AorTech International plc
Annual Report 2005

Plain-text annual report

Notes Chairman’s Statement Results The Company had turnover in the year ended 31 March 2005 of £136,958 (2004 £360,185), whilst operating expenses for the year were £2,189,908, some 13% less than in the preceding year. These expenses included development expenditure of £653,896 and amortization of intangible fixed assets of £94,589. The Loss on Ordinary Activities Before Tax was £1,867,390 – some £417,833 more than in 2004 during which year the Company benefited from £552,856 of gains on exceptional items. Loss After Tax for the year was £1,867,390. This compares with a Profit After Tax of £527,260 during the year ended 31 March 2004 following receipt of £1,976,817 in tax credits in respect of development work during earlier years. The cash position as at 31 March 2005 was £4,015,126 – some £1,953,074 less than on the corresponding day in 2004. In line with the resolution passed at the last Annual General Meeting, the Share Premium Account has been cancelled, and this is reflected in the statutory Accounts included in this Annual Report. AORTECH INTERNATIONAL PLC 0 1 Business review and activities The progress made at AorTech in Financial Year 2005 is a story that began with the vigorous turnaround of FY 2003 and the foundation building in the year of 2004. The turnaround was comprised of a number of key strategic actions, including: • • • • • • • • • The appointment of new management Termination of £30 million Becton Dickinson acquisition Sale of the loss making heart valve business Voluntary withdrawal of TruCCOMs from market Sale of TruCCOMs intellectual property Termination of in-house development of Tri-leaflet heart valve Start up of Biomaterial licensing and supply business A reduction in cash burn from £10m in FY 2003 to under £1m in 2004 Biomaterial technology licenses and supply agreements executed June 2003 Having accomplished these critical changes, management set out to develop a strategy for the new business and to put a number of foundation elements in place. During the foundation year of 2004, the business: • • • • • • • • • generated 17 new materials evaluation programmes reflecting the expansion of Elast-Eon platform into new areas progressed 2 step-out projects through to advanced stages of product development increased its scientific profile through World Biomaterials Congress presentations provided support for key client relationships, resulting from dramatic improvements in quality of materials achieved through process optimisation to facilitate higher yields in device production submitted its first master file to FDA developed a supplier management programme and the expansion of the supplier base successfully completed research programmes on drug-eluting stents and spinal discs achieved advances in breast implant potential succeeded in developing the Melbourne manufacturing and technology centre into a key strategic asset Frank Maguire and I would like to acknowledge the contributions made by Laurie Rostron, Chairman of the Company until May 2005, to the turnaround and foundation phases of this reincarnated business. His guidance and steady hand were instrumental in setting this new business off in a positive direction. The accomplishments of the past year reflect the beginnings of commercial as well as strategic, regulatory and technical progress. Milestones of note include: • • • • • • • • • • • Expansion of the Elast-Eon Master technology data base Maintenance of high quality and stable supply of Elast-Eon Development of new abrasion resistant, low creep grades for orthopaedic applications, in particular the rapidly growing spinal disc segment Major internal developments in next generation breast implants that address material selection and preliminary toxicity and biostability results Validation of superiority of Elast-Eon for breast implant shell, particularly in comparison with silicone Completion of sterilization feasibility for the Elast-Eon breast implant Meeting with the FDA to assess the use of Elast-Eon in breast implants Development of specific Elast-Eon formulations suitable for minimally invasive devices, injectable in situ cure and progress in defining the regulatory road map for the ultimate approval of this product Development of form-stable, metal-free and ultra-low extractable gels Successful bench testing of formulations for spinal disc applications Support for client manufacturing as part of first human use project 0 2 AORTECH INTERNATIONAL PLC AORTECH INTERNATIONAL PLC 0 3 Outlook The Company believes that first human use of Elast-Eon and the generation of the first royalty income for the business will occur within one year. The effect that this event will have on the biomaterial licensing and supply business will be positive and manifest itself along with steadily growing revenue streams - in terms of an increasing number of licensing deals and projects and the individual value of these projects to AorTech. It will be the result of the consistent diligent and expert work by all of our valued employees. It will be the point in time where the work of the past 3 years can be acknowledged and the ‘new’ AorTech can be considered officially on its way. In light of these considerations and after considering the feedback from the investment community and a number of key shareholders, the Board has reached a decision to re-name the company AorTech Biomaterials plc. I am delighted at the progress we have made with the both our “generation 5”, safer surgical type breast implant and the breakthroughs we are experiencing with the development of a true minimally invasive breast implant technology. The AorTech Board is looking forward to increasingly positive commercial results in the coming year with a number of new application developments, new licensees and the expansion of clinical use of Elast-Eon for a number of long-term implants where there is a high demand for extraordinary fatigue performance, abrasion resistance, blood compatibility and general physical strength. Board Changes We announced at the end of October 2004 that Ian Cameron was stepping down from his position as Finance Director but would remain as a Non Executive Director and Company Secretary in the short term. Ian retired from the Board with effect from 20th December 2004 to concentrate on his role as Finance Director at i-mate plc., having contributed substantially to AorTech during his six years with the Company. He has been succeeded as Company Secretary by David Parsons. In May 2005, my predecessor as Chairman, Laurie Rostron, and Peter Gibson, Non-Executive Director of the Company, stepped down as a consequence of the restructuring of the business. Earlier in this Statement I have acknowledged the contribution made by Laurie Rostron, but I would also take this opportunity to express my warm thanks to both gentlemen for their considerable efforts and input during what was a difficult, transitional period for the Company. As part of the restructuring process, we also announced the appointment of Dr Stuart Rollason as a Non-Executive Director in May 2005. Dr Rollason brings a wealth of experience, both medical and corporate, to the Board and it has become clear that his input will prove of much value in the months ahead. Auditors The Company’s current auditors, PricewaterhouseCoopers LLP, have resigned with effect from the forthcoming Annual General Meeting. PricewaterhouseCoopers LLP have confirmed to us that there are no circumstances connected with their resignation that they consider should be brought to the attention of members. Grant Thornton UK LLP have confirmed that they would be pleased to accept appointment as the Company’s auditors. I am grateful to the partners and staff of PricewaterhouseCoopers LLP for the professionalism and services they have provided during their tenure. Conclusion The task ahead remains challenging, but I believe that the credibility attained from the successful completion of the long, arduous process of qualifying Elast-Eon for human use will provide a substantive boost for our heart valve and breast implant projects with investors, regulators and potential industry partners. My sincere thanks go to Frank Maguire, and his highly skilled team, for their considerable achievements, efforts and support during the past year. Jon Pither Chairman 0 4 AORTECH INTERNATIONAL PLC AORTECH INTERNATIONAL PLC 0 5 Board of Directors & Advisors Directors Jon Pither Chairman (non-Executive Director; appointed Chairman 12 May 2005) Laurie Rostron Chairman (resigned 12 May 2005) Frank Maguire Chief Executive Ian Cameron Finance Director (resigned 20 December 2004) Peter Gibson non-Executive Director (resigned 12 May 2005) Dr Stuart Rollason non-Executive Director (appointed 13 May 2005) Company Secretary Ian Cameron (resigned 1 December 2004) David Parsons (appointed 1 December 2004) Registered Office Dalmore House, 310 St Vincent Street, Glasgow G2 5QR Head Office Prestige Travel Suite, Barclays Bank House, 81-83 Victoria Road, Surbiton, Surrey, KT6 4NS, England Registered Auditors PricewaterhouseCoopers LLP, Kintyre House, 209 West George Street, Glasgow G2 2LW Brokers Bell Lawrie White (a division of Brewin Dolphin Securities Ltd), 48 St Vincent Street, Glasgow G2 5TS Solicitors Biggart Baillie, Dalmore House, 310 St. Vincent Street, Glasgow G2 5QR Beachcroft Wansbroughs, 100 Fetter Lane, London, EC4A 1BN Bankers Bank of Scotland, 123 St. Vincent Street, Glasgow G2 5EA Registrars Lloyds TSB Registrars Scotland, PO Box 28448, Finance House, Orchard Brae, Edinburgh EH4 1WQ Shareholder helpline: 0870 6015366, Shareholder website: www.shareview.co.uk Report of the Directors The directors present their report and the audited financial statements for the year ended 31 March 2005. Principal activities The Company is the holding company of a Group whose principal activities are the development and exploitation of a range of innovative biomaterials. Review of business and future developments A review of the results for the year and of future developments in the business is given in the Chairman’s Statement. During the financial year, the Company continued to develop and exploit its biomaterial products, with discussions taking place with a number of interested parties. The Company’s offices in Scotland were vacated at the end of 2004, with the UK administrative activities being transferred to its current address in Surrey, England. During the year, costs of £653,896 (2004: £559,032) were charged to the Profit and Loss Account as development expenditure. The consolidated profit and loss account is set out on page 16, indicating the Group’s loss for the financial year of £1,867,390 (2004: profit of £527,260) which will be deducted from reserves. No dividends have been paid or proposed for the years ended 31 March 2005 and 2004. Fixed assets Details of the fixed assets of the Company and the Group are set out in notes 12 to 14 of the financial statements. Directors and their interests At 31 March 2005, the Chairman of the Company was L Rostron, the Executive Director was F Maguire, and the non-Executive Directors were P Gibson and J Pither. The other Director who served during the year was I Cameron, who resigned on 20 December 2004. At each Annual General Meeting one third of Directors shall be subject to retirement by rotation. F Maguire retires from the Board at the Annual General Meeting and, being eligible, offers himself for re-election. As the 2005 Annual General Meeting is the first following J Pither's 70th birthday, he is required under the Companies Act 1985 to vacate his office, but remains eligible, and offers himself for re-election. The interests of the Directors at 31 March 2005 in the ordinary share capital of the Company (all beneficially held) were as follows: L. Rostron F. Maguire P. Gibson J. Pither 31 March 2005 number 31 March 2004 number - 1,200 5,500 - - 1,200 5,500 - During the period from the end of the financial year to 20 September 2005, no Director increased his interest in the issued ordinary share capital of the Company. The interests of Directors in share options are disclosed in the Report of the Remuneration Committee on page 14. 0 6 AORTECH INTERNATIONAL PLC AORTECH INTERNATIONAL PLC 0 7 Report of the Directors continued Substantial shareholdings With the exception of the following shareholdings, the Directors have not been advised of any individual interest, or group of interests held by persons acting together, which at 20 September 2005 exceed 3% of the Company’s issued share capital: Charitable and political donations During the year the Group made a chartitable donation of £350 (2004 £1,059) to St Andrews Hospice. Chase Nominees Limited Nordea Bank Danmark A/S Caricature Investments Limited Melody Investments Limited Goldman Sachs International Mr Craig Pickup number % 1,035,576* 477,713** 447,107 437,107 180,000 118,636 27.2% 12.5% 11.7% 11.5% 4.7% 3.1% *Included in the interests of Chase Nominees Limited above is the following fund whose shareholding at 20 September 2005 exceeds 3% of the Company’s issued share capital: Annual general meeting The notice convening the Annual General Meeting for 12 noon on 26 October 2005 at Buchanan Communications Limited, 107 Cheapside, London EC2V 6DN is set out on page 31. There are a number of resolutions to be passed and further information in relation to these resolutions is set out below. Resolutions 1 to 6 Resolution 1 provides for the the approval of the Company's financial statements for the year ended 31March 2005. Resolution 2 provides for approval of the Report of the Remuneration Committee for the year ended 31 March 2005. Resolution 3 deals with the re-appointment of the one Director required by the Company's Articles of Association to retire this year. Resolution 4 deals with the formal appointment of Dr Stuart Rollason to the Board. Resolution 5 provides for the re-appointment of Jon Pither, who is required under the Companies Act 1985 to vacate his office at the AGM following his 70th birthday, which does not preclude his being re-elected to the Board. Resolution 6 deals with the acceptance of PricewaterhouseCooper’s resignation as the Company’s auditors and acceptance of Grant Thornton’s appointment as their successors. Resolution 7 This resolution authorizes the Directors to change the name of the Company from AorTech International plc to AorTech Biomaterials plc. Bluehone Investors LLP 912,841 24.0% Resolutions 1 to 6 are termed ordinary business. Resolution 7 is termed special business. which includes the interests of Active Capital Trust of 861,861 shares (22.6%) in the Company. **Included in the interests of Nordea Bank Danmark A/S above is the following shareholding at 20 September 2005 which exceeds 3% of the Company’s issued share capital: Erudite UK Limited, a company wholly owned by Mr P Gyllenhammar 427,213 11.2% Share capital On 1 September 2003, the Company carried out a one for ten consolidation of its share capital resulting in an issued share capital of 3,810,278 shares of £2.50 each. Employees The Group places considerable value on the involvement of its employees and they are regularly briefed on the Group’s activities through consultative meetings. Equal opportunity is given to all employees regardless of their sex, colour, race, religion or ethnic origin. Applications for employment from disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment within the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical with that of other employees. Creditor payment policy The Company’s current policy concerning the payment of the majority of its trade creditors is to follow the Better Payment Practice Code issued by the Better Payment Practice Group (copies are available from the DTI). For other suppliers, the Company’s policy is to: (a) settle the terms of payment with those suppliers when agreeing the terms of each transaction; (b) ensure that those suppliers are made aware of the terms of payment by inclusion of the relevant terms in contracts; and (c) pay in accordance with its contractual and other legal obligations. The payment policy applies to all payments to creditors for revenue and capital supplies of goods and services without exception. Wherever possible UK subsidiaries follow the same policy and the overseas subsidiaries are encouraged to adopt a similar policy applying local best practice. The Group's average creditor payment period at 31 March 2005 was 32 days (2004 : 57 days). IFRS The Group is in the process of a review to ensure that it will be able to meet the forthcoming requirements to prepare its financial statements under International Financial Reporting Standards. All members are welcome to attend and vote at the Annual General Meeting. Any member not attending should complete and return the Proxy Form enclosed in accordance with the instructions set out in that document. J C D Parsons Company Secretary Surbiton 20 September 2005 Statement of Directors’ Responsibilities Company law requires the directors to prepare Financial Statements for each financial year that give a true and fair view of the state of the affairs of the Company and the Group as at the end of the financial period and of the profit or loss of the Group for that period. The directors consider that, in preparing these Financial Statements, they have used appropriate accounting policies, consistently applied and supported by reasonable and prudent judgments and estimates and that all accounting standards that they consider to be applicable have been followed. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the Financial Statements comply with the Companies Act 1985. They are responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The maintenance and integrity of all AorTech websites is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any Financial Statements or associated information which are contained in these websites. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions. By order of the Board J C D Parsons Company Secretary Surbiton 20 September 2005 0 8 AORTECH INTERNATIONAL PLC AORTECH INTERNATIONAL PLC 0 9 Corporate Governance The Group currently has a reduced Board and Corporate Governance structure, reflecting the current development stage and size of the business and the directors’ assessment of the cost benefit balance of full Corporate Governance. The directors intend to strengthen the Board and Corporate Governance structure as the business moves from the development into the commercial realisation of the current intellectual property. Directors The Company is controlled by the Board of Directors which, at 31 March 2005, comprised one Executive and three independent non-Executive Directors. Since that date, two non-Executive Directors have resigned and one new independent non-Executive Director has been appointed. All Directors are able to take independent financial advice in furtherance of their duties if necessary. The Board is responsible to shareholders for the proper management of the Group and meets formally on a monthly basis to set the overall direction and strategy of the Group, to review trading performance and to advise on senior management appointments. Financial policy and budgets, including capital expenditure, are approved and monitored by the Board. All key operational decisions are subject to Board approval. The Company Secretary is responsible for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. Accountability and Audit Financial Reporting The Board includes a detailed review of the performance of the Company in the Chairman’s Statement on pages 1 to 5. Reading this alongside the Report of the Directors on pages 7 to 9, the Board seeks to present a balanced and understandable assessment of the Company’s position and prospects. Internal Control The Board has formalised the review and reporting of the main internal controls within the business. In previous periods, the Directors commissioned a risk review exercise in the course of which the key risks facing the Company were identified. These areas included regulatory, research and development, commercial, human resources and information technology. The Board will continue to review the system of internal controls within the Group. The Board of Directors is responsible for the Group’s system of internal financial controls. However, it should be recognised that such a system can provide only reasonable and not absolute assurance against material mis-statement or loss. The principal elements of the system include: A clearly defined structure which delegates authority, responsibility and accountability. Directors are subject to election by shareholders at the first opportunity after their appointment. In addition, one third of Directors are subject to retirement by rotation at each Annual General Meeting. A comprehensive system for reporting financial results. Actual results are measured monthly against budget which together with a commentary on variances and other unusual items allows the Board to monitor the Group’s performance on a regular basis. The posts of Chairman and Chief Executive are separately held. The Chairman is responsible for the running of the Board and ensures that all Directors receive sufficient relevant information on financial, business and corporate issues prior to meetings. The Chief Executive has responsibility for running the Group’s business and implementing Group strategy. The Board believes that this separation results in a clear division of responsibilities at the head of the Company which, with the presence of independent non-Executive Directors, ensures a balance of power and authority, such that no one individual has unfettered powers of decision. Except as described in the Directors’ Report and the Report of the Remuneration Committee, the non-Executive Directors have no financial or contractual interest in the Company. The non-Executive Directors do not participate in the Share Option Schemes and their positions are non-pensionable. It is the intention of the Board that non-Executive appointments will be reviewed regularly and re-appointments will not be automatic. Directors’ Remuneration The Remuneration Committee comprises the non-Executive Directors. It reviews, inter alia, the performance of the Executive Directors and senior management and sets the scale and structure of their remuneration and the basis of their service agreements with due regard to the interests of the shareholders. The Remuneration Committee also determines the allocation of options under the Share Option Scheme and the Unapproved Share Option Scheme and sets objective conditions governing their exercise. No Director has a service agreement exceeding one year. It is a policy of the Remuneration Committee that no individual participates in discussions or decisions concerning his own remuneration. A separate report of the Remuneration Committee is set out on pages 12 to 14. Nomination Committee The Nomination Committee consists of the non-Executive Directors. Its responsibilities are to assist the full Board with the selection process for the appointment of new Directors. Relations with shareholders The Company encourages dialogue with both its institutional and private investors and responds promptly to all questions received verbally or in writing. Directors regularly attend meetings with analysts and institutional shareholders throughout the year. All shareholders have at least 21 days’ notice of the Annual General Meeting. A comprehensive annual planning and budgeting programme. A revision of annual forecasts on a periodic basis. There is no independent internal audit function. The Directors believe that such a function would not be cost effective given the current size of the Group but they will continue to monitor the situation as the Group goes forward. The Board has reviewed the effectiveness of the system of internal controls as outlined above and considers the Group has an established system which the Directors believe to be appropriate to the business. Audit Committee The Audit Committee, comprising the non-Executive Directors, meets at least twice per year and overviews the monitoring of the Group’s internal controls, accounting policies and financial reporting and provides a forum through which the external auditors report. It meets at least once a year with the external auditors without Executive Board members present. Going Concern After making appropriate enquiries and reviewing budgets, profit and cash flow forecasts, and business plans, the Directors have formed a judgement at the time of approving the financial statements that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the Directors consider that the adoption of the going concern basis in preparing the Group’s financial statements is appropriate. 1 0 AORTECH INTERNATIONAL PLC AORTECH INTERNATIONAL PLC 1 1 Report of the Remuneration Committee This report has been prepared in accordance with the Directors' Remuneration Report Regulations 2002 which introduced new statutory requirements for the disclosure of Directors' remuneration in respect of periods ending on or after 31 December 2002. The report also meets the relevant requirements of the Listing Rules of the Financial Services Authority and describes how the Board has applied the Principles of Good Governance relating to Directors' remuneration. As required by the Regulations, a resolution to approve the report will be proposed at the Annual General Meeting of the Company at which the financial statements will be approved. Remuneration committee The Remuneration Committee comprises the non-Executive Directors as follows: P Gibson (Chairman) (resigned 12 May 2005) Dr S Rollason (Chairman) (appointed 13 May 2005) L Rostron (resigned 12 May 2005) J Pither As appropriate the Committee may invite the Chief Executive to participate in some of its discussions. No Director plays a part in any discussion about his own remuneration. The Committee is responsible for determining the terms and conditions of employment of Executive Directors. It is also responsible for considering management recommendations for remuneration and employment terms of the Company's staff, including incentive arrangements for bonus payments and grant of share options. Share options The Company operates a Share Option Scheme and an Unapproved Share Option Scheme. Only Executive Directors and employees of the Group resident in the UK are eligible to participate in the Share Option Scheme which has been approved by the Inland Revenue under the provisions of Schedule 9 to the Income and Corporation Taxes Act 1988. Any person who at the date of grant is approved by the Board is entitled to participate in the Unapproved Share Option Scheme. The award of options under both schemes is at the discretion of the Remuneration Committee. The options issued to date under both schemes will only be exercisable if the average mid market closing price of the Company’s shares on the five business days prior to the date of exercise exceeds the option price by 15% or more. Pensions The Group made contributions to a personal pension plan for F. Maguire and I. Cameron at the rate of 30% and 13% respectively. The constitution and operation of the Committee is in compliance with the provisions of the Combined Code on Corporate Governance. When setting its remuneration policy the Committee gives full consideration to the provisions and principles of the Combined Code. In setting the policy it considers a number of factors including: Directors’ emoluments Details of individual Directors’ emoluments for the year are as follows: the basic salaries and benefits available to Executive Directors and senior management of comparable companies. the need to attract and retain Directors and senior management of an appropriate calibre. the need to ensure Executive Directors’ and senior management’s commitment to the future success of the Company by means of incentive schemes. Remuneration of non-executive directors The remuneration of the non-Executive Directors is determined by the Board with reference to the annual survey of independent directors carried out by Independent Remuneration Solutions. The non-Executive Directors do not receive any pension or other benefits from the Company, nor do they participate in any of the bonus schemes or the Share Option Schemes. The non-Executive Directors have service agreements which are reviewed by the Board annually and they are also included in the one third of Directors subject to retirement by rotation at each Annual General Meeting. Remuneration of executive directors The Executive Directors have service contracts which can be terminated on one year's notice by either party. The Remuneration Committee will review each case of the circumstances, early individually for taking care to ensure that poor performance F. Maguire - 6 December 2002. to ensure compensation settlements are made which are appropriate is not rewarded. The most recent executed contracts for the Executive Directors was termination in order to The following information has been audited. Executive W. Strachan (resigned 1 July 2003) F. Maguire (appointed 1 July 2003) I. Cameron (resigned 1 November 2004) Non-executive L. Rostron (resigned as Chairman 12 May 2005) A. Gray (resigned 11 August 2003) J. Brooks (resigned 1 March 2004) W. Strachan (appointed 1 July 2003, resigned 1 March 2004) P. Gibson (appointed 1 March 2004) J. Pither (appointed as Chairman 12 May 2005) salary and fees £ - 125,000 57,450 52,250 - - - 18,000 18,000 benefits pension in kind contributions £ £ - 9,600 3,798 - 37,500 7,750 - - - - - - - - - - - - 2005 total £ - 172,100 68,998 52,250 - - - 18,000 18,000 2004 total £ 49,286 110,559 105,700 58,250 4,000 15,500 18,750 1,500 1,500 The Company’s remuneration policy for Executive Directors is to: have regard to the individual’s experience and the nature and complexity of their work in order to pay a competitive salary that attracts and retains management of the highest quality. link individual remuneration packages to the Group’s long term performance through the award of share options and bonus schemes. provide post retirement benefits through defined contribution pension schemes. provide employment related benefits including the provision of a company car, life assurance, medical insurance and insurance relating to the individual’s duties. Salaries and benefits The Remuneration Committee meets twice each year to consider and set the annual salaries and benefits for Executive Directors, having regard to personal performance and independent advice concerning comparable organisations. Performance related bonuses An annual performance related bonus scheme is operated by the Group. Under the scheme bonuses are payable to Executive Directors subject to terms laid down by the Remuneration Committee from time to time. No performance related bonuses are payable for the year ended 31 March 2005. 270,700 13,398 45,250 329,348 365,045 Benefits in kind include the provision of a company car and medical insurance. L. Rostron is a partner in Linn Medical. All the emoluments of L. Rostron above are represented by payments made by the Company to Linn Medical in respect of the provision of the services of L. Rostron to the Company. P. Gibson is employed by Ad Quo Associates Limited ("Ad Quo") in the provision of services to the Company. Included in the emoluments of P. Gibson above are payments of £16,800 made to Ad Quo in respect of these services. J. Pither is employed by Surrey Management Services Limited ("Surrey") in the provision of services to the Company. All of the emoluments of J. Pither above are represented by payments made by the Company to Surrey in respect of these services. Directors’ interests in shares The interests of Directors in the shares of the Company are included in the Directors’ Report on page 7. 1 2 AORTECH INTERNATIONAL PLC AORTECH INTERNATIONAL PLC 1 3 Report of the Remuneration Committee continued Report of the Auditors Directors’ interests in share options Details of options held by Directors are set out below: The following information has been audited. (i) Share Option Scheme Number of Options at 1 april granted/(expired) during year 2004 at 31 march 2005 exercise price date from which exercisable expiry date F. Maguire I. Cameron 12,000 3,000 - (3,000) 12,000 - 250p 875p 11/07/2005 24/06/2002 11/07/2012 01/11/2004 (ii) Unapproved Share Option Scheme Number of Options F. Maguire I. Cameron at 1 april granted/(expired) during year 2004 at 31 march 2005 exercise price date from which exercisable expiry date 7,000 19,000 25,000 1,000 2,500 7,500 - - - - 200,000 (1,000) (2,500) (7,500) 50,000 7,000 19,000 25,000 200,000 - - - 50,000 250p 280p 165p 168p 5,625p 7,350p 3,325p 168p 11/07/2005 08/08/2005 14/07/2006 30/06/2007 10/07/2012 07/08/2012 13/07/2013 29/06/2014 17/07/2002 10/07/2003 29/06/2004 01/11/2004 01/11/2004 01/11/2004 01/11/2004 31/10/2005 The range in the mid-market price of the Company's shares during the year ended 31 March 2005 was from 147.5p to 202.5p. The mid market price on 31 March 2005 was 196p. On behalf of the Board Stuart Rollason Chairman of the Remuneration Committee 20 September 2005 Independent auditors’ report to the members of AorTech International plc We have audited the financial statements which comprise the profit and loss account, the balance sheet, the cash flow statement, the statement of total recognised gains and losses and the related notes. Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the annual report and the financial statements in accordance with applicable United Kingdom law and accounting standards are set out in the statement of directors’ responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and United Kingdom auditing standards issued by the Auditing Practices Board. This report, including the opinion, has been prepared for and only for the company’s members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors’ report is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and transactions is not disclosed. We read the other information contained in the annual report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises only the directors’ report, the directors’ remuneration report, and the chairman’s statement. Basis of audit opinion We conducted our audit in accordance with auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion, the financial statements give a true and fair view of the state of affairs of the company and the group at 31 March 2005 and of the loss and cash flows of the group for the year then ended and have been properly prepared in accordance with the Companies Act 1985. PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors Glasgow 20 September 2005 1 4 AORTECH INTERNATIONAL PLC AORTECH INTERNATIONAL PLC 1 5 Consolidated Profit and Loss Account for the year ended 31 March 2005 Balance Sheets as at 31 March 2005 Turnover Cost of Sales Gross profit Net operating expenses Net operating expenses include: Development expenditure Amortisation of intangible fixed assets Group operating loss Exceptional items Loss on ordinary activities before interest Interest receivable Loss on ordinary activities before taxation Taxation (Loss) / Profit for the financial year (Loss) / Profit per ordinary share Basic Diluted There is no difference between the losses stated above and their historical cost equivalent. All results are derived from continuing operations. Notes 2 3 3 4 5 6 2 9 22 11 2005 £ 136,958 (31,339) 105,619 2004 £ 360,185 (30,649) 329,536 (2,189,908) (2,527,045) (653,896) (94,589) (559,032) (97,863 ) (2,084,289) (2,197,509) - 552,856 (2,084,289) 216,899 (1,867,390) - (1,644,653) 195,096 (1,449,557) 1,976,817 (1,867,390) 527,260 (49.01p) (49.01p) 13.84p 13.84p Fixed assets Intangible assets Tangible assets Investment in subsidiary undertakings Current assets Stocks Debtors Cash at bank Creditors: amounts falling due within one year Net current assets group company notes 2005 £ 2004 £ 2005 £ 2004 £ 12 13 14 15 16 1,449,366 189,678 - 1,565,806 235,608 - 1,639,044 1,801,414 - - - - - - - - 68,852 278,948 4,015,126 48,853 185,848 5,968,200 - 6,670,758 3,726,583 - 5,240,185 5,671,857 4,362,926 6,202,901 10,397,341 10,912,042 17 (348,460) (438,200) (88,554) (47,409) 4,014,466 5,764,701 10,308,787 10,864,633 Total assets less current liabilities 5,653,510 7,566,115 10,308,787 10,864,633 Net assets Capital and reserves Called up share capital Share premium account Other reserve Profit and loss account Equity shareholders’ funds 5,653,510 7,566,115 10,308,787 10,864,633 19 21 21 21 22 9,525,695 - (2,003,143) (1,869,042) 9,525,695 63,359,594 (2,003,143) (63,316,031) 9,525,695 - - 783,092 9,525,695 63,359,594 - (62,020,656) 5,653,510 7,566,115 10,308,787 10,864,633 Statement of Total Recognised Gains/(Losses) for the year ended 31 March 2005 The financial statements on pages 16 to 30 were approved by the Board of Directors on 20 September 2005 and were signed on its behalf by: (Loss)/profit for the financial year Currency translation differences arising on consolidation Total (losses)/gains recognised since last annual report Notes 2005 £ (1,867,390) (45,215) (1,912,605) 2004 £ 527,260 130,024 657,284 J Pither, Chairman F Maguire, Chief Executive 1 6 AORTECH INTERNATIONAL PLC AORTECH INTERNATIONAL PLC 1 7 Consolidated Cashflow Statement for the year ended 31 March 2005 Notes to the Financial Statements for the year ended 31 March 2005 notes 2005 £ 2004 £ The financial statements have been prepared in accordance with applicable Accounting Standards in the United Kingdom. A summary of the more important Group accounting policies, which have been applied consistently, is set out below. 1 Principal Accounting Policies Net cash outflow from operating activities Net cash outflow before exceptional items Outflow related to exceptional items (2,139,103) (1,898,890) (2,139,103) - (1,898,890) (1,335,862) Net cash outflow from operating activities 23 (2,139,103) (3,234,752) Returns on investment and servicing of finance Interest received Taxation Research and development tax credits received Capital expenditure and financial investment Purchase of intangible fixed assets Purchase of tangible fixed assets Sale of tangible fixed assets Net cash inflow/(outflow) from capital expenditure and financial investment Disposals Disposal of commercial valve operations Cash outflow before management of liquid resources and financing Management of liquid resources Cash released from short term deposit Increase/(decrease) in cash in the year 24 216,899 188,359 - 2,075,716 - (28,000) - (28,000) - (1,950,204) 1,994,364 44,160 - (14,908) 136,440 121,532 (50,000) (899,145) 734,983 (164,162) Basis of accounting The financial statements are prepared in accordance with the historical cost convention. Basis of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiary undertakings made up to 31 March each year. Intra-group sales and profits are eliminated on consolidation. As permitted by the Companies Act 1985, a separate profit and loss account for AorTech International plc is not presented as the results of the Company are consolidated in the Group profit and loss account. Goodwill Goodwill arising on consolidation represents the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired. Goodwill arising on the acquisition of subsidiary and associated undertakings is capitalised and amortised over its economic useful life, subject to a maximum of 20 years. A full impairment review is performed at the end of each financial year in accordance with FRS 10 “Goodwill and Intangible Assets” and any excess of the carrying value over the resulting recoverable amount is charged to the profit and loss account in that year. Intellectual property Intellectual property represents the cost of acquisition of patents, trademarks and copyrights. Amortisation is provided on intellectual property to write off the cost in equal annual installments over its estimated economic life of up to 20 years. Tangible fixed assets The cost of tangible fixed assets is their purchase cost, together with any incidental costs of acquisition. Depreciation commences once an asset is brought into use and is calculated so as to write off the cost less estimated residual value of tangible fixed assets on a straight line basis over their expected useful economic lives as follows: Property improvements Plant and equipment Fixtures and fittings Motor vehicles over term of lease or 10 years if less 10 years 4 - 10 years 4 years Development expenditure All research and development expenditure is written off as incurred. Hire purchase and lease commitments Hire purchase and leasing agreements which transfer to the Group substantially all the benefits and risks of ownership of an asset are treated as if the asset had been purchased outright. The assets are included in fixed assets and the capital element of the hire purchase and leasing commitments are shown as obligations under hire purchase contracts and finance leases. The rentals are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is charged to the profit and loss account evenly over the period of the contract. Assets held under hire purchase contracts and finance leases are depreciated over the useful lives of equivalent owned assets. Costs in respect of operating leases are charged to the profit and loss account on a straight line basis over the lease term. Stocks Stocks are valued at the lower of cost and net realisable value. In general, cost is determined on a first in first out basis. In the case of manufactured products, cost includes all direct expenditure plus attributable overheads based on a normal level of activity. Net realisable value is based on estimated selling prices less any further costs expected to be incurred to completion and disposal. Foreign currencies Assets and liabilities of subsidiaries in foreign currencies are translated into sterling at the rates of exchange ruling at the end of the financial year and the results of foreign subsidiaries are translated at the average rates of exchange for the year. Differences on exchange arising from the retranslation of the opening net investment in the subsidiary undertakings, and from the translation of the results of those companies at average rates, are taken to reserves and are reported in the statement of total recognised gains and losses. All other foreign exchange differences are taken to the profit and loss account in the period in which they arise. 1 8 AORTECH INTERNATIONAL PLC AORTECH INTERNATIONAL PLC 1 9 Notes continued Turnover Turnover excludes value added tax and sales between Group companies and is recognised as follows: Revenue relating to the supply of material and finished goods to customers is recognised when products are shipped to customers. License revenues, in respect of upfront payments for access by third parties to the Company's technology, and milestone payments are recognised once the Company's obligations for each milestone have been met and the Company has achieved a right to be paid. Royalty revenues are recognised as earned in accordance with third parties sales of the underlying products. Deferred taxation Full provision is made on a non-discounted basis for deferred tax liabilities arising from timing differences. Deferred tax assets are recognised to the extent that they are regarded as recoverable. Pensions The Group operates defined contribution pension schemes. Contributions are charged to the profit and loss account as they become payable in accordance with the rules of the schemes. 2 Segmental Analysis by Class of Business and Geographical Area (a) Class of business - The Group operates one class of business. (b) Geographical area - The analysis by geographical area of the Group's turnover, loss before tax and net assets is set out below: (i) Turnover Geographical segment United Kingdom Rest of Europe Rest of World (ii) Loss before taxation Geographical segment United Kingdom Rest of Europe Rest of World Loss before interest Net interest receivable Loss on ordinary activities before taxation (iii) Net assets Geographical segment United Kingdom Rest of Europe Rest of World 2005 2004 Sales by destination £ Sales by origin £ Sales by destination £ Sales by origin £ 13,024 - 123,934 136,958 - - 136,958 136,958 - - 360,185 360,185 2005 £ - - 360,185 360,185 2004 £ (957,192) - (1,127,097) (2,084,289) 216,899 (762,991) (29,872) (851,790) (1,644,653) 195,096 (1,867,390) (1,449,557) 2005 £ 2004 £ 3,733,878 - 1,919,632 5,534,686 - 2,031,429 5,653,510 7,566,115 3 Turnover, Cost of Sales, Gross Profit, Selling and Marketing Costs and Administrative Expenses Turnover Cost of sales Gross profit Selling and marketing costs Administrative expenses: Development expenditure Amortisation of intangible fixed assets Other Total administrative expenses Net operating expenses Group operating loss 4 Operating Loss The operating loss is stated after charging: Depreciation and amortisation charge for the year: Intangible owned fixed assets Tangible owned fixed assets Operating lease rentals: Other The above results for the year relate to continuing operations. Services provided by the Group's auditor Audit services Statutory Audit Audit related regulatory reporting Tax services Compliance services Advisory services Other services 2005 £ 2004 £ 136,958 360,185 (31,339) (30,649) 105,619 329,536 (185,384) (296,492) (653,896) (94,589) (1,256,039) (559,032) (97,863) (1,573,658) (2,004,524) (2,230,553) (2,189,908) (2,527,045) (2,084,289) (2,197,509) 2005 £ 2004 £ 96,625 70,948 97,863 96,049 138,689 204,596 2005 £ 51,000 - 16,590 9,050 - 76,640 2004 £ 48,080 3,000 12,235 111,704 2,400 177,419 Included in the analysis above are Group audit fees paid to the Group's auditors of £51,000 (2004: £48,080), of which £32,500 (2004: £20,000) was paid in respect of the parent company. 2 0 AORTECH INTERNATIONAL PLC AORTECH INTERNATIONAL PLC 2 1 Notes continued 5 Exceptional Items Gain on termination of truCCOMS operations Gain on disposal of commercial valve operations Fundamental restructuring costs Cash consideration held in Escrow for 12 months Gain on disposal The gain during the year ended 31 March 2004 for fundamental restructuring costs arose from the overprovision of estimated costs at 31 March 2003. 6 Interest Receivable Bank interest Other interest 7 Directors' Emoluments 2005 £ 216,899 - 216,899 2004 £ 307,660 111,581 133,615 552,856 87,660 220,000 307,660 307,660 2004 £ 184,221 10,875 195,096 Detailed disclosures of Directors' individual remuneration and share options are given in the report of the Remuneration Committee on pages 13 and 14. Aggregate emoluments Company pension contributions to money purchase schemes 2005 £ 2004 £ 284,098 356,420 45,250 8,625 Included in aggregate emoluments for the year ended 31 March 2005 are payments of £87,050 (2004: £61,150) made by the Company to third parties. 8 Employee Information The average monthly number of persons (including Executive Directors) employed by the Group during the year was: By activity Production Sales Development Administration Staff costs (for the above persons): Wages and salaries Social security costs Other pension costs Staff costs incurred include redundancy payments of £27,282 (2004: £396,315) 2005 number 2004 number 3 1 9 4 17 1 1 3 16 21 £ 702,519 75,543 66,362 £ 1,301,060 113,069 36,648 844,424 1,450,777 9 Taxation Analysis of charge/(credit) in period Current tax: UK corporation tax on profits of the year at 30% (2004:30%) Adjustments in respect of prior years Total current tax Deferred tax: Origination and reversal of timing differences Tax on loss on ordinary activities The tax for the period is different than the standard rate of corporation tax in the UK (30%). The differences are explained below: Loss on ordinary activities before tax Profit on ordinary activities multiplied by standard rate in the UK 30% (30%) Effects of: Depreciation for the period in excess of capital allowances and other timing differences Expenses not deductible for tax purposes and other permanent tax differences Losses utilised Losses not utilised Adjustment to tax charge in respect of previous year Current tax credit for the year 2005 £ 2004 £ - - - - - - (1,976,817) (1,976,817) - (1,976,817) (1,867,390) (1,449,557) (560,217) (434,867) - 3,755 (8,464) 564,926 - (47,991) - - 482,858 (1,976,817) - (1,976,817) The adjustment to the 2004 tax charge in respect of previous periods relates to Research and Development tax credits received by the company for prior periods. 10 Loss for the Financial Year As permitted by section 230 of the Companies Act 1985, the Parent Company's profit and loss account has not been included in these financial statements. The Parent Company's loss for the financial year was £493,820 (2004 : £11,939,536). 11 (Loss)/Profit on Ordinary Share The basic (loss) per ordinary share is calculated on the loss of the Group of £1,867,390 (2004 : profit of £527,260) and on 3,810,278 (2004 : 3,810,278) equity shares, being the weighted average number of shares deemed to be in issue. The exercise of share options would not have been dilutive and accordingly the basic and diluted (loss)/profit per share are the same. 12 Intangible Fixed Assets Group: Cost At 1 April 2004 Exchange differences At 31 March 2005 Amortisation At 1 April 2004 Exchange differences Charge for year At 31 March 2005 Net book value At 31 March 2005 Net book value At 31 March 2004 intellectual property £ goodwill £ total £ 1,957,257 (24,769) 19,501,141 - 21,458,398 (24,769) 1,932,488 19,501,141 21,433,629 391,451 (4,954 96,625 ) 19,501,141 - - 19,892,592 (4,954 96,625 ) 483,124 19,501,141 19,984,263 1,449,366 1,565,806 - - 1,449,366 1,565,806 2 2 AORTECH INTERNATIONAL PLC 2 3 AORTECH INTERNATIONAL PLC 2 3 Notes continued 13 Tangible Fixed Assets Group Cost At 1 April 2004 Exchange differences Additions At 31 March 2005 Depreciation At 1 April 2004 Exchange differences Charge for year At 31 March 2005 Net book value At 31 March 2005 Net book value At 31 March 2004 property improvements £ 2,253 (29) - plant & equipment £ 900,979 (4,742) 22,861 fixtures & fittings £ 293,389 (3,713) 5,139 motor vehicles £ 25,634 - - total £ 1,222,255 (8,484) 28,000 2,224 919,098 294,815 25,634 1,241,771 930 (12) 261 803,284 (3,505) 42,409 156,799 (1,985) 28,278 25,634 - - 986,647 (5,502) 70,948 1,179 842,188 183,092 25,634 1,052,093 1,045 76,910 111,723 1,323 97,695 136,590 - - 189,678 235,608 No assets were held under hire purchase contracts at 31 March 2005 and 31 March 2004. 14 Fixed Asset Investments (a) Investment in subsidiary undertakings Cost as at 31 March 2005 and 1 April 2005 (b) interests in subsidiary undertakings name of undertaking (i) (ii) (iii) (iv) (v) (vi) AorTech Europe Limited AorTech Critical Care Limited AorTech Biomaterials Pty Limited Surgical Accessories Limited AorTech Limited AorTech Critical Care International Limited group company 2005 £ - 2004 £ - 2005 £ - 2004 £ - country of registration or incorporation description of shares held proportion of nominal value of shares held by: company % group % Scotland Scotland Australia Scotland Scotland Scotland ordinary £1 ordinary £1 ordinary Aus. $1 ordinary £1 ordinary £1 ordinary £1 100 92 100 76 100 100 100 92 100 76 100 100 14 Fixed Asset Investments (continued) The principal business activities and country of operation of the above operations are: (i) (ii) (iii) (iv) (v) (vi) Ownership of tri-leaflet heart valve intellectual property. A dormant company. The development of new biostable polyurethanes, operating principally in Australia. A dormant company. A dormant company. A dormant company. 15 Stocks All stocks at 31 March 2005 and 31 March 2004 comprise raw materials. 16 Debtors Amounts falling due within one year Trade debtors Other debtors Prepayments Amounts falling due after more than one year Amounts owed by Group undertakings 2005 £ 34,501 30,996 213,451 278,948 group company 2004 £ 34,188 23,120 128,540 2005 £ - 28,049 164,478 2004 £ - 4,681 8,750 185,848 192,527 13,431 - - 6,478,231 5,226,754 Total debtors 278,948 185,848 6,670,758 5,240,185 17 Creditors: Amounts Falling Due Within One Year Trade creditors Other taxes and social security Other creditors Accruals Corporation tax 18 Financial Instruments group company 2005 £ 54,276 (169) 63,731 131,723 98,899 2004 £ 121,402 4,303 35,325 178,271 98,899 348,460 438,200 2005 £ - (169) - 88,723 - 88,554 2004 £ 21,609 - - 25,800 - 47,409 The Group's financial instruments comprise cash and liquid resources and various items, such as trade debtors and trade creditors, that arise directly from its operations. The main purpose of these financial instruments is to finance the Group's operations. The Board reviews and agrees policies for managing each of the risks associated with interest rates, liquidity and foreign currency although to date the Group's exposure to these risks has not been significant. It is, and has been throughout the year under review, the Group's policy that no trading in financial instruments shall be undertaken. Interest rate risk The Group’s current policy is to finance its operations through equity, although in prior years both bank borrowings and hire purchase finance have been used to a lesser extent. 2 4 AORTECH INTERNATIONAL PLC AORTECH INTERNATIONAL PLC 2 5 Notes continued 18 Financial Instruments (continued) 19 Called Up Share Capital Liquidity risk As at 31 March 2005, the Group had no borrowings. Liquidity has been maintained through equity financing. Foreign currency risk The Board considers that the Group’s current exposure to foreign currency risk is not material and therefore, is of the opinion that no steps to minimise this exposure require to be taken for the time being. The Group has an Australian subsidiary whose costs are denominated in Australian Dollars. The Board will continue to review the situation as activities in this subsidiary increases. Short term debtors and creditors Short term debtors and creditors have been excluded from all of the disclosures in this note, other than the currency risk disclosures. Interest rate profile of financial liabilities The Group had no financial liabilities at 31 March 2005 and 31 March 2004. Profile of financial assets The profile of the Group's cash and deposits at 31 March 2005 and 2004 was: Currency: Sterling US Dollars Australian Dollars Euros At 31 March 2005 cash at bank and in hand 2004 £ 2005 £ short term deposits 2004 £ 2005 £ 23,345 91,621 71,364 7,744 (4,711) 93,658 167,589 7,830 3,709,470 - 111,582 - 5,703,834 - - - 2005 £ 3,732,815 91,621 182,946 7,744 total 2004 £ 5,699,123 93,658 167,589 7,830 194,074 264,366 3,821,052 5,703,834 4,015,126 5,968,200 Cash at bank is held in interest bearing current accounts. The short term deposits are placed with banks for periods of up to 12 months according to funding requirements. The weighted average rate of interest earned during the year ended 31 March 2005 was 4.40%. (2004 : 3.02%). Maturity profile of financial liabilities The Group had no financial liabilities at 31 March 2005 and 31 March 2004. Borrowing facilities As at 31 March 2005, the Group had no undrawn committed borrowing facilities. 2005 £ 2004 £ 14,000,000 14,000,000 9,525,695 9,525,695 Authorised 5,600,000 (2004 : 5,600,000) Ordinary shares of 250p each Issued 3,810,278 (2004 : 3,810,278) Ordinary shares of 250p each allotted, called up and fully paid 20 Options in Shares of AorTech International plc At 31 March 2005, options were exercisable over the following 250p Ordinary shares: (i) approved share option scheme number of shares subscription price per share 100 200 2,000 12,000 600 7,425p 3,325p 167p 250p 295p period of option Between 11 July 2003 and 31 December 2005 Between 29 June 2004 and 31 December 2005 Between 1 January 2005 and 31 December 2005 Between 11 July 2005 and 10 July 2012 Between 26 July 2005 and 25 July 2012 Only Executive Directors and employees resident in the UK are eligible to participate in this scheme. No options were exercised during the year to 31 March 2005. (ii) unapproved share option scheme number of shares subscription price per share 9,600 1,000 2,000 5,000 1,500 1,600 1,050 7,000 19,000 25,000 50,000 1,300 240,500 50,000 1,250p 1,025p 5,625p 7,425p 8,100p 4,175p 9,035p 250p 280p 165p 168p 1725p 168p 196p period of option Between 5 February 2000 and 4 February 2007 Between 9 January 2001 and 8 January 2008 Between 17 December 2002 and 16 December 2009 Between 11 July 2003 and 10 July 2010 Between 16 June 2003 and 15 June 2010 Between 29 May 2004 and 28 May 2011 Between 18 December 2003 and 17 December 2010 Between 11 July 2005 and 10 July 2012 Between 8 August 2005 and 7 August 2012 Between 14 July 2006 and 14 July 2013 Between 1 November 2004 and 31 October 2005 Between 18 December 2004 and 17 December 2011 Between 30 June 2007 and 29 June 2014 Between 22 November 2007 and 21 November 2014 Fair values of financial assets and financial liabilities The fair value of all the Group’s financial assets and financial liabilities is equivalent to the carrying values reported in the balance sheet. Hedges The Group’s policy is not to hedge against exposure to interest rate or currency risks, except to the extent that forward purchase contracts may be used when considered appropriate. Any person who at the date of grant of the option is approved by the Board of Directors is eligible to participate in this scheme. No options were exercised during the year to 31 March 2005. (iii) other The range in the mid market price of the Company's shares during the year ended 31 March 2005 was from 147.5p to 202.5p. The mid market price on 31 March 2005 was 196p. 2 6 AORTECH INTERNATIONAL PLC AORTECH INTERNATIONAL PLC 2 7 Notes continued 21 Share Premium Account and Reserves Group At 1 April 2004 Loss for the year Exchange differences arising on consolidation Reduction in share premium At 31 March 2005 Company At 1 April 2004 Loss for the year Exchange differences arising on consolidation Reduction in share premium At 31 March 2005 share premium account £ 63,359,594 - - (63,359,594) other reserve £ profit and loss reserve £ (2,003,143) - - - (63,316,031) (1,867,390) (45,215) 63,359,594 - (2,003,143) (1,869,042) share premium account £ profit and loss reserve £ 63,359,594 (63,359,594) (62,020,656) (493,820) (62,026) 63,359,594 - 783,092 On 4 March 2005, the Court of Session approved a reduction in the Company's share premium account of £63.3 million, as approved by the Company's shareholders at the Annual General Meeting held on 1 October 2004. 22 Reconciliation of Movements in Group Shareholders' Funds Opening shareholders’ funds (Loss)/Profit for the financial year Exchange differences arising on consolidation Closing shareholders' funds 2005 £ 2004 £ 7,566,115 6,908,831 (1,867,390) (45,215) 527,260 130,024 5,653,510 7,566,115 23 Reconciliation of Operating Loss to Net Cash Flow from Operating Activities Group operating loss Amortisation of intangible fixed assets Depreciation of tangible fixed assets Increase in stocks (Increase) / decrease in trade debtors (Increase) / decrease in prepayments (Increase) / decrease in other debtors Decrease in trade creditors Decrease in taxes and social security Increase in other creditors Decrease in accruals Net cash outflow from operating activities 2005 Continuing £ (2,084,289) 96,625 70,948 (19,999) (684) (85,300) (7,992) (86,317) (4,472) 28,763 (46,386) (2,139,103) Net cash outflow from operating activities for the year to 31 March 2004 included expenditure of £636,518 which was not incurred in the current year. 24 Reconciliation of Net Cash Flow to Movement in Net Funds 2004 Continuing £ (2,197,509) 97,863 96,049 (48,853) 204,016 69,702 82,911 (2,885) (43,076) 2,386 (159,494) (1,898,890) 2004 £ (164,162) (734,983) (899,145) 16,002 (883,143) 6,851,343 5,968,200 2005 £ 44,160 (1,994,364) (1,950,204) (2,870) (1,953,074) 5,968,200 4,015,126 1 april 2004 £ cash flow £ exchange differences £ 31 march 2005 £ 5,968,200 (5,703,834) (1,950,204) 1,994,364 264,366 44,160 (2,870) - (2,870) 4,015,126 (3,709,470) 305,656 5,703,834 (1,994,364) - 3,709,470 5,968,200 (1,950,204) (2,870) 4,015,126 Increase / (decrease) in cash in the year Cash outflow from decrease in liquid resources Change in net debt resulting from cash flows Other non-cash items: Currency translation differences arising on consolidation Movement in net funds in the year Net funds at 1 April 2004 Net funds at 31 March 2005 25 Analysis of Net Funds Net cash: Cash at bank and in hand Deposits treated as liquid resources Liquid resources: Deposits included in cash Net funds 2 8 AORTECH INTERNATIONAL PLC AORTECH INTERNATIONAL PLC 2 9 Notes continued Notice of Annual General Meeting 26 Pension and Similar Obligations Notice is hereby given that the eighth Annual General Meeting of AorTech International plc will be held at Buchanan Communications Limited, 107 Cheapside, London EC2V 6DN on 26 October 2005 at 12 noon for the following purposes: The Group operates defined contribution pension schemes for employees. The assets of the schemes are held separately from those of the Group in independently administered funds. Contributions payable by the Group amounted to £66,362 (2004 : £36,648). As Ordinary Business 27 Capital Commitments The Group had no capital commitments at 31 March 2004 and 31 March 2005. 28 Financial Commitments At 31 March 2005 the Group had annual commitments under non-cancellable operating leases as follows: Expiring within one year Expiring between one and two years Expiring between two and five years Expiring over five years 29 Related Party Transactions land and buildings £ 102,657 15,833 - - 118,490 2005 2004 other £ - - - - - land and buildings £ 37,254 - - 32,324 69,578 other £ - - 13,932 - 13,932 In accordance with FRS 8, “Related Party Disclosures”, AorTech International plc has taken advantage of the exemption for over 90% owned subsidiaries not to disclose any transactions or balances between group entities including those that have been eliminated on consolidation. 30 Contingent Liability The legal action against Artech srl and their counterclaim, reported in the 2004 Annual Report, has been settled by the agreement of each party to withdraw their respective claims. 1 2 3 4 5 6 To receive and adopt the financial statements of the Company for the year ended 31 March 2005 together with the Reports of the Directors and Auditors thereon. To approve the Report of the Remuneration Committee for the year ended 31 March 2005. To re-elect as a Director Frank Maguire, who is retiring by rotation. To elect as a Director Dr Stuart Bernard Rollason, who was appointed a Director on 13 May 2005. To elect as a director Jon Peter Pither, notwithstanding that he has attained the age of 70. To appoint Grant Thornton UK LLP as auditors of the Company and to authorise the Directors to fix their remuneration. As Special Business To consider; and if thought fit, pass the following resolution as an Ordinary Resolution. 7 That the name of the Company be changed to AorTech Biomaterials plc. By order of the Board, J C D Parsons Company Secretary 9 September 2005 Victoria Road Surbiton Surrey KT6 4NS 1 2 3 4 5 Any member of the Company who is entitled to attend and vote at the Annual General Meeting may appoint another person or persons (whether a member or not) as their proxy to attend and, on a poll, to vote on their behalf. To be valid, Forms of Proxy must be lodged with the Company's Registrars, Lloyds TSB Registrars, The Causeway, Worthing, BN99 6ZR not later than 48 hours before the time appointed for the holding of the meeting or any adjourned meeting together with any documentation required. In the case of a corporation, the Form of Proxy should be executed under its common seal or signed by a duly authorised officer or attorney of the corporation. Completing and returning a Form of Proxy will not prevent any member from attending the meeting in person and voting should they so wish. The following documents will be available at the registered office of the Company on any weekday (except Saturday) during normal business hours from the date of this notice until the date of the Annual General Meeting: (a) (b) (c) (d) A copy of the service agreements for the Executive Directors. A copy of the letters of appointment for the non-Executive Directors. The register of interests of the Company's Directors in the shares of the Company which is maintained under Section 325 of the Companies Act 1985. The Memorandum and Articles of Association of the Company. These documents will also be available for inspection during the Annual General Meeting and for at least fifteen minutes before it begins. 3 0 AORTECH INTERNATIONAL PLC AORTECH INTERNATIONAL PLC 3 1 

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