Sphere Medical Holding plc RAISING THE STANDARD OF ... · an important step towards the improved ... Standard of care in the OR and ICU ... Sphere Medical Holding plc 4 Annual Report

RAISING THE STANDARD OF CRITICAL CARE

Annual Report and Accounts 2013

Sphere Medical Holding plc Annual Report and Accounts 2013

Sphere Medical Holding plcAnnual Report and Accounts 2013

Sphere Medical is a UK medical device group completing the development of a range of monitoring and diagnostic products which have the ability to significantly improve patient care and healthcare economics. Sphere Medical’s products allow near real-time measurement of blood gases, electrolytes and drug levels with laboratory accuracy, at the patient’s bedside, thereby enabling faster clinical decision making.

ContentsSphere Medical Group 1 2013 Business and Financial Highlights 2 Our products: Proxima 3 Our products: Pelorus 4 Our products: Cardiopulmonary Bypass

Monitor 5 Our Strategy for Commercialisation 6 Technology and Innovation 8 Strategic Report14 Board of Directors and

Senior Management16 Directors’ Report19 Independent Auditor’s Report20 Consolidated Statement

of Comprehensive Income21 Consolidated Statement

of Financial Position22 Consolidated Statement

of Cash Flow23 Consolidated Statement

of Changes in Equity24 Notes to the Financial Statements

Sphere Medical Holding plc41 Independent Auditor’s Report42 Balance Sheet43 Notes to the Financial Statements46 Notice of Annual General Meeting49 Contacts and Advisers

WELCOME TO SPHERE MEDICAL

Sphere Medical Holding plcAnnual Report and Accounts 2013 1

2013 Business Highlights During 2013, significant advances were made

towards achieving CE Mark for the Proxima system as a medical device. Since the year end, the completed files have been transferred to TÜV SÜD Product Service GmbH in Munich for formal review and anticipated issue of CE Mark certificates

Successful Proxima system usability study completed at Queen Elizabeth Hospital, Birmingham

Approval received from Queen Elizabeth Hospital, Birmingham Research Ethics Committee for the Proxima system Post Market Clinical Follow-up Study. The study is scheduled to commence following CE Mark approval

Collaboration agreement entered into with Ortho-Clinical Diagnostics, Inc. for the development of Proxima and enhancement of Sphere’s operational and production capabilities

Completion of the Pelorus 1500 pivotal study at Great Ormond Street Hospital for Children; an important step towards the improved management of propofol dosing during surgery

2013 Financial Highlights Completion of £9.0 million (before expenses)

equity fundraising in June 2013 Total operating expenses £5.7 million

(2012: £8.0 million) and Loss after taxation £4.8 million (2012: £7.4 million)

Reduced Loss per share 10.1p (2012: 20.0p) Cash and short-term investments at year end

of £9.3 million (2012: £5.4 million)

Board Changes To continue the transformation of Sphere

Medical into a commercial company focused on serving customers and generating revenues, profits and growth, the Board is pleased to announce the appointment of Dr Wolfgang Rencken as CEO


For frequent diagnostic testing

Dynamics in the market Standard of care in the OR and ICU Faster measurement times and near

patient testing Improved control of therapy

– six sigma care Decision support systems

Key marketing claims Rapid, efficient measurement

to support closer control Ease of use blood conservation/

reduction of infection risk

Possible future parameters Glucose, lactate and sodium

Regulatory approvals

CE Marked as an in-vitro diagnostic device

CE Marking as a medical device is advanced and currently with TÜV SÜD Product Service GmbH in Munich for formal review and anticipated issue of CE Mark certificates

The Proxima system is a patient-dedicated arterial blood analyser for use in the intensive care unit and operating room. A disposable multi-parameter microanalyser is integrated into existing patient fluid lines at the bedside. When a reading is required, blood is withdrawn from the patient into the device and a panel of analytes is measured to laboratory analyser accuracy and the results displayed on a dedicated monitor. All blood is returned into the patient after the measurement is taken.

“ EACH YEAR AN ESTIMATED 240 MILLION BLOOD GAS AND ELECTROLYTE TESTS ARE CARRIED OUT GLOBALLY ON PATIENTS IN CRITICAL CARE.”

Benefits

Results on demand Near real-time results Rapid feedback will support more

efficient and effective control of therapies, e.g. ventilation and glucose control

No additional cost per test

Blood conservation All blood is returned into the patient Potential to reduce transfusion line

infection risk Reduced blood exposure for caregivers

Ease of use Reduced work load for caregivers Allows caregivers to stay at the bedside

240mOver 240 million blood gas and electrolyte tests are carried out on patients in critical care each year

US$1.5BExisting market size

OUR PRODUCTS PROXIMA


Rapid propofol measurement

Large market potential Propofol is the world’s most widely used

intravenous anaesthetic Current dosing practice results in an

average 25% error in healthy adults Dosing error in critically ill patients can

be significantly higher than 25% Pelorus 1500 is the world’s first

point-of-care in-vitro diagnostic device for propofol

Regulatory approvals

CE Marked as an in-vitro diagnostic device

“ EACH YEAR AROUND 8 MILLION PEOPLE ARE SEDATED DURING TREATMENT IN INTENSIVE CARE UNITS.”

Benefits

Fast results Five minutes analysis time Highly sensitive measurement principle

for accurate, reliable results

Easy and convenient operation Operation via dedicated touch-screen

computer Single-use cartridge for each

measurement No sample preparation required Benchtop device with small footprint Simple start-up and shut-down

Quality control and calibration QC at three concentration levels Simple daily calibration routine

Pelorus is a unique product for the rapid measurement of the concentration of the intravenous anaesthetic propofol in blood samples. During 2012, Sphere Medical CE Marked and launched the next generation Pelorus 1500 as the world’s first point-of-care in-vitro diagnostic device. This allows anaesthetists to measure propofol as a routine component of the management of sedation and anaesthesia for the first time. Outside Europe, Sphere continues to support the Pelorus 1000 as a research instrument.

48mPotential market tests per year

OUR PRODUCTS PELORUS


Frequent measurement of blood chemistry is particularly important during cardiopulmonary bypass surgery. Normal practice requires the perfusionist to draw blood samples on a frequent basis during the procedure. There is growing demand for intensive monitoring of many blood parameters in real time to guide care of the patient. Sphere Medical has an exclusive commercial partnership with Sorin Group, a global company and a leader in the treatment of cardiovascular diseases, to develop a system that will provide continuous real-time blood monitoring in the bypass circuit.

Benefits

Continuous monitoring Continuous near real-time blood

monitoring in bypass circuit Accurate microchip-based measurement

technology Easy set up and operation

Close monitoring Close monitoring of older and sicker

patients leads to better outcomes

Full analyte panel Sphere Medical’s technology will provide

a full analyte panel to complement Sorin’s market-leading products

“ EACH YEAR, OVER ONE MILLION PATIENTS WORLDWIDE UNDERGO MAJOR HEART OR VASCULAR SURGERY.”

Continuous monitoring during cardiac surgery

Continuous monitoring of blood gases and electrolytes

Premium market segment

Dynamics in the market Growing proportion of surgery on more

vulnerable patients Increasingly stringent guidelines for care Growing demand for premium monitoring

Sorin in leading market position 70% of heart-lung machine sales 35% of £500 million consumables market

Future parameters

Glucose and lactate

1.1m patientsEvery year approximately 1.1 million patients undergo cardiopulmonary bypass surgery

OUR PRODUCTS CARDIOPULMONARY BYPASS MONITOR


Our strategy is to transition Sphere Medical from a research and development orientated group into a commercial company centred on serving our customers and generating revenues, profits and growth.

Over the past two years, Sphere Medical has focussed activities on finalising the development of Proxima, the lead medical device, obtaining CE Mark approval for the Proxima system as a medical device and the signing of the optimal partner for the core Proxima platform technology.

Over the next 12 months, Sphere Medical will concentrate on completing important clinical studies and progressively introducing Proxima into key UK hospitals in order to obtain clinical feedback which will be used to enhance and refine Proxima’s clinical utility.

Thereafter, future iterations of Proxima and targeted commercial expansion within Europe is expected to generate increasing revenues.

Strategic goals Progress in 2013 2014 plans

Goal 1CE Mark Proxima We have received formal notification that

TÜV SÜD Product Service GmbH in Munich is undertaking the formal review of the CE Mark documentation which we anticipate will lead to CE Mark approval.

Research Ethics Committee approval at the Queen Elizabeth Hospital, Birmingham has already been received for the Post Market Clinical Follow-up Study which is scheduled to commence soon after receipt of the CE Mark.

Goal 2Prepare for Proxima launch Work has been undertaken by our

Business Development team in preparation for the UK launch in 2014, including targeting key strategic UK teaching hospitals in specific clinical application areas.

To strengthen our sales capability we intend to recruit a sales director. We are planning for the scale-up of commercial production focussing on quality, reliability and yield. Further key studies are planned for 2014 addressing the areas of Time and Motion and Clinical Utility.

Goal 3Progress Proxima development programme

The Proxima development programme progressed to plan alongside our collaboration partner, Ortho-Clinical Diagnostics, Inc. During the year we finalised the Project Plan including the Target Product Profile.

We will continue the refinement of Proxima ahead of its commercial launch. Furthermore, the development of the further iterations of Proxima will be assisted by clinical feedback.

OUR STRATEGY FOR COMMERCIALISATIONOUR PRODUCTS CARDIOPULMONARY BYPASS MONITOR


The Company’s products are used in clinical environments that can be fast-paced and stressful. We work closely with physicians, nurses and other potential users of our products to ensure that our devices are easy and intuitive to use.

Testing and evaluation of the Proxima system by end users in clinical environments has given us insight into how our products will fit and improve the practices and workflows of the operating theatre and intensive care unit.

The Pelorus system is being used by leading anaesthetists in Europe, the US and Japan to evaluate how propofol measurement might be used in clinical practice to improve the use of the drug during general anaesthesia and sedation. This includes a collaboration to develop a proof-of-principle adaptive drug dosing system that would potentially represent a significant step forward in the sedation and anaesthesia of more vulnerable patients.

Sphere Medical’s products are based on technologies protected by patents as well as trade secrets. These cover numerous aspects of product design and manufacturing, including the core chip technology, sensor design and fabrication, system design, signal processing and calibration systems. We continue to invest in development and, where appropriate, patenting further improvements in these technologies.

Core technology proven• Gained regulatory validation for core

microanalyser technology and demonstrate performance equal to the ‘gold standard’

CE Mark for IVD device• Gained clinical and regulatory

clearance as first patient-dedicated in-vitro diagnostic device and use as technical pathway for first commercial device

CE Mark for first medical device• Gain clinical and regulatory

clearance as the first commercially available ‘closed-system’ patient-dedicated medical device and which will be actively marketed in the UK during 2014

• Use as technical pathway device for subsequent iterations

SPHERE MEDICAL’S STRATEGY IS TO ADOPT A SEQUENTIAL APPROACH TO THE DEVELOPMENT OF PROXIMA:

TECHNOLOGY AND INNOVATION


Equipment for picking sensor chips from the wafer during device manufacture.

Source: Proxima system usability study Queen Elizabeth Hospital, Birmingham

October 2013

84%of first-time users found Proxima easy or very easy to use

Sensor chipThe surface of the Sphere sensor chip contains a line of microtransducers each coated with a membrane to measure individual analytes. The chip has been designed to enable new test parameters to be added.

26PATENT FAMILIES AT SPHERE Chip design, manufacture of miniaturised sensor arrays, sensor design, monitoring and analytical systems calibration.


Matthew HallChief Financial Officer

“The first half of 2013 saw us conclude the Proxima collaboration agreement with Ortho-Clinical Diagnostics. The Proxima development programme is progressing to plan. Throughout the year we have worked to further the development, manufacturing and regulatory processes for Proxima that will allow us commercially to launch Proxima in the UK during 2014.”

Introduction and StrategyThe Board’s principal strategic objective is to transform Sphere Medical into a commercial company centred on serving our customers and generating revenues, profits and growth. Proxima, the Group’s lead medical device, is key to delivering this strategy and so the Board is focussed on ensuring the success of Proxima and the growth of this product to serve the specific needs of our customers.

The securing of the European CE Mark for Proxima is a prerequisite to delivering commercial success over the long term. We are therefore pleased to have been notified that TÜV SÜD Product Service GmbH in Munich is formally reviewing the Proxima CE system documentation.

We announced in late June 2013 that we had concluded a collaboration agreement for Proxima with Ortho-Clinical Diagnostics, Inc. (“OCD”) and a £9.0 million (before expenses) equity fundraising which was cornerstoned by Life Sciences Partners and Johnson & Johnson Development Corporation. On 16 January 2014 it was announced that Carlyle Group has agreed to acquire OCD. We continue our regular dialogue and engagement with OCD in connection with the collaboration agreement and the development programme remains on plan.

Proxima SystemProxima is Sphere Medical’s lead product and is being developed for critical care applications and uses our patented proprietary microanalyser technology. Proxima is a disposable patient-attached, point-of-care arterial blood gas analyser for use in the intensive care and high dependency units and operating theatres in hospitals. The device is integrated into existing patient arterial and fluid lines at the bedside to allow the rapid measurement of a panel of blood parameters, including blood gases and electrolytes required for the optimum management of critically ill patients. Proxima is also a “closed system” where the blood samples can be re-infused into the patient after a blood gas measurement is taken, helping to reduce blood loss caused by frequent sampling and decreasing the risk of transmission of blood-borne infections.

Rapid feedback will support more efficient and effective control of therapies such as ventilation, which is expected to improve patient outcome and reduce the cost of care.

Once Proxima has demonstrated clinical and commercial success it is expected to lead to a range of successor products based on new therapeutic applications.

Dr Anthony MartinNon-Executive Chairman

Dr Wolfgang RenckenChief Executive Officer

STRATEGIC REPORT


Proxima CE Marking Regulatory Update Over the past six months we have been actively engaged in the CE marking process for the Proxima system which has involved complying with Annex 1 of the Essential Requirements of the EU Medical Device Directive 93/42/EEC. In order better to manage our internal resources and to optimise the timetable for the overall CE mark approvals, the CE marking process has been approached on a modular basis involving four separate CE marking reviews and approvals for each of the key Proxima system elements, namely the flush, sensor, monitor and vials. The specific areas of review by TÜV SÜD Product Service GmbH, our Notified Body, have been:

• Flush CE Mark – a Class III infused medical device solution. This has involved the review of our design dossier containing a Clinical Evaluation Report (CER). The CER contains all the clinical aspects, including safety and performance of the flush.

• Calibration vials CE Mark – a Class I sterile medical device solution. This has involved the preparation of a Technical File and a review of the sterilisation and packaging aspects of the device.

• Proxima sensor CE Mark – a Class IIa medical device. This has involved the preparation of a Technical File which has been reviewed and contains separate reports on FMEA (Failure Mode Effect Analysis), usability studies, biological, EMC (electrical magnetic compatibility), clinical performance, microbial, sterilisation and packaging aspects of the device.

The Company has already received the CE Mark for the Monitor, a Class I medical device, from the UK Medicines and Healthcare products Regulatory Agency. This involved the preparation of a Technical File which contained reports on FMEA, software verification, usability studies, EMC, clinical performance and packaging aspects of the device.

Clinical Trials and Usability Studies In October 2013, we announced the successful completion of a comprehensive Proxima system usability study at the Queen Elizabeth Hospital, Birmingham. Results from the study, the largest of its kind undertaken to date by Sphere Medical and conducted by an independent third party, found that all of the usability targets for the Proxima system were met and that, of the 50 participants that rated the system, 42 said it was either “Very Easy” or “Easy” to use, while eight were “Neutral” on ease of use. The positive results from this study not only formed part of the CE Marking process but also significantly added to our understanding of how the Proxima system will be used in a clinical environment, post CE Mark.

In January 2014, we received Research Ethics Committee approval from Queen Elizabeth Hospital, Birmingham, conditional on receiving CE Mark approval for the Proxima system, for our Post Market Clinical Follow-up Study. This study will commence soon after approval and will take approximately three months to complete; the timing being largely dependent upon patient recruitment. Two further studies, a Time and Motion Study and a Clinical Utility Study, are planned for later in 2014.

Production We have continued to invest time and resource on our production facility at Harston. We are planning for the scale-up of commercial production focussing on quality, reliability and yield. During the year we also completed the process qualification for the in-house manufacture of calibration vials and work is ongoing to improve shelf life and lower the cost of manufacture of the vials.

Commercial launch in the UKIn anticipation of receiving the Proxima system CE Marks, work has been undertaken by our business development team in preparation for the UK launch in 2014. To strengthen our sales capability we intend to recruit a sales director. We will initially target the key strategic UK teaching hospitals in specific clinical application areas suitable for early adoption of the Proxima system. The results from the Post Market Clinical Follow-up Study will be incorporated into the sales support materials as will, in due course, the data from the Time and Motion and Clinical Utility Studies.

OCD Collaboration AgreementSince signing the Collaboration Agreement we have formed the Joint Steering Group and the Project Team which continues to meet on a regular basis. The Proxima Project Plan has also been finalised which includes the agreed Proxima Target Product Profile. OCD personnel have been involved with the development of our Proxima sales and marketing plan for the upcoming commercial launch in the UK. Work is ongoing on expanding the range of analytes capable of being measured by the sensor and connecting Proxima into the Laboratory Information Systems and Hospital Information Systems.

Alongside entering into the Collaboration Agreement, the Company raised £9.0 million (before expenses) by way of an equity fundraising which was cornerstoned by Life Sciences Partners and Johnson & Johnson Development Corporation.


PelorusIn December 2013 we announced the results from a study undertaken at Great Ormond Street Hospital for Children in which it was demonstrated that the Pelorus analyser can accurately measure propofol concentrations and thus identify significant dosing errors in anaesthesiology. The results from this study provide an important step towards improved management of propofol dosing during surgery.

A further study is being planned which will investigate ways to improve the control of propofol dosing, including the use of rapid propofol measurement during surgery utilising the Pelorus analyser to personalise the Total Control Infusion system algorithm to the patient. Sphere Medical is currently collaborating with the Department of Anaesthesiology at the University Medical Centre Groningen in the Netherlands to investigate the real time adaptation of dosing models to the individual patient using rapid propofol measurements provided by the Pelorus analyser.

Cardiopulmonary Bypass MonitorThe development of the dedicated in-line blood monitoring system for cardiopulmonary bypass procedures and its supply to Sorin Group Italia S.r.l. remains secondary to the product requirements of Proxima. Discussions with Sorin continue.

Intellectual PropertyOur intellectual property portfolio is a key asset and we continue to invest in the maintenance and development of our IP estate. We currently have 26 patent families covering chip design, manufacture of miniaturised sensor arrays, sensor design, monitoring and analytical systems and calibration. The Group continues to charge its research and development programme to profit and loss until such time as the criteria for capitalisation are met.

Research and developmentResearch and development has formed a core element of the Group’s strategy for success, as a significant proportion of the activities within the Group is research and development based. Expenditure on research and development during the year was £2.9 million (2012: £3.9 million).

Sphere’s Quality SystemSphere Medical successfully completed an audit of its Quality System in November 2013.

Employment policy and investmentSphere Medical regards its employees as critical to the Group and its future. The Board recognises that management, professional and technical expertise are the Group’s main assets.

The Board recognises the value of effective communication and consultation with all employees and of informing them of the progress and policies of the Group. This is achieved through formal and informal meetings, particularly as the employees are all based at the Harston Mill site.

STRATEGIC REPORTCONTINUED


Key performance indicator DescriptionDevelopment milestones Successful completion and positive findings from a Proxima system usability study at

Queen Elizabeth Hospital, Birmingham Completed the development of the Proxima system ahead of entering the

CE Marking process

Regulatory approvals Continuing certification by TÜV SÜD Product Service GmbH, the Company’s Notified Body, of the extension of the existing EN ISO13485 for Design and Development to include production of Medical Monitoring Systems

Received notification that TÜV SÜD Product Service GmbH in Munich is undertaking the formal review ratification process ahead of an anticipated issue of them issuing the Proxima system CE Mark certificates

Management of cash resources In July 2013 raised £9 million (before expenses) to fund the ongoing business of the Company, to include bringing Proxima to market, the development of the next iterations of Proxima and the enhancement of Sphere’s operational and production capabilities

All expenditure is monitored against budget which is reviewed monthly at management and Board meetings

The Group’s cash and cash equivalents at 31 December 2013 was £9.3 million

Commercial agreements and revenues

Continued sale of Pelorus consumables to our Japanese distributor and other customers In July 2013 the Group signed a collaboration agreement with Ortho-Clinical Diagnostics

which also provides a framework to negotiate a proposed global commercialisation deal for Proxima

The Group measures its performance according to a wide range of key performance indicators. The main key performance indicators for the Group during 2013 and subsequently, were as follows:

KEY PERFORMANCE INDICATORS

Risk DescriptionLiquidity risk The Group forecasts cash flows as part of its business planning procedures and monitors

progress against forecasts on a monthly basis. Cash which is not required in the immediate future is invested to obtain higher rates of interest.

Product development risk The Group monitors its product development through its development process. This structured process of review, development, supervision, verification and validation prior to launch aims to minimise the inherent product development risk. In addition the Group needs to obtain regulatory approvals. The development process takes many years and therefore there are significant risks which could adversely impact the Group’s ability to successfully commercialise the products. There risks are broadly:• Technical risks to resolve all development hurdles.• Manufacturing risks to being able to produce on a commercial basis.• Collaboration and funding risks, key to bringing the products to market.• Regulatory risks to satisfy all safety requirements.

The Group’s activities expose it to some financial risks. The Group monitors these risks but does not at present consider it necessary to use any derivative financial instruments to hedge these risks.

PRINCIPAL RISKS AND UNCERTAINTIES


Sphere Medical’s Employee Handbook includes Sphere’s policy on employment:

“Sphere Medical Limited aims to be an equal opportunity employer, and has a policy for this purpose. We are committed to a positive and pro-active approach to equal opportunities, which encourages, supports and values diversity.”

As well as fulfilling its legal obligations, Sphere Medical recognises that other factors, such as religion, nationality, responsibility for dependants, sexual orientation, socio-economic background or health may cause disadvantage and takes steps to ensure that no employee, worker, potential employee or worker receives less favourable treatment which cannot be shown to be justified.

Sphere Medical requires all employees and workers to behave in a non-discriminatory manner and expects their full support in changing practices which deny or limit equality.

STRATEGIC REPORTCONTINUED

Financial ReviewIn the year ended 31 December 2013 Sphere recorded product revenue of £40,000 (2012: £46,000), representing the sale of Pelorus consumables.

Operating expenses were £5.7 million (2012: £8.0 million). Included in operating expenses are Product Development and Product Realisation costs of £3.9 million (2012: £5.8 million) associated with the development of the Proxima disposable patient-dedicated arterial blood gas analyser. Administrative, selling and marketing expenses were £1.8 million (2012: £2.2 million).

Finance income (net) was £138,000 (2012: £265,000) representing primarily interest earned on cash deposits.

During the year £753,000 was received in respect of research and development tax claims for 2012 (2012: £410,000 based on 2011 claims). No accrual has been made for any research and development tax claim for the 2013 year.

The loss and total comprehensive income for the year was £4.8 million (2012: £7.4 million). The basic and fully diluted loss per share for the year was 10.1p (2012: 20.0p).

Cash and short-term investments as at the end of the year were £9.3 million (2012: £5.4 million).

The Sphere Medical TeamSphere Medical continues to benefit from the hard work and expertise of its employees who, with the Board, are fully committed to transforming Sphere Medical into a successful commercial medical device company.

The Company is pleased to announce the appointment of Dr Wolfgang Rencken as CEO. Wolfgang has over 15 years’ experience in the healthcare and medical devices industries and has a proven track record in developing and commercialising medical devices and driving significant product revenue growth.

The Board extends its gratitude to Dr Stuart Hendry for his contribution to the Group which he founded in 2002. Stuart has agreed to continue to assist the Group for a period of time to ensure an orderly handover.

The Board would like to take this opportunity to thank all our employees and management for their continued commitment and shareholders for their ongoing support to Sphere Medical.

The Medical Advisory Board (chaired by Dr John Ulatowski, The Johns Hopkins Hospital, Baltimore; Dr Peter Glass, Stony Brook University Hospital, New York; and Dr Tom Clutton-Brock, University Hospitals Birmingham, UK) continues to be instrumental in guiding Sphere Medical’s clinical programme and increasingly on preparations for product launches.


OutlookWe will continue to progress our principal strategic objective of transitioning Sphere Medical from a research & development orientated group into a commercial company centred on serving our customers and generating revenues, profits and growth.

Securing the Proxima CE Mark is key to the future commercial success of Sphere Medical and therefore we are pleased to report the CE Marking of the Proxima system is well advanced.

The Post Market Clinical Follow-up Study at Queen Elizabeth Hospital, Birmingham will begin following receipt of the CE Mark. In parallel we will prepare for the market introduction of Proxima into the UK by developing the operational capabilities to deliver a quality product and by establishing a small sales and marketing team.

We are pleased to announce the appointment of Wolfgang Rencken as CEO to execute the Board’s strategy. Wolfgang brings considerable experience and a proven track record in developing, launching and commercialising products in the medical devices and healthcare industries. We welcome him and look forward to working with him during this exciting time in the Group’s development.

Dr Anthony MartinNon-Executive Chairman

Matthew HallChief Financial Officer


SENIOR MANAGEMENT

BOARD OF DIRECTORS

7.6.

8. 10.

3.

9.

4. 5.

2.1.


1. Dr Anthony MartinNon-Executive Chairman Dr Martin has more than 25 years’ experience in life science and biotechnology businesses, acquired working in the UK and US, in both executive and non-executive roles. He is currently Non-Executive Chairman of Immunodiagnostics Systems Holdings plc and Phico Therapeutics Ltd and a Non-Executive Director of Abcam plc and Orthofix International N.V. Anthony has a Doctorate in immunology from the University of Manchester Medical School and began his career in 1979 with Procter & Gamble before moving to Amersham International in marketing and business development roles. He has since managed a number of life sciences businesses including British Bio-Technology Products, AZUR Environmental, the molecular biology division of Invitrogen Corporation and Molecular Probes Inc. Previous Non-Executive roles include Prelude Trust plc and Chairman of NeuTec Pharma plc. He has served as Chairman of Molecular Insight Pharmaceuticals Inc. and has also served on the Boards of Invitrogen Corporation and Agilent Technologies.

2. Dr Wolfgang RenckenCEO Dr Rencken, who joined the Board in February 2014, has over 15 years’ experience in the healthcare and medical devices industries and has a proven track record in developing and commercialising award winning medical devices and driving significant product revenue growth. Before joining Sphere Medical, he was CEO of MAQUET Cardiopulmonary AG, an international medical devices group. Prior to that he was COO of Definiens AG, and also held various positions with Siemens AG over a 15 year period, ending his career with Siemens Medical Solutions as Vice President Engineering of the Software Components and Workstations business unit. He holds a doctorate in Engineering Science, Oxford University and is the author of numerous patents and scientific publications in the area of robotics.

3. Mr Matthew HallChief Financial Officer Mr Hall, who joined the Board in November 2011, is a chartered accountant with a degree in economics and has a broad expertise in all aspects of financial and corporate management. He was most recently the CFO of IS Pharma plc, a specialist pharmaceutical group quoted on AIM; he was initially appointed its financial advisor and became CFO from January 2009. In May 2011, IS Pharma plc merged with Sinclair Pharma plc to form Sinclair IS Pharma plc. Prior to that, he has gained over 20 years of corporate finance experience and has held positions at Noble Group, Close Brothers Group plc, Hill Samuel Group PLC, Merrill Lynch Co, Inc, Deloitte Touche Tohmatsu and was seconded to the Executive of the Panel on Takeovers and Mergers.

4. Mr John GregoryNon-Executive Director Mr Gregory is a chartered accountant who for the last 17 years has concentrated on non-executive roles with young, fast growing companies. Mr Gregory is currently non-executive Chairman of Foresight VCT plc, which specialises in investing in technology based businesses and is also a non-executive director or Chairman of a number of private companies. From June 2000, Mr Gregory was a non-executive director and subsequently Chairman of IS Pharma plc, a speciality pharmaceuticals company which merged with Sinclair Pharma plc in May 2011; Mr Gregory was non-executive Chairman of the merged group until he relinquished this role following the successful integration of the companies in September 2011. Mr Gregory’s earlier career was in the City and included appointments as a director of Singer & Friedlander Holdings and managing director of Henry Ansbacher & Co. Mr Gregory was named ‘AIM Non-Executive Director of the Year’ in March 2011 in the annual Peel Hunt and Sunday Times sponsored non-executive director awards.

5. Mr Stephen H MahleNon-Executive Director Mr Mahle is the former Executive Vice President of Medtronic Inc, one of the world’s largest medical device companies and retired in September 2009 after 37 years. Mr Mahle joined Medtronic in 1972 and held numerous senior leadership positions with the company. For 17 years, Mr Mahle led Medtronic’s largest division as President of the Pacing Business and subsequently as President of Cardiac Rhythm Disease Management. Prior to joining Medtronic, Mr Mahle was a Captain in the U.S. Army where he served as a Research Scientist at the NASA Manned Spacecraft Center in Houston. Mr Mahle holds a Bachelor’s of Science degree in Physics from Beloit College and a Master’s degree in Physics from Pennsylvania State University.

6. Dr Gavin TroughtonVP Business Development Dr Troughton, who joined Sphere in 2002, has over 20 years’ experience in the development and commercial exploitation of chemical sensors and related technologies. He worked for a number of years at Zellweger Analytics and at Scientific Generics, where he worked in their Business Innovation practice.

7. Dr Shaw FoxVP Product Development Dr Fox, joined Sphere in 2009, has a background in Medical Diagnostics research and development and manufacturing. Since 1993 he has worked in senior management roles within product development and manufacturing at Ciba-Dorning Diagnostics, Chiron Diagnostics, Bayer Diagnostics and most recently Siemens Medical Solutions. A majority of that time has been devoted to the development of blood gas analysis instruments, sensors and reagent systems.

8. Dr Barry BrewsterVP Programme ManagementDr Brewster is responsible for managing Sphere’s manufacturing activities. Prior to joining Sphere in 2006 he worked at Unipath Ltd where he gained 10 years’ experience of the in-vitro diagnostics industry both as project leader and as a product development manager.

9. Mr Chris TownsendVP Product Realisation Mr Townsend has over 25 years’ medical device industry experience. The majority of this has been spent working across research and development and manufacturing on the industrialisation of products, ranging from low to very high volume manufacture. He previously worked for Allergan, Pfizer, Ocular Sciences, Innovata Biomed and Owen Mumford. He has also worked at Orange in their Prophecy Department on innovation management.

10. Mr Barry CarterRegulatory Affairs ManagerMr Carter, who joined Sphere in August 2012 has held senior roles in Quality, Regulatory Affairs and Operations in the medical device industry for over 16 years. He previously worked with Prosurgics, Spacelabs, Ferraris Medical and Reynolds Medical to successfully support launch of a number of innovative device types and technologies on to world-wide markets through compliance with CE marking, FDA 510(k) clearances, Canadian MDRs, EU Directives and numerous global market device licenses.


DIRECTORS’ REPORT

The Directors present their annual report on the affairs of the Company and the Group, together with the audited financial statements for the year ended 31 December 2013.

Results and DividendsThe consolidated statement of comprehensive income is set out on page 20 and shows the loss for the year. The loss for the year ended 31 December 2013 was £4.8 million (2012: loss of £7.4 million). No dividend will be paid in respect of the year (2012: £nil).

DirectorsThe Directors of the Company who served during the year were:

Director Position

Dr AF Martin Non-Executive ChairmanDr SP Hendry Chief Executive OfficerMr FMS Hall Chief Financial Officer Mr J Gregory Non-Executive DirectorMr S H Mahle Non-Executive Director

Subsequent to the year end, Dr SP Hendry resigned as a Director of the Company on 26 February 2014 and Dr WD Rencken was appointed Chief Executive Officer and a Director of the Company on 26 February 2014.

Biographies of the current Directors are detailed on page 15. Mr FMS Hall is also Company Secretary.

Directors’ interestsThe Directors’ beneficial interests, both direct and indirect, in the issued share capital of the Company, as at 31 December 2013, are as follows:

Name

Holding of Ordinary Shares at

1 January 2013

Ordinary Shares

acquired during

the year

Ordinary Shares

disposed of during

the year

Holding of Ordinary Shares at

31 December 2013

Dr AF Martin 158,931 71,123 – 230,054Dr SP Hendry 93,287 26,653 – 119,940Mr FMS Hall 10,810 3,089 – 13,899Mr J Gregory 34,121 9,749 – 43,870Mr SH Mahle 45,996 13,142 – 59,138

Directors’ optionsThe options over Ordinary Shares held by Directors, as at 31 December 2013, are as follows:

Outstanding at

Name Exercise price31 December

201231 December

2013 Exercise period (vesting as in note )

Dr AF Martin 125p 100,470 100,470 Granted 20 Dec 2005, expiry 5 May 2015, fully vested155p 77,340 77,340 Granted 13 Nov 2006, expiry 12 Nov 2016, fully vested 170p 44,990 44,990 Granted 13 Jan 2009, expiry 8 Dec 2018, fully vested

92.5p 404,862 404,862 Granted 31 October 2011, expiry 30 October 2021, Note 1

Dr SP Hendry 13.25p 196,630 196,630 Granted 22 July 2004, expiry 21 July 2014, fully vested155p 108,190 108,190 Granted 13 Nov 2006, expiry 12 Nov 2016, fully vested170p 77,178 77,178 Granted 13 Jan 2009, expiry 8 Dec 2018, fully vested

92.5p 846,530 846,530 Granted 31 October 2011, expiry 30 October 2021, Note 1125p 250,000 – Granted 18 May 2012, expired 31 March 2013,

Mr FMS Hall 92.5p 368,056 368,056 Granted 31 October 2011, expiry 30 October 2021, Note 192.5p 18,245 18,245 Granted 26 October 2011, expiry 25 October 2021, Note 1125p 100,000 – Granted 18 May 2012, expired 31 March 2013,

Mr J Gregory 92.5p 35,000 35,000 Granted 18 May 2012, expiry 17 May 2023, Note 2

Mr S Mahle 92.5p 35,000 35,000 Granted 18 May 2012, expiry 17 May 2023, Note 2

Note 1. The options vest 50% on the first anniversary of First Admission (17 November 2011), 25% on the second anniversary of First Admission and the balance on the third Anniversary of First Admission.

Note 2. The options vest 50% after one year, 25% after two years and the remaining 25% after three years of grant.


Non-Executive Directors’ optionsThe Non-Executive Directors have been granted options over Ordinary Shares in the Company. It is the view of the Board that in order to attract and retain high quality non-executive directors to the Company the issuing of share options is an important element to the overall remuneration package offered. Furthermore, the total number of options held by the Non-Executive Directors at 697,662 options or 1.2% of the total number of Ordinary Shares in issue as at 31 December 2013 is not material to either the Company or to each of the Non-Executive Directors.

Directors’ EmolumentsThe emoluments of the Directors for the year ended 31 December 2013, are as follows:

Salary and fees

£000Performance

related

Pension contribution

£000

Taxable benefits

£000

Total2013£000

2012£000

Dr SP Hendry 160 20 19 1 200 180Mr FMS Hall 130 20 13 1 164 144Dr AF Martin 56 – – – 56 56Mr J Gregory 27 – – – 27 27Mr S Mahle 26 – – – 26 26

Total 399 40 32 2 473 433

Significant shareholdingsAs at the 31 January 2014, the Company has been notified (or is otherwise aware) of the following interests in 3% or more of the issued Ordinary Share capital of the Company:

Name

Number of Ordinary

Shares

Percentage of Ordinary

Shares

LSP Life Sciences Fund 8,404,000 14.2%Johnson & Johnson Development Corporation 8,141,250 13.8%Herald Investment Management 4,711,965 8.0%Legal and General Investment Management 3,918,702 6.6%Members of the Fidelity International Group as discretionary manager 3,525,506 6.0%Ruffer LLP 2,500,000 4.2%Royal London Asset Management 2,486,863 4.2%JP Morgan Asset Management 2,106,609 3.6%

Going concernThe Group had £9.3 million of cash and amounts on deposit at the year end. Taking into account the approved budget and business plan for 2014, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the twelve months following 26 February 2014, being the date these Group financial statements were approved. For this reason, they continue to adopt the going concern basis in preparing the Group financial statements. The Directors draw your attention to the section headed “Going concern” in Note 2 to the Group financial statements.

Independent auditorThe auditor, who was reappointed at the Annual General Meeting is Grant Thornton UK LLP. The Directors will place a resolution before the Annual General Meeting to re-appoint Grant Thornton UK LLP as auditor for the ensuing year.

Board meetingsThe following Board meetings were held during the year:

Type of meeting BoardAudit

CommitteeRemuneration

CommitteeNominations

Committee

Dr A Martin 16 2 2 5Mr J Gregory 16 2 2 5Mr S Mahle 16 2 2 5Dr SP Hendry 16 2 2 –Mr FMS Hall 16 2 – –


DIRECTORS’ REPORT CONTINUED

Statement of Directors’ responsibilitiesThe Directors are responsible for preparing the Strategic Report, the annual report and the financial statements in accordance with applicable law and regulations.

United Kingdom company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the consolidated accounts in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and elected to prepare the Company financial statements under United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws). 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 Group and Company for that period.

In preparing these financial statements the Directors are required to:• select suitable accounting policies and then apply them consistently;• make judgements and estimates that are reasonable and prudent;• state whether applicable accounting UK Accounting Standards have been followed in the parent company financial statements

and IFRSs have been followed in the Group financial statements subject to any material departures disclosed and explained; and• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group 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.

Website publicationThe Directors are responsible for maintenance and the integrity of the Company’s website and for ensuring that the Strategic Report, the annual report and the financial statements are made available on the Company’s website. Financial statements are published on the Company’s website in accordance with legislation in the UK governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions.

Statement as to disclosure of information to auditorsThe Directors, in office at the date of this Report, have confirmed that:• so far as each of the Director’s is aware, there is no relevant audit information of which the Company’s auditor is unaware; and• the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information

and to establish that the Company’s auditors are aware of that information.

This information is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.

By order of the Board

FMS HallCompany Secretary


We have audited the group financial statements of Sphere Medical Holding plc for the year ended 31 December 2013 which comprise the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of cash flow, 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 auditorsAs explained more fully in the Statement of Directors’ Responsibilities set out on page 18, 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 statementsA description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/apb/scope/private.cfm.

Opinion on financial statementsIn our opinion the Group financial statements:• give a true and fair view of the state of the Group's affairs as at 31 December 2013 and of its loss for the year then ended;• have been properly prepared in accordance with IFRS as adopted by the European Union; and• have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006In our opinion the information given in the Strategic Report and the Directors’ Report 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 exceptionWe have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:• certain disclosures of directors’ remuneration specified by law are not made; or• we have not received all the information and explanations we require for our audit.

Other matterWe have reported separately on the parent company financial statements of Sphere Medical Holding plc for the year ended 31 December 2013.

Alison SeekingsSenior Statutory Auditorfor and on behalf of Grant Thornton UK LLPStatutory Auditor, Chartered AccountantsCambridge

26 February 2014

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SPHERE MEDICAL HOLDING PLC


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFor the year ended 31 December 2013

Notes 2013£000

2012£000

Revenue 4 40 46Cost of sales (16) (27)

Gross profit 24 19

Product development (2,892) (3,909)Product realisation (1,023) (1,929)Selling and marketing expenses (347) (401)Administrative expenses (1,423) (1,804)

Operating expenses (5,685) (8,043)

Operating loss (5,661) (8,024)Finance income 6 139 226Finance costs 6 (1) 39

Loss before taxation (5,523) (7,759)Tax credit 9 753 410

Loss and total comprehensive income for the period attributable to the equity holders of the parent (4,770) (7,349)

Loss per share attributable to the equity holders of the parentBasic and diluted 10 (10.1p) (20.0p)

All amounts derive from continuing operations.

The accompanying notes form an integral part of this consolidated statement of comprehensive income.


Notes 2013£000

2012£000

ASSETSNon-current assetsProperty, plant and equipment 11 226 268Intangible assets 12 13 15

239 283Current assetsInventories 37 69Trade and other receivables 14 86 122Investments 16 – 2,500Cash and cash equivalents 9,251 2,879

Total assets 9,613 5,853

EQUITYCalled up share capital 19 592 368Share premium account 46,556 38,258Other reserve 2,854 2,870Profit and loss account (41,271) (36,658)

Equity shareholders’ funds 8,731 4,838

LIABILITIESNon-current liabilitiesObligations under finance leases 17 3 17

3 17

Current liabilitiesTrade and other payables 15 864 966Obligations under finance leases 17 15 13Derivative liabilities 18 – 19

879 998

Total liabilities 882 1,015

Total equity and liabilities 9,613 5,853

The accompanying notes are an integral part of this consolidated statement of financial position.

Approved by the Board on 26 February 2014 and signed on its behalf:

Company number 4179503

AF Martin FMS HallDirector Director

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAt 31 December 2013


CONSOLIDATED STATEMENT OF CASH FLOWFor the year ended 31 December 2013

Notes2013£000

2012£000

Operating activities 20 (4,630) (6,623)

Cash flows from investing activitiesPurchase of property, plant and equipment (109) (254)Purchase of intangible assets (14) (23)Net inflow from treasury deposits 2,500 3,500Interest received 120 226

2,497 3,449

Cash flows from financing activitiesIssue of share capital 19 8,961 –Issue expenses (439) –Discharge of finance lease liabilities (16) (38)Interest payable (1) –

8,505 (38)

Net change in cash and cash equivalents in the year 6,372 (3,212)Cash and cash equivalents at beginning of year 2,879 6,091

Cash and cash equivalents at end of year 9,251 2,879

The accompanying notes are an integral part of this consolidated statement of cash flow.


Share capital (Note 19)

£000

Share premium

£000 Other reserve

£000 Retained loss

£000Total equity

£000

Balance as at 31 December 2011 368 38,258 2,343 (29,309) 11,660Loss for the year ended 31 December 2012 – – – (7,349) (7,349)

Total comprehensive income for the period – – – (7,349) (7,349)

Employee share-based compensation – – 527 – 527

Transactions with owners – – 527 – 527

Balance as at 31 December 2012 368 38,258 2,870 (36,658) 4,838Loss for the year ended 31 December 2013 – – – (4,770) (4,770)

Total comprehensive income for the period – – – (4,770) (4,770)

Issue of share capital 224 8,737 – – 8,961Issue expenses – (439) – – (439)Employee share-based compensation – – 141 – 141Reclassification following lapse of options – – (157) 157 –

Transactions with owners 224 8,298 (16) 157 8,663

Balance as at 31 December 2013 592 46,556 2,854 (41,271) 8,731

The accompanying notes are an integral part of this consolidated statement of changes in equity.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2013


NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 20131. General informationSphere Medical Holding plc (the “Company” or “Sphere Medical”) and its sole subsidiary Sphere Medical Limited (together the “Group”) undertake research and development and the manufacture of products within the medical device area. The Group has a manufacturing facility at its Harston Mill site and seeks to commercialise its technology and products within the UK and other countries.

The Company is a public limited company and is registered in England and Wales. It was incorporated on 14 March 2001 as a private limited company, GG 105 Limited, under the Companies Act 1985. It changed its name to Sphere Medical Holding Limited on 14 January 2004 and on 10 November 2006 the Registrar of Companies issued a certificate of change of name to Sphere Medical Holding plc and the Company became a public limited company. The address of its head office and registered office is Harston Mill, Harston, Cambridge CB22 7GG, UK.

On 17 November 2011 the Company floated on the AIM market of the London Stock Exchange plc.

These consolidated financial statements have been approved for issue by the Board of Directors on 26 February 2014.

2. Basis of preparationThe financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and as applied in accordance with the Companies Act 2006.

The financial statements have been prepared under the historical cost convention except for financial derivatives held at fair value.

The preparation of financial statements in accordance with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a high degree of judgement or complexity or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3.

These financial statements are presented in pounds sterling (GBP) because that is the currency of the primary economic environment in which the Company and its subsidiary operate.

Going concernAt 31 December 2013 the cash balance available to the Group was £9,251,000 while for the year the cash outflow from operating activities was £4,630,000 (2012 - outflow of £6,623,000).

Sphere Medical’s revenues from sales of products are not expected to be sufficient for the Group to become cash generative from commercial operations over the next 12 months. Nevertheless, the Board’s confidence that the development and commercialisation of the Group’s products, in particular Proxima, will prove to be successful has been increased very considerably by the notification that TÜV SÜD Product Service GmbH in Munich is undertaking its formal review ratification process ahead of an anticipated issue of the Proxima system being awarded CE Mark certification under the EU Medical Devices Directive. The Group intends to launch Proxima in the UK in 2014, initially in key strategic teaching hospitals and subsequently in targeted clinical application areas suitable for early adoption of the Proxima system. Furthermore, the Group has received Research Ethics Committee approval at Queen Elizabeth Hospital, Birmingham to undertake a Proxima clinical study to compare data from a conventional blood gas analyser with those obtained from the CE Marked Proxima system. This study is expected to commence following receipt of the CE Mark approval.

Based on the £9.3 million of cash and amounts on deposit as at 31 December 2013 together with the 2014 budget approved by the Board of Directors and the business plan for 2014, the Group will have sufficient funding for the next 12 months from the date these consolidated financial statements have been approved for issue by the Board of Directors.


3. Principal accounting policiesThe principal accounting policies applied in the preparation of these Group financial statements are set out below. These policies have been consistently applied to all the years presented unless otherwise stated.

New accounting standards and interpretationsDuring the year the following standards and interpretations came into effect:

Standard or interpretation Effective for reporting periods starting on or after

IFRS 13 Fair Value Measurement 1 January 2013 IAS 19 (Revised) Employee Benefits 1 January 2013

Annual Improvements 2009-2011 Cycle 1 January 2013Amendments to IFRS 7 Disclosures – Offsetting Financial Assets and

Financial Liabilities1 January 2013

The adoption of these changes has not had a material impact on the Group’s financial statements in this period of initial application.

New standards and interpretations not appliedThe IASB and IFRIC have issued a number of standards and interpretations with an effective date after the date of these financial statements:

Standard or interpretation Effective for reporting periods starting on or after

IFRS 10 Consolidated Financial Statements 1 January 2014IFRS 11 Joint Arrangements 1 January 2014IFRS 12 Disclosure of Interests in Other Entities 1 January 2014IAS 27 (Revised) Consolidated Financial Statements 1 January 2014IAS 28 (Revised) Investments in Associates and Joint Ventures 1 January 2014Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities 1 January 2014Amendments to IFRS 10, IFRS 11 and IFRS 12 Transition Guidance 1 January 2014

The Directors do not believe that the adoption of any of the above standards and interpretations will have a material impact on the Group’s financial statements in the period of initial application.

Basis of consolidationThe Group financial statements incorporate the financial statements of Sphere Medical Holding plc and its subsidiary undertaking Sphere Medical Limited made up to 31 December each year. Subsidiary undertakings are entities over which the Group has power to control the financial and operating policies. The Group obtains and exercises control through voting rights. Unrealised gains and losses on internal transactions between the Company and its subsidiary are eliminated on consolidation.

Revenue recognitionRevenue represents the fair value of amounts received or receivable for product sales, net of trade discounts, VAT and other sales-related taxes. The Group’s policy is to recognise revenue when:• there is persuasive evidence that an arrangement exists;• pricing is fixed or determinable;• delivery has occurred;• collectability is probable; and• there are no material outstanding conditions or contingencies attaching to the receipt of monies due.

Product sales – Revenue is recognised on delivery of product, ensuring the full specification is satisfied in accordance with the customer’s order.


3. Principal accounting policies continuedShare-based payment transactionsThe Company issues equity-settled share-based payments to several of its Directors, as well as employees (including Directors) of its subsidiary, Sphere Medical Limited. In accordance with IFRS 2, for all grants of share options and awards the cost of the equity-settled share-based payments are measured at fair value at the date of grant. Where employees are rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument granted to the employee. The fair value is appraised at the grant date and excludes the impact of non-market vesting conditions. That fair value is expensed over the vesting period for the related options based upon the Company’s estimate of the shares that will eventually vest, with a corresponding credit to “Other reserve”.

A modification to a share option is accounted for by continuing with the existing accounting for the old option scheme and in addition recognising the increment in fair value of the new option scheme over the vesting periods. The incremental fair value granted is the difference between the fair value of the replacement equity instruments and the net fair value of the cancelled equity instruments at the date the replacement equity instruments are granted. The net fair value of the cancelled instruments is their fair value immediately before the cancellation, less the amount of any payment made to the employee on cancellation of the equity instruments.

No expense is recognised for awards that do not ultimately vest as a result of the relevant employee ceasing to be employed by the Group or that do not vest as a result of performance conditions not being met.

Fair value is measured using the Black Scholes Option Pricing Model. The expected life used in the model is the expiry date of the options.

Upon exercise of share options, the proceeds received net of any directly attributable transaction costs up to the value of the shares issued are allocated to share capital with any excess being recorded as share premium.

Foreign currencyTransactions denominated in foreign currencies are recorded in GBP at the actual exchange rates as of the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end are reported in GBP at the then prevailing rates of exchange. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in profit or loss.

Research and development expenditureExpenditure on research (or the research phase of an internal project) is charged to profit or loss in the period in which it is incurred.

Development expenditure is capitalised when the criteria for recognition as an asset are met, that is when the Group can demonstrate:• the technical feasibility of completing the project so that it will be able to use the asset for use or sale;• its intention to complete and its ability to use the asset;• how the asset will generate future economic benefits;• the availability of resources to complete; and• that costs associated with the asset and its development can be measured reliably.

Amortisation is provided to write off the capitalised research and development to its residual value on a straight-line basis over its expected useful economic life.

Development expenditure which is not capitalised because it fails to meet one or more of the above criteria for being capitalised is charged to profit or loss in the period in which it occurs.

Management monitors the progress of internal research and development projects by using a project management system.

Property, plant and equipmentProperty, plant and equipment is carried at acquisition cost less accumulated depreciation and any provision for impairment. Depreciation is provided to write off the cost of all property, plant and equipment to its residual value on a straight-line basis over its expected useful economic lives as follows:• Plant and equipment 3–4 years.

Residual values and useful lives are reviewed annually.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

For the year ended 31 December 2013


3. Principal accounting policies continuedIntangible assetsIntangible assets are capitalised on the basis of the costs incurred to acquire. These costs are amortised over the estimated useful life of the asset:• Software 2 years.

Residual values and useful lives are reviewed annually.

Impairment of property, plant and equipment and intangible assetsAt each balance sheet date the carrying amounts of property, plant and equipment and intangible assets are reviewed for any indication that those assets have suffered an impairment loss. For the purpose of this review assets are grouped into cash-generating units. If any indication of impairment exists, an impairment review is performed and any impairment loss is recognised for the amount by which the assets or the cash-generating unit’s carrying amount exceeds its recoverable amount. To determine the recoverable amount, management estimates expected future cash flows from each cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for the Group’s impairment testing are directly linked to the Group’s latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancement.

Financial assetsThe category of a financial asset is assigned on initial recognition, depending on the characteristics of the instrument and its purpose. A financial instrument’s category is relevant for the way it is measured and whether any resulting gains and losses are recognised in the profit or loss or in other comprehensive income. See Note 25.5 for a summary of the Group’s financial assets.

The Group’s financial assets all fall into the category of loans and receivables.

Interest receivable is accrued on a daily basis at the interest rate applicable to each deposit.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition these are measured at amortised cost using the effective interest method, less provision for impairment. The Group’s trade and other receivables fall into this category of financial instruments. Discounting, however, is omitted where the effect of discounting is immaterial.

Significant receivables are considered for impairment on a case-by-case basis when they are past due at the balance sheet date or when objective evidence is received that a specific counterparty will default.

InventoriesInventories comprise directly attributable costs on incomplete projects or products and are held in the statement of financial position at cost. Costs of ordinarily interchangeable items are assigned using the first in, first out cost formula. Inventories are recognised in the consolidated statement of comprehensive income as cost of sales or to the department which acquired them.

Income taxesCurrent income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting periods that are unpaid at the balance sheet date.

Deferred income 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. 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 are assessed for recognition as deferred tax assets.



For the year ended 31 December 20133. Principal accounting policies continuedDeferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the reporting date. Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be available to offset against any future taxable income.

Management bases its assessment of the probability of future taxable income on the Group’s latest approved budget forecast, which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. If a positive forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilised without a time limit, that deferred tax asset is recognised in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by management based on the specific facts and circumstances.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in profit or loss, except tax relating to items recognised in other comprehensive income and tax relating to items recognised directly in equity, in which case the related deferred tax is also recognised on other comprehensive income or equity, respectively.

Cash and cash equivalentsCash and cash equivalents comprise cash on hand and demand deposits that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value and accrued interest thereon.

InvestmentsCash held on long-term deposit of more than three months and therefore not readily converted into cash is recognised as an investment.

Post-employment benefitsThe Group provides post-employment benefits through different defined contribution plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into an independent entity. The Group has no legal or constructive obligations to pay further contributions after its payment of the fixed contribution.

The Group contributes to defined contribution plans, operated by independent life assurance companies, for the benefit of substantially all employees. Employer’s contributions range from 6% to 12% of pensionable payroll dependent upon the age of the employee and are generally contingent upon employees’ contributions. The amount charged to the profit or loss is the total of contributions payable in the year.

Financial liabilitiesThe Group’s financial liabilities include borrowings, trade and other payables and derivative financial instruments and on initial recognition they are measured at fair value. Financial liabilities other than derivatives are subsequently measured at amortised cost using the effective interest rate method except for derivatives that are subsequently measured at fair value.

Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest-related charges and fair value movements are included in the statement of comprehensive income lines “finance costs” or “finance income”. A finance liability is derecognised when it is extinguished, discharged, cancelled or expires.

Within financial liabilities are warrants classified as derivative liabilities, carried at their fair value. Fair value is measured using the Black Scholes Model. The expected life is the expiry date of the warrant. Changes in fair value are recognised in profit or loss.

Leased assetsIn accordance with IAS 17 “Leases”, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is then recognised at the inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental payments, if any. A corresponding amount is recognised as a finance leasing liability, irrespective of whether some of these lease payments are payable up-front at the date of inception of the lease.

Subsequent accounting for assets held under finance lease agreements, i.e. depreciation methods and useful lives, correspond to those applied to comparable assets which are legally owned by the Group. The corresponding finance leasing liability is reduced by lease payments less finance charges, which are expensed to finance costs.

The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to profit or loss over the period of the lease.

All other leases are treated as operating leases.


3. Principal accounting policies continuedOperating lease agreementsRentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged to the profit or loss net of any incentives received from the lessor on a straight-line basis over the period of the lease. Associated costs, such as maintenance and insurance, are expensed as incurred.

Share capitalThe Company’s Ordinary Shares and non-financial derivative instruments are classified as equity. Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.

Share premiumShare premium represents the excess over nominal value of the fair value of consideration received for equity shares, net of the expenses of the share issue.

Other reserveThe other reserve represents equity-settled share-based payments made to Directors and employees.

Profit and loss accountThis represents all current and prior period results as disclosed in profit or loss.

Significant accounting estimates and judgementsShare options and warrantsThe fair value of options and warrants is determined using the Black Scholes valuation model, which requires a number of estimates and assumptions. The significant inputs into the model are the share price at the date of grant, the exercise price, the expected option life, the expected volatility and the risk-free interest rate. The detailed estimates and assumptions are set out in Note 19. The key estimate in the model, being volatility, is based on the historical volatility in the company’s share price.

Research and development expenditureThe Board uses its judgement in the assessment of the extent, if any, to which expenditure is identified as development expenditure eligible for capitalisation rather than research expenditure. Key to this judgement is the point at which the technical feasibility and commercial success can be demonstrated. The Group continues to progress it’s technical developments however the Board recognises that there remains significant regulatory and commercial risks.

Deferred tax assetThe Board uses it judgement as to the timing and levels of future profits to assess as to when sufficient taxable profits will be generated to relieve the losses when providing for the deferred tax asset. No deferred tax asset is recognised at 31 December 2013 due to the uncertainty regarding the timing of future profits.

4. Segment informationThe chief operating decision makers are considered to be the Executive Directors.

The Group operates in one operating segment, that of medical devices. All of the assets of the Group are related to that operating segment and are held in the UK. Geographical analysis of the results of the business is 100% (2012 – 100%) within the UK.

The analysis of revenue by customer location is:

Geographical2013£000

2013%

UK 3 6Europe (Non-UK) 13 33USA 2 4Japan 22 57

2012£000

2012%

Europe 42 91.3Japan 4 8.7



For the year ended 31 December 20134. Segment information continuedActivity

2013£000

2013%

Product sales 40 100

2012£000

2012%

Product sales 46 100

5. Loss attributable to equity holdersThis is stated after charging:

2013£000

2012£000

Depreciation of property, plant and equipment– owned 138 88– held under finance leases 13 29Amortisation of intangible assets 16 10Auditor’s remuneration– Audit of company 27 14– Audit of subsidiary 12 11Other assurance services 3 6Tax compliance services 6 5Research and development 2,892 3,909Operating lease rentals– amounts payable for plant and machinery hire 9 8– in respect of other operating leases including land and buildings 164 177Net (gain)/loss on foreign currency translation (1) 1

6. Finance income and finance costs

2013£000

2012£000

Finance income:Interest receivable on bank deposits and similar income 120 226Movement in fair value of derivative liabilities 19 –

139 226

Finance costs:Finance charges payable under finance leases 1 4Movement in fair value of derivative liabilities – (43)

1 (39)

7. Information regarding employeesParticulars of employees (including Executive Directors) are as shown below.

Employee costs during the year amounted to:

2013£000

2012£000

Wages and salaries (including performance-related pay) 2,452 2,181Social security costs 255 228Pension costs 100 96Other benefits (being income protection, life assurance and health care) 16 12Charge in respect of share options 141 527

2,964 3,044


7. Information regarding employees continuedAverage monthly number of employees during the year:

2013Number

2012Number

Selling and marketing 4 3Product realisation 14 15Product development 35 30Project management 2 3

Regulation and Quality 6 3

Administration 6 6

67 54

8. Information regarding Directors and key managementParticulars of (i) the emoluments of Directors and of (ii) transactions with key management personnel are as shown below:

Directors (including Executive and Non-Executive Directors)

Key management (including Executive and Non-Executive Directors)

2013£000

2012 £000

2013£000

2012£000

Short-term employee benefits Wages and salaries 399 399 768 700Performance-related pay 40 – 40 –Social security costs 56 50 99 85Other benefits 2 2 6 2

497 451 913 787Long-term employee benefitsCompany contributions to defined contribution pension schemes 32 32 52 53

529 483 965 840Share-based payments 79 451 103 492

608 934 1,068 1,332

Payments in respect of each Director are set out in the Directors’ report.

The Directors’ interests in shares and share options of the Company are set out in the Directors’ report.

None of the Directors exercised share options during the year and correspondingly there was no gain made by Directors on such exercise.

The number of Directors who were members of a defined contribution pension scheme to which the Group contributed during the year was 2 (2012 – 2). The number of other key management who were members of a defined contribution pension scheme to which the Group contributed during the year was 4 (2012 – 5). The Group does not contribute to any pension schemes other than defined contribution schemes.

The Company’s insurance cover includes Directors’ indemnity insurance.



For the year ended 31 December 20139. Income tax expensesThere is no tax charge for the year due to losses arising. The Directors have not recognised any tax repayment in respect of potential research and development tax credits in respect of the current period of 2013 which may arise following agreement by HM Revenue & Customs.

£753,000 was received during the year in respect of research and development tax claims for 2012 (2012 – £410,000 was received in respect of a research and development tax claim for 2011). The tax charge is different from that resulting from applying the standard rate of corporation tax in the UK of 23.25% (2012 – 24.5%). The differences are explained below:

2013£000

2012£000

Result for the year (5,523) (7,759)

Expected tax credit (1,284) (1,901)Expenses not deductible for tax purposes 2 129Decelerated capital allowances (6) –Creation of tax losses 1,288 1,772Adjustment in respect of prior years (753) (410)

Actual tax credit, net (753) (410)

Unused tax losses amount to £29 million (2012 - £24 million).

No deferred tax asset has been recognised due to the current uncertainty of future taxable profits. The asset will be recognised when sufficient taxable profits are generated to relieve the losses, depreciation and capital allowances equalise and other temporary differences reverse. The amounts not provided are as follows:

2013£000

2012£000

Unused tax losses (7,384) (6,835)Depreciation in excess of capital allowances (1) (20)Other temporary differences (3) (3)

Deferred tax asset (7,388) (6,858)

The Group may also benefit from a taxable deduction when the outstanding share options are exercised. Such a benefit would create an additional tax deductible expense. In view of the current level of trading losses and the uncertainty as to when these will be realised, the Directors have not provided for the potential deferred tax credit that might arise as its realisation is considered too uncertain to be recognised in the balance sheet.

10. Loss per shareDiluted loss per share is calculated after showing the effect of outstanding options in issue. As the effect of the options would be to reduce the loss per share, the diluted loss per share is the same as the basic loss per share.

Calculation of loss per share is based on the following loss and numbers of shares:

2013£000

2012£000

Loss attributable to equity holders in the Company (4,770) (7,349)

Number (‘000)

Number(‘000)

Weighted average number of equity shares in issue for basic loss per share 47,117 36,806


11. Property, plant and equipment

Plant and equipment 2013 £000

2012 £000

Cost: At start of year 1,619 1,338Additions 109 294Disposals – (13)

At end of year 1,728 1,619

Depreciation: At start of year 1,351 1,247Disposals – (13)Provided in the year 151 117

At end of year 1,502 1,351

Net book value:At end of year 226 268

At end of previous year 268 91

12. Intangible assets

Software2013£000

2012£000

Cost: At start of year 105 82Additions 14 23

At end of year 119 105

AmortisationAt start of year 90 80Provided 16 10

At end of year 106 90

Net Book ValueAt end of year 13 15

At end of previous year 15 2

13. Investment in subsidiary undertakingThe Company held an investment in the following subsidiary undertaking at 31 December 2013 and 31 December 2012:

Subsidiary undertaking Country of incorporation Principal activity Class of shares Holding

Sphere Medical Limited England Medical diagnostics Ordinary 100%

Voting rights are in accordance with the percentage of ordinary share ownership. All shares are held in the name of Sphere Medical Holding plc.

The subsidiary undertaking has been included in the consolidated financial statements.

14. Trade and other receivablesAmounts falling due within one year:

2013£000

2012£000

Trade receivables 5 41VAT 46 41Other receivables 35 40

86 122


15. Trade and other payables

2013£000

2012£000

Trade payables 311 480Social security and other taxes 89 78Amounts owed to pension scheme 11 14Accruals 453 394

864 966

16. InvestmentCash held on fixed-term deposits of more than three months and therefore not readily convertible into cash are shown as an investment.

17. Obligations under finance leasesCertain of the Group’s assets for manufacturing are held under finance lease arrangements. The net carrying amount of the assets held under the leases is £16,000 (2012 – £28,000). The assets are included in the total shown in Note 11 “Property, plant and equipment”.

The repayment profile of these leases is as follows:

2013£000

2012£000

– Within one year 15 13– Within one to two years 3 15– More than two years – 2

18 30

Gross payments due are £19,000 (2012 – £34,000). Interest included in those payments is £1,000 (2012 – £4,000).

18. Derivative liabilitiesDuring the year to 31 December 2010 the Company issued a total of 1,531,464 warrants to subscribe for Ordinary Shares to the holders of the 8% Fixed Rate Secured Loan Notes 2010, of which 510,487 automatically lapsed in the year to 31 December 2010. Each Warrant 2010 entitles the holder to subscribe for one Ordinary Share at a subscription price of £1.70 at any time up to 2 February 2015. None of the subscriptions rights attached to the Warrants 2010 has been exercised since they were issued. On 10 November 2011 the company entered into further agreements providing parties with the right to subscribe for an aggregate of 4,554 Ordinary Shares at an exercise price of £1.70 per share with such rights lapsing on the seventh anniversary of entry into such further agreements. The number of Ordinary Shares under the warrant instruments are subject to adjustment if new Ordinary Shares are issued at less than £1.70. On the new share issue during the year a further 383,186 warrants were issued leaving 1,586,497 warrants 2010 in issue at the period end. The warrants have been measured at fair value using the Black-Scholes Model for which the share price was taken at £0.285 (2012 – £0.7), the exercise price at £1.70 (2012 – £1.70), the risk-free interest rate was 0.49% (2012 – 0.49%), the dividend rate nil (2012 – nil). At 31 December 2013 the remaining life was 1.1115 years (2012 – 2.1115) for the 2010 warrants and 4.866 years (2012 – 5.866 years) for 2011 warrants.

19. Share capital

2013 2012Start of period End of period Start of period End of period

Issued and fully paidOrdinary Shares (number) of £0.01 36,805,644 59,208,660 36,805,644 36,805,644

Ordinary Shares (nominal) of £0.01 £368,057 £592,087 £368,057 £368,057

Share issue22,403,016 Ordinary Shares of £0.01 were allotted fully paid for cash at £0.40 each and admitted to trading on AIM on 17 July 2013.

Warrants to subscribe for Ordinary SharesDuring the year a total of 4,547,936 Warrants to subscribe Ordinary Shares were issued. 50% of the warrants entitle the holder to subscribe for one Ordinary Share at a subscription price of £0.44 and the remaining 50% at a subscription price of £0.925 in each case at any time up to 21 July 2018. These warrant instruments are classified as equity. None of the subscription rights attaching to the Warrants were exercised during the year.




19. Share capital continuedShare optionsShare options are awarded to all Directors and permanent employees who have completed their probationary period at the time of the Remuneration Committee’s review which is generally held annually.

At 31 December 2012 the Company had outstanding options over Ordinary Shares as follows:

Date granted

Exercise price per

Ordinary Share

Number of shares at

31 December 2012

Granted during the year

Exercised during

the yearLapsed during

the year

Number of shares at

31 December 2013 Scheme

Life of option and vesting

Estimated fair value

(see below)

22 July 2004 £0.1325 311,330 – – – 311,330 EMI (1) £0.06020 Dec 2005 £1.25 40,000 – – – 40,000 EMI (2) £0.56320 Dec 2005 £1.25 100,470 – – – 100,470 Unapproved (3) £0.5631 Feb 2006 £1.25 86,110 – – – 86,110 EMI (4) £0.56313 Nov 2006 £1.55 304,830 – – (13,000) 291,830 EMI and Unapproved (5) £0.69815 May 2007 £1.55 10,000 – – (10,000) – EMI (6) £0.73011 Dec 2007 £1.55 10,000 – – (10,000) – EMI (7) £0.7309 Dec 2008 £1.70 38,750 – – (36,250) 2,500 EMI & Unapproved (8) £0.70213 Jan 2009 £1.70 170,757 – – – 170,757 EMI & Unapproved (9) £0.69926 Oct 2011 £0.925 18,245 – – – 18,245 EMI & Unapproved (10) £0.38231 Oct 2011 £0.925 1,619,448 – – – 1,619,448 EMI & Unapproved (10) £0.38218 May 2012 £0.925 70,000 – – – 70,000 Unapproved (10) £0.33418 May 2012 £1.25 350,000 – – (350,000) – Unapproved (11) £0.27341 June 2012 £0.925 697,410 – – (195,750) 501,660 EMI (10) £0.334

Total 3,827,350 – – (615,000) 3,212,350

(1) Fully vested. Expiry 21 July 2014.(2) Fully vested. Expiry 19 December 2015.(3) Fully vested. Expiry 5 May 2015.(4) Fully vested. Expiry 31 January 2016.(5) Fully vested. Expiry 12 November 2016.(6) Fully vested. Expiry 14 May 2017.(7) Fully vested. Expiry 10 December 2017.(8) Fully vested Expiry 8 December 2008.(9) Fully vested. Expiry 12 January 2009.(10) Vesting 50% after one year, 25% after two years and the remaining 25% after three years.(11) Vesting 100% are conditional upon the Company signing a commercial agreement relating to Proxima. The percentage of share options which vested reduced over time up

until 31 March 2013 at which point they lapsed.

The estimated fair value of each share option was calculated by applying the Black-Scholes option pricing model. The model inputs were the exercise price, expected volatility of 20% for all options granted to February 2008, 25% for all options granted to October 2011 and 39% for all subsequent grants), no expected dividends, contractual life to the expiry date of the option. Early exercise is not considered likely and therefore there have been no adjustments in this respect. Management has determined volatility based on market movements in the share price. The risk-free interest rate was taken as 5.00% for all options granted in 2004 to 2006, 5.50% for the options granted in 2007, 5.25% for the options granted on 21 February 2008, 3.00% for the options granted from December 2008 to October 2011 and 0.49% for all subsequent grants.

The charge arising from share options was £141,000 (2012 – £527,000).

Further details of the share option plans are as follows:

2013 Number of

options

2013 Weighted

average exercise

price £

2012 Number of

options

2012 Weighted

average exercise

price £

Outstanding at start of year 3,827,350 0.998 3,181,100 1.08Granted – – 643,750 1.103Lapsed (615,000) 1.189 (37,500) 1.66Exercised – – – –

Outstanding at end of year 3,212,350 0.394 3,787,350 0.998

The options outstanding at 31 December 2013 had a weighted average remaining contractual life of 6.215 years (2012 – 6.661 years) of which 2,517,097 (2012 – 1,851,094) were exercisable at 31 December 2013.


19. Share capital continuedThe Articles restrict the granting of any option or other right to subscribe for shares other than to employees or Directors of the Company or any of its subsidiaries who were not employed or in office at 16 February 2005 pursuant to any Company Share Scheme provided that the number of Ordinary Shares subject to such options under all Company Share Schemes at any time does not exceed in aggregate 12% of the issued shares of the Company.

The total number of options granted at 31 December 2013 is 3,212,350 which represents 5.4% of the issued share capital (5.1% of the enlarged share capital if all options and warrants are exercised) and the total subscription monies are £3,115,000 (equivalent to an average subscription price of £0.394 per share held under option). Of the options held, 1,400,458 (equivalent to 2.4% of the issued share capital) are held by individuals who were employed or in office at 16 February 2005 and 1,811,892 (equivalent to 3.1% of the issued share capital) were held by individuals who were not employed or in office at 16 February 2005.

20. Reconciliation of operating loss to operating cash flows2013 £000

2012 £000

Operating activities – loss for the period before interest and tax (5,661) (8,024)Depreciation 151 117Amortisation 16 10Share-based payments 141 527Decrease/(Increase) in inventory 32 (54)Decrease in trade and other receivables 36 110Increase/(Decrease) in trade and other payables (102) 281Non-cash expense 4 –Taxes received 753 410

(4,630) (6,623)

21. Related party transactionsThe Company has taken advantage of the exemption from disclosing transactions with other members of the Group headed by Sphere Medical Holding plc that are eliminated on consolidation within the Group financial statements.

22. Cash and cash equivalentsFor the purposes of the cash flow statement, cash and cash equivalents includes cash on hand and at banks and accrued interest on bank deposits.

23. Financial commitmentsThe following financial commitments existed and have not been included elsewhere as a liability in the financial statements, principally because the period or event to which they relate falls outside the year:

2013 £000

2012 £000

Property lease (amount due within 6 month notice period) 94 89

24. Contingent liabilitiesThere were no contingent liabilities at 31 December 2013 (2012 – £nil).

25. Risk management objectives and policiesThe Group is exposed to market risk, specifically currency risk and interest rate risk, which result from both its operating and investing activities. The Group’s risk management focuses on securing the Group’s short to medium-term cash flows by minimising the exposure to financial markets.

Financial assets and liabilities are measured at fair value in the statement of financial position in accordance with the fair value hierarchy. This hierarchy groups financial assets and liabilities into three levels based on the significance used in the measurement of the fair value of the financial assets and liabilities. The fair value hierarchy has the following levels:• Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;• Level 2 – inputs other than quoted market prices included within level 1 that are observable for an asset or liability, either

directly (i.e. as prices) or indirectly (i.e. derived from prices); and• Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).




25. Risk management objectives and policies continuedThe level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement.

The derivative liability, being the calculated fair value of warrants in issue, is determined based on Level 3.

25.1 Foreign currency sensitivitySome of the Group’s transactions are carried out in US dollars and in Euros. Exposures to currency exchange rates arise from the Group’s overseas sales and purchases which are primarily denominated in US dollars and in Euros.

To mitigate the Group’s exposure to foreign currency risk, non-Sterling cash flows are monitored. If the amounts and timing of payments due and receivable are determinable with sufficient certainty and the net amounts are significant (i.e. the amounts to be paid and received did not largely offset one another), the Group would consider taking appropriate hedging activity to protect cash-flows that are not expected to be offset by other currency transactions. No such hedging arrangements have so far been entered into.

Foreign currency denominated financial assets and liabilities, translated into Sterling at the closing rate, are all short-term and are as follows:

2013 – £000 2012 – £000 Euros US dollars Euros US dollars

Financial assets 107 2 43 2Financial liabilities (175) (167) (321) (168)

Short-term exposure (68) (165) (278) (166)

The following table illustrates the sensitivity of the net result for the year and equity in regards to the Group’s financial assets and financial liabilities and the Euro/Sterling exchange rate and US dollar/Sterling exchange rate. It assumes a +/- 5% change in the Euro/Sterling exchange rate for the year ended 31 December 2013 (2012 – 5%) and a +/- 5% change in the US dollar/Sterling exchange rate (2012 – 5%). These percentages have been determined based on the average market volatility in exchange rates in the previous 12 months. The sensitivity analysis is based on the Group’s foreign currency financial instruments held at each balance sheet date.

If Sterling had strengthened against the Euro and the US dollar by 5% (2012 – 5%) and 5% (2012 – 5%) respectively then this would have had the following impact:

2013 – £000 2012 – £000

Difference arising from

change in Euros


change in US dollars Total


change in Euros



Net result for the year +3 +8 (4,759) +11 +5 (7,333)Equity +3 +8 8,742 +11 +5 4,854

If Sterling had weakened against the Euro and the US dollar by 5% (2012 – 5%) and 5% (2012 – 5%) respectively then this would have had the following impact:

2013 – £000 2012 – £000


change in Euros




change in Euros



Net result for the year –3 –8 (4,781) –11 –5 (7,365)Equity –3 –8 8,719 –11 –5 4,822

Exposures to foreign currency exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless the analysis above is considered to be representative of the Group’s exposure to currency risk.


25. Risk management objectives and policies continued25.2 Interest rate sensitivityThe Group’s policy is to minimise interest rate cash flow risk exposures on long-term financing. At 31 December 2013, the Group was exposed to changes in market interest rates though its bank deposits, which are subject to variable interest rates. As in previous years, all other borrowings have fixed rates.

The following table illustrates the sensitivity of the net result for the year and equity to a reasonably possible change in interest rates of +3% (2012: +3%), with effect from the beginning of the year. These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on the Group’s financial instruments held at each balance sheet date. All other variables are held constant.

2013 – £000 2012 – £000 +3% –3% +3% –3%

Net result for the year (4,550) N/A (7,282) N/AEquity 8,951 N/A 4,905 N/A

25.3 Credit risk analysisThe Group’s exposure to credit risk is limited to the carrying value of financial assets recognised at the balance sheet date, as summarised below:

2013 £000

2012 £000

Classes of financial assets – carrying amounts: Cash and cash equivalents 9,251 2,879Investment – 2,500Trade and other receivables 5 81

Total 9,256 5,460

The Group monitors defaults of customers and other counterparties and incorporates this information into its credit risk controls. Where available at reasonable cost, external credit ratings and/or reports on customers and other counterparties are obtained and used. The Group’s policy is to deal only with credit-worthy counterparties.

Management considers that all the above financial assets for each of the reporting dates under review are of good credit quality. None of the Group’s financial assets is secured by collateral or other credit enhancements.

In respect of trade and other receivables, the Group is not exposed to any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics.

The credit risk for liquid funds and other short-term financial assets relates to the banking institutions holding such funds and assets on behalf of the Group and may therefore be higher in conditions of general banking uncertainty. While the counterparties are reputable banks with high quality external credit ratings, the Group nevertheless splits its deposits between different institutions in order to reduce risk.

25.4 Liquidity risk analysisThe Group manages its liquidity needs by monitoring cash outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling monthly projection. Long-term liquidity needs are identified monthly.

The Group maintains cash and cash equivalents to meet its liquidity requirements for up to a 30-day period.

At 31 December 2013, the Group’s liabilities had contractual maturities which are summarised below:

Current – £000 Non-current – £000

Within

6 months6 to 12

months1 to 5 years

Later than 5 years

Finance lease obligations 8 8 3 –Trade payables 311 – – –Other short term financial liabilities 453 – – –

771 8 3 –

These warrants classified as liabilities have a contractual maturity of one year.




25. Risk management objectives and policies continuedThis compares to the maturity of the Group’s financial liabilities at 31 December 2012 as follows:

Current – £000 Non-current – £000

Within

6 months6 to 12

months1 to 5 years

Later than 5 years

Finance lease obligations 8 8 18 –Trade payables 480 – – –Other short-term financial liabilities 394 –

882 8 18 –

The above contractual maturities reflect the gross cash flows, which may differ from the carrying values of the liabilities at the balance sheet date.

25.5 Summary of financial assets and liabilities by category

2013 – £000 2012 – £000

Balance sheet headings – assets Loans and

receivablesNon-financial

assets

Total for balance

sheet heading

Loans and receivables

Non-financial assets

Total for balance

sheet heading

Cash and cash equivalents 9,251 – 9,251 2,879 – 2,879Investment – – – 2,500 – 2,500Trade receivables – current 5 – 5 41 – 41VAT – 46 46 – 41 41Other receivables – current 35 – 35 40 – 40

Total 9,291 46 9,337 5,460 41 5,501

2013 – £000 2012 – £000

Balance sheet headings – liabilities

Financial liabilities at

amortised cost Other

Total for balance

sheet heading

Financial liabilities at amortised

cost Other

Total for balance

sheet heading

Liabilities:Trade payables 389 – 389 480 – 480Social securities and other taxes – 89 89 – 78 78Amounts owing to pension scheme – 11 11 – 14 14Accruals 375 – 375 394 – 394Finance lease liability – current – 15 15 – 13 13Finance lease liability – non-current – 3 3 – 17 17

Total 764 118 882 904 92 996

Financial liability at fair value Other

Total for balance

sheet heading

Financial liability at fair

value Other

Total for balance

sheet heading

Derivative liability – – – 19 – 19

The fair value of financial assets and liabilities is considered the same as the carrying values.


26. Capital management policies and procedures

2013 £000

2012 £000

Equity shareholders’ funds 8,731 4,838Cash and liquid funds 9,251 5,379

The Group’s capital management objectives are:• to ensure the Group’s ability to continue as a going concern; and• to provide an adequate return to shareholders.

Given that the Group remains in the development phase for its products, in achieving these objectives the Group generally aims to:• have sufficient available capital at any point to allow it to carry out the next phases of its product development programme; and• avoid payment obligations which would exceed its likely income.

To satisfy the objective the Group successfully raised £9.0 million (before expenses) in equity during the year.

Correspondingly, the significant majority of the Group’s funding during the year was through permanent equity capital which carries no dividend obligations and no redemption rights.

During the year the Group had no external financial covenants.




INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SPHERE MEDICAL HOLDING PLCWe have audited the parent company financial statements of Sphere Medical Holding plc for the year ended 31 December 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 auditorsAs explained more fully in the Statement of Directors’ Responsibilities set out on page 18, 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 statementsA description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/apb/scope/private.cfm.

Opinion on financial statementsIn our opinion the parent company financial statements:• give a true and fair view of the state of the parent company's affairs as at 31 December 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.

Opinion on other matter prescribed by the Companies Act 2006In our opinion the information given in the Strategic Report and the Directors’ Report 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 exceptionWe 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 matterWe have reported separately on the Group financial statements of Sphere Medical Holding plc for the year ended 31 December 2013.

Alison SeekingsSenior Statutory Auditorfor and on behalf of Grant Thornton UK LLPStatutory Auditor, Chartered AccountantsCambridge

26 February 2014


Notes2013£000

2012£000

Fixed assetsInvestmentsShares in group undertakings 3 1,359 1,257Loans to group undertakings 3 35,741 31,380

37,100 32,637Current assetsDebtors 4 5 23Cash at bank and in hand 9,102 5,219

9,107 5,242Creditors: amounts falling due within one year 5 (36) (55)

Net current (liabilities)/assets 9,071 5,187

Net assets 46,171 37,824

Capital and reservesCalled up share capital 6 592 368Share premium account 7 46,556 38,258Other reserve 7 2,854 2,870Profit and loss account 7 (3,831) (3,672)

Equity shareholders’ funds 7 46,171 37,824

The accompanying notes are an integral part of this balance sheet.

Approved by the Board on and signed on its behalf:

Company number 4179503

AF Martin FMS HallDirector Director

BALANCE SHEETAt 31 December 2013


1. Accounting policiesThe separate financial statements of the Company are presented as required by the Companies Act 2006. They have been prepared under the historical cost convention and in accordance with applicable UK accounting standards and law.

The principal accounting policies are summarised below. They have been applied consistently throughout the year.

Profit and loss accountNo profit and loss account is presented for Sphere Medical Holding plc as provided by Section 408 of the Companies Act 2006. The Company’s loss for the financial year after tax, determined in accordance with the Act, was £316,000 (2012 loss – £250,000) and is included in the Group loss for the year.

The auditor’s remuneration for audit services to the Group was £39,000 (2011 – £27,500) and was borne entirely by the Company. Non-audit services provided by the Company’s auditor amounted to £3,000 (2012 – £6,000).

Details of the Directors’ emoluments and their interests in the share capital of the Group are set out on pages 16-17.

Share optionsAll share-based payment transactions granted by the Company since 7 November 2002 are recognised in the Group financial statements save for options granted that had already vested by 1 January 2005.

The Company issues equity-settled share-based payments to its Directors, as well as employees (including Directors) of its subsidiary, Sphere Medical Limited. In accordance with FRS 20, for all grants of share options and awards the cost of the equity-settled share-based payments is measured at fair value at the date of grant. Where employees are rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument granted to the employee. The fair value is appraised at the grant date and excludes the impact of non-market vesting conditions. That fair value is expensed on a straight-line basis over the vesting period for the related options based upon the Company’s estimate of the shares that will eventually vest, with a corresponding credit to “other reserves” for Directors providing services solely to the Company. The fair value for Directors and employees of the Company’s subsidiary Sphere Medical Limited is added to the cost of the investment in that subsidiary.

No expense is recognised for awards that do not ultimately vest as a result of the relevant employee ceasing to be employed by the Group.

Fair value is measured using the Black-Scholes Option Pricing Model. The expected life used in the model is the expiry date of the options.

Upon exercise of share options, the proceeds received net of any directly attributable transaction costs up to the value of the shares issued are allocated to share capital with any excess being recorded as additional paid-in capital.

Going concernAt 31 December 2013 the cash balance available to the Company was £9,102,000 (2012 – £5,219,000).

The Company funds the activities of its sole subsidiary, Sphere Medical Limited, through an intercompany loan as the income generated by the subsidiary is insufficient to cover its activities. For the year to 31 December 2013, the cash outflow of the Group from operating activities was £4,630,000 (2012 - £6,623,000) and the balance on the loan at that date was £35,741,000 (2012 – £31,380,000).

Sphere Medical’s revenues from sales of products are not expected to be sufficient for the Group to become cash generative from commercial operations over the next 12 months. Nevertheless, the Board’s confidence that the development and commercialisation of the Group’s products, in particular Proxima, will prove to be successful has been increased very considerably by the notification that TÜV SÜD Product Service GmbH in Munich is undertaking its formal review ratification process ahead of an anticipated issue of the Proxima system being awarded CE Mark certification under the EU Medical Devices Directive. The Group intends to launch Proxima in the UK in 2014, initially in key strategic teaching hospitals and subsequently in targeted clinical application areas suitable for early adoption of the Proxima system. Furthermore, the Group has received Research Ethics Committee approval at Queen Elizabeth Hospital, Birmingham to undertake a Proxima clinical study to compare data from a conventional blood gas analyser with those obtained from the CE Marked Proxima system. This study is expected to commence following receipt of the CE Mark approval.

Based on the £9.3 million of cash and amounts on deposit as at 31 December 2013 available to the Group, together with the 2014 budget approved by the Board of Directors and the Business Plan for 2014, the Company will have sufficient funding for the next 12 months from the date these financial statements have been approved for issue by the Board of Directors.

Share capitalThe Company’s Ordinary Shares and non-financial derivative instruments are classified as equity. Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.

NOTES TO THE FINANCIAL STATEMENTS


1. Accounting policies continuedInvestmentsFixed asset investments are shown at cost less any provision for impairment.

The carrying values of investments are reviewed for impairment in periods if events or changes in circumstances indicate the carrying value may not be recoverable.

Related party transactionsIn accordance with FRS 8 “Related party disclosures”, the Company is exempt from disclosing transactions with entities that are wholly owned as the Company is a parent company publishing its financial statements.

2. Staff costsParticulars of employees are as shown below.

Employee costs during the year amounted to:2013£000

2012£000

Wages and salaries 109 109Social security costs 12 12Pension costs – –Other benefits – –Charge in respect of share options 39 108

160 229

2013Number

2012Number

Average monthly number of employees during the year 3 3

The Company’s only employees are the Directors. The above does not include the employee costs of Stuart Hendry and Matthew Hall who were Directors of both Sphere Medical Limited and Sphere Medical Holding plc and are paid by Sphere Medical Limited.

3. Investments

Loans£000

Capital contribution

£000

Cost: At 1 January 2013 31,380 1,257Additions 4,361 102

At 31 December 2013 35,741 1,359Amounts written off: At 1 January 2013 and 31 December 2013 – –

Net book value:At 31 December 2013 35,741 1,359At 31 December 2012 31,380 1,257

The loan is to Sphere Medical Limited and is used by that company for working capital requirements. The loan is interest-free, is unsecured and has no fixed date for repayment.

Included within investments in subsidiaries is £1,359,000 (2012 – £1,257,000) which represents the share investment and a capital contribution made to Sphere Medical Limited via the issue of share options to that company’s employees.

The Company held an investment in the following subsidiary undertaking at 31 December 2012 and 31 December 2013:

Subsidiary undertaking Country of incorporation Principal activity Class of shares Holding

Sphere Medical Limited England Medical diagnostics Ordinary 100%

Voting rights are in accordance with the percentage of ordinary share ownership. All shares are held in the name of Sphere Medical Holding plc.

The subsidiary undertaking has been included in the consolidated financial statements.



4. DebtorsAmounts falling due within one year:

2013£000

2012£000

VAT 5 4Other debtors – 19

5 23

5. Creditors: amounts falling due within one year

2013£000

2012£000

Trade creditors 8 33Accruals and deferred income 28 22

36 55

6. Share capital

2013 2012Start of period End of period Start of period End of period

Issued and fully paidOrdinary Shares (number) of £0.01 36,805,644 59,208,660 36,805,644 36,805,644

Ordinary Shares (nominal) of £0.01 £368,057 £592,087 368,057 368,057

Further details of the share capital and options are given in Note 19 of the Group accounts.

7. Reconciliation of movements in reserves and in shareholders’ funds

Called up share capital

£000

Share premium

reserve£000

Profit and loss account

£000

Other reserve

£000

2013Total£000

2012Total£000

Issue of share capital 224 8,737 – – 8,961 –Issue expenses – (439) – – (439) –Charge in respect of share option plans – – – 141 141 527Reclassification following lapse of options – – 157 (157) – –Loss for the period – – (316) – (316) (250)

Net addition to shareholders’ funds 224 8,298 (159) (16) 8,347 277Opening shareholders’ funds 368 38,258 (3,672) 2,870 37,824 37,547

Closing shareholders’ funds 592 46,556 (3,831) 2,854 46,171 37,824

The called up share capital, share premium and other reserve are non-distributable.

The profit and loss account is distributable.

8. Financial commitmentsThe following financial commitment existed at 31 December 2013 and has not been included elsewhere in the financial statements, principally because the period or event to which it relates falls outside the year to 31 December 2013.

2013£000

2012£000

Property lease (amount due within 6 months’ notice period) 94 94

9. Related party transactionsThe Company has taken advantage of the exemption under FRS 8 “Related Party Disclosures” from disclosing transactions with other members of the Group headed by Sphere Medical Holding plc as consolidated financial statements are prepared.


NOTICE IS HEREBY GIVEN that the Annual General Meeting of Sphere Medical Holding plc (the “Company”) will be held at Harston Mill, Harston, Cambridge CB22 7GG on Friday 28 March 2014 at 11:00 a.m. for the following purposes.

Ordinary businessAs ordinary business, to consider and, if thought fit, pass the following ordinary resolutions:1. To receive and adopt the Directors’ report and the financial statements of the Company for the financial year ended

31 December 2013 (together with the Independent Auditor’s report thereon).2. To receive the Directors’ emoluments as set out in the Directors’ report for the year ended 31 December 2013.3. To re-elect Mr Stephen Mahle who retires by rotation in accordance with the Company’s articles of association, and offers

himself for re-appointment, as a Director of the Company.4. To re-appoint as a Director of the Company Dr Wolfgang Rencken, who has been appointed since the last annual general

meeting and offers himself for re-appointment in accordance with the Company’s articles of association.5. To re-elect Grant Thornton UK LLP as auditors and to authorise the Directors to determine the auditors’ remuneration.

Special businessAs special business, to consider and, if thought fit, pass resolution 6 as an ordinary resolution and resolution 7 as a special resolution.

Ordinary resolution6. That the Directors be generally and unconditionally authorised for the purposes of section 551 of the Companies Act 2006 (the

“Act”) to exercise all the powers of the Company to:a. allot shares in the Company and grant rights to subscribe for or convert any security into shares in the Company up to an

aggregate nominal amount of £197,362; andb. allot equity securities (as defined in section 560 of the Act) up to an aggregate nominal amount of £394,724 (such amount

to be reduced by the nominal amount of any shares allotted or rights granted under paragraph (a) of this resolution 6) in connection with an offer by way of a rights issue to:i. the holders of ordinary shares in the Company in proportion (as nearly as may be practicable) to the respective numbers

of ordinary shares held by them; andii. holders of other equity securities, as required by the rights of those securities or, subject to such rights, as the Directors

of the Company otherwise consider necessary,

and so that the Directors of the Company may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter.

These authorities shall apply in substitution for all previous authorities (but without prejudice to the validity of any allotment pursuant to such previous authority) and shall expire at the end of the next annual general meeting of the Company or, if earlier, 15 months after the date of this resolution, save that the Company may before such expiry make any offer or agreement which would or might require shares to be allotted or rights granted to subscribe for or convert any security into shares after such expiry and the Directors may allot shares or grant such rights in pursuance of any such offer or agreement as if the power and authority conferred by this resolution had not expired.

Special Resolution7. That, subject to the passing of resolution 6 above, the Directors be generally and unconditionally empowered for the purposes

of section 570 of the Act to allot equity securities (within the meaning of section 560 of the Act) for cash:a. pursuant to the authority conferred by resolution 6 above; orb. where the allotment constitutes an allotment by virtue of section 560(3) of the Act,

in each case as if section 561 of the Act did not apply to any such allotment, provided that this power shall be limited to:

i. the allotment of equity securities in connection with an offer of equity securities (but in the case of an allotment pursuant to the authority granted under paragraph (b) of resolution 6, such power shall be limited to the allotment of equity securities in connection with an offer by way of a rights issue only) to:a. the holders of ordinary shares in the Company in proportion (as nearly as may be practicable) to the respective

numbers of ordinary shares held by them; andb. holders of other equity securities, as required by the rights of those securities or, subject to such rights, as the

Directors of the Company otherwise consider necessary,

and so that the Directors of the Company may impose any limits or restrictions and make any arrangements which it considers necessary or appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter; and

NOTICE OF ANNUAL GENERAL MEETING(incorporated and registered in England and Wales under number 04179503)


ii. the allotment of equity securities, other than pursuant to paragraph (i) above of this resolution, up to an aggregate nominal amount of £59,208.

This power shall (unless previously renewed, varied or revoked by the Company in general meeting) expire at the conclusion of the next annual general meeting of the Company following the passing of this resolution or, if earlier, on the date 15 months after the passing of such resolution, save that the Company may before the expiry of this power make any offer or enter into any agreement which would or might require equity securities to be allotted, or treasury shares sold, after such expiry and the Directors may allot equity securities or sell treasury shares in pursuance of any such offer or agreement as if the power conferred by this resolution had not expired.

By order of the Board

Matthew HallCompany Secretary

Registered Office:Harston Mill, Harston, Cambridge CB22 7GGRegistered in England and Wales No. 04179503

Notes:1. Members are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at

the meeting and at any adjournment of it. A member may appoint more than one proxy in relation to the meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that member. If a proxy appointment is submitted without indicating how the proxy should vote on any resolution, the proxy will exercise his discretion as to whether and, if so, how he votes.

2. A proxy need not be a member of the Company. A proxy form which may be used to make such appointment and give proxy instructions accompanies this notice. If you do not have a proxy form and believe that you should have one, or if you require additional forms, please contact the Company’s Registrars, Equiniti on 0871 384 2030. Calls to this number are charged at 8p per minute from a BT landline. Other telephone provider costs may vary. The Equiniti overseas helpline is +44 (0)121 415 7593. Lines are open 8.30 a.m. to 5.30 p.m., Monday to Friday.

3. To be valid any proxy form or other instrument appointing a proxy must be received by post or (during normal business hours only) by hand to the Company’s Registrars, Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA or via e-mail to [email protected], in each case no later than 11:00 a.m. on Wednesday 26 March 2014 together with, if appropriate, the power of attorney or other authority (if any) under which it is signed or a duly certified copy of that power or authority.

4. The return of a completed proxy form will not prevent a member attending the meeting and voting in person if he/she wishes to do so.

5. A vote withheld option is provided on the form of proxy to enable you to instruct your proxy not to vote on any particular resolution, however, it should be noted that a vote withheld in this way is not a ‘vote’ in law and will not be counted in the calculation of the proportion of the votes ‘For’ and ‘Against’ a resolution.

6. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding (the first-named being the most senior).

7. If a member submits more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence.

8. Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares.

9. The following documents will be available for inspection during normal business hours at the registered office and at the office of the company from the date of this notice (Saturdays, Sundays and public holidays excepted) until the end of the AGM:• Copies of the Executive Directors’ service contracts • Copies of letters of appointment of the Non-Executive Directors

10. A copy of this notice, and other information required by section 311A of the Companies Act 2006 can be found at www.spheremedical.com.


NOTICE OF ANNUAL GENERAL MEETING CONTINUED

EXPLANATORY NOTESThe notes on the following pages give an explanation of the proposed resolutions.

Resolutions 1 to 6 are proposed as ordinary resolutions. This means that for each of those resolutions to be passed, more than half of the votes cast must be in favour of the resolution. Resolution 7 is proposed as a special resolution. This means that for that resolution to be passed, at least three-quarters of the votes cast must be in favour of the resolution.

Directors’ report and financial statements (Resolution 1)The Directors of the Company must present the accounts to the meeting.

Directors’ emoluments (Resolution 2)In line with legislation, this vote will be advisory and in respect of the overall remuneration package and not specific to individual levels of remuneration. You can find the Director’s emoluments within the directors’ report on page 17 of the Company’s annual report and accounts.

Re-election of Directors (Resolution 3 and 4)The Company’s articles of association require that all Directors retire at least every three years and that all newly appointed Directors retire at the first Annual General Meeting following their appointment.

At this meeting, Dr Wolfgang Rencken and Mr Stephen Mahle will each retire and stand for re-election as directors. A short biography of each Director is given in the accompanying report. Having recently appointed Dr Wolfgang Rencken, the Board recommends his re-election. Having considered the performance of and contribution made by Mr Stephen Mahle, the Board remains satisfied that his performance continues to be effective and to demonstrate commitment to the role and, as such, recommends his re-election.

Reappointment and remuneration of auditors (Resolution 5)Resolution 5 proposes the reappointment of Grant Thornton UK LLP as auditors of the Company and authorises the Directors to set their remuneration.

Directors’ authority to allot shares (Resolution 6)The purpose of resolution 6 is to renew the Directors’ authority to allot shares.

The authority in paragraph (a) will allow the Directors to allot new shares in the Company or to grant rights to subscribe for or convert any security into shares in the Company up to a nominal value of £197,362. There is no present intention of exercising this general authority.

The authority in paragraph (b) will allow the Directors to allot new shares or to grant rights to subscribe for or convert any security into shares in the Company only in connection with a pre-emptive rights issue up to an aggregate nominal value of £394,724 (inclusive of the nominal value sought under paragraph (a) of the resolution). This is in line with corporate governance guidelines. There is no present intention to exercise this authority.

As at the date of this notice, the Company did not hold any shares in treasury.

If the resolution is passed, the authority will expire on the earlier of 27 June 2015 (the date which is 15 months after the date of the resolution) and the end of next Annual General Meeting of the Company in 2015.

Disapplication of pre-emption rights (Resolution 7)If the Directors wish to allot new shares or grant rights over shares or sell treasury shares for cash (other than pursuant to an employee share scheme) company law requires that these shares are first offered to existing shareholders in proportion to their existing holdings. There may be occasions, however, when the Directors will need the flexibility to finance business opportunities by the issue of ordinary shares without a pre-emptive offer to existing shareholders. This cannot be done unless the shareholders have first waived their pre-emption rights.

Resolution 7 asks the shareholders to do this and, apart from rights issues or any other pre-emptive offer concerning equity securities, the authority will be limited to the issue of shares for cash up to an aggregate nominal value of £59,208 (which includes the sale on a non pre-emptive basis of any shares held in treasury). The Company undertakes to restrict its use of this authority to a maximum of 7.5 per cent of the Company’s issued ordinary share capital in any three-year period. Shareholders will note that this resolution also relates to treasury shares and will be proposed as a special resolution.

This resolution seeks a disapplication of the pre-emption rights on a rights issue so as to allow the Directors to make exclusions or such other arrangements as may be appropriate to resolve legal or practical problems which, for example, might arise with overseas shareholders. If given, the authority will expire at the conclusion of the next Annual General Meeting of the Company in 2015 or, if earlier, 27 June 2015 (the date which is 15 months after the passing of the resolution).


CONTACTS AND ADVISERS

Investor relations contacts at Sphere MedicalWolfgang Rencken (CEO) – [email protected] Matthew Hall (CFO) – [email protected]

ADVISERSNominated Adviser and Broker Peel Hunt LLP, Moor House120 London WallLondon EC2Y 5ET

SolicitorsTaylor Wessing LLP5 New Street SquareLondon EC4A 3TW

AuditorsGrant Thornton UK LLP101 Cambridge Science ParkMilton RoadCambridge CB4 0FY

Financial PRConsilium Strategic CommunicationsCityPoint11th Floor1 Ropemaker StreetLondon EC2Y 9AW [email protected]

Patent and trade mark attorneysElkington & FifeThavies Inn House3-4 Holborn CircusLondon EC1N 2HA

RegistrarsEquinitiAspect HouseSpencer RoadLancingWest Sussex BN99 6DA

SPHEREMEDICAL.COM

Sphere Medical Holding plcHarston MillHarstonCambridgeCB22 7GG

Tel: +44 (0)1223 875222Fax: +44 (0)1223 875284

Sphere Medical Holding plc Annual Report and Accounts 2013

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