AorTech International plc
Annual Report 2010

Plain-text annual report

s t n u o c c A & t r o p e R l a u n n A l c p l a n o i t a n r e t n I h c e T r o A o t r a e y e h t r o F 0 1 0 2 h c r a M 1 3 annual report C L P L A N O I T A N R E T N I H C E T R O A 01 s t n e t n o C Chairman’s Statement 02 Board of Directors and Advisors 07 Report of the Directors 08 Statement of Directors’ Responsibilities 13 Corporate Governance 14 Accountability and Audit 15 16 Report of the Remuneration Committee 19 Report of the Independent Auditor 21 Consolidated Income Statement 22 Consolidated Statement of Comprehensive Income 23 Consolidated Balance Sheet 24 Consolidated Cash Flow Statement 25 Consolidated Statement of Changes in Equity 26 Notes to the Financial Statements 45 Report of the Independent Auditor on the Parent Company Financial Statements 47 Parent Company Balance Sheet 48 Notes to the Parent Company Financial Statements 51 Notice of the Annual General Meeting 02 Chairman’s Statement I am pleased to report to you on another year of progress for the Group Financial Review During the year to 31 March 2010, Group revenue increased by £0.1m over that achieved in the previous financial year, rising to £1.4m. The majority of the revenue was received during the second half of the year, as I indicated in my interim report was likely to be the case. Again this year, the Group revenue was achieved through a combination of sales of bulk material and components as well as through licencing fees, royalty income and milestone payments. Operating expenses increased from £3,032,000 to £3,727,000, with much of this increase being directly attributable to the strengthening over the course of the period of the Australian Dollar, being the currency of our manufacturing base, with Pounds Sterling being the financial results reporting currency. Together with the reduction in interest receivable, made inevitable by the lower rates than those previously obtainable, the loss before taxation was £1.9m as compared with £1.2m in the previous year. The net cash balances at 31 March 2010 were £2.9m, which are expected to continue to provide sufficient resources to support the Group’s ongoing operations and our development plans. Group revenue was achieved through a combination of sales of bulk material and components as well as through licencing fees, royalty income and milestone payments. R R C C C C C N R P N N A O R T E C H I N T E R N A T I O N A L P L C 03 _continued t n e m e t a t S s n a m ’ r i a h C Shareholders who have followed the Company’s development in recent years are aware of the lengthy timescales for commercialisation of medical materials and devices. Operational Highlights of the Financial Year to seems always Progress be frustratingly slow but I should like to assure you that the past year has seen substantial advances. Our range of polymer materials in the Elast-Eon™ and ECSil™ family are now in use, or in a number of development programmes, in the following areas: The executive team, capable of realising this opportunity, is largely in place. Therefore subject to unforeseen events the Company’s financial performance will begin to show substantial reward for the years of patient research and development. The polymer business has continued to grow. Tonnage has more than doubled over the prior year and composite pricing has seen improvements related to mix, new licences and price increases programmed into existing licences. A new licence has been announced in the urology in ophthalmic and morbid obesity fields are projected in the near term. field; other licences _ _ _ _ _ _ _ _ _ Cardiac Rhythm management Neurostimulation Cardiac Surgery Spinal Disc Bilary Drainage Urology Catheters Urology Stents Morbid Obesity Blood Glucose Monitoring By the end of this year we expect to have more than six of these applications in development programmes or in human use. Our product is already in human use in several million patients and additional human use is gathering momentum. It is also encouraging that a number of medical device companies wish us to augment material supply by actually manufacturing components or complete devices. Headers for cardiac rhythm management and neurostimulation are examples. Going beyond the simple financial figures that have been reported, the Board believes that your Company has passed the evolutionary point, the tipping point, with an established widely applicable and respected material, which has achieved regulatory approval, and that this will now lead to rapidly rising direct and indirect revenues. 04 Our new polymer product, ECSil™, essentially a super silicone, is enjoying early success in customer qualification programmes for application areas which include pacing and neurostimulation leads, spinal disc and breast implant, amongst others. After suffering the unanticipated loss of a key raw material supplier in the 2nd quarter of 2010, the Company resumed polymer shipments after a 5 week period in which it successfully completed its long term programme for producing this raw this supply material disruption behind us, we expect a resumption of our history of perfect customer delivery and quality performance. in-house. With In general, prospects for the bulk polymer business remain bright as a number of customer qualification programmes continue to mature into new licence agreements and other existing agreements, some of which are royalty bearing. By the end of this year we expect to have more than six of these applications in development programmes or in human use. Our product is already in human use in several million patients and additional human use is gathering momentum. A O R T E C H I N T E R N A T I O N A L P L C 05 _continued t n e m e t a t S s n a m ’ r i a h C Strategy and Current Trading The greatest potential for near term revenue growth comes from our component and device development segments. The U.S. $32.8 million co-development programme is continuing to progress satisfactorily. The final phase of the trial for the polymer heart valve in the previously announced circulatory support application is expected to conclude in the current financial year. most component exciting The development in our portfolio is the use of our polymers and proprietary reaction injection molding (RIM) process for the production of headers for cardiac rhythm management (CRM) and neurostimulation devices. Also in my next statement I first hope successful human use of this technology in a clinical setting. to be celebrating the important device I anticipate being able to inform you of a projected date for the first human use of this in my next statement. The state of this programme is such that the internal valve development and pilot manufacturing phases are essentially complete and management is evaluating other device opportunities, some of them joint ventures in other areas. In addition to new licensees who prefer to source their Elast-Eon™ and ECSil™ components from the Company at the outset of our business with them, we are also seeing existing polymer accounts responding favourably to our proposals to manufacture their components, thereby facilitating the simplification of their own supply chains. Management foresee increasing revenue streams over the short and medium term, and with the Group’s infrastructure being of sufficient capacity to enable increased output without significant further capital outlay. This anticipated increase is expected to be reflected in an improved bottom line and cash reserves position. Finally, I should once again wish to take this opportunity to thank each member of our staff for their continued efforts and commitment to the Company, and to thank our shareholders for their ongoing support during the year. Your Board is confident that the Group has the technology, resources and skills that will fully capitalise upon the opportunities that are now developing and expanding from the efforts of the past, and thereby to build shareholder value. Jon Pither Chairman 06 The most exciting component development in our portfolio is the use of our polymers and proprietary reaction injection molding (RIM) process for the production of headers for cardiac rhythm management (CRM) and neurostimulation devices. A O R T E C H I N T E R N A T I O N A L P L C 07 Board of Directors & Advisors Financial statements will be circulated to Shareholders and copies of the announcement will be made available from the Company’s registered office. Dealings permitted on Alternative Investment Market (AIM) of the London Stock Exchange. Directors Jon Pither non-Executive Chairman Frank Maguire Chief Executive Eddie McDaid non-Executive Director Dr Stuart Rollason non-Executive Director Gordon Wright non-Executive Director Company Secretary David Parsons ACIS Registered Office C/o Brodies LLP 2 Blythswood Square Glasgow G2 4AD Head Office Prestige Travel Suite Barclays Bank House 81-83 Victoria Road Surbiton Surrey KT6 4NS web: www.aortech.com email: info@aortech.com Nominated Adviser and Broker Evolution Securities Limited 100 Wood Street London EC2V 7AN Registrars Equniti Registrars Scotland 1st Floor 34 South Gyle Crescent South Gyle Business Park Edinburgh EH12 9EB Independent Auditor Grant Thornton UK LLP Statutory Auditors Chartered Accountants Regent House 80 Regent Road Leicester LE1 7NH Registered in Scotland, Company No.170071 Report of the Directors The Directors present their report and the audited financial statements for the year ended 31 March 2010. 08 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 and medical devices. Review of Business & Future Developments During the financial year under review the Group continued to achieve key operational milestones in the use of its core product Elast-Eon™ polymer, and to develop its new super silicone polymer product ECSil™. These milestones included the development and refinement of the materials for the medical community with the aim of providing a wide range of high performance polymers in a variety of application specific formulations and densities for use in medical devices. Looking forward, the business is increasingly utilising the co-development of Elast-Eon™ components and the manufacture of these components to drive top line revenue. The Group’s specific advantage is an ability to process Elast-Eon™ and ECSil™ polymers in ways that are unique and of high value to numerous customer-based product development programmes. During the year costs of £1,121,000 (2009: £1,040,000) were charged to the Income Statement as development expenditure. The consolidated Income Statement is set out on page 21 indicating the Group’s loss for the financial year of £1,923,000 (2009: £1,249,000) which will be added to the deficit on reserves. On a Group basis the business review and future prospects are contained within the Chairman's Statement. The Directors consider the Group financial key performance indicators to be revenue growth, control of operating expenses and the pre tax result. These are summarised within the financial review section of the Chairman's Statement. In addition the Directors consider the Group non financial key performance indicators to be the development of new application areas for its polymer products including components and devices, trials and human use of the polymer heart valve and the signing of new licence agreements. These are summarised in the operational highlights section of the Chairman's Statement. The Directors consider the principal risks and uncertainties facing the Group at this stage of its development to be as follows: small customer base; retention of key management and personnel; reliability of products in the event of undetected faults after shipment; any adverse results which may arise during development phases; product liability risks; competitive markets with changing technology and evolving industry standards, and foreign currency movements. No dividends have been paid or proposed for the years ended 31 March 2010 and 31 March 2009. Directors & Their Interests At 31 March 2010 the Chairman of the Company was J Pither; the Executive Director was F Maguire and the non-Executive Directors were E McDaid, Dr S Rollason and G Wright. No other Director served during the year ended 31 March 2010. At each Annual General Meeting one third of the Directors shall be subject to retirement by rotation. F Maguire, J Pither and Dr. S Rollason retire from the Board at the Annual General Meeting and, being eligible, offer themselves for re-election. A O R T E C H I N T E R N A T I O N A L P L C 09 _continued s r o t c e r i D e h t f o t r o p e R The interests of the Directors at 31 March 2010 and 31 March 2009 in the ordinary share capital of the Company (all beneficially held) were as follows: 31 March 2010 31 March 2009 Number of shares Number of shares J Pither 15,050 - F Maguire 81,050 1,200 E McDaid 333,383 363,383 S Rollason 11,825 8,825 G Wright 305,107 335,107 On 18 May 2010 J Pither purchased 5,000 ordinary shares at a price of 170 pence per ordinary share. G Wright’s shares are held through Caricature Investments Limited. Substantial Shareholders 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 30 June 2010 exceeded 3% of the Company’s issued share capital: Number of shares % Chase Nominees Limited* 1,060,435 21.94% 6.90% Mr Edward McDaid and Mrs Kathleen McDaid 333,383 Caricature Investments Limited** 305,107 6.31% Pershing Nominees Limited LSCLT 270,000 5.59% W B Nominees Limited 237,715 4.92% Barclayshare Nominees Limited 207,684 4.30% 3.32% L R Nominees Limited 160,660 3.07% Pershing Nominees Limited PSL981 148,508 * the holding of Chase Nominees Limited includes 962,841 shares held by Bluehone Investors LLP which accounts for 19.9% of the Company’s issued share capital. Dr S Rollason is also a Director of Bluehone Investors LLP. Dr S Rollason owns 11,825 shares in the Company at 30 June 2010. **Caricature Investments Limited is a company wholly owned by Mr G Wright, a Director of the Company. The percentage of shares not in public hands (as defined in the AIM rules) at 30 June 2010 was 37.4%. 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 opportunities are given to all employees regardless of their gender, colour, race, religion or ethnic origin. Applications for employment from disabled persons are always considered fully 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 training, career development and promotion of disabled persons should, as far as possible, be identical with that of other employees. 10 Market Risk Market risk encompasses two types of risk, being currency risk and fair value interest rate risk. The Group’s policies for managing fair value interest rate risk are considered along with those for managing cash flow interest rate risk and are set out in the sub-section entitled “interest rate risk” below. Currency Risk The Group is exposed to translation and transaction foreign exchange risk. The majority of the Group’s sales are to customers in the United States. These sales are priced and invoiced in US dollars. The Group policy is to try and match the timing of the settling of these sales and purchase invoices so as to eliminate, as far as possible, currency exposures. The tables below show the extent to which the Group has residual financial assets and liabilities. Foreign exchange differences on retranslation of these assets and liabilities are taken to the Income Statement of the Group, other than in respect of the retranslation of foreign subsidiary balances arising on consolidation which are taken through the foreign exchange reserve and shown in the Statement of Comprehensive Income. Net foreign currency monetary assets Australian dollar Euro US dollar Total £000 £000 £000 £000 2010 Sterling 2,794 11 32 2,837 2009 Sterling 3,634 12 22 3,668 Liquidity Risk The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and by investing cash assets safely and profitably. Interest Rate Risk The Group finances its operations through retained cash reserves. The interest rate exposure of the financial assets and liabilities of the Group as at 31 March 2010 is shown in the table below. The table includes trade receivables and payables as these do not attract interest and are therefore subject to fair value interest rate risk. Fixed Floating Zero Total £000 £000 £000 £000 Financial assets Cash 2,631 36 218 2,885 Trade receivables - - 776 776 2,631 36 994 3,661 Interest rate Financial liabilities Trade payables - - 99 99 - - 99 99 A O R T E C H I N T E R N A T I O N A L P L C 11 _continued s r o t c e r i D e h t f o t r o p e R Credit Risk The Group’s principal financial assets are cash and trade receivables. The credit risk associated with the cash is limited as the counterparties have high credit ratings assigned by international credit-rating agencies. The principal credit risk arises therefore from trade receivables. Capital Management Objectives The Directors’ capital management objectives are to ensure the Group’s ability to continue as a going concern and to provide an adequate return to shareholders. The parent and subsidiary companies’ Boards meet regularly to review performance and discuss future opportunities and threats with the aim of optimising sustainable returns and minimising risk. Payables Payment Policy The Group’s current policy concerning the payment of the majority of its trade payables is to follow the ‘Better Payment Practice Code’ issued by the Better Payment Practice Group. For other suppliers, the Group 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 payables 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 Company’s average payables payment period at 31 March 2010 was 30 days (2009: 16 days). Charitable & Political Donations During the year the Group made no charitable or political donations (2009: nil). Annual General Meeting The notice convening the Annual General Meeting for 12:00 noon on Monday, 27 September 2010 in the Staple and Gray’s Inn Room of the Renaissance London Chancery Court Hotel, 252 High Holborn, London, WC1V 7EN is set out on page 51. There are a number of resolutions to be passed and further information in relation to these resolutions is set out below. Resolutions 1 to 8 Resolution 1 provides for the approval of the Company's financial statements for the year ended 31 March 2010. Resolution 2 provides for approval of the Report of the Remuneration Committee for the year ended 31 March 2010. The vote is advisory and the Directors entitlement to remuneration is not conditional on the resolution being passed. Resolutions 3, 4 and 5 deal with the re-appointment of the Directors required by the Company's Articles of Association to retire this year. Resolution 6 deals with the re-appointment of Grant Thornton UK LLP as the Company's auditor. Following assessment by the Audit Committee the Board considers the auditor to be effective and independent in their role. Resolution 7 provides under the Companies Act 2006 (Section 551) the directors of a company may only allot unissued shares if authorised to do so. Passing this Resolution will continue the Directors’ flexibility to act in the best interests of shareholders when opportunities arise by issuing new shares. In Resolution 7 the Company is seeking authority to allot shares with a nominal value of up to £4,027,315 which represents one third of the Company’s issued ordinary share capital. The Directors intend to use this authority, which will lapse at the conclusion of the next Annual General Meeting of the Company, for general corporate purposes. 12 Resolution 8 provides if shares are to be alloted for cash, the Companies Act 2006 requires that those shares are offered first to the existing shareholders in proportion to the number of shares they hold at the time of the offer. However, it may sometimes be in the interests of the Company for the Directors to allot shares other than to shareholders in proportion to their existing holdings. At last year’s Annual General Meeting shareholders authorised the Board, subject to specified limits: _ to allot shares in connection with a rights issue, defined in summary as, an offer of equity securities to shareholders which is open for a period decided by the Board subject to any limits or restrictions which the Board thinks are necessary or appropriate. _ to allot shares not in connection with a rights issue up to a specific amount so that the pre-emption requirement does not apply to the allotments of shares for cash up to that amount. This authority is required to be renewed annually. The Directors will be empowered by Resolution 8 to allot equity securities (within the meaning of Section 560 of the Companies Act 2006) for cash without complying with the statutory pre-emption rights of shareholders under section 561 of the Companies Act 2006, up to a maximum nominal amount of approximately £604,097. This disapplication is limited to allotments made to ordinary shareholders and holders of any other class of equity security in proportion (as nearly as may be) to their holdings and, otherwise, to allotments up to a maximum of 5% of the Company’s issued ordinary share capital. There are no current plans to allot shares except in connection with the employee share schemes. Resolutions 1 to 6 are termed ordinary business. Resolutions 7 and 8 are termed special business. J C D Parsons Company Secretary AorTech International plc Company number SCO170071 Surbiton 30 July 2010 RECOMMENDATION: An explanation of the the resolutions to be proposed is set out on pages 11 and 12 of this document. The Directors consider that all the resolutions to be put to the meeting are in the best interests of the Company and its shareholders as a whole. Your Board will be voting in favour of them and unanimously recommends that you do so as well. A O R T E C H I N T E R N A T I O N A L P L C 13 Statement of Directors’ Responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the parent company financial statements in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) and the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union. The financial statements are required by law to give a true and fair view of the state of affairs of the Group and parent company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to: _ _ _ _ select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable UK Accounting Standards and International Financial Reporting Standards as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent company will continue in business. The Directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial position of the Group and the parent company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of both the Group and the parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as the Directors are aware: _ _ there is no relevant audit information of which the Company's auditors are unaware; and the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Auditor Grant Thornton UK LLP have expressed their willingness to continue in office as auditor and a resolution to reappoint them will be proposed at the Annual General Meeting. By Order of the board: J C D Parsons Company Secretary Surbiton 30 July 2010 Corporate Governance 14 The Group currently has a reduced Corporate Governance structure, reflecting the present stage of development, the size of the business and the Directors’ assessment of the cost / benefit balance of full Corporate Governance. The situation will, however, continue to be kept under review in the light of ongoing corporate developments and scaling up of activities. Directors The Company is controlled by the Board of Directors which, at 31 March 2010, comprised one Executive and three non-Executive Directors and a non-Executive Chairman. All Directors are able to take independent advice in furtherance of their duties if necessary. A O R T E C H I N T E R N A T I O N A L P L C Accountability & Audit 15 The Board includes a detailed review of the performance of the Group in the Chairman’s Statement on pages 2 to 6. Reading this alongside the Report of the Directors on pages 8 to 12 the Board seeks to present a balanced and understandable assessment of the Group’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 risk factors facing the Group 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 financial controls. However, it should be recognised that such a system can provide only reasonable and not absolute assurance against material misstatement or loss. The principal elements of the system include: _ _ _ _ A clearly defined structure which delegates authority, responsibility and accountability. 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. 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 and chaired by E McDaid, meets at least twice per year and overviews the monitoring of the Group’s internal controls, accounting policies, financial reporting and provides a forum through which the external auditor reports, as well as ensuring the auditor remains independent of the Company. It meets at least once a year with the external auditor without Executive Board members present. Going Concern After considering the strong year end cash position, making appropriate enquiries and reviewing budgets, profit and cash flow forecasts and business plans for a period of at least 12 months from the date of signing these financial statements, the Directors have formed a judgement at the time of approving the financial statements that there is a reasonable expectation that the Group has more than sufficient 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 financial statements is appropriate. 16 Report of the Remuneration Committee This report has been prepared in accordance with Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, which introduced new statutory requirements for the disclosure of Directors’ remuneration in respect of periods commencing on or after 6 April 2008. The report also meets the relevant requirements of the AIM Rules and describes how the Board has applied the Principles of Good Governance relating to Directors’ remuneration. In accordance with best practice, notwithstanding that these regulations do not strictly apply to AIM companies, 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: Dr S Rollason (Chairman) E McDaid J Pither G Wright 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 Group’s staff, including incentive arrangements for bonus payments and grants of share options. The constitution and operation of the Committee is in compliance with the provisions of the Combined Code 2008 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: _ _ _ 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 Group 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. 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. A O R T E C H I N T E R N A T I O N A L P L C 17 _continued e e t t i m m o c n o i t a r e n u m e R e h t f o t r o p e R Remuneration of Executive Director The Executive Director has a service contract, which can be terminated on one year’s notice by either party. The Remuneration Committee will review each case of early termination individually in order to ensure compensation settlements are made which are appropriate to the circumstances, taking care to ensure that poor performance is not rewarded. The most recent executed contract for the Executive Director was for F Maguire on 6 December 2002. 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 the Executive Director, 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. Share Options The Company operates an Approved 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 HM Revenue and Customs 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 and after the elapse of three years from the date of grant of the option. Pensions The Group made contributions to a personal pension plan for F Maguire at the rate of 10% of pensionable salary. 18 Directors’ Emoluments - audited Details of individual Director’s emoluments for the year are as follows: 2010 2009 Salary Benefits Pension & fees in kind contributions Total Total £ £ £ £ £ Executive F Maguire 232,816 7,200 15,000 255,016 238,481 Non-executive J Pither (Chairman) 30,000 - - 30,000 30,000 Dr S Rollason 18,000 - - 18,000 19,500 E McDaid 22,000 - - 22,000 18,000 G Wright 18,000 - - 18,000 18,000 320,816 7,200 15,000 343,016 323,981 Benefits in kind include the provision of a company car and medical insurance. 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 those services. Dr S Rollason is employed by Bluehone Investors LLP (Bluehone) in the provision of services to the Company. All of the emoluments of Dr S Rollason above are represented by payments made by the Company to Bluehone in respect of these services. Directors’ Interests In Shares The interests of Directors in shares of the Company are included in the Report of the Directors on page 9. Directors’ Interests In Share Options The details of options held by Directors are set out below: Number of options At 1 Granted At 31 Date April /expired March Exercise from which Expiry 2009 during year 2010 price exercisable date (i) Approved Share Option Scheme F Maguire 12,000 - 12,000 £2.50 11/07/2005 11/07/2012 (ii) Unapproved Share Option Scheme F Maguire 7,000 - 7,000 £2.50 11/07/2005 10/07/2012 19,000 - 19,000 £2.80 08/08/2005 07/08/2012 25,000 - 25,000 £2.50 14/07/2006 13/07/2013 200,000 - 200,000 £2.50 30/06/2007 29/06/2014 J Pither 20,000 - 20,000 £3.25 01/09/2009 01/09/2016 Dr S Rollason 13,000 - 13,000 £3.25 01/09/2009 01/09/2016 The range in the mid market price of the Company’s shares during the year ended 31 March 2010 was from £1.30 to £1.90. The mid market price on 31 March 2010 was £1.355. On behalf of the Board Dr Stuart Rollason Chairman of the Remuneration Committee 30 July 2010 A O R T E C H I N T E R N A T I O N A L P L C Report of the Independent Auditor 19 To the Members of AorTech International Plc We have audited the Group financial statements of AorTech International Plc for the year ended 31 March 2010 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated cash flow statement, the consolidated statement of changes in equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditors As explained more fully in the Statement of Directors’ Responsibilities set out on page 13, the Directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/UKNP. 20 Opinion on financial statements In our opinion the Group financial statements: _ _ _ give a true and fair view of the state of the Group's affairs as at 31 March 2010 and of its loss for the year then ended; have been properly prepared in accordance with IFRS as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Report of the Directors for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: _ _ certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the Parent Company financial statements of AorTech International Plc for the year ended 31 March 2010. John Bowler Senior Statutory Auditor For and on behalf of GRANT THORNTON UK LLP STATUTORY AUDITOR, CHARTERED ACCOUNTANTS East Midlands 30 July 2010 A O R T E C H I N T E R N A T I O N A L P L C 21 Consolidated Income Statement Year ended Year ended 31 March 31 March 2010 2009 Notes £000 £000 Revenue 3 1,362 1,259 Other income - grants received 306 234 Cost of sales (382) (124) Administrative expenses (2,082) (1,754) Other expenses - development expenditure (1,121) (1,040) Other expenses - amortisation of intangible assets 10 (142) (114) Operating loss 3 (2,059) (1,539) Finance income 7 136 290 Loss before taxation (1,923) (1,249) Taxation 8 - - Loss attributable to equity holders of the parent company (1,923) (1,249) Loss per share Basic and diluted – (pence per share) 9 (39.79) (25.84) 22 Consolidated Statement of Comprehensive Income 31 March 31 March 2010 2009 Notes £000 £000 Loss for the year (1,923) (1,249) Other comprehensive income: 267 Exchange differences on translating foreign operations - Income tax relating to other comprehensive income - 1,204 Other comprehensive income for the year, net of tax 1,204 267 Total comprehensive income for the year, attributable (982) to equity holders of the parent (719) A O R T E C H I N T E R N A T I O N A L P L C Consolidated Balance Sheet 23 31 March 31 March 2010 2009 Notes £000 £000 Assets Non current assets Property, plant and equipment 11 718 702 Intangible assets 10 1,424 1,257 Total non current assets 2,142 1,959 Current assets Inventories 12 150 150 Trade and other receivables 14 859 436 Cash and cash equivalents 15 2,885 4,178 Total current assets 3,894 4,764 Total assets 6,036 6,723 Liabilities Current liabilities Trade and other payables 16 (623) (512) Total current liabilities (623) (512) Non current liabilities Other non current liabilities 16 - (79) Total non current liabilities - (79) Total liabilities (623) (591) Net assets 5,413 6,132 Equity Issued capital 19 12,082 12,082 2,340 2,340 Share premium 19 Other reserve (2,003) (2,003) Foreign exchange reserve 658 Profit and loss account (8,868) (6,945) 1,862 Total equity attributable to equity holders of the parent 5,413 6,132 The Group financial statements were approved by the Board on 30 July 2010 and were signed on its behalf by J Pither, Chairman E McDaid, Director 24 Consolidated Cash Flow Statement Year ended Year ended 31 March 31 March 2010 2009 £000 £000 Cash flows from operating activities Group loss after tax (1,923) (1,249) Adjustments for: Depreciation of property, plant and equipment 258 207 114 Amortisation of intangible assets 142 Interest income (136) (290) Deferred income released (79) (64) Increase in trade and other receivables (423) (124) Decrease in inventories - 90 (73) Increase / (decrease) in trade and other payables 111 Net cash flow from operating activities (2,050) (1,389) Cash flows from investing activities Purchase of property, plant and equipment (102) (234) 136 290 Interest received Net cash flow from investing activities 34 56 Net decrease in cash and cash equivalents (2,016) Foreign exchange differences 723 Cash and cash equivalents at beginning of year 4,178 (1,333) 163 5,348 Cash and cash equivalents at end of year 2,885 4,178 A O R T E C H I N T E R N A T I O N A L P L C Consolidated Statement of Changes in Equity 25 Share Foreign Profit Share premium Other exchange and loss Total capital account reserve reserve account equity £000 £000 £000 £000 £000 £000 Balance at 31 March 2008 12,082 2,340 (2,003) 391 (5,696) 7,114 Transactions with owners - - - - - - Loss for the year - - - - (1,249) (1,249) Other comprehensive income Exchange difference on translating foreign operations - - - 267 - 267 Income tax relating to components of other comprehensive income - - - - - - Total comprehensive income for the year - - - 267 (1,249) (982) Balance at 31 March 2009 12,082 2,340 (2,003) 658 (6,945) 6,132 Transactions with owners - - - - - - Loss for the year - - - - (1,923) (1,923) Other comprehensive income Exchange difference on translating foreign operations - - - 1,204 - 1,204 Income tax relating to components of other comprehensive income - - - - - - Total comprehensive income for the year - - - 1,204 (1,923) (719) Balance at 31 March 2010 12,082 2,340 (2,003) 1,862 (8,868) 5,413 26 Notes to the Financial Statements 1 Basis of preparation The Group financial statements are for the year ended 31 March 2010. They have been prepared in compliance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations as adopted by the European Union as at 31 March 2010. The Group financial statements have been prepared under the historical cost convention. After considering the year end cash position, 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 more than sufficient 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 financial statements is appropriate. The accounting policies remain unchanged from the previous year except for the adoption of IAS 1 ‘Presentation of Financial Statements’ (Revised 2007) and the adoption of IFRS 8 ‘Operating Segments’’, both of which have been applied retrospectively. The adoption of IAS 1 (Revised) has resulted in the inclusion of the consolidated statement of comprehensive income as a primary statement. Revised IAS 1 requires presentation of a comparative balance sheet as at the beginning of the first period in some circumstances. The directors consider that this is not necessary this year because the March 2008 balance sheet is the same as that previously published. The adoption of IFRS 8 has required the disclosure of segmental information in line with the way the business is managed (i.e. the operating segments disclosed are those whose results are regularly reviewed by the Chief Operating Decision Maker). The Group has previously reported in this way and therefore the segments disclosed have not changed as a result of adoption of IFRS 8. Segment information is set out in note 3. Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group in the 31 March 2010 financial statements At the date of authorisation of these consolidated financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Group. Management anticipates that all of the pronouncements will be adopted in the Group's accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group’s financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group's financial statements. 27 _continued s t n e m e t a t S l i a c n a n F i e h t o t t s e o N A O R T E C H I N T E R N A T I O N A L P L C IFRS 3 Business Combinations (Revised 2008) (effective from 1 July 2009) The standard is applicable for business combinations occurring in reporting periods beginning on or after 1 July 2009 and will be applied prospectively. The new standard introduces changes to the accounting requirements for business combinations, but still requires use of the purchase method, and will have a significant effect on any business combinations occurring in future reporting periods. In particular, transaction costs must be expensed in the Income Statement rather than previously when these were capitalised and dealt with as part of the acquisition accounting. IAS 27 Consolidated and Separate Financial Statements (Revised 2008) (effective from 1 July 2009) The revised standard introduces changes to the accounting requirements for the loss of control of a subsidiary and for changes in the Group's interest in subsidiaries. These changes will be applied prospectively in accordance with the transitional provisions and so do not have an immediate effect on the Group's financial statements. IFRS 5 (amendment) ‘Non current assets held for sale and discontinued operations’ Part of the IASB’s improvement project, this amendment will be applied in the Group’s financial statements for the year to 31 March 2011 and clarifies the disclosure required for any non current assets held for sale or disposal Groups. 2 Principal accounting policies Basis of consolidation The Group financial statements consolidate those of the Company and all of its subsidiary undertakings. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights. Unrealised gains on transactions between the Group and its subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Revenue Revenue is measured by reference to the fair value of consideration received or receivable by the Group for goods supplied and services provided, excluding VAT, sales between Group companies and trade discounts, as follows: (a) Supply of materials, services and finished goods: Revenue from the supply of materials and finished goods is recognised when the significant risks and benefits of ownership of the product have transferred to the buyer, which may be on shipment, receipt of the goods by the customer or upon completion of the product and the product being ready for delivery, based on the specific contract terms. Revenue from the supply of services is recognised upon completion of the service, based on the specific contract terms. 28 (b) Licence fees: Upfront payments in respect of licence revenues for access by third parties to the Group’s technology are recognised as revenue once a third party has a binding contractual obligation to the Group based on the specific contract terms and the Group has no remaining obligations to perform. (c) Milestone payments: Milestone payments are recognised once the Group’s obligations for each milestone have been met and the Group has achieved a right to be paid in return for their contractual performance. (d) Royalty revenues: Royalty revenues are recognised as earned in accordance with third parties’ sales of the underlying products. Government grants / assistance Government grants in respect of capital expenditure are credited to a deferred income account and are released to the income statement on a diminishing value basis over the expected useful lives of the relevant assets. As such, a proportion of deferred income is shown on the balance sheet as a non current liability. Government grants which are income in nature are credited to the income statement in the same period as the related expenditure so as to match them with the related costs which they are intended to compensate, on a systematic basis. Interest Interest income is the interest earned on cash or cash equivalents held with the Group’s bankers and recognised within the period earned, accrued on a time basis by reference to the principal outstanding and at the effective rate applicable. Employee benefits Defined contribution pension scheme: The pension costs charged against profits are the contributions payable to the scheme in respect of the accounting period. Intangible assets (a) Patents and trademarks (intellectual property): Patents and trademarks (intellectual property) are included at cost less estimated residual amount and are amortised on a straight line basis over their useful economic lives of 20 years, which corresponds to the lives of the individual patents. 29 _continued s t n e m e t a t S l i a c n a n F i e h t o t t s e o N A O R T E C H I N T E R N A T I O N A L P L C (b) Research and development: Research costs are expensed as incurred. An intangible asset arising from development expenditure on an individual project is recognised only when the Group can demonstrate all of the following: _ the technical feasibility of the intangible asset so that it will be available for use or sale. In practice this will be when the Group is satisfied that the appropriate regulatory hurdles have been or will be achieved. _ its intention to complete and its ability to use or sell the asset. _ how the asset will generate future economic benefits. _ the availability of economic resources to complete the asset. _ the ability to measure the expenditure during development. The Group does not currently have any such internal or external development costs that qualify for capitalisation as intangible assets. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future sales. Assets are tested for impairment on an annual basis. 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. Property, plant and equipment Property, plant and equipment is stated at cost, including any incidental costs of acquisition, net of accumulated depreciation and any accumulated provision for impairment. No depreciation is charged until the asset is brought into use. Disposal of assets The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the income statement. The gain or loss arising from the sale or revaluation of held for sale assets is included in "other income" or "other expense" in the income statement. Any revaluation surplus remaining in equity on disposal of the asset is transferred to the profit and loss reserve. 30 Depreciation Depreciation is calculated to write off the cost of all property, plant and equipment less estimated residual value by the reducing balance method where it reflects the basis of consumption of the assets over their estimated useful economic lives. The periods generally applicable are: Leasehold property improvements: Period of lease Plant and equipment 2½ years Fixtures and fittings 2½ - 5 years Material residual value estimates are updated as required, but at least annually. Impairment testing of intangible assets and property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result some assets are tested individually for impairment and some are tested at a cash-generating unit level. Individual assets or cash-generating units that include intangible assets with an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. All assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Leased assets The Group has a property lease on its facility in Melbourne and an equipment lease on a photocopier/fax printer. Both leases are regarded as operating leases and the payments made under them are charged to the income statement on a straight line basis over the lease term. Inventories Inventories are stated at the lower of cost and net realisable value. Costs of ordinarily interchangeable items are assigned using the first in, first out cost formula. Cost includes materials, direct labour and an attributable proportion of manufacturing overheads based on normal levels of activity. Net realisable value is based on estimated selling prices less any further costs expected to be incurred to completion and disposal. 31 _continued s t n e m e t a t S l i a c n a n F i e h t o t t s e o N A O R T E C H I N T E R N A T I O N A L P L C Financial assets Financial assets fall into the following category: Loans and receivables. All financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets are recognised at fair value plus transaction costs. Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade and other receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the income statement. Provision against trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows. An assessment for impairment is undertaken at least at each balance sheet date. Cash and cash equivalents comprise cash on hand and demand deposits together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Financial liabilities Financial liabilities fall into the following category: Other financial liabilities Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument. All financial liabilities are recorded initially at fair value, net of direct issue costs. All financial liabilities are subsequently recorded at amortised cost using the effective interest method, with interest related charges recognised as an expense in finance cost in the income statement. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the income statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires. Taxation Current tax is the tax currently payable based on taxable profit for the accounting period. 32 Deferred taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity. Equity Equity comprises the following: _ “Share capital” represents the nominal value of equity shares. _ "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue. _ "Other reserve" represents the difference arising on consolidation between the nominal value of AorTech International Plc shares issued (£3,206,884) and the nominal value of AorTech Biomaterials Limited (formerly AorTech Europe Limited) shares acquired (£1,001,884) and the associated share premium account (£201,857) in the company. This acquisition was prior to the transition to IFRS. _ "Foreign exchange reserve" represents the differences arising from translation of investments in overseas subsidiaries. _ "Profit and loss account" represents retained profits. Share based employee compensation The Group operates equity settled share based compensation plans for the remuneration of its employees. All employee services received in exchange for the grant of any share based compensation are measured at their fair values. These are indirectly determined by reference to the fair value of the share option awarded. Their value is appraised at the grant date and excludes the impact of any non-market vesting conditions (e.g. profitability or sales growth targets). All share based compensation, where material, is ultimately recognised as an expense in the income statement with a corresponding credit to the other reserve, net of deferred tax where applicable. If vesting periods or other vesting conditions 33 _continued s t n e m e t a t S l i a c n a n F i e h t o t t s e o N A O R T E C H I N T E R N A T I O N A L P L C apply, the expense is allocated over the vesting period, based on the best available estimate of the number of shares options expected to vest. Non market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. No adjustment to expense recognised in prior periods is made if fewer share options ultimately are exercised than originally estimated. Upon exercise of share options, the proceeds received, net of any directly attributable transaction costs, up to the nominal value of the shares issued are allocated to share capital with any excess being recorded as share premium. At this time, the appropriate balance in the other reserve relating to the share options exercised is transferred to retained earnings by way of a transfer within reserves. Foreign currencies Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The Company’s functional currency and the Group’s presentational currency is Sterling. Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Non-monetary items that are measured at historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in the income statement in the period in which they arise. Exchange differences on non-monetary items are recognised in the statement of changes in equity to the extent that they relate to a gain or loss on that non-monetary item taken to the statement of changes in equity, otherwise such gains and losses are recognised in the income statement. The assets and liabilities in the financial statements of foreign subsidiaries are translated at the rate of exchange ruling at the balance sheet date. Income and expenses are translated at the average of exchange rates in force at the end of each month of the reporting period. All resulting exchange differences are recognised as a separate component of equity. On disposal of a foreign operation the cumulative translation differences (including, if applicable, gains and losses on related hedges) are transferred to the income statement as part of the gain or loss on disposal. The Group has taken advantage of the exemption in IFRS 1 and has deemed cumulative translation differences for all foreign operations to be nil at the date of transition to IFRS. The gain or loss on disposal of these operations excludes translation differences that arose before the date of transition to IFRS and includes later translation differences. 34 Use of accounting estimates and judgements Many of the amounts included in the financial statements involve the use of judgement and/or estimation. These judgements and estimates are based on management’s best knowledge of the relevant facts and circumstances, having regard to prior experience, but actual results may differ from the amounts included in the financial statements. Information about such judgements and estimation is contained in the accounting policies and/or the notes to the financial statements and the key areas are summarised below: Judgements in applying accounting policies: (a) (b) Capitalisation of development costs requires detailed analysis of the technical feasibility and commercial viability of the project. Assessment of the impairment of assets is a judgement based on analysis of the likely future cash flows from the relevant income generating unit and an estimate of value in use. (c) The Directors must judge whether future profitability is likely in making the decision whether or not to create a deferred tax asset. (d) (e) Identification of functional currencies requires analysis of the economic environments of the subsidiaries of the Group and the selection of the presentational currency must reflect the requirements of the users of those statements. Revenue recognition requires the Directors to assess the terms of contracts and to determine whether specific obligations have been met before recognising revenue in relation to licence fees and milestone payments. Sources of estimation uncertainty: (a) (b) Estimates are required as to intangible asset carrying values and impairment charges. Estimates of future profitability are required for the decision whether or not to create a deferred tax asset. (c) Depreciation rates are based on estimates of the useful lives and residual values of the assets involved. 35 _continued s t n e m e t a t S l i a c n a n F i e h t o t t s e o N A O R T E C H I N T E R N A T I O N A L P L C 3 Segmental reporting The principal activity of the AorTech International Plc Group currently is the development and exploitation of a range of innovative biomaterials and medical devices. This forms the Group’s only reporting segment and therefore no additional information is given. The Group’s reporting segments are based on geographical location of operations. Year ended Year ended 31 March 31 March 2010 2009 £000 £000 Analysis of revenue by destination United Kingdom 11 Supply of materials and finished goods 29 Australia 3 Supply of materials and finished goods 2 USA and Rest of the World Supply of materials and finished goods 738 198 Milestone payments - services 12 26 Licence fees - services 574 1,020 Royalty revenue 7 1 1,362 1,259 During the year ended 31 March 2010, 77.8% of the Group’s revenues depended upon a single customer (2009: 73.1%). Analysis of result - operating loss United Kingdom (356) (583) Australia (1,234) (557) USA and Rest of the World (469) (399) (2,059) (1,539) Analysis of assets by location United Kingdom 98 607 Australia 5,922 6,111 5 USA and Rest of the World 16 6,036 6,723 36 4 Remuneration of Directors and key management personnel Key management personnel 2010 2009 £000 £000 Emoluments – short-term employee benefits 743 567 Pension costs – post-employment benefits 53 38 796 605 The key management personnel whose remuneration is included in the table above are a Director / Company Secretary of AorTech Biomaterials Pty Limited; two Directors, AorTech Biomaterials Pty Limited; the Vice President of Research & Development, AorTech Medical Devices (USA), Inc; the Chief Operating Officer and the five Directors of the parent company. Please see the Report of the Remuneration Committee on pages 16 to 18 for full details of Directors’ emoluments. Included in the aggregate emoluments for the year ended 31 March 2010 are payments of £48,000 (2009: £49,500) made by the Company to third parties. The highest paid Director received total emoluments of £255,016 including pension contributions of £15,000 (2009: total emoluments of £238,481 including pension contributions of £15,000). 5 Loss before tax 2010 2009 Loss before tax has been arrived at after charging/(crediting): £000 £000 Foreign exchange differences 42 (17) Depreciation and amortisation: Depreciation of property, plant and equipment 258 207 Amortisation of intangible assets 142 114 Employee benefits expense: Employee costs (Note 6) 1,540 1,246 Land and buildings held under operating leases: Other operating leases 163 148 Audit and non-audit services: Fees payable to the Company’s auditor for the audit of the Group financial statements 25 23 Fees payable to the Company’s auditor and its associates for other services: The audit of the company’s subsidiaries pursuant to legislation 16 13 Tax services 3 3 Other services 1 4 37 _continued s t n e m e t a t S l i a c n a n F i e h t o t t s e o N A O R T E C H I N T E R N A T I O N A L P L C 6 7 Employees 2010 2009 £000 £000 Employee costs (including Directors): Wages and salaries 1,430 1,166 Pension costs 110 80 1,540 1,246 The average number of employees (including Directors) during the year was made up as follows: Numbers Numbers Production 4 4 Sales 1 2 Development and quality control 11 11 Administration 12 11 28 28 Finance income 2010 2009 £000 £000 Bank interest receivable 136 290 8 Income tax expense No current tax or deferred tax expense arises on the loss for the year. The tax assessed for the year differs from the standard rate of corporation tax as applied in the respective trading domains where the Group operates. The differences are explained below: 2010 2009 £000 £000 Loss for the year before tax (1,923) (1,249) Loss for year multiplied by the respective standard rate of corporation tax applicable in each domain (average 28%) (538) (350) Effects of: Depreciation for the year differs from capital allowances and other temporary differences (14) (10) 62 Expenses not deductible for tax purposes and other tax differences 81 300 Losses not utilised 471 (2) Losses utilised - Tax on loss for the year - - 38 Unrelieved tax losses remain available to offset against future taxable profits. These losses have not been recognised as deferred tax assets within the financial statements as they do not meet the conditions required in accordance with IAS 12. Losses carried forward in the UK total £4,539,000 – tax effect is £1,271,000 (2009: £4,184,000 – tax effect £1,172,000). Losses carried forward in Australia total £6,457,000 – tax effect £1,808,000 (2009: £4,394,000 – tax effect £1,230,000). Losses in the USA total £931,000 – tax effect £261,000 (2009: £533,000 - tax effect £149,000). On 1 April 2009 the standard UK rate of corporation tax was 28%. 9 Loss per share 2010 2009 £000 £000 Loss for the year attributable to equity shareholders (1,923) (1,249) Loss per share Basic and diluted (pence per share) (39.79) (25.84) Shares Shares Issued ordinary shares at start of the year 4,832,778 4,832,778 Ordinary shares issued in the year - - Issued ordinary shares at end of the year 4,832,778 4,832,778 Weighted average number of shares in issue for the year 4,832,778 4,832,778 The diluted loss per share does not differ from the basic loss per share as the exercise of share options would have the effect of reducing the loss per share and is therefore not dilutive under the terms of IAS 33. 10 Intangible assets Intellectual property £000 Valuation At 1 April 2008 2,171 Exchange differences 115 At 31 March 2009 2,286 Exchange differences 562 At 31 March 2010 2,848 Amortisation At 1 April 2008 869 Exchange differences 46 Charge for the year 114 At 31 March 2009 1,029 Exchange differences 253 Charge for the year 142 At 31 March 2010 1,424 Net book value At 1 April 2008 1,302 At 31 March 2009 1,257 At 31 March 2010 1,424 The intangible assets have been reviewed for impairment in the current year. The Directors have concluded that no impairment loss is necessary, and therefore no adjustment has been made to the carrying amount. 39 _continued s t n e m e t a t S l i a c n a n F i e h t o t t s e o N A O R T E C H I N T E R N A T I O N A L P L C 11 Property, plant and equipment Property Plant Fixtures improvements & equipment & fittings Total £000 £000 £000 £000 Cost At 1 April 2008 486 806 158 1,450 Additions 124 89 21 234 Exchange differences 25 45 8 78 At 31 March 2009 635 940 187 1,762 Additions 28 55 19 102 Exchange differences 156 231 46 433 At 31 March 2010 819 1,226 252 2,297 Depreciation At 1 April 2008 122 575 113 810 Charge for the year 78 113 16 207 Exchange differences 6 31 6 43 At 31 March 2009 206 719 135 1,060 Charge for the year 108 128 22 258 Exchange differences 51 177 33 261 At 31 March 2010 365 1,024 190 1,579 Net book value At 1 April 2008 364 231 45 640 At 31 March 2009 429 221 52 702 At 31 March 2010 454 202 62 718 12 Inventories 2010 2009 £000 £000 Raw materials 117 108 Finished goods 33 42 150 150 In 2010 a total of £344,000 of inventories was included in the income statement as an expense (2009: £53,000). There was no amount resulting from writedowns of inventories in either 2010 or 2009. There were no reversals of previous writedowns that were recognised in the income statement in either 2010 or 2009. 40 13 Financial instruments Risk management The Group’s financial instruments comprise cash and cash equivalents, trade and other receivables and trade and other payables. These arise directly from the Group’s operations and it is the Group’s policy that no trading in financial instruments shall be undertaken. The Board reviews and agrees policies to manage risk to ensure that the entities within the Group will be able to continue as a going concern whilst maximising the return to stakeholders through the effective management of liquid resources raised through share issues. Categories of financial instrument 2010 2009 £000 £000 Financial assets – loans and receivables Cash and cash equivalents 2,885 4,178 Trade and other receivables 813 335 3,698 4,513 Financial liabilities Liabilities at amortised cost (311) (273) (311) (273) Foreign currency risk The Group has an Australian subsidiary whose functional currency is the Australian dollar and a US subsidiary whose functional currency is the US dollar. The Board considers that the exposure to foreign currency risk is not currently significant and no steps have yet been undertaken to minimise this risk. However, the Board will continue to monitor the situation and review the exposure to this risk on a regular basis as activity in these subsidiaries increases. Cash balances are carried within the Group in interest earning accounts, which comprise the following currency holdings: 2010 2009 £000 £000 Sterling 48 510 US dollars 32 22 Australian dollars 163 287 Euros 11 12 254 831 In addition to cash holdings the following short term deposits are placed for up to 7 months depending on the Group’s funding requirements: 2010 2009 £000 £000 Australian dollars 2,631 3,347 2,631 3,347 41 _continued s t n e m e t a t S l i a c n a n F i e h t o t t s e o N A O R T E C H I N T E R N A T I O N A L P L C Interest rate risk The Group finances its operations through equity fundraising and does not currently carry any borrowings. The cash balances and short term deposits are held at both fixed and floating rates as follows: Interest rate 2010 Interest rate 2009 % £000 % £000 Cash 0% 218 0% 66 0.5% 36 0.20% 227 0.81% 17 0.75% 11 0.50% 510 Short term deposits 5.80% 1,002 5.00% 896 4.75% 1,509 4.80% 920 3.76% 120 4.75% 1,211 4.30% 242 4.20% 78 2,885 4,178 Sensitivity analysis If, for example, there had been a rise or fall of interest rates over the year of 1%, this would have resulted in an increase/decrease in interest income of £34,000 (2009: £38,000), all other variables remaining constant. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. In order to minimise this risk the Group endeavours only to deal with companies which are demonstrably creditworthy and this, together with the aggregate financial exposure, is continuously monitored. The maximum exposure to credit risk in the case of both the cash and short term deposits is the value of the outstanding amount. The Group has trade receivables resulting from sales and other receivables from provision of other services which the management consider to be of low risk. The management do not consider that there is any concentration of risk within either trade or other receivables. Liquidity risk The Group currently holds substantial cash balances and short term deposits in Sterling, US dollars and Australian dollars. These balances provide funding for the Group’s trading activities. The Group relies on equity fundraising to provide any additional liquid funds and management expects to continue this method successfully in the future. There is no material difference between the fair values and the book values of these financial instruments. 42 14 15 16 Trade and other receivables 2010 2009 £000 £000 Current assets Trade receivables 776 265 Other receivables 37 70 Prepayments 46 101 859 436 There were no financial assets overdue at 31 March 2010. Cash and cash equivalents 2010 2009 £000 £000 Cash at bank and in hand 254 831 Short term deposits 2,631 3,347 2,885 4,178 Trade and other payables 2010 2009 £000 £000 Current liabilities Trade payables 99 119 Other payables 212 154 Deferred income (government grants) 92 75 Accruals 220 164 623 512 Non-current liabilities Deferred income (government grants) - 79 - 79 Government grants received towards capital expenditure are released to the income statement on a diminishing value basis over a period equal to the useful economic life of the assets to which they relate. On average this period is five years. 17 Operating lease commitments The Group had the following total commitments under non-cancellable operating leases at 31 March: 2010 2009 £000 £000 The following payments are due to be made on operating lease commitments: Within one year 192 152 Two to five years 16 174 208 326 43 _continued s t n e m e t a t S l i a c n a n F i e h t o t t s e o N A O R T E C H I N T E R N A T I O N A L P L C 18 Share based payments The Group has an approved share option plan for the benefit of employees resident in the UK and Executive Directors. Options in issue Exercise Price (£) 12,000 2.50 10 July 2012 600 2.95 25 July 2012 Exercise period on or before: Details of the number of share options and the weighted average exercise price (WAEP) outstanding during the year are as follows: 2010 WAEP 2009 WAEP Number £ Number £ Outstanding at the beginning of the year 12,600 £2.52 12,600 £2.52 Outstanding at the year end 12,600 £2.52 12,600 £2.52 Exercisable at the year end 12,600 £2.52 12,600 £2.52 The Group has an unapproved share option plan for the benefit of other employees. Options in issue Exercise Exercise period on or before: Price (£) 1,500 81.00 15 June 2010 4,500 74.25 10 July 2010 1,050 90.35 17 December 2010 1,600 41.75 28 May 2011 1,350 17.25 17 December 2011 7,000 2.50 10 July 2012 19,000 2.80 7 August 2012 25,000 2.50 13 July 2013 8,000 2.50 29 June 2014 200,000 2.50 29 June 2014 20,000 2.50 21 November 2014 73,000 3.25 1 September 2016 40,000 4.28 21 January 2018 Details of the number of share options and the weighted average exercise price (WAEP) outstanding during the year are as follows: 2010 WAEP 2009 WAEP Number £ Number £ Outstanding at the beginning of the year 414,500 £4.68 419,500 £4.67 Granted during the year - - - - Exercised during the year - - - - Forfeited during the year (10,500) £7.12 (5,000) £4.28 Expired during the year (2,000) £56.25 - - Outstanding at the year end 402,000 £4.32 414,500 £4.68 Exercisable at the year end 402,000 £4.32 291,500 £5.12 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 and after the elapse of three years from date of Option Grant. 44 The fair value of options granted after 7 November 2002 but not vested at 1 April 2006 has been arrived at using an appropriate model. The assumptions inherent in the use of this model are as follows: _ The option life is assumed to be at the end of the allowed period _ There are no vesting conditions _ No variables change during the life of the option (e.g. dividend yield) _ Volatility has been calculated over the three years prior to the balance sheet date. Date of Vesting Date of Exercise Risk-free Share price Volatility Fair value Number grant Period vesting Price(£) Rate at grant of Share (£000) outstanding (years) (£) price 14.07.03 3 14.07.06 2.50 3.83% 1.32 63% 12 25,000 30.06.04 3 30.06.07 2.50 5.04% 1.62 63% 24 8,000 30.06.04 3 30.06.07 2.50 5.04% 1.62 63% 132 200,000 22.11.04 3 22.11.07 2.50 4.56% 1.89 63% 18 20,000 01.09.06 3 01.09.09 3.25 4.61% 3.18 63% 118 78,000 21.01.08 3 21.01.11 4.28 4.21% 4.02 45% 44 45,000 The Group has not recognised any expense related to equity-settled share based payment transactions during the year (2009: nil), on the grounds that the charge is not significant. The Directors have also concluded that the cumulative position to date is also not significant. 19 Share capital Shares Nominal Premium Total Number Value (£2.50) net of costs £000 £000 £000 In issue at 1 April 2008 4,832,778 12,082 2,340 14,422 Exercise of share options - - - - Issue of shares (net of issue costs) - - - - 31 March 2009 and 31 March 2010 4,832,778 12,082 2,340 14,422 At an EGM of Members held on 20 August 2007, the Company’s authorised share capital was increased from £14,000,000 comprising 5,600,000 Ordinary shares of £2.50 each to £17,500,000, comprising 7,000,000 shares of £2.50 each. Contingent liabilities There were no contingent liabilities at 31 March 2010 or at 31 March 2009. A O R T E C H I N T E R N A T I O N A L P L C Report of the Independent Auditor To the Members of AorTech International Plc 45 We have audited the Parent Company financial statements of AorTech International Plc for the year ended 31 March 2010 which comprise the parent company balance sheet and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditors As explained more fully in the Statement of Directors’ Responsibilities set out on page 13, the Directors are responsible for the preparation of the Parent Company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the Parent Company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/UKNP. Opinion on financial statements In our opinion the Parent Company financial statements: _ give a true and fair view of the state of the Company’s affairs as at 31 March 2010 _ have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and _ have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Report of the Directors for the financial year for which the financial statements are prepared is consistent with the Parent Company financial statements. 46 Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: _ adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or _ the Parent Company financial statements are not in agreement with the accounting records and returns; or _ certain disclosures of directors’ remuneration specified by law are not made; or _ we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the Group financial statements of AorTech International Plc for the year ended 31 March 2010. John Bowler Senior Statutory Auditor For and on behalf of GRANT THORNTON UK LLP STATUTORY AUDITOR, CHARTERED ACCOUNTANTS East Midlands 30 July 2010 A O R T E C H I N T E R N A T I O N A L P L C Parent Company Balance Sheet 47 31 March 31 March 2010 2009 Notes £000 £000 Fixed assets Investment in subsidiary undertakings 3 - - Current assets Debtors – amounts falling due within one year 4 22 68 Debtors – amounts falling due after one year 4 17,129 13,735 Cash at bank 46 509 17,197 14,312 Creditors: amounts falling due within one year 5 (194) (122) Net assets 17,003 14,190 Capital and reserves Called up share capital 6 12,082 12,082 2,340 Share premium account 8 2,340 (232) Profit and loss account 8 2,581 Equity shareholders' funds 8 17,003 14,190 The parent company financial statements were approved by the Board on 30 July 2010 and were signed on its behalf by J Pither, Chairman E McDaid, Director Notes to the Parent Company Financial Statements 48 1 Accounting policies Accounting convention The parent company financial statements are prepared under the historical cost convention and in accordance with applicable United Kingdom accounting standards (United Kingdom Generally Accepted Accounting Practice) A summary of the more important accounting policies, which have been applied consistently, is set out below. The principal accounting policies represent the most appropriate in accordance with FRS 18. Going concern After considering the year end cash position, 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 Company has more than sufficient 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 Company’s financial statements is appropriate. Investments Investments held as fixed assets are stated at the lower of cost and net realisable value, less provision for any impairment. In the opinion of the Directors the value of such investments is not less than that shown at the balance sheet date. Deferred tax Deferred tax is recognised (on an undiscounted basis) on all timing differences where the transactions or events that give the Company an obligation to pay more tax in the future, or a right to pay less tax in the future, have occurred by the balance sheet date. Deferred tax assets are recognised when it is more likely than not that they will be recovered. Deferred tax is measured using rates of tax that have been enacted or substantively enacted by the balance sheet date. Foreign currencies Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of transaction. Exchange differences are taken into account in arriving at the operating result. Share based payments All share based payment arrangements granted after 7 November 2002 that had not vested prior to 1 April 2006 are recognised in the financial statements. 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 their 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 (e.g. profitability and sales growth targets). All equity settled share based payments are ultimately recognised as an expense in the profit and loss account with a corresponding credit to ‘other reserves’. Upon exercise of share options the proceeds received, net of attributable transaction costs, are credited to share capital and, where appropriate, share premium. Debtors The amounts owed by Group undertakings are in respect of long term loans and have been treated as part of the net investment in the foreign entities, and included within debtors due in greater than one year. Exchange differences arising on these loans are taken into account in arriving at the operating result. A O R T E C H I N T E R N A T I O N A L P L C 2 3 Company Profit and Loss Account The parent company has taken advantage of section 408 of the Companies Act 2006 and has not included its own profit and loss account in these financial statements. The parent company’s loss for the year ended 31 March 2010 was £355,000 (2009: £536,000) before foreign exchange credits of £3,168,000 (2009: £655,000). Fixed Asset Investments 31 March 31 March 2010 2009 £000 £000 Investment in subsidiary undertakings Cost 23,159 Historical cost 23,159 Provision for impairment (23,159) (23,159) Net book value at 31 March - - Interest in subsidiary undertakings Proportion Country of Description of nominal registration of value of Name of undertaking or incorporation shares held shares held % (i) AorTech Biomaterials Limited Scotland Ordinary £1 100 (ii) AorTech Critical Care Limited Scotland Ordinary £1 92 (iii) AorTech Biomaterials Pty Limited Australia Ordinary Aus. $1 100 (iv) AorTech Medical Devices (USA), Inc USA Common US $1 100 The principal business activities and country of operations of the above undertakings are: (i) A non-trading company in the UK (ii) A dormant company in the UK (iii) The development of new biostable polyurethanes operating principally in Australia (iv) Marketing in the Americas 4 Debtors 2010 2009 £000 £000 Amounts falling due within one year Other debtors 15 41 Prepayments 7 27 22 68 Amounts falling due after more than one year 17,129 13,735 Amounts owed by Group undertakings* 17,151 13,803 * AorTech International Plc has agreed not to seek repayment of the amount owing by its subsidiary AorTech Biomaterials Pty Limited within 12 months of the balance sheet date. 49 _continued s t n e m e t a t S l i a c n a n F i y n a p m o C t n e r a P e h t o t t s e o N 50 5 Creditors: Amounts falling due within one year 2010 2009 £000 £000 Trade creditors 6 - Accruals 188 122 194 122 6 7 8 9 10 Share Capital See Note 19 in the Group financial statements. Share based payments See Note 18 in the Group financial statements. Statement of movement in Shareholders’ Funds Total Share Share Profit and shareholders’ capital premium loss account funds £000 £000 £000 £000 1 April 2008 12,082 2,340 (351) Profit for the year - - 119 At 31 March 2009 12,082 2,340 (232) Profit for the year - - 2,813 14,071 119 14,190 2,813 At 31 March 2010 12,082 2,340 2,581 17,003 Directors and Employees The Directors are the only employees of the parent company. Disclosure of their emoluments is given in the Report of the Remuneration Committee on pages 16 to 18. Related Party Transactions In accordance with FRS 8, “Related Party Disclosures”, AorTech International Plc has taken advantage of the exemption for wholly owned subsidiaries not to disclose any transactions or balances between group entities including those that have been eliminated on consolidation. 51 Notice of the Annual General Meeting Notice is hereby given that the thirteenth Annual General Meeting of AorTech International Plc will be held in the Staple and Gray’s Inn Room of the Renaissance London Chancery Court Hotel, 252 High Holborn, London, WC1V 7EN on Monday, 27 September 2010 at 12:00 noon for the following purposes: AS ORDINARY BUSINESS 1. To receive and adopt the financial statements of the Company for the year ended 31 March 2010 together with the Reports of the Directors and Auditor thereon. 2. To approve the Report of the Remuneration Committee for the year ended 31 March 2010. 3. To re-elect Mr Frank Maguire, who is retiring by rotation. 4. To re-elect Mr Jon Pither as a Director, who is retiring by rotation. 5. To re-elect Dr Stuart Rollason as a Director, who is retiring by rotation. 6. To re-appoint Grant Thornton UK LLP as auditor 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 Directors be hereby generally and unconditionally authorised for the purpose of section 551 of the Companies Act 2006 (“the Act”) to exercise all the powers of the Company to allot relevant securities (within the meaning of said Section 551) up to an aggregate nominal amount of £4,027,315 which authority will expire at the conclusion of the next Annual General Meeting of the Company save that the Company may, before such expiry, make an offer or agreement which would, or might, require relevant securities to be allotted after such expiry and the Directors may allot such securities in pursuance of such offer or agreement as if the authority so conferred had not expired. To consider, and if thought fit, pass the following resolution as a Special Resolution: 8. That subject to the passing of Resolution 7 above as an Ordinary Resolution, in substitution for any existing power under Section 571 of the Act, the Directors be and are hereby empowered until the conclusion of the next Annual General Meeting of the Company (“the period of the Section 571 power”), pursuant to Section 571 of the Act to allot equity securities (as defined by Section 560 of the Act) pursuant to the authority granted by Resolution 5 above in accordance with Section 551 of the Act as if Section 561(1) of the Act did not apply to such allotment, provided that this power shall be limited to: (a) the allotment of equity securities in connection with or pursuant to an offer by way of rights issue, open offer or any other pre-emptive offer in favour of ordinary shareholders and in favour of holders of any other class of equity security in accordance with the rights attached to such class where the equity securities respectively attributable to the interests of such persons on a fixed record date are proportionate (as nearly as may be) to the respective numbers of equity securities held by them or are otherwise allotted in accordance with the rights attaching to such equity securities subject to such exclusions or arrangements as the Directors may deem necessary or expedient to deal with fractional entitlements or legal or practical problems under the laws of any territories or requirements of any recognized regulatory body or stock exchange in any territory; and 52 (b) the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities consisting of or related to Ordinary shares up to an aggregate nominal amount of £604,097, or if less, five percent of the issued Ordinary share capital of the Company from time to time but so that this power shall allow the Company to make an offer or enter into an agreement before the expiry of the period of the Section 571 power which would, or might, require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of any such offer or agreement as if the power conferred thereby had not expired. By order of the Board, J C D Parsons Company Secretary Victoria Road, Surbiton Surrey KT6 4NS 30 July 2010 1. Members will only be entitled to attend and vote at the meeting if they are registered on the Company’s register of members by 6.00 pm on 23 September 2010 or by 6.00 pm two days prior to the date of any adjournment of the meeting. Changes to entries on the Register of Members after that time shall be disregarded in determining the rights of any person to attend and vote at the meeting. 2. 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, speak and vote on their behalf. To be valid, Forms of Proxy must be lodged with the Company's Registrars, Equiniti Limited, P O Box 4630, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6QQ not later than 12:00 noon on 23 September 2010 or 48 hours before the time appointed for the holding 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. 3. Completing and returning a Form of Proxy will not prevent any member from attending the meeting in person and voting should they so wish. 4. A corporation which is a member can appoint one or more corporate representatives who may exercise, on its behalf, all its powers as a member provided that no more than one corporate representative exercises powers over the same share. 5. As at noon on 30 June 2010 the Company’s issued share capital comprised 4,832,778 ordinary shares of £2.50 each. Each ordinary share carries the right to one vote at a general meeting of the Company and, therefore, the total number of voting rights in the Company as at noon on 30 June 2010 is 4,832,778. 6. 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) A copy of the service agreements for the Executive Directors. (b) A copy of the letters of appointment for the non-Executive Directors. (c) 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. Notes k u . o c . W D b r y b D e c u D o r p & D e n g i s e D prestige Travel suite, barclays bank House, 81-83 Victoria road, surbiton, surrey, england kT6 4ns Tel: +44(0)870 850 8286 Fax: +44(0)208 399 3897 e-mail: info@aortech.com Web: www.aortech.com i n t e r n a t i o n a l p l c 

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