Preliminary Results for the year ended 31 Dec 2014

13 April 2015

Sphere Medical Holding plc

Preliminary Results for the year ended 31 December 2014

Cambridge, UK, 13 April 2015: Sphere Medical Holding plc (AIM: SPHR.L), ("Sphere" or "Sphere Medical" or the "Company") a leading provider of innovative monitoring and diagnostic devices for the critical care setting, announces its audited preliminary results for the year ended 31 December 2014.

Key business highlights for 2014 and post-year end highlights

· Proxima 3 system granted CE marking under the EU Medical Devices Directive

· Successful Proxima 3 Post Market Clinical Follow-up Study at the Queen Elizabeth Hospital Birmingham

· Proxima 3 was launched into the UK market in September 2014 and commercialisation activities are proceeding according to plan with the first intention to purchase from Queen Elizabeth Hospital Birmingham

· Proxima 3 was launched into Europe at the International Symposium on Intensive Care and Emergency Medicine (ISICEM) in Brussels in March 2015

· The Ortho-Clinical Diagnostics Collaboration Agreement continues to progress satisfactorily, focussing on the agreed product enhancements planned for Proxima 4

· Appointed Meinhard Schmidt and Dr David Martyr to the Company's Board as Non-Executive Directors

· Appointed Professor Jean-Louis Vincent and Professor Michael Quintel to the Medical Advisory Board

Financial highlights

· Total operating expenses £5.9 million (2013: £5.7 million) and loss after taxation £5.3 million (2013: £4.8 million)

· Reduced loss per share 9.0p (2013: 10.1p)

· Cash and short-term investments at year end of £3.7 million (2013: £9.3 million)

· Announced today a proposed equity fundraising of up to £13.2 million (before expenses) comprising a Placing of up to £12.0 million and an Open Offer of up to £1.2 million:

o Arthurian Life Sciences has conditionally agreed to invest £4.0 million - Arthurian Life Sciences manages the Wales Life Sciences Investment Fund, a fund raising up to £100 million and key part of the Welsh Government's Life Sciences initiative;

o Woodford Investment Management, on behalf of its clients, has given a non-binding intent to invest up to £4.0 million;

o New and existing institutional investors have conditionally agreed to invest £4.0 million;

o The Fundraising is conditional upon fulfilment of certain conditions including, inter alia:

• minimum gross proceeds of £9.0 million, in aggregate, being raised by the Company pursuant to the Fundraising; and

• Woodford Investment Management, on behalf of its clients, subscribing in the Placing.

o The Fundraising is subject to a general meeting to be held on 30 April 2015 with Admission expected on 1 May 2015

Commenting on today's announcement, Dr. Wolfgang Rencken, Chief Executive Officer of Sphere Medical, said:

"We made significant progress in 2014, transforming Sphere Medical from a research and development orientated company into a commercially-focussed medical devices business.

The Company has very clear near-term commercial value drivers: achieve sales revenues for Proxima 3 in the UK and from our initial target European markets - Germany, Netherlands and Belgium; negotiate a commercial deal on Proxima; and launch Proxima 4 in Europe in the first half of 2016. The recent appointments to our Board of Directors and Medical Advisory Board have further endorsed Proxima as well as bringing considerable experience to assist with the delivery of our well defined commercialisation strategy.

We thank our shareholders for their continued support and look forward to reporting on Sphere Medical's progress during 2015."

For further information, please contact:

Notes for Editors

About Sphere Medical (AIM: SPHR.L)

Sphere Medical is a medical device company developing and commercialising a range of innovative monitoring and diagnostic devices designed to significantly improve patient care.

Sphere Medical's vision is to become a leading solution provider to the critical care market offering innovative, near real time, point of care diagnostic and monitoring products to enable closer control of therapeutic response and improve patient outcomes and reduce the overall cost of care.

The Company's strategy is focused on developing the Proxima (CE marked device) platform for measuring blood gases, electrolytes and metabolites. The Company is already marketing its Proxima product directly to the critical care market, which includes the ICU and OR, with a dedicated field sales force in the UK. Sphere has plans to follow in Germany and Benelux via a direct sales force in Europe and proposes to work with partners for worldwide distribution.

Proxima delivers near real time analysis of blood gases and electrolytes metabolites, at the patient's bedside. Proxima can be used on patients across a wide therapeutic range, enabling faster clinical decision making and improved patient outcomes, whilst potentially reducing costs for healthcare payers.

Sphere Medical entered into a collaboration agreement with Ortho-Clinical Diagnostics, Inc. in 2013 for the development of Proxima and enhancement of Sphere's operational and production capabilities.

Sphere Medical has a number of partnerships with industry leading medical device companies and has received a strategic investment from Ortho-Clinical Diagnostics (now part of Carlyle Group).

For further information, please visit www.spheremedical.com

STRATEGIC REPORT

INTRODUCTION

Since I joined as Chief Executive Officer in February 2014 the Company has undergone a rapid and profound transformation into a commercial medical devices company. We have focussed our efforts on launching Proxima 3 into the UK market and in building a commercial team to support the launch and drive commercial sales. At the same time we have continued with the development of Proxima 4 under the Collaboration Agreement with Ortho-Clinical Diagnostics. In March of this year we launched Proxima 3 in Europe. Proxima continues to be endorsed as a medical device that addresses unmet market need for frequent blood gas measurements for clinically unstable patients and overall I am pleased with the progress we are making and believe that we are well on the way towards becoming a commercially successful company.

Today's announcement of the proposed equity fundraising of up to £13.2 million would provide the Company with the financial resources to deliver material near-term commercial value drivers, including the securing of a commercial partner to maximise the commercial potential of Proxima.

COMMERCIALISATION OF PROXIMA 3

Commercialisation Update

Proxima 3 is being marketed to clinical segments where patient management requires frequent measurements. These areas include:

• Severe sepsis and septic shock

• Acute respiratory distress syndrome (ARDS)

• Major trauma

• Neuro trauma

The primary focus for the Company since the fourth quarter of 2014 has been the launch of Proxima 3 in the UK, building a pipeline of sales leads and converting those leads into recurring sales. Our initial expectation for lead times for generating new sales of between six to nine months is proving realistic.

Proxima 3 was launched into the UK market in September 2014 and commercialisation activities are proceeding according to plan. Strong interest in the product was generated at the Intensive Care Society conference in London in December 2014 and more than 20 prospects have been qualified for product evaluations and sales proposals. For each prospective customer we have been providing detailed cost benefit analysis comparing Proxima against bench top blood gas analysers, focussing specifically on time savings, blood conservation and infection risk. By the end of the financial year, the Company had received its first intention to purchase from Queen Elizabeth Hospital Birmingham.

The evaluations we have undertaken to date have confirmed Proxima's primary value proposition, namely, there is material demand within the ICU setting for Proxima to be used on patient groups which require frequent monitoring.

In March 2015 Proxima was launched into Europe at the International Symposium on Intensive Care and Emergency Medicine (ISICEM) in Brussels. Our intention is to initially focus our sales team activities within the German and Benelux markets. Coinciding with Proxima's European launch, the Company has hired its first sales manager for the German market and is in the final hiring stages of securing a sales manager for the Benelux market. The first European product evaluation has also taken place in Germany.

MARKET VALIDATION

Proxima 3 Post Market Clinical Follow-up Study

In October 2014, the Company announced the successful conclusion to the Proxima 3 Post Market Clinical Follow-up Study at the Queen Elizabeth Hospital Birmingham, UK. The study, which was completed on schedule, met its primary end point to demonstrate agreement with the standard bench top blood gas analysers measuring various arterial blood parameters in a clinical setting.

A total of twenty intensive care unit patients with a range of clinical conditions, including trauma, head injury, post-surgical recovery and sepsis, were included in the study. Patients were connected to the Proxima system for up to three days during which as many as thirty three blood gas measurements were obtained per Proxima device. Use of the Proxima system was carried out by the clinical staff at the Queen Elizabeth Hospital who each underwent an initial ninety minute training programme.

The study results were used to generate a scientific poster which was presented at the March 2015 ISICEM conference in Brussels. Dr Tom Clutton-Brock also presented a paper at the ISICEM conference on "Bedside Blood Analysis". As mentioned above, Sphere has also received an intention to purchase from Queen Elizabeth Hospital Birmingham.

Publications and Clinical Evaluations of Proxima

Proxima featured in an article entitled "Frontline leadership, innovation and best practice: 10 hot topics every critical care nurse should be aware of" by Annette Richardson, Chair of the British Association of Critical Care Nurses National Board, Nurse Consultant Critical Care, Newcastle upon Tyne Hospitals NHS Foundation Trust. The article appeared in the January 2015 edition (Vol. 20 No. 1) of the "Nursing in Critical Care" journal.

Furthermore, a paper on "Beyond point-of-care blood gas analysis" outlining the benefits of Proxima was published in the Clinical Services Journal 2015.

Further data on time and motion and clinical utility will be collected as part of the ongoing sales evaluations and will be published towards the middle of 2015.

Changes to the Board of Directors

In January 2015 the Company announced the appointment of Mr Meinhard Schmidt and Dr David Martyr to the Company's Board as Non-Executive Directors. These appointments, which allow for flexibility in succession planning, have significantly bolstered the Board with two highly experienced professionals with significant experience in commercialising medical devices as well as strong track records in business development and M&A.

Medical Advisory Board

In August 2014 the Company announced the appointment of Professor Jean-Louis Vincent to the Medical Advisory Board (MAB). Professor Vincent is Professor of Intensive Care at the Université Libre de Bruxelles, Head of the Department of Intensive Care, Erasme University Hospital (University of Brussels) and a world authority on intensive care medicine.

In December 2014, the Company announced the appointment of Professor Michael Quintel to the MAB. Professor Quintel is a leading clinician within the German and European intensive care profession. He is the Director of the Department of Anaesthesiology, Emergency and Intensive Care Medicine at the University of Göttingen, Germany.

FUTURE PRODUCT DEVELOPMENT

Proxima 3

Further developments on the Proxima 3 system have been ongoing since the product gained its CE marking. Blood gas results and other data generated by Proxima 3 are now able to be uploaded into both the hospital and laboratory information systems. This capability, originally designed to be a feature of the Proxima 4 system, has been brought forward to facilitate the commercialisation efforts for Proxima 3. Furthermore, in-use evaluations of Proxima in hospitals has led to a number of other minor usability improvements to the Proxima 3 system.

In preparation for the European launch of Proxima 3, the graphical user interface on the monitor, the Instructions for Use manual and all sales material have been translated into German, French and Dutch.

Proxima 4

Proxima 4 will incorporate enhancements which will expand the analytes on the sensor panel and facilitate integration with the hospital and laboratory information systems and patient data services. These enhancements, which are proceeding to plan, are expected to lead to stronger sales penetration as well as significantly expand the geographical reach of Proxima.

Proxima 4 is being developed with Ortho-Clinical Diagnostics under the Collaboration Agreement which was signed in June 2013. This agreement covers all aspects of Proxima 4, including market assessment, product development and the enhancement of Sphere's operational and production capabilities.

The successful completion of the Proxima 4 development programme will allow Ortho-Clinical Diagnostics the opportunity to exercise its option under the Collaboration Agreement to negotiate a proposed global commercialisation deal for Proxima 4, which we expect to take place in the second half of 2015.

Work on the development of Proxima 4 is progressing to plan and we anticipate its launch into Europe in the first half of 2016.

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 goods for all system components.

REGULATORY

In June 2014 the Company received each of the four individual CE marks which comprise the Proxima system, namely: Sensor - Class IIa medical device; Vials - Class I sterile medical device; Flush - Class III infused medical device; and Monitor - Class IIa medical device.

INTELLECTUAL PROPERTY

Our intellectual property portfolio is a key asset and we continue to invest in the maintenance and development of our IP estate. We currently have 21 patents either granted or in application covering chip design, manufacture of miniaturised sensor arrays, sensor design, monitoring and analytical systems and calibration. We have an ongoing process of reviewing the patent register in order to focus our financial support on our core patent families. This ongoing review has resulted in several patent families being discontinued during the period.

FINANCIAL REVIEW

In the year ended 31 December 2014, Sphere recorded product revenue of £14,000 (2013: £40,000), representing the sale of Pelorus consumables and other associated services.

Operating expenses were £5.9 million (2013: £5.7 million). Included in operating expenses are Product Development and Product Realisation costs of £3.5 million (2013: £3.9 million) associated with the development of the Proxima disposable patient-attached arterial blood gas analyser. Selling and marketing expenses were £0.6 million (2013: £0.3 million) and administrative costs were £1.9 million (2013: £1.4 million).

Finance income (net) was £64,000 (2013: £138,000) representing primarily interest earned on cash deposits.

During the year, £524,000 was received in respect of research and development tax claims for 2013 (2013: £753,000 based on 2012 claims). No accrual has been made for any research and development tax claim for the 2014 year.

The loss and total comprehensive income for the year was £5.3 million (2013: £4.8 million). The basic and fully diluted loss per share for the year was 9.0p (2013: 10.1p).

Cash and short-term investments as at the end of the year were £3.7 million (2013: £9.3 million) and the unaudited cash and short-term investments balance as at 31 March 2015 was £2.2 million.

The Sphere Medical Team

Sphere 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 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.

Outlook

We will continue to progress our principal strategic objective of transitioning Sphere Medical into a commercial company centred on serving our customers and generating revenues, profits and growth. In 2015 we will continue to focus our resources on driving sales of Proxima 3 within the UK and into Germany, Netherland and Belgium. On a product development front, we will complete the development of Proxima 4 which will lay the foundations for our forthcoming negotiations to secure a commercial deal with a strong international partner. We look forward to continuing the rapid and profound development of Sphere Medical into a commercially successful company.

Dr. Wolfgang Rencken Matthew Hall

Chief Executive Officer Chief Financial Officer

Consolidated statement of comprehensive income

For the year ended 31 December 2014

Consolidated statement of financial position

At 31 December 2014

Consolidated statement of cash flow

For the year ended 31 December 2014

Consolidated statement of changes in equity

For the year ended 31 December 2014

Notes to preliminary results announcement

For the year ended 31 December 2014

1. General information

Sphere 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 and sale 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.

The consolidated financial statements have been approved for issue by the Board of Directors on 10 April 2015.

2. Basis of preparation

The 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.

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 2.

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.

The financial information in this preliminary results announcement does not constitute the Group's statutory accounts for the year ended 31 December 2014 or the year ended 31 December 2013 as defined in section 434 of the Companies Act 2006, but is derived from those accounts. The Annual Report and Accounts 2013 were approved by the Board of Directors on 26 February 2014 and have been filed with the Registrar of Companies. The report of the auditors on those consolidated financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. The Annual Report and Accounts 2014 will be filed with the Registrar in due course. The auditor has confirmed that the auditor's report that is required to be contained in the Annual Report and Accounts 2014 includes an unmodified opinion together with an emphasis of matter paragraph on going concern relating to the proposed equity fundraising, as described in the Going Concern paragraph below.

Going Concern

At 31 December 2014 the cash balance available to the Group was £3,703,000 while for the year the cash outflow from operating activities was £5,584,000.

The Group'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 principal product, Proxima, will prove to be successful has been increased very considerably by the launch of Proxima 3 into the UK market and associated positive reception it has received. Furthermore, Proxima 3 was also launched into the European market in March 2015.

Subsequent to the end of the year, the Company has announced today that it is proposing to raise up to £13.2 million (gross) by way of a non-underwritten equity fundraising comprising a placing of up to £12.0 million and an open offer of up to £1.2 million. In support of the placing, the Company has received conditional commitments to invest totalling £8.0 million and a non-binding intent to invest from Woodford Investment Management, on behalf of its clients for up to a further £4.0 million. The proposed placing is conditional upon fulfilment of certain conditions including, inter alia, a minimum equity fundraise of £9.0 million (gross); and Woodford Investment Management, on behalf of its clients subscribing to the placing, of which there is no certainty. The Board of Directors have concluded that the combination of these circumstances represents a material uncertainty that may cast significant doubt upon the Group's ability to continue as a going concern and that, therefore, the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.

Based on the £3,703,000 of cash and amounts on deposit as at 31 December 2014 together with the net proceeds of the proposed equity fundraising of up to £13.2 million, the 2015 budget approved by the Board of Directors and the business plan for the period 2016-2019, the Group will have sufficient funding for at least the next 12 months from the date the consolidated financial statements have been approved for issue by the Board of Directors and, as such, the financial statements on which this preliminary announcement is based have been prepared on a going concern basis. For these reasons, the Board of Directors continue to adopt the going concern basis of accounting in preparing the financial statements.

Principal accounting policies

The 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 interpretations

During the year the following standards and interpretations came into effect:

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 applied

The IASB and IFRIC have issued a number of standards and interpretations with an effective date after the date of these financial statements:

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 consolidation

The 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 recognition

Revenue represents the fair value of amounts received or receivable for product sales and services provided and royalties earned, 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 or services have been provided to the customer;

· 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.

Share-based payment transactions

The 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 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".

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 instrument sat 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.

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 currency

Transactions denominated in foreign currencies are recorded in Sterling 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 sterling 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 expenditure

Expenditure 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 R&D 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 equipment

Property, 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.

Intangible assets

Intangible 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 assets

At each balance sheet date the Group reviews the carrying amounts of its property, plant and equipment and intangible assets for any indication that those assets have suffered an impairment loss. For the purpose of this review assets are grouped into cash-generating units. As a result, some assets are tested individually for impairment and some are tested at cash-generating (or potentially cash-generating) unit level. If any indication of impairment exists, an 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. Discount factors are determined individually for each cash-generating unit and reflect their respective risk profiles as assessed by management.

Impairment losses are charged pro rata to the assets in the cash-generating unit. All assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment charge that has been recognised is reversed if the cash-generating unit's recoverable amount exceeds its carrying amount.

Financial assets

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

The 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 income and expenses are recognised in the profit or loss or in other comprehensive income.

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. All other receivables are reviewed for impairment in groups, which are determined by reference to the industry and region of a counterparty and other available features of shared credit risk characteristics, if any. The percentage of the write down is then based on recent historical counterparty default rates for each identified group.

Inventories

Inventories 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 expensed to the consolidated statement of comprehensive income as cost of sales or to the department which acquired them.

Income taxes

Current 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.

Deferred 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. Specific tax rules in the other legislations in which the Group operates are also taken into account. 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.

Cash and cash equivalents

Cash 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.

Post-employment benefits

The 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 3% 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 liabilities

The 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 are measured at amortised cost using the effective interest rate method except for derivatives that are 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.

Leased assets

In 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.

Operating lease agreements

Rentals 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 capital

Ordinary Shares are classified as equity. Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.

Share premium

Share 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 reserve

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

Profit and loss account

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

Significant accounting estimates and judgements

i. Share Options and Warrants

The 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 key estimate in the model, being volatility, is based on the historical volatility in the company's share price over the past 12 months.

ii. Research and Development Expenditure

The 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.

iii. Deferred Tax Asset

The 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 2014 due to the uncertainty regarding the timing of future profits. 

3. Loss per share

Fully diluted 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 undiluted loss per share.

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

4. Share capital

Share issue

196,630 Ordinary Shares of £0.01 were issued and allotted fully paid pursuant to the exercise of share options under the Enterprise Management Incentives Scheme by a former employee. These shares were admitted to trading on AIM on 30 May 2014. The Company received £26,053 as consideration for the exercise of the abovementioned share options.

Warrants to subscribe for Ordinary Shares

A total of 5,435,727 warrants to subscribe for Ordinary Shares are in issue. Of this total: 250,000 warrants entitle the holder to subscribe for Ordinary Shares at a subscription price of £0.80 (subject to adjustment) at any time up to 11 July 2018; in respect of 4,164,750 warrants, 50% of the warrants entitle the holder to subscribe for Ordinary Shares at a subscription price of £0.44 and the remaining 50% at a subscription price of 92.5p at any time up to 21 July 2018; the remaining 1,020,977 warrants entitle the holder to subscribe for Ordinary Shares at a subscription price of £1.70. None of the subscription rights attaching to the warrants was exercised during the year.

Further Copies

Copies of this announcement and, on finalisation, the full annual report and accounts will be available, free of charge, for a period of one month from the Company's Nominated Adviser and Broker, Peel Hunt LLP, Moor House, 120 London Wall, London EC2Y 5ET, Tel: 020 7418 8900 or from Sphere Medical Holding plc, Harston Mill, Harston Cambridgeshire CB22 7GG, Tel: 01223 875222. Copies of the full financial statements will be made available to shareholders in due course.