concentrations of credit risk to counterparties at 31 December 2010 or 31 December 2009. Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Board carries out a regular review of counterparty risk. The carrying values of financial assets represent the maximum credit risk exposure at the balance sheet date. At 31 December 2010 the Company's financial assets exposed to credit risk comprised the following: 31 December 2010 Â 31 December 2009 Â Â£000 Â£000 ---------------------------------------------------------------- Cash at bank 764 Â 4,036 Unquoted investments 135 Â 435 ---------------------------------------------------------------- Â 899 Â 4,471 The Company's interest-bearing deposit and current accounts are maintained with The Royal Bank of Scotland plc. Liquidity risk The Company's financial assets include investments in unquoted equity securities which are not traded on a recognised stock exchange and which generally may be illiquid. They also include investments in AIM-quoted companies, which, by their nature, involve a higher degree of risk than investments on the main market. Â As a result, the Company may not be able to realise some of its investments in these instruments quickly at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer. The Company's liquidity risk is managed on a continuing basis by the Board in accordance with policies and procedures laid down by the Board. The Company's overall liquidity risks are monitored on a quarterly basis by the Board. The Company maintains sufficient cash facilities to pay accounts payable and accrued expenses. Â At 31 December 2010, the Company's cash balance was Â£764,000 (2009: Â£4.04 million). 15. Â Â Â Â Â Post Balance Sheet Events The following events occurred between the balance sheet date and the signing of these financial statements: * January 2011 - Â£72,340 investment in Archimed LLP for a 3.57% share in the partnership * March 2011 - Â£250,000 investment in Freehand 2010 Limited for the interest of 250,000 shares * April 2011 - Â£50,000 investment in Axon Limited for the interest of 2,500 shares 16. Â Â Â Â Â Contingencies, Guarantees and Financial Commitments As stated in the Chairman's Statement, the Company may be entitled to further deferred consideration of up to Â£875,000 based on performance from DxS over the next few years. Â To date, Â£896,000 has been received or accrued during the year to 31 December 2010. The investment in Freehand 2010 made in March 2011 as set out in note 15 above was a financial commitment as at 31 December 2010. Â There were no further contingencies, guarantees or financial commitments as at 31 December 2010 (2009: Â£nil). 17. Â Â Â Â Â Related Party Transactions The Board acts as the investment manager of the Company. Â No remuneration has been paid to the Board during the year in its capacity as investment manager. Â The Directors are entitled to participate in a performance bonus calculated as 20% of sums returned to shareholders by way of dividends and capital distributions of whatever nature, which in aggregate exceeds the sum of 80p per share (including dividends paid to date, i.e. 16.25p, but excluding any sums returned to shareholders from HMRC in the year of subscription). Â At the 31 December 2010, no performance fee was payable (2009: nil). Â The Board is also entitled to be repaid all reasonable travelling, subsistence and other expenses incurred by them respectively whilst conducting their duties as Directors. Â Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of Hygea vct plc ("the Company") will be held at the offices of Matrix Corporate Capital LLP, 1 Vine Street, London, W1J 0AH on Wednesday 11 May 2011 at 11.30 a.m. for the following purposes: ORDINARY BUSINESS To consider and if thought fit, pass the following as Ordinary Resolutions 1. That the Directors' Annual Report and Accounts and the auditors' report thereon for the year ended 31 December 2010 be received and adopted. 2. That the Directors' Remuneration Report for the year ended 31 December 2010 be received and adopted. 3. Â To approve a final dividend of 5p per ordinary share in respect of the financial year ended 31 December 2010. 4. That John Huster be re-elected as a Director of the Company. 5. That James Cowper LLP be re-appointed as auditors of the Company until the conclusion of the next Annual General Meeting of the Company at which accounts are laid before the Members. 6. That the Directors be authorised to determine the auditor's remuneration. SPECIAL BUSINESS 7. AUTHORITY TO ALLOT RELEVANT SECURITIES THAT the Directors be and are generally and unconditionally authorised in accordance with s551 of the Companies Act 2006 to exercise all the powers of the Company to allot shares in the Company up to a maximum nominal amount of Â£405,767 (representing approximately 10% of the Ordinary share capital in issue at today's date) such authority to expire at the later of the conclusion of the Company's Annual General Meeting next following the passing of this Resolution and the expiry of 15 months from the passing of the relevant Resolution (unless previously revoked, varied or extended by the Company in a general meeting but so that such authority allows the Company to make offers or agreements before the expiry thereof, which would or might require relevant securities to be allotted after the expiry of such authority). To consider and, if thought fit, pass as a Special Resolution: 7. EMPOWERMENT TO MAKE ALLOTMENTS OF EQUITY SECURITIES THAT the Directors pursuant to s571 of the Companies Act 2006 be empowered to allot or make offers or agreements to allot equity securities (as defined in s560(1) of the said Act) for cash pursuant to the authority referred to in Resolution 7 as if s561 (1) of the Act did not apply to any such allotments and so that: a. reference to allotment in this Resolution shall be construed in accordance with s560(2) of the Act; and b. the power conferred by this Resolution shall enable the Company to make any offer or agreement before the expiry of the said power which would or might require equity securities to be allotted after the expiry of the said power and the Directors may allot equity securities in pursuance of such offer or agreement notwithstanding the expiry of such power. And this power, unless previously varied, revoked or renewed, shall come to an end at the conclusion of the Annual General Meeting of the Company next following the passing of this Resolution or, if earlier, on the expiry of 15 months from the passing of this Resolution. By order of the Board 39 Alma Road St Albans Â AL1 3AT Craig Hunter Â Company Secretary 8 April 2011 NOTES: a. A member entitled to attend and vote at the Annual General Meeting may appoint one or more proxies to attend and vote on his or her behalf. A proxy need not be a member. a. A form of proxy is enclosed which, to be effective, must be completed and delivered to the registrars of the Company, Capita Registrars, Proxies Department, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU so as to be received by no later than 48 hours before the time the Annual General Meeting is scheduled to begin. The completion and return of the form of proxy will not affect the right of a member to attend and vote at the Annual General Meeting. (c) Â Â Â Â Copies of the Directors' Letters of Appointment, the Register of Directors' Interests in the Ordinary shares of the Company kept in accordance with the Listing Rules Articles of Association will be available for inspection at the registered office of the Company during usual business hours on any weekday from the date of this notice until the Annual General Meeting, and at the place of that meeting for at least 15 minutes prior to the commencement of the meeting until its conclusion. Enquiries: Charles Breese, Hygea VCT plc on 01280 703482 or larpentnewton@btinternet.com Roland Cornish, Beaumont Cornish Limited on 020 7628 3396 This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: Hygea VCT plc via Thomson Reuters ONE [HUG#1504823]

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