AorTech International plc Annual Report 2013

Plain-text annual report

20 13 Annual Report AorTech International plc Annual Report & Accounts For the year to 31 March 2013 I N T E R N AT I O N A L P LC 01 02 CHAIRMAN’S STATEMENT 07 BOARD OF DIRECTORS AND ADVISERS 08 REPORT OF THE DIRECTORS 13 DIRECTORS’ RESPONSIBILITIES STATEMENT 14 CORPORATE GOVERNANCE 14 ACCOUNTABILITY AND AUDIT 15 REPORT OF THE REMUNERATION COMMITTEE 18 INDEPENDENT AUDITOR’S REPORT 20 CONSOLIDATED INCOME STATEMENT 21 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 22 CONSOLIDATED BALANCE SHEET 23 CONSOLIDATED CASH FLOW STATEMENT 24 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 25 NOTES TO THE FINANCIAL STATEMENTS 43 INDEPENDENT AUDITOR’S REPORT ON THE PARENT COMPANY FINANCIAL STATEMENTS 45 PARENT COMPANY BALANCE SHEET 46 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 51 NOTICE OF THE ANNUAL GENERAL MEETING 01 01 02 The Group’s cash position at 31 March 2013 was $987,000. Although this shows a decrease of approximately $1 million from the same date last year it also shows a marked increase from the bank balance at the half year stage of $295,000. The Group has generated cash post the year end and at the end of July 2013 the cash position had increased to $1.2m. Upon the transfer of the Rogers facility to St Jude Medical at the end of March 2013, the Group ceased volume manufacturing of polymer but since that date has had access to the facility to manufacture Elast-Eon™ on a small batch basis. As a consequence, there has been a reduction in the running costs of the business. The manufacture of Elast-Eon™ by AorTech in the Rogers facility will cease by 31 December 2013. CHAIRMAN’S STATEMENT I set out below my report to the shareholders of AorTech for the year ended 31 March 2013. There have been fundamental changes in the Group’s structure and trading activities which I will review in more detail during the course of this report. In addition, your Board has implemented a strategy which has made sizeable reductions in the running costs of the Group and has also taken strategic steps to enhance the future revenue of the Group in the coming years. AUDITED RESULTS FOR THE YEAR Group revenue for the year was $3,795,000 after exceptional items of $1,990,000 (2012: $5,038,000). Operating proﬁt after exceptional items was $1,206,000 (2012: $38,000). The net loss for the year was $847,000 (2012: proﬁt $57,000) after exceptional ﬁnance costs of $2,048,000. These ﬁnance costs relate to the redemption premium paid of $1,914,000 together with a provision in respect of potential additional redemption premium due to loan note holders. I will refer to these ﬁnance costs later in the report. The exceptional items of $3,193,000 net of fees and expenses was the payment received from St Jude Medical in respect of the settlement in December 2012 of the dispute. The Group’s administrative and development expenditure before exceptional items was $2,563,000 (2012: $3,928,000). The reduction in this expenditure arises as a direct consequence of AorTech’s move from Australia to the Rogers facility in the USA. AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 02 03 ST JUDE MEDICAL DISPUTE All matters with St Jude Medical have now been fully resolved with the ﬁnal payment of $500,000 having been received in April 2013. The settlement ﬁgure received from St Jude Medical was $3,900,000 along with amounts in respect of inventory and plant and machinery, of which $1,990,000 is treated as exceptional revenue in the consolidated income statement and $1,653,000 as exceptional other income, along with $618,000 of reimbursed production expenditure. SYNCARDIA DISPUTE As previously announced to the shareholders, AorTech has taken legal action for the recovery of its outstanding debt and related costs due from SynCardia. This action is subject to arbitration although I can now advise that a mediation process will take place in September 2013. AorTech remains conﬁdent of its legal position in this case and will provide further updates as and when appropriate. ISSUE AND REPAYMENT OF LOAN NOTES As advised to shareholders last year, in the absence of either a sale of the Company or a fund raising, the cash position of AorTech was going to become critical by the end of October 2012. We were fortunate to secure the support of a number of investors, including existing shareholders in the Company, to the issue of secured loan notes totalling £1,210,000, so as to provide the capital required to ﬁnance the Company, including meeting the costs of the St Jude dispute. The loan note holders, despite having security over the IP of AorTech, took on a signiﬁcant risk due to the uncertainty over both the timescale and outcome of the litigation. The terms of the loan notes called for an initial premium of 100% if the original sum subscribed for loan notes was repaid before 31 March 2013, together with a “carried interest” into 15% of any sums paid to the shareholders on a change of control or winding up of the Company. The sums subscribed for loan notes together with the initial premium have been paid to noteholders already. I indicated at the time of the interim results that it would be helpful to consolidate the remaining 15% carried interest of the loan note holders by issuing shares in the Company in exchange for the remaining loan note interests. Having now taken legal, accounting and taxation advice, we are advised that converting the remaining interest into equity at this stage would not only be costly to the Company in legal, court and accounting fees but would also create a negative taxation situation for loan note holders. As a result, we have concluded that it is best to let the loan note terms remain as originally contemplated. Although the returns on the loan notes were attractive, the capital the loan note providers introduced to the Company enabled AorTech to continue trading and allowed us to reach a negotiated settlement in our dispute with St Jude. Without the loan note monies, AorTech would have undoubtedly failed with little return of value for shareholders. The loan notes have now been repaid and the further cost to shareholders is limited to a potential 15% dilution on a winding up or on a change of control of the Company. For accounting purposes, an estimate has been made of the current potential value of this amount, based on the Company’s market capitalisation at the year end. This estimate will be updated every six months. d e u n i t n o c _ T N E M E T A T S S N A M R A H C I ’ 03 01 04 Your Board is still of the opinion that there potentially is uplift for the Company and its shareholders in the heart valve field. HEART VALVE Having last year re-acquired all the patents and IP in relation to heart valve technology, your Board is still of the opinion that there potentially is uplift for the Company and its shareholders in the heart valve ﬁeld. We continue to have ongoing discussions with various parties regarding the potential of using our Elast-Eon™ material for new generation heart valves. We can now advise that one of our licensees has commenced its ﬁrst clinical implants using Elast-Eon™ in mitral valve repair. AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 04 05 FUTURE STRATEGY The strategy of deriving value for AorTech shareholders from exploitation of our IP rather than as a manufacturer of bio materials has been the focus of the Board over the past 18 months. We explored the potential sale of the Company as a way of achieving value for our IP in the short term; however with the cash problems and the major dispute being distractions from the core value, a satisfactory proposal has not been forthcoming. Your Board is now pursuing a strategy to exploit the value of the Company’s IP, Patents and know-how without the problems of having to operate a sub-scale manufacturing facility. It is our intention to fully transition AorTech to an IP business. The transfer of the Rogers facility to St Jude has provided the opportunity to completely change the basis upon which AorTech does business and to provide a more attractive, longer term return. Due to the very small scale of the polymer manufacturing facilities, the cost of manufacture was much too high and as a result precluded the ability to achieve a greater penetration of Elast-Eon™ into the market. A review of the contracts that had been signed indicated that customers have elected to use our material because it solves a problem, with cost being less of an issue. A secondary problem is that placing reliance on a business of the size and scale of AorTech is a substantial risk for a medical device developer. To this end AorTech is presently in discussions with a well respected, mid-sized US polymer and medical device component manufacturer, with the intention of concluding a contract for the manufacture of AorTech’s polymers. Under such an arrangement the income generated by AorTech would arise from revenue share from manufacturing activities together with licence fees. Our ongoing discussions to conclude a licence and manufacturing agreement with our polymer manufacture licensee will provide the security of the supply of Elast-Eon™ to our customer base and potentially new business areas for our manufacturing licensee, which would also provide additional revenue potential for the Group. As part of the licence agreement to manufacture, our IP and know-how will be protected, which should extend the value of our licence agreements beyond any patent expiry date. It takes a number of years for our licence agreements to mature to income generating royalties due to the time-consuming testing and regulatory requirements through which our licensees have to go. I am pleased to report that several licences signed in prior years are now either approaching clinical trials, in clinical trials or indeed have achieved initial regulatory approval. The potential income forecast by the licensees could result in signiﬁcant royalties in future years for the Group. These forecasts are of course wholly dependent upon the success of the licensees in their various medical device ﬁelds. This strategy and business model allows the annual operating costs of AorTech to be kept to a minimum, provides a supply of material to existing customers and enables the Group to beneﬁt not only from its future royalty stream but also potentially to share in the value of new business generated by our manufacturing licensee. d e u n i t n o c _ T N E M E T A T S S N A M R A H C I ’ 05 06 also one that can be done at attractive net margins without the requirement to raise further capital from shareholders. Your Board, therefore, has grounds to be more optimistic about the Group’s future than it has in the recent past and believes that all of the hard work over the past year has been successful in the transformation of AorTech. Bill Brown Chairman 27 August 2013 ANNUAL GENERAL MEETING Section 656 of the Companies Act 2006 states that “if a public company’s assets fall below half or less of its called-up share capital the directors are required to convene a general meeting of the company to discuss whether any and if so what steps are to be taken in relation to this situation”. Following the ﬁnalisation of the parent company accounts for AorTech International plc and making appropriate provisions for £442,000 under UK GAAP in respect of the 15% premium due to loan note holders and a £4,417,000 provision against the inter-company loan due by AorTech Polymer & Medical Devices Inc in the USA, AorTech International plc’s net assets were reduced to approximately £4,351,000 with its issued share capital being £12,082,000. This general meeting has been convened partly to comply with Section 656, and this matter will be dealt with before we move on to the usual AGM business. The strategy implemented by your Board whereby the majority of our income will be generated by licence fees and royalties means that future income of the Group will ﬂow to the parent company of the Group, AorTech International plc. The Group’s cash position at 31 July 2013 was $1,212,000 and the Board are keeping tight control over running costs. On that basis your Directors do not consider that any additional action needs to be taken. CONCLUSION I take this opportunity of welcoming Roy Mitchell, who was appointed to the Board on 23 May 2013. Roy brings to the Board his own skills and expertise which will enhance the Group’s future prospects. I am fully aware that the past twelve months must have been a frustrating period for our shareholders but you may be assured that your Board has continued its work to not only resolve the issues and problems of the past but to also plan for the future. Your Board has strived to implement a strategy which will enable the Group to achieve both growth and proﬁtability to enhance shareholder value. We believe that we have now established the appropriate business model to deliver not only a proﬁtable business but AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 06 07 board of directors & advisors BOARD OF DIRECTORS & ADVISERS DIRECTORS Bill Brown non-Executive Chairman Frank Maguire Chief Executive Eddie McDaid Finance Director Roy Mitchell non-Executive Director Gordon Wright non-Executive Director COMPANY SECRETARY David Parsons ACIS REGISTERED OFFICE C/o Kergan & Stewart LLP 163 Bath Street Glasgow G2 4SQ HEAD OFFICE Level Two Springﬁeld House 23 Oatlands Drive Weybridge Surrey KT13 9LZ WEB: WWW.AORTECH.COM EMAIL: INFO@AORTECH.COM NOMINATED ADVISER AND BROKER FinnCap 60 New Broad Street London EC2M 1JJ REGISTRARS Equiniti Registrars, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA INDEPENDENT AUDITOR Grant Thornton UK LLP Statutory Auditor Chartered Accountants Regent House 80 Regent Road Leicester LE1 7NH Registered in Scotland, Company No.170071 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. 07 08 REPORT OF THE DIRECTORS The Directors present their report and the audited financial statements for the year ended 31 March 2013. 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 The consolidated Income Statement is set out on page 20 indicating the Group’s loss for the ﬁnancial year of US$847,000 (2012: proﬁt of US$57,000) which will be deducted from the 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. In addition the Directors consider the Group non ﬁnancial key performance indicators to be the utilisation of its patents, IP and know-how for new application areas and the signing of new licence agreements. All appropriate key performance indicators are summarised in 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: the success rate of several key customers utilsing our products in various medical device ﬁelds; small customer base generating revenues; retention of key management and personnel; any adverse results which may arise during development and regulatory phases; product liability risks; competitive markets with changing technology and evolving industry standards. All of the above risks and uncertainties are considered fundamental to the achievement of the Group's strategy and are being actively managed at Board level through regular review of progress, along with the internal control environment detailed on page 14 below. No dividends have been paid or proposed for the years ended 31 March 2013 and 31 March 2012. GOING CONCERN After considering the year end cash position, making appropriate enquiries and reviewing budgets and proﬁt and cash ﬂow forecasts for a period of at least twelve 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 suﬃcient resources to continue in operational existence for the foreseeable future. For this reason the Directors consider the adoption of the going concern basis in preparing the Group ﬁnancial statements is appropriate. AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 08 09 DIRECTORS & THEIR INTERESTS At 31 March 2013 the Chairman of the Company was W Brown; the Chief Executive Director was F Maguire; the Finance Director was E McDaid, and the non-Executive Director was G Wright. The other Director who served during the year was J Pither, who resigned on 31 December 2012. On 3 July 2012, J Pither stepped down as Chairman and W Brown took over that role. R Mitchell was appointed to the Board on 23 May 2013. At each Annual General Meeting one third of the Directors shall be subject to retirement by rotation. F Maguire retires from the Board at the Annual General Meeting and, being eligible, oﬀers himself for re-election. R Mitchell, having been appointed Director since the last Annual General Meeting, will retire and seek re-election. The interests of the Directors at 31 March 2013 and 31 March 2012 (or date of appointment if later) in the ordinary share capital of the Company (all beneﬁcially held) were as follows: 31 March 2013 31 March 2012 Number of shares (or date of appointment) Number of shares J Pither* - 25,550 F Maguire 103,350 103,350 E McDaid 333,914 333,914 G Wright 308,311 308,311 W Brown 407 - R Mitchell* - - * not a member of the Board of Directors on 31 March 2013 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 13 August 2013 exceeded 3% of the Company’s issued share capital: Number of shares % Bluehone Investors LLP* 891,861 18.45% Mr Roy Mitchell and Mrs P Mitchell 335,163 6.94% Mr Edward McDaid 333,914 6.91% Caricature Investments Limited** 308,311 6.38% Mr Alan Smith 201,931 4.18% Mr Clive Titcomb 192,000 3.97% Henderson Global Investors (UK) 191,227 3.96% Halifax Share Dealing 174,976 3.62% Fermain Capital Ltd 146,500 3.03% * the holding of Bluehone Investors LLP is as fund manager of Active Capital Trust plc which accounts for 18.45% of the Company’s issued share capital. W Brown is also a Director of Bluehone Investors LLP. ** 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 13 August 2013 was 40.8%. 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. d e u n i t n o c _ S R O T C E R D E H T F O T R O P E R I 09 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 proﬁt or loss of the Group, other than in respect of the retranslation of foreign subsidiary balances arising on consolidation and parent company equity balances which are recognised in other comprehensive income and accumulated in the foreign exchange reserve. Net foreign currency monetary assets Australian dollar Euro GB Pound Total US$000 US$000 US$000 US$000 2013 US Dollars 22 - 823 845 2012 US Dollars 93 17 1,196 1,306 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. As disclosed within the Report of the Directors, the Directors have set out their assessment of why they believe the Group continues to remain a going concern, including the assumptions they have made in this regard. INTEREST RATE RISK The Group ﬁnances its operations through retained cash reserves, and during the year has issued loan notes which were redeemed before the year end. The interest rate exposure of the ﬁnancial assets and liabilities of the Group as at 31 March 2013 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 US$000 US$000 US$000 US$000 Financial assets Cash - 171 816 987 Trade receivables - - 1,231 1,231 - 171 2,047 2,218 Interest rate Financial liabilities Trade payables - - 169 169 - - 169 169 AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 10 11 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 the overseas subsidiaries are encouraged to adopt a similar policy applying local best practice. The Company’s average payables payment period at 31 March 2013 was 16 days (2012: 18 days). CHARITABLE & POLITICAL DONATIONS During the year the Group made no charitable or political donations (2012: nil). ANNUAL GENERAL MEETING The notice convening the Annual General Meeting for 11:00am on Thursday, 26 September 2013 in the Tower Suite of the Institute of Directors, New Broad Street House, 35 New Broad Street, London, EC2M 1NH 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. Prior to voting on the resolutions the meeting will, as special business, as required by Section 656 of the Companies Act 2006 consider whether any, and if so, what steps should be taken to deal with the situation that the net assets of the parent company, AorTech International PLC, currently represents less than half of its called up share capital. RESOLUTIONS 1 TO 7 Resolution 1 provides for the approval of the Company's ﬁnancial statements for the year ended 31 March 2013. Resolution 2 provides for approval of the Report of the Remuneration Committee for the year ended 31 March 2013. The vote is advisory and the Directors’ entitlement to remuneration is not conditional on the resolution being passed. Resolution 3 deals with the re-appointment of the Director required by the Company's Articles of Association to retire this year. Resolution 4 deals with the formal appointment of Roy Walter Mitchell to the Board, as required by Article 100 of the Company’s Articles of Association. Resolution 5 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. d e u n i t n o c _ S R O T C E R D E H T F O T R O P E R I 11 12 Resolution 6 provides under the Companies Act 2006 (Section 551) the directors of a company may only allot 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 6 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. Resolution 7 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 pursuant to the rules of any share scheme approved by the shareholders in general meeting. • 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 7 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 5 are termed ordinary business. Resolutions 6 and 7 are termed special business. J C D Parsons Company Secretary AorTech International plc Company number SCO170071 Weybridge 27 August 2013 RECOMMENDATION: An explanation of the resolutions to be proposed is set out on pages 11 and 12 of this document. The Directors consider a) that no additional action needs to be taken in relation to the situation that the net assets of the parent company, AorTech International PLC, currently represent less than half of its called up share capital and b) 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. AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 12 13 DIRECTORS’ RESPONSIBILITIES STATEMENT 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 Generally Accepted Accounting Practice (United Kingdom Accounting Standards and Applicable Laws) and to prepare the Group ﬁnancial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the ﬁnancial statements unless they are satisﬁed that they give a true and fair view of the state of aﬀairs and proﬁt or loss of the company and 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 accounting estimates that are reasonable and prudent; state whether applicable UK Accounting Standards and IFRSs 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 Company will continue in business. The Directors are responsible for keeping adequate accounting records that are suﬃcient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the ﬁnancial position of the 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 the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors conﬁrm that: • • so far as each Director is aware, there is no relevant audit information of which the Company's auditor is unaware; and the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the 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 Weybridge 27 August 2013 13 14 CORPORATE GOVERNANCE 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 2013, comprised two Executive and one non-Executive Director and a non-Executive Chairman. All Directors are able to take independent advice in furtherance of their duties if necessary. ACCOUNTABILITY & AUDIT 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 W Brown, 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. AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 14 15 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 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 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: G Wright (Chairman) W Brown R Mitchell (appointed 23 May 2013) 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 UK Corporate Governance Code (June 2010). When setting its remuneration policy the Committee gives full consideration to the provisions and principles of the 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. REMUNERATION OF EXECUTIVE DIRECTORS The Executive Directors have service contracts, which can be terminated on one year’s notice by either party. The Remuneration Committee will review each case of 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 Directors was for E McDaid on 14 July 2011. 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. 15 16 SALARIES AND BENEFITS The Remuneration Committee meets twice each year to consider and set the annual salaries and beneﬁts for the Executive Directors, having regard to personal performance and independent advice concerning comparable organisations. 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 Approved 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. DIRECTORS’ EMOLUMENTS - AUDITED Details of individual Director’s emoluments for the year are as follows: 2013 2012 Salary Termination Beneﬁts Pension & fees fees in kind contributions Total Total US$ US$ US$ US$ US$ US$ Executive F Maguire 200,075 - 13,702 20,008 233,785 328,148 E McDaid 118,255 - - - 118,255 94,539 Non-executive J Pither 35,596 39,550 - - 75,146 48,071 Dr S Rollason - - - - - 24,636 G Wright 28,476 - - - 28,476 36,854 W Brown 121,815 - - - 121,815 32,247 504,217 39,550 13,702 20,008 577,477 564,495 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 was, and W Brown is employed by Bluehone Investors LLP (‘Bluehone’) in the provision of services to the Company. All of the emoluments of Dr S Rollason and W Brown above are represented by payments made by the Company to Bluehone in respect of these services. AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 16 17 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 2012 during year 2013 price exercisable date (i) Approved Share Option Scheme F Maguire 12,000 - 12,000 $3.80 11/07/2005 25/06/2014 (ii) Unapproved Share Option Scheme F Maguire 7,000 - 7,000 $3.80 11/07/2005 25/06/2014 19,000 - 19,000 $4.25 08/08/2005 25/06/2014 25,000 - 25,000 $3.80 14/07/2006 25/06/2014 200,000 - 200,000 $3.80 30/06/2007 25/06/2014 The range in the mid market price of the Company’s shares during the year ended 31 March 2013 was from £0.51 to £3.585. The mid market price on 28 March 2013 was £0.61. On behalf of the Board Gordon Wright Chairman of the Remuneration Committee 27 August 2013 I I d e u n i t n o c _ E E T T M M O C N O T A R E N U M E R E H T F O T R O P E R 17 18 INDEPENDENT AUDITOR’S REPORT To the Members of AorTech International plc We have audited the Group ﬁnancial statements of AorTech International Plc for the year ended 31 March 2013 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 AUDITOR As explained more fully in the Directors’ Responsibilities Statement 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 and express an opinion on 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/private.cfm. 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 2013 and of its loss for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006. AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 18 19 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: Under the Companies Act 2006 we are required 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 2013. Christopher Frostwick Senior Statutory Auditor For and on behalf of GRANT THORNTON UK LLP STATUTORY AUDITOR, CHARTERED ACCOUNTANTS Leicester 27 August 2013 ’ d e u n i t n o c _ T R O P E R S R O T D U A T N E D N E P E D N I I 19 20 CONSOLIDATED INCOME STATEMENT Year ended 31 March Year ended 31 March 2013 2012 Revenue Other income Cost of sales Administrative expenses Other expenses – development expenditure Proﬁt on disposal of property, plant and equipment Other expenses – amortisation of intangible assets Other expenses – cost of transfer of operations to USA Operating (loss) / proﬁt Finance (expense) / income (Loss) / proﬁt before taxation Taxation (Loss) / proﬁt attributable to equity holders of the parent company (Loss) / earnings per share Basic and diluted (US cents per share) Pre-exceptional items US$000 Exceptional items US$000 Notes Total US$000 Total US$000 3 1,805 1,990 3,795 5,038 289 2,271 2,560 638 (1,268) (2,324) (239) - (250) - (1,987) (5) (1,992) - (786) (420) - 138 - - 3,193 (2,048) 1,145 - (1,992) 1,145 (2,054) (2,744) (239) 138 (250) - 1,206 (2,053) (847) - (847) (701) (3,130) (798) - (248) (761) 38 19 57 - 57 (17.53) 1.18 10 3 7 5 8 9 AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 20 21 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended Year ended 31 March 31 March 2013 2012 US$000 US$000 (Loss) / proﬁt for the year (847) 57 Other comprehensive income: 26 Exchange diﬀerences on translating foreign operations (130) - Income tax relating to other comprehensive income - Other comprehensive income for the year, net of tax (130) 26 Total comprehensive income for the year, attributable to equity holders of the parent company (977) 83 21 22 CONSOLIDATED BALANCE SHEET 31 March 31 March 2013 2012 Notes US$000 US$000 Assets Non current assets 1,840 2,012 Intangible assets 10 4 621 Property, plant and equipment 11 Total non current assets 1,844 2,633 Current assets - 203 Inventories 12 Trade and other receivables 14 1,820 956 Cash and cash equivalents 15 987 1,917 Total current assets 2,807 3,076 Total assets 4,651 5,709 Liabilities Current liabilities Trade and other payables 16 (406) (439) Total current liabilities (406) (439) Non current liabilities Trade and other payables 16 - (182) Change of control redemption premium 16 (134) - Total non current liabilities (134) (182) Total liabilities (540) (621) Net assets 4,111 5,088 Equity Issued capital 19 18,351 19,319 Share premium 19 3,555 3,742 (3,043) (3,203) Other reserve Foreign exchange reserve 4,819 5,684 Proﬁt and loss account (20,436) (19,589) Total equity attributable to equity holders of the parent 4,111 5,088 The Group ﬁnancial statements were approved by the Board on 27 August 2013 and were signed on its behalf by W Brown, Chairman E McDaid, Director AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 22 23 CONSOLIDATED CASH FLOW STATEMENT Year ended Year ended 31 March 31 March 2013 2012 US$000 US$000 Cash ﬂows from operating activities Group (loss) / proﬁt after tax (847) 57 Adjustments for: 53 Depreciation of property, plant and equipment 84 23 (Gain) / loss on disposal of property, plant and equipment (138) 250 248 Amortisation of intangible assets Finance expense / (income) 2,053 (19) (Increase) / decrease in trade and other receivables (864) 125 203 31 Decrease in inventories (215) (437) Decrease in trade and other payables Net cash ﬂow from operating activities 526 81 Cash ﬂows from investing activities Purchase of property, plant and equipment (11) (671) Proceeds from disposal of property, plant and equipment 682 320 Purchases of intangible assets (72) (49) - 19 Interest received Net cash ﬂow from investing activities 599 (381) Cash ﬂows from ﬁnancing activities Interest paid (5) - Proceeds from issue of loan notes 1,914 - Repayment of loan notes (1,914) - Redemption premium paid to loan note holders (1,914) - Net cash ﬂow from ﬁnancing activities (1,919) - Net decrease in cash and cash equivalents (794) (300) Foreign exchange movements on cash held in foreign currencies Cash and cash equivalents at beginning of year (136) 3 1,917 2,214 Cash and cash equivalents at end of year 987 1,917 23 24 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Foreign Profit Share premium Other exchange and loss Total capital account reserve reserve account equity US$000 US$000 US$000 US$000 US$000 US$000 Balance at 31 March 2011 19,370 3,751 (3,211) 4,741 (19,646) 5,005 Transactions with owners - - - - - - Profit for the year - - - - 57 57 Other comprehensive income Exchange difference on translating foreign operations (51) (9) 8 78 - 26 Income tax relating to components of other comprehensive income - - - - - - Total comprehensive income for the year (51) (9) 8 78 57 83 Balance at 31 March 2012 19,319 3,742 (3,203) 4,819 (19,589) 5,088 Transactions with owners - - - - - - Loss for the year - - - - (847) (847) Other comprehensive income Exchange difference on translating foreign operations (968) (187) 160 865 - (130) Income tax relating to components of other comprehensive income - - - - - - Total comprehensive income for the year (968) (187) 160 865 (847) (977) Balance at 31 March 2013 18,351 3,555 (3,043) 5,684 (20,436) 4,111 AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 24 25 NOTES TO THE FINANCIAL STATEMENTS 1 BASIS OF PREPARATION The Group ﬁnancial statements are for the year ended 31 March 2013. They have been prepared in compliance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC) interpretations as adopted by the European Union as at 31 March 2013. The Group ﬁnancial statements have been prepared under the historical cost convention. The accounting policies remain unchanged from the previous year. Going concern After considering the year end cash position, making appropriate enquiries and reviewing budgets and proﬁt and cash ﬂow forecasts for a period of at least twelve 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 suﬃcient resources to continue in operational existence for the foreseeable future. For this reason the Directors consider the adoption of the going concern basis in preparing the Group ﬁnancial statements is appropriate. 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 2013 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. New accounting standards issued but not adopted: • • • • • • IFRS 9 Financial Instruments (eﬀective 1 January 2015; not yet adopted by the EU) IFRS 10 Consolidated Financial Statements (eﬀective 1 January 2014) IFRS 12 Disclosure of Interest in Other Entities (eﬀective 1 January 2014) IAS 19 Employee Beneﬁts (Revised June 2011) (eﬀective 1 January 2013) IFRS 13 Fair value measurement (eﬀective 1 January 2013) Presentation of Items of Other Comprehensive Income – Amendments to IAS 1 (eﬀective 1 July 2012) Presentational currency The Group’s revenues, proﬁts and cash ﬂows are primarily generated in US dollars, and are expected to remain principally denominated in US dollars in the future. 25 26 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 at 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 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. (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. 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. Exceptional items Items considered signiﬁcant by virtue of their size or nature are separately disclosed on the face of the Income Statement to enable a full understanding of the underlying performance of the Group. AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 26 27 Intangible assets (a) Patents and trademarks (intellectual property): Patents and trademarks (intellectual property) are included at cost 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. (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 when an impairment trigger occurs. 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 available for 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 proﬁt or loss. 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. d e u n i t n o c _ T N E M E T A T S L A C N A N F E H T O T S E T O N I I 27 28 Depreciation Depreciation is calculated to write oﬀ the cost of all property, plant and equipment less estimated residual value by the straight line 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 recov- erable 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. 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 in- curred to completion and disposal. 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 proﬁt or loss. 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 discounted at the original eﬀective interest rate. An assessment for impairment is undertaken at least at each balance sheet date. AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 28 29 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: Financial liabilities at amortised cost and fair value through proﬁt or loss. 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. A ﬁnancial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires. Financial liabilities at amortised cost (trade payables and accruals) 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. Financial liabilities at fair value through proﬁt or loss represents the change of control redemption premium under the loan notes, which is considered to be an embedded derivative which is separable from the loan notes and therefore has been accounted for as a separate instrument. Such ﬁnancial liabilities are carried subsequently at fair value with gains or losses recognised in proﬁt or loss. Fair value has been determined by reference to the potential value of the change in control premium to be paid at some time in the future, which has been estimated based on the Company’s market capitalisation at the balance sheet date, with a discount applied to reﬂect the probability of such a change of control happening (the eﬀect of the liquidity restriction and the change of control clause) and to reﬂect an estimate of likely timescale. These estimates will be reassessed at each balance sheet date. All changes in the instrument’s fair value are reported in proﬁt or loss and included within ﬁnance costs. Taxation Current tax is the tax currently payable based on taxable proﬁt for the accounting period. 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 proﬁt or loss, 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. Tax which relates to items recognised in other comprehensive income is recognised in other comprehensive income. d e u n i t n o c _ T N E M E T A T S L A C N A N F E H T O T S E T O N I I 29 30 Equity Equity comprises the following: • • • • • “Issued capital” represents the nominal value of equity shares. "Share premium" represents the excess over nominal value of the fair value of cash 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 net 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 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 is Sterling and the Group’s presentational currency is US Dollars. 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 proﬁt or loss in the period in which they arise. AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 30 31 Exchange differences on non-monetary items are recognised in other comprehensive income to the extent that they relate to a gain or loss on that non-monetary item taken to other comprehensive income, otherwise such gains and losses are recognised in proﬁt or loss. The assets and liabilities in the ﬁnancial statements of foreign subsidiaries and retranslation of the parent to the presentational currency, including equity items, 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 in other comprehensive income and accumulated in 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 reclassiﬁed from equity to proﬁt or loss as a reclassiﬁcation adjustment 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. 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) Capitalisation of development costs requires detailed analysis of the technical feasibility and commercial viability of the project. To date the Group has written oﬀ all such development costs because the speciﬁc criteria for capitalisation have not been met, although the Board regularly reviews this judgement in respect of speciﬁc development projects. b) The Directors must judge whether future profitability is likely in making the decision whether or not to create a deferred tax asset. At this stage the timing of future proﬁts is insuﬃciently certain to warrant inclusion of a deferred tax asset. c) Identiﬁcation of functional currencies requires a judgement as to the economic environments of the subsidiaries of the Group and the selection of the presentational currency must reﬂect the requirements of the users of the ﬁnancial statements. d) 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. Speciﬁcally the Directors have assessed the restructured licence agreement and ensured all contract milestones have been met before recognising the relevant revenue in full in the March 2013 financial year. In addition, the Directors have assessed whether any provision for impairment is necessary against receivables through the estimation of future cash ﬂows. e) The disposal of assets in the US to St Jude Medical as part of the settlement agreement is not judged to represent a discontinued operation as the Group continues to operate in the US selling polymer. As such this is not considered to be the disposal of a component under the definition in IFRS 5. The closure of the Australian operations in 2011 was judged not to represent a discontinued operation under IFRS 5, but rather the transfer of the manufacturing capability to a diﬀerent geographical location. Sources of estimation uncertainty: a) Estimates are required as to intangible asset carrying values and impairment charges. b) 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. d) The discount applied in determining the fair value of the change of control redemption premium constitutes an estimate. e) Estimates as to recoverability of receivables, including future expected cash ﬂows. d e u n i t n o c _ T N E M E T A T S L A C N A N F E H T O T S E T O N I I 31 32 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. The Group’s operating segments are based on geographical location of operations. Analysis of revenue by products and services 2013 2012 and by geographical area US$000 US$000 United Kingdom Supply of materials and ﬁnished goods - 5 St Jude Medical transaction – licence fee income 1,990 - Licence fees – services 313 4,338 USA Supply of materials and ﬁnished goods 1,492 694 Royalty revenue - 1 3,795 5,038 During the year ended 31 March 2013, 37.0% of the Group’s revenues depended upon a single customer (2012: 76.0%), excluding those in respect of the St Jude Medical transaction. 2013 2012 Analysis of result - operating (loss) / proﬁt US$000 US$000 United Kingdom 1,732 (551) 3,281 Australia (101) USA – including cost of transfer of operations in 2012 (425) (2,692) Operating proﬁt 1,206 Finance (expenses) / income – all UK (2,053) (Loss) / proﬁt before taxation (847) 38 19 57 The operating (loss) / profit disclosure above is after charging amortisation of $250,000 (all UK), depreciation of $84,000 (all USA), development expenditure of $239,000 (all USA) and after a proﬁt on disposal of $138,000 (all USA). Analysis of non current assets by location United Kingdom 1,840 1,963 USA 4 670 1,844 2,633 AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 32 33 4 REMUNERATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL Key management personnel 2013 2012 US$000 US$000 Emoluments – short-term employee beneﬁts 1,147 1,184 Pension costs – post-employment beneﬁts 20 32 1,167 1,216 The key management personnel whose remuneration is included in the table above are the Financial Controller, the Chief Scientiﬁc Oﬃcer, the Principal Scientist and the Vice-President Operations & Quality of AorTech Polymers & Medical Devices, Inc; and the ﬁve Directors of the parent company. Please see the Report of the Remuneration Committee on page 15 for full details of Directors’ emoluments which have been audited. Included in the aggregate emoluments for the year ended 31 March 2013 are payments of $197,000 (2012: $91,000) made by the Company to third parties. The highest paid Director received total emoluments of $233,785 including pension contributions of $20,008 (2012: total emoluments of $328,148 including pension contributions of $24,035). 5 (LOSS) / PROFIT BEFORE TAXATION 2013 2012 (Loss) / proﬁt before taxation has been arrived at after charging / (crediting): US$000 US$000 Foreign exchange diﬀerences 34 5 Depreciation and amortisation: Depreciation of property, plant and equipment 84 53 Amortisation of intangible assets 250 248 Employee beneﬁts expense: Employee costs (Note 6) 1,622 2,608 Land and buildings held under operating leases: Other operating leases 116 127 Audit and non-audit services: Fees payable to the Company’s auditor and its associates for the audit of the Group ﬁnancial statements 79 125 Fees payable to the Company’s auditor and its associates for other services : The audit of the Company’s subsidiaries pursuant to legislation 2 1 Tax services 104 27 Other services 11 12 d e u n i t n o c _ T N E M E T A T S L A C N A N F E H T O T S E T O N I I 33 34 Exceptional items The St Jude Medical transaction has been accounted for in the financial statements as follows: $000 $000 Revenue – accelerated licence fees 1,990 Other income – further consideration from St Jude Medical 1,653 Other income – reimbursement of production costs to March 2013 618 Cost of sales – inventory acquired (168) Cost of sales – production costs to March 2013 (618) Administrative expenses – legal and other costs (420) Profit on disposal of property, plant and equipment: Proceeds received 676 Net book value of assets transferred (538) 138 Operating profit from St Jude Medical transaction – exceptional item 3,193 The total consideration received by AorTech under the transaction agreements was $3.9 million less legal and other costs. Of this, $3.4 million was paid upon signing and $0.5 million paid shortly after the end of March 2013 along with payment in respect of the acquisition of certain of AorTech’s assets. The agreements accelerated certain existing transitional arrange- ments relating to the manufacture and supply of Elast-Eon™, reaffirmed St Jude Medical’s exclusive, perpetual, non-royalty bearing licence to use Elast-Eon™ for implantable leads for implantable cardiac rhythm management devices or monitoring systems, and set forth the purchase by St Jude Medical of certain AorTech assets. Among the transitional arrangements between the parties, the agreements also provided for the reimbursement by St Jude Medical to AorTech for the financial costs of running the Rogers facility for a period to 31 March 2013 at which time the complete transfer of the Rogers facility to St Jude Medical took place. These arrangements have ensured St Jude Medical’s reliable ongoing supply of Elast-Eon™. 6 EMPLOYEES 2013 2012 US$000 US$000 Employee costs (including Directors): Wages and salaries 1,602 2,522 Pension costs 20 86 1,622 2,608 The average number of employees (including Directors) during the year was made up as follows: 2013 2012 Numbers Numbers Production 4 4 Sales 1 2 Development and quality control 7 10 Administration 6 9 18 25 AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 34 35 7 FINANCE (EXPENSE) / INCOME Year ended 31 March 2012 Year ended 31 March 2013 Bank interest (expense) / income Loan premium payable on redemption Change of control redemption premium (5) - - (5) Pre-exceptional items US$000 Exceptional items US$000 Total US$000 (5) (1,914) (134) - (1,914) (134) (2,048) (2,053) US$000 19 - - 19 8 INCOME TAX EXPENSE No current tax or deferred tax expense arises on the (loss)/proﬁt for the year (2012: nil). 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: (Loss) / proﬁt for the year before tax (Loss) / proﬁt for year multiplied by the respective standard rate of corporation tax applicable in each domain (average 24%: 2012 - 26%) Eﬀects of: Expenses not deductible for tax purposes and other tax diﬀerences Taxable gains – Australia Other tax deductions Losses not utilised Losses utilised Tax on (loss) / proﬁt for the year 2013 US$000 (847) (203) 75 - - 382 (254) - 2012 US$000 57 15 42 531 (209) 647 (1,026) - 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 $6,197,000 – tax eﬀect is $1,487,000 (2012: $6,268,000 – tax eﬀect $1,504,000). Losses carried forward in Australia total $nil following the closure of operations and utilisation against taxable gains. Losses in the USA total $5,378,000 – tax eﬀect $1,291,000 (2012: $4,232,000 - tax eﬀect $1,016,000). d e u n i t n o c _ T N E M E T A T S L A C N A N F E H T O T S E T O N I I 35 36 9 (LOSS) / EARNINGS PER SHARE 2013 US$000 2012 US$000 (Loss) / proﬁt for the year attributable to equity shareholders (847) 57 (Loss) / earnings per share (17.53) 1.18 Basic and diluted (US cents per share) 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. There was no dilution in respect of the prior year. 10 INTANGIBLE ASSETS Intellectual property US$000 Cost At 1 April 2011 Exchange diﬀerences Additions during year At 31 March 2012 Exchange diﬀerences Additions during year At 31 March 2013 Amortisation At 1 April 2011 Exchange diﬀerences Charge for the year At 31 March 2012 Exchange diﬀerences Charge for the year At 31 March 2013 Net book value At 31 March 2012 At 31 March 2013 4,863 35 49 4,947 16 72 5,035 2,675 12 248 2,935 10 250 3,195 2,012 1,840 AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 36 37 11 PROPERTY, PLANT AND EQUIPMENT Property Plant Fixtures improvements & equipment & ﬁttings Total US$000 US$000 US$000 US$000 Cost 4,134 At 1 April 2011 1,428 2,267 439 Additions 535 136 - 671 Disposals / written oﬀ in year (1,428) (2,264) (439) (4,131) At 31 March 2012 535 139 - 674 Additions - 11 - 11 (145) - (680) Disposals / written oﬀ in year (535) At 31 March 2013 - 5 - 5 Depreciation At 1 April 2011 1,428 1,921 439 3,788 Charge for the year 41 12 - 53 Disposals / written oﬀ in year (1,428) (1,921) (439) (3,788) At 31 March 2012 41 12 - 53 Charge for the year 68 16 - 84 Disposals / written oﬀ in year (109) (27) - (136) At 31 March 2013 - 1 - 1 Net book value At 31 March 2012 494 127 - 621 At 31 March 2013 - 4 - 4 The property improvements and the plant & equipment located in the USA facility were sold to St Jude Medical as part of the negotiated settlement. 12 INVENTORIES 2013 2012 US$000 US$000 Raw materials - 102 Finished goods - 101 - 203 In 2013 a total of $1,001,000 of inventories was included in the income statement as an expense (2012: $339,000). There was no amount resulting from writedowns of inventories in either 2013 or 2012. There were no reversals of previous writedowns that were recognised in the income statement in either 2013 or 2012. d e u n i t n o c _ T N E M E T A T S L A C N A N F E H T O T S E T O N I I 37 38 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 Financial assets – loans and receivables Cash and cash equivalents Trade and other receivables Financial liabilities Liabilities at amortised cost Fair value through proﬁt or loss 2013 US$000 2012 US$000 987 1,762 2,749 (406) (134) (540) 1,917 900 2,817 (391) - (391) All amounts are short-term (all payable within six months) with the exception of other payables greater than one year and their carrying values are considered reasonable approximations of fair value. Foreign currency risk The Group has a non-trading Australian subsidiary whose functional currency is the Australian dollar and a US subsidiary whose functional currency is the US dollar, along with the UK parent company whose functional currency is Sterling. Entities generally do not hold ﬁnancial instruments in a currency other than their own functional currency, other than the UK parent company which has a trade receivable denominated in US dollars from SynCardia. Cash balances are carried within the Group in bank accounts, which comprise the following currency holdings: Sterling US dollars Australian dollars Euros 2013 US$000 823 142 22 - 987 2012 US$000 1,199 608 93 17 1,917 AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 38 39 Interest rate risk The Group ﬁnances its operations through equity fundraising and does not currently carry any borrowings, following the repayment of the loan notes during the year. The cash balances and short term deposits are held at both ﬁxed and ﬂoating rates as follows: Cash Interest rate % 2013 US$000 Interest rate % 2012 US$000 0% 0.50% 816 171 987 0% 0.50% 1,690 227 1,917 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 proﬁt and equity of $3,000 (2012: $18,000), 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 other than the amount due from SynCardia where provision has been made and a mediation and arbitration process is underway. The management do not consider that there is any concentration of risk within either trade or other receivables, other than amounts due from SynCardia. The maximum exposure to credit risk on trade and other receivables is considered to be $1,762,000 (2012: $900,000). Liquidity risk The Group currently holds cash balances and short term deposits in Sterling, US and Australian dollars. These balances provide funding for the Group’s trading activities. There is no material diﬀerence between the fair values and the book values of these ﬁnancial instruments. Details of the amount payable at an undetermined date in the future under the change of control clause on the loan notes are given in note 16, along with further details of the terms in note 7 to the parent company ﬁnancial statements. 14 TRADE AND OTHER RECEIVABLES 2013 2012 US$000 US$000 Current assets Trade receivables 1,231 858 Other receivables 531 42 Prepayments 58 56 1,820 956 Trade receivables are shown net of a provision of $404,000 to reﬂect uncertainty over the timing and amount of receipt of the SynCardia debt outstanding (gross debt of $1,197,000 before provision). In addition, $48,000 (2012: $29,000) of net trade and other receivables were past due for payment but not impaired at 31 March 2013, of which $39,000 was over 30 days and $9,000 was over 90 days. d e u n i t n o c _ T N E M E T A T S L A C N A N F E H T O T S E T O N I I 39 40 15 16 CASH AND CASH EQUIVALENTS 2013 2012 US$000 US$000 Cash at bank and in hand 987 1,917 987 1,917 TRADE AND OTHER PAYABLES 2013 2012 US$000 US$000 Current liabilities Trade payables 169 133 Deferred income - 48 Accruals 237 258 406 439 Non current liabilities Deferred income - 182 Change of control redemption premium 134 - 540 621 Deferred income comprised lease incentives. Deferred income at 31 March 2012 related to amounts received up front in relation to a lease incentive in the US, which has been released in the year following the exit from the lease. Details of the loan notes issued and redeemed in the year, the redemption premium paid and the change of control redemption premium payable in the future can be found in note 7 of the parent company accounts. Related party disclosures are also provided in note 7 of the parent company accounts as loan notes were issued to certain Directors. In accordance with IFRS, the Directors have included a ﬁnancial liability for this derivative ﬁnancial instrument totalling $134,000 in the Group accounts at 31 March 2013, based on the market capitalisation of the Group at 31 March 2013 and an estimate by the Directors of the likelihood of the change of control and consideration of possible timescales. These estimates will be reviewed and updated every six months for the purpose of the interim and year end accounts. 17 OPERATING LEASE COMMITMENTS The Group had the following total commitments under non-cancellable operating leases in the United States at 31 March 2013. The commitments at 31 March 2012 related to the United States operations: 2013 2012 US$000 US$000 The following payments are due to be made on operating lease commitments: Within one year 6 240 Two to ﬁve years 9 744 15 984 AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 40 41 18 SHARE BASED PAYMENTS The Group has an approved share option plan for the beneﬁt of employees resident in the UK and Executive Directors. All share options are denominated in Sterling and converted for disclosure purposes at £1 = $1.52 at 31 March 2013 (£1 = $1.60 at 31 March 2012). Options in issue Exercise Price (US$) 12,000 3.80 25 June 2014 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: 2013 WAEP 2012 WAEP Number US$ Number US$ Outstanding at the beginning of the year 12,600 $4.03 12,600 $4.04 Forfeited during the year (600) $4.48 - - Outstanding at the year end 12,000 $3.80 12,600 $4.03 Exercisable at the year end 12,000 $3.80 12,600 $4.03 The Group has an unapproved share option plan for the beneﬁt of other employees. All share options are denominated in Sterling and converted for disclosure purposes at £1 = $1.52 at 31 March 2013 (£1 = $1.60 at 31 March 2012). Options in issue Exercise Exercise period on or before: Price (US$) 232,000 3.80 25 June 2014 19,000 4.25 25 June 2014 10,000 4.94 1 September 2016 5,000 6.50 21 January 2018 1,000 3.80 15 June 2020 20,000 4.56 15 December 2021 4,000 5.51 16 February 2022 Details of the number of share options and the weighted average exercise price (WAEP) outstanding during the year are as follows: 2013 WAEP 2012 WAEP Number US$ Number US$ Outstanding at the beginning of the year 367,000 $4.33 442,250 $4.52 Granted during the year - - 24,000 $4.98 Forfeited during the year (76,000) $4.62 (99,250) $5.33 Outstanding at the year end 291,000 $3.99 367,000 $4.33 Exercisable at the year end 266,000 $4.68 334,000 $4.30 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. d e u n i t n o c _ T N E M E T A T S L A C N A N F E H T O T S E T O N I I 41 42 The fair value of options granted after 7 November 2002 but not vested at 1 April 2006 has been arrived at using an appropriate Black Scholes 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 non-market vesting conditions • No variables change during the life of the option (e.g. dividend yield) • Volatility of share price 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 (US$000) outstanding (years) (US$) (US$) price 14.07.03 3 14.07.06 3.80 3.83% 2.14 63% 12 25,000 30.06.04 3 30.06.07 3.80 5.04% 2.94 63% 132 200,000 01.09.06 3 01.09.09 4.94 4.61% 6.06 63% 118 10,000 21.01.08 3 21.01.11 6.50 4.21% 7.85 45% 44 5,000 16.06.10 3 16.06.13 3.80 4.00% 2.78 36% 32 1,000 16.12.11 3 16.12.14 4.56 4.00% 4.55 31% 52 20,000 17.02.12 3 17.02.15 5.51 4.00% 5.69 31% 9 4,000 The Group has not recognised any expense related to equity-settled share based payment transactions during the year (2012: nil), on the grounds that the charge is not material. The Directors have also concluded that the cumulative position to date is also not material. 19 SHARE CAPITAL Shares Nominal Premium Total Number Value net of costs US$000 US$000 US$000 In issue at 1 April 2012 4,832,778 19,319 3,742 23,061 In issue at 31 March 2013 4,832,778 18,351 3,555 21,906 At an EGM of Members held on 20 August 2007, the Company’s authorised share capital was increased from £14,000,000 (US$27,762,000) comprising 5,600,000 Ordinary shares of £2.50 (US$4.96) each to £17,500,000 (US$34,702,500), comprising 7,000,000 shares of £2.50 (US$4.96) each. Capital management objectives are set out in the Report of the Directors on page 11. 20 CONTINGENT LIABILITIES There were no contingent liabilities at 31 March 2013 or at 31 March 2012. AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 42 43 INDEPENDENT AUDITOR’S REPORT To the Members of AorTech International plc We have audited the parent company ﬁnancial statements of AorTech International Plc for the year ended 31 March 2013 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 AUDITOR As explained more fully in the Directors’ Responsibilities Statement 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 and express an opinion on 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/private.cfm. 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 2013; • 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. 43 44 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. 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 2013. Christopher Frostwick Senior Statutory Auditor For and on behalf of GRANT THORNTON UK LLP STATUTORY AUDITOR, CHARTERED ACCOUNTANTS Leicester 27 August 2013 AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 44 45 PARENT COMPANY BALANCE SHEET 31 March 31 March 2013 2012 Notes £000 £000 Fixed assets 4,269 Intangible assets 3 3,815 Investment in subsidiary undertakings 4 - - 3,815 4,269 Current assets Debtors – amounts falling due within one year 5 519 518 Debtors – amounts falling due after one year 5 - 3,907 Cash at bank 542 748 1,061 5,173 Creditors: amounts falling due within one year 6 (83) (72) Net current assets 978 5,101 Total assets less current liabilities 4,793 9,370 Creditors: amounts falling due after more than one year 7 (442) - Net assets 4,351 9,370 Capital and reserves Called up share capital 8 12,082 12,082 2,340 Share premium account 10 (5,052) Proﬁt and loss account 10 (10,071) 2,340 Equity shareholders' funds 10 4,351 9,370 The parent company ﬁnancial statements were approved by the Board on 27 August 2013 and were signed on its behalf by W Brown, Chairman E McDaid, Director 45 46 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 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 material 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 and proﬁt and cash ﬂow forecasts for a period of at least twelve 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 parent company has suﬃcient resources to continue in operational existence for the foreseeable future. For this reason the Directors consider the adoption of the going concern basis in preparing the parent company 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. These balances have been treated as monetary assets and retranslated at the rate of exchange ruling at the balance sheet date. Exchange diﬀerences arising on these loans are taken into account in arriving at the operating result. The recoverability of these balances is reassessed at each balance sheet date, with an impairment provision recorded when considered necessary. Intangible assets Patents and trademarks (intellectual property) are included at cost less estimated residual amount and are amortised on a straight line basis over their remaining useful economic lives of 20 years, which corresponds to the lives of the individual patents. The assets were transferred from the Australian subsidiary in 2011 at an independent valuation which has been used as deemed cost for these assets in the UK. AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 46 47 Loan notes & Redemption Premium policy The loan notes issued and redeemed and redemption premium thereon are considered to be a single capital instrument in accordance with FRS 4. The loan notes issued and redeemed in the year and the redemption premium paid in the year have been accounted for based on the terms of the loan note trust deed (see note 7), with the redemption premium paid expensed as a ﬁnance cost in the year. The redemption premium payable upon a future change of control of the company is considered to be a ﬁnancial liability at the year end. As such, the most appropriate accounting policy has been deemed to be to record a non-current liability at the balance sheet date based on 15% of the market capitalisation of the company at that date, with the expense recorded as a ﬁnance cost in the year. At each future balance sheet date, the carrying amount of the change of control liability will be reassessed based on the value of 15% of the market capitalisation at that date. Any diﬀerence between this amount and the previous carrying amount will be recognised within ﬁnance costs in the proﬁt and loss account. 2 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 2013 was £5,019,000 after the write-oﬀ of an inter-company debt of £4,417,000 (2012: loss of £3,518,000 after the write-oﬀ of an inter-company debt of £2,868,000). 3 INTANGIBLE ASSETS Intellectual property £000 Cost At 31 March 2012 4,777 Additions during year 80 At 31 March 2013 4,857 Amortisation At 31 March 2012 508 Charge for the year 534 At 31 March 2012 1,042 Net book value At 31 March 2012 4,269 At 31 March 2013 3,815 I I d e u n i t n o c _ S T N E M E T A T S L A C N A N F Y N A P M O C T N E R A P E H T O T S E T O N 47 48 4 FIXED ASSET INVESTMENTS 2013 2012 £000 £000 Investment in subsidiary undertakings Cost Historical cost 23,159 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 Heart Valve Technologies Limited Scotland Ordinary £1 100 (iv) AorTech Biomaterials Pty Limited Australia Ordinary Aus. $1 100 (v) AorTech Polymers & Medical Devices, Inc USA Common US $1 100 (vi) River Clyde Marine, 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) A non-trading company in the UK (iv) Ceased operations and placed into voluntary liquidation during year ended 31 March 2013 (v) The manufacture, marketing and development of new biostable polyurethanes operating principally in USA (vi) Research into marine applications for biostable polyurethanes 5 DEBTORS 2013 2012 £000 £000 Amounts falling due within one year Trade debtors, less provision 496 496 Other debtors 15 21 Prepayments 8 1 519 518 Amounts falling due after more than one year Amounts owed by Group undertakings 4,417 3,907 Less: Provision* (4,417) - 519 4,425 *An impairment charge of £4,417,000 has been made to fully provide against the remaining amount of the inter-company loan account due as at 31 March 2013 to AorTech International plc by its American subsidiary, AorTech Polymers & Medical Devices, Inc. AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 48 49 6 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 2013 2012 £000 £000 Accruals 83 72 83 72 7 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 2013 2012 £000 £000 Change of control redemption premium 442 - 442 - On 26 October 2012 AorTech International plc created £1,250,000 of Secured Loan Notes ("the Notes") and issued £1,210,000 ($1,914,000) of the Notes to existing investors including certain Directors (or members of their families). The Notes were repayable on or before 1 October 2013. The Notes did not bear any interest but were subject to a redemption premium of 100 per cent. of the nominal value of the Notes if repayment was made prior to 31 March 2013 and 150 per cent. if thereafter. The Notes attracted an additional redemption premium of 15 per cent. of the equity value on a change of control of AorTech at any time in the future, 15 per cent. of the value of a sale of any of its intellectual property rights while the Notes were outstanding, and 15 per cent. of the value of the net proceeds of any settlement of the dispute with St. Jude Medical or restructuring of the License and Supply Agreement with St. Jude Medical, after having taken into account the costs of settlement and the value of the notes redeemed and redemption premium paid. The Notes were secured by a ﬂoating charge over all of AorTech’s assets. The initial loan note subscriptions by W Brown and E McDaid (or members of their families) and Active Capital Trust PLC which amounted to, in aggregate, £270,000, along with the 100 per cent redemption premiums paid of £270,000, and their share of any change of control redemption premiums payable in the future were deemed related party transactions for the purposes of Rule 13 of the AIM Rules and IAS 24 / FRS 8. The Directors of AorTech (excluding W Brown and E McDaid) considered, having consulted with ﬁnnCap Limited, that the terms of the transaction were fair and reasonable so far as shareholders are concerned. The original sum subscribed in October 2012 for the Notes, together with an initial 100% premium due, was re-paid to the loan note holders prior to 31 March 2013. As no sale of intellectual property rights had occurred while the Notes were outstanding, no additional redemption premium under this clause was due. In addition, based on the value of the net proceeds of the settlement of the dispute with St Jude Medical, having taken into account the legal and other costs incurred, and the value of the loan notes redeemed and redemption premium paid, then no additional redemption premium was due under this clause. On change of control of the Company whether by means of a general oﬀer to acquire the entire issued share capital of the Company or a scheme of arrangement, or on a return of capital to shareholders as part of a winding up of the Company, an additional premium is payable to noteholders equal to 15% of the sums payable to shareholders in relation to that event. This liability of the Company continues after the Notes have been redeemed. In accordance with UK GAAP, a provision in the sum of £442,000 for this change of control redemption premium has been made at 31 March 2013 in respect of the additional 15% premium which would become due to loan note holders, based on the market capitalisation of the Company at that date. The level of this provision will be reviewed every six months for the purpose of the interim and year end accounts. I I d e u n i t n o c _ S T N E M E T A T S L A C N A N F Y N A P M O C T N E R A P E H T O T S E T O N 49 50 8 9 SHARE CAPITAL See Note 19 in the Group ﬁnancial statements. SHARE BASED PAYMENTS See Note 18 in the Group ﬁnancial statements. 10 STATEMENT OF MOVEMENT IN SHAREHOLDERS’ FUNDS Total Share Share Proﬁt and shareholders’ capital premium loss account funds £000 £000 £000 £000 12,888 1 April 2011 12,082 2,340 (1,534) (3,518) Loss for the year - - (3,518) At 31 March 2012 12,082 2,340 (5,052) Loss for the year - - (5,019) 9,370 (5,019) At 31 March 2013 12,082 2,340 (10,071) 4,351 As a result of the loss for the year ended 31 March 2013, and in particular the impairment provision of £4,417,000 made against the intercompany debtor, the Directors of the parent company are required to call a general meeting in accordance with section 656 of the Companies Act 2006, as the net assets of the parent company have fallen to less than half of the called up share capital. As a result, the Directors have called a general meeting for 26 September 2013 to consider whether any, and if so what, steps should be taken to deal with the situation. 11 DIRECTORS AND EMPLOYEES The Directors are the only employees of the parent company. Disclosure of their emoluments is given in the audited section of the Report of the Remuneration Committee on page 16. 12 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 wholly owned Group entities including those that have been eliminated on consolidation. There were no related party transactions during the year with non fully owned subsidiaries. Other related party transaction disclosures are included within note 7 to the parent company accounts in respect of loan note holders and within the report of the Remuneration Committee. AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 50 51 NOTICE OF THE ANNUAL GENERAL MEETING Notice is hereby given that the sixteenth Annual General Meeting of AorTech International Plc will be held in the Tower Suite of the Institute of Directors, New Broad Street House, 35 New Broad Street, London, EC2M 1NH on Thursday, 26 September 2013 at 11:00am for the purpose of (a) as special business, considering in accordance with Section 656 of the Companies Act 2006 whether any, and if so what, steps should be taken to deal with the situation that the net assets of the Company currently represent less than half of its called up share capital; and (b) considering and if thought ﬁt passing the following resolutions, numbers 1 to 6 as Ordinary Resolutions and number 7 as a Special Resolution: AS ORDINARY BUSINESS 1. 2. 3. 4. 5. To receive and adopt the ﬁnancial statements of the Company for the year ended 31 March 2013 together with the Reports of the Directors and Auditor thereon. To approve the Report of the Remuneration Committee for the year ended 31 March 2013. To re-elect Frank Maguire, who is retiring by rotation. To elect as a Director Roy Walter Mitchell, who was appointed a Director on 23 May 2013. 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: 6. 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 shares in the Company or to grant rights to subscribe for or convert any security into shares in the Company (“Rights”) up to an aggregate nominal amount of £4,027,315 (representing approximately one third of the Company's issued ordinary share capital) 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. This authority is in substitution for all previous authorities conferred on the Directors in accordance with section 80 of the Companies Act 1985 or section 551 of the Act but without prejudice to any allotment of shares or grant of Rights already made or agreed to be made pursuant to such authorities. To consider, and if thought ﬁt, pass the following resolution as a Special Resolution: 7. That subject to the passing of Resolution 6 above as an Ordinary Resolution, the Directors be and are hereby empowered until the conclusion of the next Annual General Meeting of the Company (“the period of the Section 570 power”), pursuant to Section 570 of the Act to allot equity securities (as deﬁned by Section 560 of the Act) pursuant to the authority granted by Resolution 6 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; 51 52 (b) the allotment of equity securities pursuant to the terms of any share scheme for directors and employees of the Company and/or its subsidiaries approved by the shareholders of the Company in general meeting; and (c) the allotment (otherwise than pursuant to sub-paragraphs (a) and (b) above) of equity securities having a nominal amount or giving the right to subscribe for or convert into relevant shares having a nominal amount, not exceeding in aggregate £604,097 (representing approximately ﬁve per cent of the issued ordinary share capital of the Company), 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 570 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. This resolution revokes and replaces all unexcercised powers previously granted to the Directors to allot equity securities as if either section 89(1) of the Companies Act 1985 or section 561(1) of the Act did not apply but without prejudice to any such allotment of equity securities made or agreed to be made pursuant to such authorities. By order of the Board, J C D Parsons Company Secretary Oatlands Drive, Weybridge, Surrey KT13 9LZ 27 August 2013 1. Members will only be entitled to attend and vote at the meeting if they are registered on the Company’s register of members at 6:00pm on 24 September 2013 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. If the meeting is adjourned, the time by which a person must be entered on the register of members of the Company in order to have the right to attend and vote at the adjourned meeting is 6:00pm on the day preceding the date ﬁxed for the adjourned meeting. Changes to the register of members after the relevant times 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 or proxies to attend, speak and vote on their behalf. To be valid, Forms of Proxy must be lodged with the Company's Registrars, Equiniti Limited, Aspect House, Lancing, West Sussex, BN99 6ZL not later than 48 hours before the time appointed for the holding of the meeting or any adjourned meeting together with any documentation required. In the case of a corporation, the Form of Proxy should be executed under its common seal or signed by a duly authorised oﬃcer or attorney of the corporation. Details of how to appoint the Chairman of the Meeting or another person as your proxy or proxies using the proxy form are set out in the notes to the proxy form together with details as to how to change or teminate proxy appointments. A vote witheld is not a vote in law which means that the vote will not be counted in the calculation of votes for or againsat a resolution. If no voting indication is given your proxy will vote (or abstain from voting) as he or she thinks ﬁt in relation to any other matter put before the meeting. 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. Any member or his proxy attending the meeting has a right to ask any question at the meeting relating to the business of the meeting. 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. AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 52 I d e u n i t n o c _ G N T E E M L A R E N E G L A U N N A E H T F O E C T O N I 53 5. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual (available at www.euroclear.com). CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider should refer to their CREST sponsors or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a "CREST Proxy Instruction") must be properly authenticated in accordance with Euroclear UK & Ireland Limited's speciﬁcations and must contain the information required for such instructions, as described in the CREST Manual. The message must be transmitted so as to be received by the Company's agent, Equiniti Limited (CREST Participant ID RA19), no later than 48 hours before the time appointed for the meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp applied to the message by the CREST Application Host) from which the Company's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. CREST members and, where applicable, their CREST sponsor or voting service provider should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider, to procure that his CREST sponsor or voting service provider takes) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsor or voting service provider are referred in particular to those sections of the CREST Manual concerning particular limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertiﬁcated Securities Regulations 2001. 6. As at noon on 2 September 2013 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 2 September 2013 is 4,832,778. 7. 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. 8. Any member attending the meeting has the right to ask questions. The Company must cause to be answered any such question relating to the business being dealt with at the meeting but no such answer need be given if (a) to do so would interfere unduly with the preparation for the meeting or involve the disclosure of conﬁdential information, (b) the answer has already been given on a website in the form of an answer to a questions, or (c) it is undersirable in the interests of the company or the good order of the meeting that the question be answered. 9. If you have any general queries about the meeting please contact the Company Secretary at jcdavidparsons@btconnect.com or by calling on 01932 252 123. You may not use any electronic address provided either in this notice of meeting or any related documents (including the Form of Proxy) to communicate for any purposes other than those expressly stated. By order of the Board, J C D Parsons Company Secretary Oatlands Drive, Weybridge, Surrey KT13 9LZ 27 August 2013 53 54 AORTECH INTERNATIONAL PLC | ANNUAL REPORT & ACCOUNTS 2013 54 . . I K U O C X R W N G S E D Y B D E C U D O R P & D E N G S E D I AorTech International plc Head Office: Level Two, Springfield House, 23 Oatlands Drive, Weybridge, Surrey UK, KT13 9LZ T F E +44(0)1932 252 123 +44(0)1932 251 113 info@aortech.com W www.aortech.com I N T E R N AT I O N A L P LC

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