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Oxford Adv Surfaces (OXA)

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Wednesday 28 April, 2010

Oxford Adv Surfaces

Final Results

RNS Number : 8448K
Oxford Advanced Surfaces Group PLC
28 April 2010
 



 

Oxford Advanced Surfaces Group plc

 

Oxford Advanced Surfaces Group plc ('OAS' or the 'Company') is pleased to announce its audited final results for the year ending 31 December 2009.

 

A copy of the Annual Report and Accounts and Notice of AGM is being posted to shareholders shortly and will be available from the Company's website - www.oxfordsurfaces.com.

 

CHAIRMAN'S STATEMENT

 

This is my first report to shareholders as the new Chairman of Oxford Advanced Surfaces Group plc.  2009 has been a year of many changes; focus and strategy, IP, and the composition of the Board.

 

Following a critical review of the business in early 2009 we instigated a number of changes and cost containment programmes to ensure that the business would survive the recession and come out the other side in a strong position to take advantage of any return to growth.  We focused the attention of the research team on leading products with external support.  The efforts of our cost reduction programme can be seen in the results as set out in the group financial review later in this annual report.

 

We continued to concentrate on securing IP to ensure that our technology was well protected, both for our benefit and that of our future customers.  We have filed a further five patents in 2009 and we are still expanding the patent families to cover our new developments in anti-reflective coatings, particle deposition and the use of polymers in our formulations.  All these new patents provide license potential and many are the subject of our current technology development and license negotiations.

 

In addition to these changes we have changed the Board composition.  Marcelo Bravo, after his significant input into building the company, has moved on to new challenges.  We would like to thank him for his efforts and the company he has left behind that is now well positioned to move to commercialisation.  Marcelo has been replaced by Dr Mike Eason, who previously held the role of Chief Technical Officer.  We are happy to welcome Mike to the Board and wish him every success.  His review of the business and the future opportunities for the group appears on the following pages. 

 

In addition, at the start of 2010 we also said farewell to Jeremy Scudamore and Andy Naylor.  They were both influential in the foundation of the business and its funding success and development.  Again, I would like to thank them for their contribution.

 

I also have the pleasure of welcoming Dr David Bott to the Board.  His experience in technology growth businesses, the Technology Strategy Board and his former career are all beneficial to our business in its current stage of development.  He is also a highly beneficial technical advisor to the management team, along with Dr Mark Moloney who continues to support the business in his role on the Scientific Advisory Board.

 

We have continued to increase the focus of our technology and are now concentrating on three key markets; adhesion, composites and anti-reflective coatings.  These markets are both those where we have made most technical progress and where we also have strong commercial traction driven by customer need.  All areas offer the opportunity of multiple licenses for various applications across a range of market sectors.

 

The group has recruited a leading team of scientists and executives with the breadth and depth of experience and skills to ensure that we are well placed to fully exploit our proprietary technology, both in the opportunities that already exist and those that will be created by the current market and economic conditions.

 

At the end of 2009 employee numbers excluding non-executive directors, had fallen from 22 to 17, of which 14 were focused on research and development programmes.  We expect employee numbers to increase back up to around the 20 headcount level by the end of 2010 in order to manage our commercialisation and scale-up programme.

 

Outlook

 

The progress from research into commercialisation continues, and we believe that we are well positioned to agree initial license deals on our technology in 2010.  We are well capitalised and agile enough to take advantage of the market opportunities as they present themselves.

 

I would like to thank all our employees for their dedication and hard work which have made possible significant technical and commercial progress in 2009 and has created a strong foundation for our advance to commercialisation in 2010.

 

 

Michael Bretherton

Chairman

 

 

Contact:

 

Oxford Advanced Surfaces Group plc                      Tel: 01865 845807

Mike Eason, Managing Director

www.oxfordsurfaces.com

 

ZAI Corporate Finance - Nominated Adviser           Tel: 020 7060 2220

Ray Zimmerman/ Sarang Shah

 

 

Novum Securities Limited - Broker                          Tel: 020 7399 9400

Henry Turcan

 

 

 

CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME

For The Year Ended 31 December 2009

 



Year to

31 December 2009


Year to

31 December 2008



£'000


£'000






CONTINUING OPERATIONS





Revenue


383


337






Cost of sales


(110)


(120)






GROSS PROFIT


273


217






Research and development costs


(773)


(843)

Other administrative costs


(860)


(1,068)

Share based payments


(816)


(1,854)

Total administrative costs


(2,449)


(2,922)






LOSS FROM OPERATIONS


(2,176)


(3,548)






Finance income


322


399






LOSS BEFORE TAX


(1,854)


(3,149)






Income tax credit


247


-






LOSS FOR THE YEAR AND TOTAL COMPREHENSIVE LOSS FOR THE YEAR


(1,607)


(3,149)






Loss per share attributable to the equity holders of the company:

Total and continuing:





- Basic and diluted


(0.87)


(1.74)











 

There were no items of comprehensive income for the year to 31 December 2009 or 2008 and therefore the loss for the year is also the total comprehensive loss for the year net of tax.

 

 

 

CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION

For The Year Ended 31 December 2009

 




Group


Company




31 December 2009


31

December

2008


31 December 2009


31 December 2008
























£'000


£'000


£'000


£'000











ASSETS










NON-CURRENT ASSETS










Investments



-


-


20,581


20,501

Intangible assets



234


185


-


-

Property, plant and equipment



197


195


-


-

Loan to subsidiaries



-


-


1,523


1,065




431


380


22,104


21,566

CURRENT ASSETS










Stocks



6


13


-


-

Trade and other receivables



371


415


168


187

Short-term investments and cash and cash equivalents



8,778


9,661


8,709


9,612




9,155


10,089


8,877


9,799

LIABILITIES










CURRENT LIABILITIES










Trade and other payables



175


267


60


58











NET CURRENT ASSETS



8,980


9,822


8,817


9,741











LIABILITIES










NON-CURRENT LIABILITIES










Loan from subsidiaries





-


58


401











NET ASSETS



9,411


10,202


30,863


30,906











SHAREHOLDERS EQUITY










Called up share capital



1,856


1,856


1,856


1,856

Share premium



10,423


10,423


10,423


10,423

Merger reserve



6,369


6,369


18,669


18,669

Reverse acquisition reserve



(6,831)


(6,831)


-


-

Retained earnings



(5,505)


(3,898)


(3,184)


(2,325)

Share based payments reserve



3,099


2,283


3,099


2,283

TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY



9,411


10,202


30,863


30,906

 

  


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For The Year Ended 31 December 2009





 

 




Reverse


Share

Based



Share

Share

Merger

Acquisition

Retained

Payment

Total


Equity

Premium

Reserve

Reserve

Earnings

Reserve

Equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000









At 1 January 2008

1,779

5,817

6,369

(6,831)

(749)

387

6,772









Loss for the year to 31 December 2008

-

-

-

-

(3,149)

-

(3,149)

Shares issued - cash consideration

77

4,925

-

-

-

-

5,002

Shares issued - cash expenses

-

(277)

-

-

-

-

(277)

Shares issued - warrants issued

-

(42)

-

-

-

42

-

Share based payments

-

-

-

-

-

1,854

1,854









At 31 December 2008

1,856

10,423

6,369

(6,831)

(3,898)

2,283

10,202









Loss for the year to 31 December 2009

-

-

-

-

(1,607)

-

(1,607)

Share based payments

-

-

-

-

-

816

816









At 31 December 2009

1,856

10,423

6,369

(6,831)

(5,505)

3,099

9,411

 

 


CONSOLIDATED AND COMPANY CASHFLOW STATEMENTS

For The Year Ended 31 December 2008

 




Group


Company




Year to 31 December 2009


Year to 31 December 2008


Year to 31 December 2009


Year to 31 December 2008

 




£'000


£'000


£'000


£'000

 











 

Cash flows from operating activities










 

Cash outflow from operations



(1,200)


(1,892)


(450)


(700)

 

Income tax paid



115


(10)


-


(10)

 

Net cash outflow from operating activities



(1,085)


(1,902)


(450)


(710)

 











 











 

Cash flows from investing activities










 

Purchase of intangible assets



(62)


-


-


-

 

Purchase of property, plant and equipment



(84)


(194)


-


-

 

Increase in cash placed on deposit



(4,000)


-


(4,000)


-

 

Interest received



348


248


348


236

 

Net cash inflow from investing activities



(3,798)


54


(3,652)


236

 











 

Net cash from financing activities










 

Share issue



-


77


-


77

 

Share premium



-


4,925


-


4,925

 

Expenses of issue of share capital



-


(277)


-


(277)

 

Proceeds/(repayment) from loan from subsidiary



-


-


(343)


401

 

Outflow from loan to subsidiary



-


-


(458)


(1,065)

 

Net cash inflow/(outflow) from financing activities



-


4,725


(801)


4,061

 











 

(Decrease)/increase in cash and cash equivalents



(4,883)


2,877


(4,903)


3,587

 

Cash and cash equivalents at beginning of year



9,661


6,784


9,612


6,025

 

Cash and cash equivalents at end of year



4,778


9,661


4,709


9,612

 











 











 

 

 

  

NOTES TO THE FINANCIAL STATEMENTS

For The Year Ended 31 December 2008

 

 

1.     GENERAL INFORMATION

Oxford Advanced Surfaces Group plc ("the company") and its subsidiaries (together "the group") provides multinational industrial corporations with intellectual property (IP) solutions as a 'tool kit' to create engineered surface coatings and advanced materials. Our Onto® chemistry platform provides everything needed to create innovative products through the transformation of commodity industrial materials, and by opening new markets for the most desirable advanced materials.

OAS is the intellectual property (IP) supplier of Onto® technology. Onto® was first developed in the University of Oxford Chemistry Department and is a proprietary technology that uniquely reacts with almost anything.

The company is a public limited company registered and domiciled in England and Wales and its shares are publicly traded on AIM, a market operated by the London Stock Exchange.

1.1       Going Concern

Information on the business environment and the factors underpinning the group's future prospects and product portfolio are included in the managing director's review and the directors' report.  The financial position of the group is outlined in the group financial review.  The directors believe that the diversity of the technology portfolio and customer base should allow it to continue to operate in the current economic climate.  The directors confirm that they are satisfied that the group has adequate resources to continue in business for the foreseeable future.  For this reason, they continue to adopt the going concern basis in preparing the financial statements.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS.  The consolidated financial statements have been prepared under the historical cost convention.  The group's presentation and functional currency of the parent is Sterling.

The preparation of financial statements in conformity with IFRS as adopted by the European Union requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the group financial statements are disclosed in note 3.

2.1       Business combinations and goodwill

Business combinations prior to 1 January 2009

On acquisition, the assets and liabilities and contingent liabilities of subsidiaries are measured at their fair values at the date of acquisition. Any excess of cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill.  The results of the subsidiaries acquired during the year are included in the group income statement from the effective date of acquisition.  When necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the group.  All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Goodwill is initially measured at cost being the excess of the consideration transferred over the group's net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the group's cash generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.  Goodwill is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and cannot subsequently be reversed.  

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Business combinations from 1 January 2009

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition costs incurred are expensed.

When the group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date through profit and loss.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it shall not be re-measured until it is finally settled within equity.

Goodwill is initially measured at cost being the excess of the consideration transferred over the group's net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the group's cash generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

2.2       Revenue recognition

Revenue is measured as the fair value of the consideration received or receivable in the normal course of business, net of discounts, VAT and other sales related taxes and is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow in to the group.

 

The group's revenues to date comprise customer fees earned under joint development agreements and individual project development programmes, and grant income recognised.  Revenues from customers are recognised following contractual entitlement.  This typically comprises either time based fees, time and materials expended or time and technical milestones achieved, as agreed between the parties.

 

2.3       Grant funding

Grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the year necessary to match the grant on a systematic basis to the costs that it is intended to compensate.  Where the grant relates to an asset, it is recognised as deferred income and released to income in equal amounts over the expected useful life of the related asset.

Where the group receives non-monetary grants, the asset and the grant are recorded at nominal amounts and released to the income statement over the expected useful life of the relevant asset by equal annual instalments.

2.4       Investments in subsidiaries

In the parent company's balance sheet investments in subsidiaries are recorded at cost less any provision for impairment.  Investments are recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed.

2.5       Research and development

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

The criteria for recognising expenditure as an asset are:

·    Completion of the intangible asset is technically feasible so that it will be available for use or sale;

·    The group intends to complete the intangible asset and use or sell it;

·    The group has the ability to use or sell the intangible asset;

·    The intangible asset will generate probable future economic benefits.  Among many other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits;

·    That the group has available to it adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

·    That the group can reliably measure the expenditure attributable to the intangible asset during its development.

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

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

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

2.6       Patents and licenses

Patent costs and licensing rights are amortised over their estimated useful economic life of 20 years.

2.7       Plant and equipment

Plant and equipment are stated at cost, net of depreciation and provision for any impairment. Depreciation is calculated to write off the cost of all plant and equipment to estimated residual value on a reducing balance basis over their expected useful lives as follows:

Plant and machinery                  4 years

Office furniture and fittings         4 years

Computer and IT equipment     3 years

2.8       Impairment of assets

The group assesses at each reporting date whether there is an indication that an asset may be impaired.  If any such indication exists, or when annual impairment testing for an asset is required (as is the case for goodwill and indefinite-lived intangible assets including investments in subsidiaries), the group makes an estimate of the asset's recoverable amount.  An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets.  Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.  In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.  An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation reserve movement.

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

2.9       Stocks

Stocks are stated at the lower of cost or net realisable value.  Cost is determined using the first in, first out method.

2.10     Financial assets and liabilities

2.10.1     Trade and other receivables

Trade and other receivables are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method less any provision for impairment.

2.10.2     Trade and other payables

Trade and other payables are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

2.11     Cash and cash equivalents

Cash and cash equivalents comprise cash at hand and term deposits.  Some of these deposits are for longer than 3 months, but these deposits are recoverable at an interest penalty and thus are considered to be cash equivalents.  The group's funds are held for the purpose of funding the future growth of the business.  Deposits are made with banks and financial institutions with a good credit rating, and such investments are regularly reviewed by the Board.

2.12     Leases

Leases in which a significant portion of the risks and rewards of the ownership are retained by the lessor are classified as operating leases.  Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

2.13     Taxation

The tax expense or credit represents the sum of both current tax and deferred tax arising during the period.  The company's receivable for the current tax year is calculated by using tax rates and legislation that is enacted or substantively enacted at the balance sheet date.

Deferred income tax is the tax expected to be payable or recoverable on differences between the carrying amounts 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. Deferred tax is calculated using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply to the year when the asset is realised or the liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.  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.

2.14     Share-based payments

All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets).

Share options are valued at the date of grant using the Black-Scholes Merton option pricing model and are charged to operating profit over the vesting period of the award with a corresponding credit to the share based payment reserve.

If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting.

Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate, share premium.

2.15     Changes in accounting policy and disclosures

The accounting policies adopted are consistent with those of the previous financial year except as follows:

The group has adopted the following new and amended IFRS and IFRIC interpretations as of 1 January 2009:

·    IFRS 2 Share-based Payment: Vesting Conditions and Cancellations effective 1 January 2009

·    IFRS 2 Share-based Payment: Group Cash-settled Share-based Payment Transactions effective 1 January 2010 (early adopted)

·    IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended) effective 1 July 2009 (early adopted) including consequential amendments to IFRS 7, IAS 21, IAS 28, IAS 31 and IAS 39

·    IFRS 8 Operating Segments effective 1 January 2009

·    IAS 1 Presentation of Financial Statements effective 1 January 2009

·    Improvements to IFRSs (May 2008)

·    Improvements to IFRSs (April 2009, early adopted)

The adoption of the above standards or interpretations had no impact on the financial statements or performance of the group.

Improvements to IFRSs

In May 2008 and April 2009 the IASB issued a number of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the group.

·    IFRS 8 Operating Segment Information

·    IAS 1 Presentation of Financial Statements

·    IAS 36 Impairment of Assets.

Other amendments resulting from Improvements to IFRSs to the following standards did not have any impact on the accounting policies, financial position or performance of the group:

·    IFRS 7 Financial Instruments: Disclosures

·    IAS 8 Accounting Policies, Change in Accounting Estimates and Error

·    IAS 10 Events after the Reporting Period

·    IAS 19 Employee Benefits

·    IAS 23 Borrowing Costs (Revised)

·    IAS 27 Consolidated and Separate Financial Statements

·    IAS 32 Financial Instruments: Presentation and IAS 1 Puttable Financial Instruments and Obligations Arising on Liquidation

·    IAS 34 Interim Financial Reporting

·    IAS 38 Intangible Assets

·    IAS 39 Financial Instruments: Recognition and Measurement

·    IFRIC 9 Reassessment of Embedded Derivatives

·    IFRIC 16 Hedges of a Net Investment in a Foreign Operation

·    IFRIC 18 Transfers of Assets from Customers

3.     CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The group makes estimates and assumptions concerning the future.  The resulting accounting estimates will, by definition, seldom equal the actual results.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

 

3.1       Reverse acquisition accounting

The combination in 2007 was accounted for as a reverse acquisition as if Oxford Advanced Surfaces Limited acquired Oxford Advanced Surfaces Group Plc. There are a number of judgemental factors to be considered for a combination to be deemed a reverse acquisition. Although these group financial statements have been issued in the name of the legal parent, the directors consider that the group's activity is in substance a continuation of that of the legal subsidiary, Oxford Advanced Surfaces Limited, because after the transaction the former Board of Oxford Advanced Surfaces Limited were deemed to have control of the group and of the legal parent. For this key reason, reverse acquisition accounting has been applied.

3.2       Impairment of goodwill and intangible assets

The group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2.8.  The recoverable amounts of cash-generating units have been determined based on value in use.  The value in use assessment requires estimates to be made, including likely cash flows derived from license opportunities.

 

The group tests other intangible assets and tangible assets with definite lives for impairment if and when indicators of impairment arise. Again, in considering potential impairment of investments in subsidiaries, the group estimates the fair value less costs to sell of subsidiaries based on either the net present value of future cashflows, or the net assets at the review date.

 

3.3       Share based payments

Employee and director compensation in the form of shares are provided under share option schemes. The fair value of the employee services received in exchange for the grant of options is recognised as an expense. The expense is based on a number of assumptions disclosed in note 11. The selection of different assumptions could affect the future results of the group.

 

All share-based payment arrangements granted that had not vested prior to 31 December 2009 are recognised in the group financial statements.

4.     SEGMENTAL REPORTING

The group only operates one class of business.  At 31 December 2009 the group has one segment of operation - the development and commercialisation of advanced materials and technology solutions.  The group's operations are all based in the UK and services are all performed in the UK. There is no geographic split of revenues by location of customer, as most customers are global corporations, and the business is not considered to be seasonal.

 

Grant income recognised in revenue totalled £241,000 for the year to 31 December 2009 (2008 - £45,000). All other revenue comprised customer fees (as described in note 2.2).

 

5.     INCOME TAX EXPENSE

a)   Current Tax

The current tax credit in the income statement for the year is detailed below.  Current tax expense is lower than the standard rate of corporation tax in the UK of 28.0% (2008: 28.5%).  The differences are reconciled below:



Year to 31 December 2009


Year to 31 December

2008



£'000


£'000






(Loss) before tax


(1,854)


(3,149)






Loss on ordinary activities multiplied by the standard rate of corporation tax in the UK of 28% (2008: 28.5%)


(519)


(897)

Effects of:





Expenses not deductible for tax purposes


223


528

Additional deduction for R&D expenditure


(99)


(89)

Capital allowances in advance of depreciation


4


(38)

Unrelieved tax losses and other deductions arising in the year


495


496

Prior year adjustment


143


-






Tax credit


247


-

 

Unrelieved tax losses of £3,674,416 at 31 December 2009 (2008: £3,190,384) remain available indefinitely to offset against future taxable trading profits of the companies in which the losses arose. No deferred tax asset has been recognised in respect of the losses as recoverability is uncertain.

 

The company has successfully reclaimed research and development tax credits (£143,000 as shown above) from HM Revenue & Customs in respect of prior periods.  The tax credits above represent the claims for 2008 and 2009 and have been recognised in the income statement.

 

b)  Deferred Tax

Unrecognised deferred tax assets at 28%:



Year to 31 December 2009


Year to 31 December

2008



£'000


£'000






Tax losses carried forward


1,029


893

Accelerated capital allowances


(53)


(46)

Share based payments


664


627






Deferred tax assets (unrecognised)


1,640


1,474

Deferred tax assets have not been recognised as the recoverability is uncertain.

6.     OPERATING LOSS

Operating loss is stated after charging:

7.     INVESTMENTS

Company



Shares in



Subsidiary



Undertakings



£'000

COST AND NET BOOK VALUE



At 1 January 2008


20,457

Additions


44




At 31 December 2008


20,501

Additions


80




At 31 December 2009


20,581

Additions for the year to 31 December 2009 and 2008 represent the IFRS 2 charge for share options granted to the employees of the group's subsidiaries, Oxford Advanced Surfaces Limited ("OAS") and Oxford Energy Technologies Limited ("OET").

No impairment of either OAS or OET is considered necessary at either balance sheet date.  The recoverable amounts of the investments were assessed using value in use calculations.  These calculations use pre-tax cash flow projections based on the board's view of cash flows derived from technology license and future royalties over a five year period.  Cash flows beyond five years are extrapolated with a growth rate of 3%.  The pre-tax discount rate applied is 20%.

Details of the company's subsidiaries are as follows:

Name of company

Holding


% Of shares held


Nature of business

Oxford Advanced Surfaces Limited (incorporated in England & Wales)

 

Ordinary


100


Development and commercialisation of advanced materials technologies

Oxford Energy Technologies Limited (incorporated in England & Wales)

Ordinary


100


Development and commercialisation of advanced materials technologies







Oxford Biomedical Materials Limited (incorporated in England & Wales)

Ordinary


100


Dormant

8.     INTANGIBLE ASSETS

GROUP




Patents &





Goodwill


licenses


Total



£'000


£'000


£'000

COST







At 1 January 2008


16,145


209


16,354

Additions


-


-


-








As 31 December 2008


16,145


209


16,354

Additions


-


62


62








At 31 December 2009


16,145


271


16,416








AMORTISATION & IMPAIRMENT







At 1 January 2008


16,145


14


16,159

Amortisation for year


-


10


10








At 31 December 2008


16,145


24


16,169

Amortisation for year


-


13


13








At 31 December 2009


16,145


37


16,182








NET BOOK VALUE







At 31 December 2008


-


185


185








At 31 December 2009


-


234


234

 

All the goodwill in the group arose on the reverse acquisition of Kanyon Plc ("Kanyon") including its only subsidiary Solar Labs Plc ("Solar") by Oxford Advanced Surfaces Limited ("OAS").  All goodwill arising from the reverse acquisition was allocated for impairment testing purposes to the Solar cash-generating unit.  The OAS cash-generating unit has no goodwill allocated to it.  Kanyon was subsequently renamed as Oxford Advanced Surfaces Group Plc ("OASG") and Solar as Oxford Energy Technologies Limited ("OET"). 

An impairment review of goodwill was performed at 31 December 2007 and an impairment loss of £16,145,000 was recognised which represents the write-down of goodwill to its recoverable amount which was the net assets of Solar at the date of acquisition.

The average remaining life of patents is 18 years.

Company

The company had no intangible assets during the year.

 

9.     PROPERTY, PLANT AND EQUIPMENT 

Group



Plant &


Fixtures &


Computer





machinery


fittings


equipment


Totals



£'000


£'000


£'000


£'000

COST









At 1 January 2008


41


4


16


61

Additions


158


6


30


194










At 31 December 2008


199


10


46


255

Additions


82


-


2


84










At 31 December 2009


281


10


48


339










DEPRECIATION









At 1 January 2008


6


1


2


9

Charge for year


38


2


11


51










At 31 December 2008


44


3


13


60

Charge for year


64


2


16


82










At 31 December 2009


108


5


29


142










NET BOOK VALUE









At 31 December 2008


155


7


33


195










At 31 December 2009


173


5


19


197

No assets were held under finance leases.  During the year grant funding for capital investment amounting to £16,000 was received in addition to the £6,000 carried forward from 2008.  Of this £20,000 was released into the income statement against related depreciation.

Company

The company had no property, plant and equipment during the year.

10.  LOSS PER SHARE (BASIC AND DILUTED)

The basic and diluted loss per share is based on the loss after tax for the year and the weighted average number of ordinary shares of 1 penny each in issue during the year.  The exercise prices of share options and warrants in issue are below the year end market price of the Company's shares and are anti-dilutive.  Diluted loss per share is therefore the same as basic loss per share.

 


Year to 31 December 2009


Year to 31 December 2008





Loss attributable to equity holders of the group (£'000)

(1,607)


(3,149)

Weighted average number of ordinary shares in issue

185,619,638


181,128,781

Basic & diluted loss per share (pence)

(0.87)


(1.74)

 

11.  SHARE BASED PAYMENTS

Equity-settled share option scheme

During the year to 31 December 2009, Oxford Advanced Surfaces Group Plc had the following share-based payment arrangements:

Vesting and exercise dates

At 1 January 2009

Granted / (lapsed)

Total December 2009

Exercise price

Exercisable at 31 December 2008

Exercisable at 31 December 2009








31/12/2007 - 31/12/2017

10,969,222

-

10,969,222

1.00p

6,277,585

10,969,222

03/03/2011 - 03/03/2018

270,270

-

270,270

1.00p

-

-

03/03/2011 - 03/03/2018

934,579

-

934,579

53.50p

-

-

03/03/2011 - 03/03/2018

135,135

-

135,135

74.00p

-

-

11/08/2011 - 14/01/2019

238,235

-

238,235

16.50p

-

-

11/08/2011 - 14/01/2019

111,765

-

111,765

1.00p

-

-

11/12/2011 - 14/01/2019

270,000

-

270,000

16.50p

-

-

11/12/2011 - 14/01/2019

80,000

-

80,000

1.00p

-

-

31/12/2011 - 14/01/2019

81,618

(7,041)

74,775

16.50p

-

-

31/12/2009 - 28/05/2019

-

200,000

200,000

28.00p

-

200,000

01/12/2012 - 01/12/2019


1,000,000

1,000,000

22.50p

-

-


13,090,824

1,192,959

14,283,783


6,277,585

11,169,222








There are no vesting conditions, other than continuation of service, attached to the share options apart from the options issued in 2009 to Dr Mike Eason

The new options issued to Dr Mike Eason on 1 December 2009 carry both time and performance vesting criteria. They will vest in one third tranches on 1 December 2012, 2013 and 2014 and will only vest if the share price has increased by a compound rate of 15% from the price at the date of grant and remained there for 30 consecutive days during the year prior to the date of vesting. If any cumulative share price target is missed but any of the following cumulative targets are reached during the following years, then the options for both the current tranche and any previously unvested tranches will vest.

The estimated fair value of the options(other than the new options for Dr Mike Eason) has been calculated using the Black-Scholes-Merton model. The model inputs were an exercise price of between 1 penny and 74 pence, expected volatility of between 50% and 133% (using an annualised standard deviation of the continuously compounded historical rates of return on the share), a share price of between 16.5 pence and 74 pence and a risk free interest rate of between 0.5% and 4.5%.

The estimated fair value of the 1 December 2009 options issued to Dr Mike Eason has been calculated using the Binomial model.  The model inputs were an exercise and share price of 22.5 pence, vesting prices of 34.2 pence to 45.3 pence, and expected volatility of 50% (using an annualised standard deviation of the continuously compounded historical rates of return on all the shares listed on AIM), and an risk free interest rate of 0.5%.  The directors are of the belief that using a market based volatility for any options is a more accurate measure to calculate the fair value as the group's share price has suffered from unusual volatility due to issues such as liquidity.

The total fair value of the options granted to be included in the financial statements to 31 December 2009 is £816,000.  The options outstanding at 31 December 2009 had a weighted average remaining contractual life of 8.2 years.  The fair value of the options issued during the year was £117,000.

The option scheme is used to provide an additional incentive to all employees of the group.  As such the options issued to employees are for employees of the group's subsidiary undertakings, Oxford Advanced Surfaces Limited and Oxford Energy Technologies Limited.

Equity settled fundraising costs

During 2008 230,868 warrants were issued to Novum Securities Limited in consideration for services performed in respect of the funding round in August 2008.  These warrants were vestable immediately on issue and expire on 31 July 2013.  The exercise price is 65.0 pence.  The estimated fair value of the warrants was been calculated using the Black-Scholes-Merton model.  The model inputs were an exercise price of 65 pence, expected volatility of 50%, a share price of 83 pence and a risk free interest rate of 4.5%.  The total fair value of the warrants granted was included in the financial statements to 31 December 2008 and amounted £42,000.  This was taken to the share premium account as a cost related to the issue of new ordinary shares.

12.  RELATED PARTIES AND DIRECTORS' TRANSACTIONS

Group

During the year under review Dr Mark Moloney received fees for chairing the Scientific Advisory Board for the group.  This amounted to £22,000.  In 2008 Dr Mark Moloney received fees through Oxford University Consulting in relation to technical support to the group for the sum of £17,000 in addition to his non-executive director's fees.  There were no amounts due at the end of either year.  In addition in 2008 a sum of £2,000 was paid to ORA Capital Limited in relation to taxation services. There were no amounts due at the end of the year.  Michael Bretherton was and remains a director of ORA Capital Limited.

In addition Oxford Advanced Surfaces Group plc made pension contributions on behalf of employees of Oxford Advanced Surfaces Limited amounting to £8,460.  These contributions represent the salary sacrifice element made by employees under the defined contribution scheme operated by the Group on behalf of all employees.

Company

In 2008 a sum of £2,000 was paid to ORA Capital Limited in relation to taxation services. There were no amounts due at the end of the year.  Michael Bretherton was and remains a director of ORA Capital Limited.

Key Employees

At the year end the Board did not consider any employees to be key to the group and company other than the directors. 

13.  ULTIMATE CONTROLLING PARTY

In the opinion of the directors, there is no ultimate controlling party.

14.  POST BALANCE SHEET EVENTS

On 9 February 2010 the former directors, Marcelo Bravo, Jeremy Scudamore and Andy Naylor indicated a desire exercise and sell all of the options held by them together with a proportion of their existing shareholdings.


Options Exercised

Shares sold, including options

Shares held following disposal


Number

Price

Number

Price

Number

%

Marcelo Bravo

5,386,502

1p

8,000,000

5p

2,811,504

1.44%

Jeremy Scudamore

3,886,282

1p

4,386,282

5p

229,790

0.12%

Andy Naylor

848,219

1p

1,507,938

5p

200,000

0.10%

The former directors all indicated that they had no current intention of undertaking any further disposals and Marcelo Bravo has given an undertaking that he will not sell any of his remaining shareholding for a period of 12 months without the company's prior permission. In addition Marcelo Bravo has indicated that he will gift 125,000 to the London Business School following this transaction, reducing his holding to 2,686,504 (1.37%).

Also on 9 February 2010 the current board of directors agreed to purchase shares from the former directors as set out below:


Previous Holding

Shares purchased

New Holding


Number

%

Number

Price

Number

%

Mike Eason

-

0.00%

20,000

5p

20,000

0.01%

Philip Spinks

11,500

0.01%

50,000

5p

61,500

0.03%

Michael Bretherton

435,000

0.22%

200,000

5p

635,000

0.32%

David Bott

-

0.00%

36,000

5p

36,000

0.02%

The 10,121,003 new ordinary shares of 1 penny each were admitted to trading on AIM on 12 February 2010. The total issued share capital of the company following admission of these shares was 195,740,641 ordinary shares of 1 penny each.

On 15 February 2010 162,000 options were issued to staff members of OAS and OET as part of the group's reward and retention policy.  The options were issued at the market price of 16.00p and vest 3 years from the date of issue.  There are no performance criteria attached to the options and they expire 10 years from the date of issue if not exercised.

 


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