Osmetech Annual Report 2004    xx
Osmetech plc
Annual Report and Accounts 2006 xx    Osmetech Annual Report 2004  
Osmetech today
Transforming molecular diagnostics into practical, cost-effective, FDA
cleared testing solutions.
As the demand for and acceptance of molecular diagnostic tests
multiplies, so does the rate of testing decentralization. The movement
of molecular diagnostic testing into the clinical laboratories of mid-
size hospitals requires greater simplicity, flexible testing capabilities,
and cost-effectiveness.
Osmetech Molecular Diagnostics is focused on providing cutting-
edge, cost-effective molecular diagnostic technologies and tools that
enable a broader range of hospitals and laboratories to offer
molecular diagnostic services for improved patient care.
Contents
1 Highlights
2 Chairman’s statement
3 Chief executive officer’s review
8 Board of directors
9 Report of the directors
15 Independent auditors’ report
17 Consolidated profit and loss account
17 Consolidated statement of total recognised gains and losses
18 Consolidated balance sheet
19 Company balance sheet
20 Consolidated cash flow statement
20 Reconciliation of net cash flow to movement in net funds
21 Notes to the consolidated cash flow statement
23 Notes forming part of the financial statements
42 Notice of annual general meeting
45 Form of proxy
IBC Directors and advisers Highlights
2006
• Sales for 2006 of £10.6m (8 months ended 31 December 2005 – £5.6m) – increase of 28%
on the corresponding 12 month period
• Operating losses of £12.4m (8 months ended 31 December 2005 – £5.5m) reflects our
significant investment in our Molecular Diagnostics Division including the first full
reporting period since Clinical Micro Sensors Inc. was acquired in 2005
• FDA clearance for eSensor
®
Cystic Fibrosis screening test
• Successful launch of first molecular diagnostics products and commencement of sales
• July 2006 share placing raises £12.8m before expenses
Current period
• Strategic partnership with EPIDAUROS Biotechnologie AG to develop pharmaceutical
companion diagnostics and novel molecular diagnostic products
• Sale completed of Critical Care Division (“CCD”) for $44.9m in cash representing a
substantial return on the original acquisition price of $2.7m
• Cash resources increased significantly on 31 January 2007 to £27.5m following the sale of
CCD
• Agreement to buy-back warrants over 7.8m shares from Motorola (representing 3.85% of
the issued share capital) for £469,000
• First pharmacogenetics assay for Warfarin testing and second generation instrument
platform, the eSensor
®
XT-8, planned for clinical trials and FDA submission in the third
quarter of 2007
eSensor
®
instrument eSensor
®
microarray consumable GeneSensor
™ Chairman’s Statement
I am pleased to report that 2006 has been another year of considerable achievement for Osmetech.
Our Molecular Diagnostics Division received FDA clearance for its eSensor
®
Cystic Fibrosis screening
test and has achieved its first sales of diagnostics products in this rapidly developing and strategically
important market.
In December 2006 we announced that the sale of our Critical Care Division to our veterinary partner,
IDEXX Laboratories, Inc. for $44.9m in cash had been agreed. This sale was completed at the end of
January 2007, crystallising a considerable gain in the value of this business under Osmetech’s ownership
and management since its acquisition from Roche Diagnostics in April 2003.
I would like to take this opportunity to thank all of our Critical Care Division employees for their
dedication, enthusiasm and commitment over the past few years in helping to create a strong and
successful business in the blood gas market. The Board wishes them well for the future as they enter an
exciting new chapter under IDEXX’s ownership.
The sale of the Critical Care Division has demonstrated the skill of the Osmetech management team in
acquiring and developing underexploited assets and now management is focussed solely on the major
opportunities available in Molecular Diagnostics market. We are confident that we can deliver similar
success with our Molecular Diagnostics business, which is now appropriately funded, and I look forward
to updating shareholders on further progress in due course.
Gordon Hall
Chairman
20 March 2007
2 Osmetech Annual Report and Accounts 2006 Chief Executive Officer’s review
Introduction
Through the recent sale of its Critical Care Division, Osmetech has capitalised on the considerable value
created in that business since its acquisition from Roche Diagnostics, Inc. in 2003. Following its sale, the
Group is now wholly focussed on its Molecular Diagnostics business operating in Pasadena and Boston
in the US.
Sale of Critical Care Division
2006 was another year of strong profitable growth for the Critical Care Division. Sales of the blood gas
and electrolyte product range increased to £10.5m ($19.4m) in 2006 from £5.6m ($9.9m) for the 8 month
period ended 31 December 2005. Sales increased by 29% when compared to the equivalent 12 month
period in 2005 of £8.1m, benefiting in particular from VetStat sales to our veterinary distribution partner,
IDEXX Laboratories, Inc. (‘IDEXX’).
Notwithstanding the highly satisfactory operating performance of the Division this year, on 18 December
2006, we announced the proposed sale of the Critical Care Division to IDEXX for $44.9m in cash. This
sale was approved by shareholders at an Extraordinary General Meeting on 9 January 2007 and the
transaction was completed on 31 January 2007.
The Critical Care Division was originally acquired by Osmetech in April 2003 for $2.7m before costs.
During the period of Osmetech’s ownership, sales more than doubled and a loss making business was
transformed into profitability. This was achieved principally through selective new product investment
and the launch of the VetStat in the veterinary market with IDEXX. Osmetech’s developing commercial
relationship with IDEXX presented an opportunity to sell the Division at an attractive price, representing
a substantial return on investment.
Your Board considered that this divestment was in the best interests of the Group as a whole, delivering
the following benefits:
• Realises excellent value creation for shareholders
• Removes any shareholder concerns over the Group’s funding requirements and strengthens its
balance sheet
• Provides the necessary funding to enable the continued development of a successful Molecular
Diagnostics business
• Osmetech is now well positioned in a high growth market sector with potentially high returns
Molecular Diagnostics Market
The molecular diagnostics market is expected to continue to be the fastest growing segment within In
Vitro Diagnostics (IVD). With an estimated global market worth of $2.6bn in 2006, it is approaching 10%
of the total IVD market and exhibiting annual growth rates of approximately 20%. Infectious disease and
genetic testing are the two most rapidly growing areas for molecular diagnostics accounting for
approximately half of the overall market segment.
Osmetech is primarily targeting genetic testing, which can be divided broadly into three areas:
• Diagnosis and Monitoring – evaluating genetic sequences to confirm the presence or progress of
disease
• Susceptibility – evaluating genetic mutations to determine susceptibility to a future condition (e.g.,
cystic fibrosis)
• Pharmacogenetics – evaluating genetic variations to predict a patient’s response to a particular drug
Osmetech Annual Report and Accounts 2006 3 Chief Executive Officer’s review
continued
Pharmacogenetics or ‘personalised medicine’ is widely anticipated to grow rapidly as treatments are
more closely tailored to a patient’s genetic make-up. For example, Osmetech is developing a genetic
test relevant for the anticoagulant Warfarin where the market opportunity is substantial. Optimal doses
of Warfarin vary among patients with incorrect starting dosages prescribed for 20% of patients, resulting
in either insufficient or excessive blood thinning.
Warfarin testing is expected to lead to a reduction in the 85,000 cases of severe bleeding and 17,000
strokes occurring annually in the US and could decrease national healthcare spending by $1.1bn per
year as estimated by the American Enterprise Institute and the Brookings Institute. More than 30m
prescriptions for Warfarin are given annually in the US alone with 3m new patients each year suffering
from a heart attack or stroke. The total annual number of patients worldwide with conditions for which
Warfarin could potentially be prescribed is 8.5m.
Pharmacogenetics is also expected to play a larger role in drug development through the identification
of genetic mutations and creation of “companion” diagnostics.
Molecular Diagnostics Division
Osmetech is developing a strong, complementary portfolio of FDA-approved and development-stage
products that address the rapidly growing molecular diagnostics market.
We plan to expand and develop the Division through the following means:
• Progress with the development and commercialisation of the Group’s existing product pipeline
including the second generation instrument platform, the eSensor
®
XT-8
• Secure licensing agreements that will add assay content, and therefore revenues, for the Group’s
instrument platforms
• Continue to explore selective acquisition opportunities which will strengthen and expand the
Group’s presence in the molecular diagnostics market
• Negotiate licensing agreements and enter into strategic partnerships in non-healthcare markets, thereby
leveraging the strength of the Group’s instrument platforms, technology and intellectual property
Osmetech’s two instrument platforms, eSensor
®
and GeneSensor™ (previously known as OPTI GENE)
are directly targeting the demand for decentralised testing by providing practical, cost effective
molecular diagnostic technologies and tools that will enable a broader range of hospitals and
laboratories to offer molecular diagnostic services. Our strategy has been to design low cost products
specifically for the diagnostics market rather than by adapting complicated high cost research 
products.
eSensor
®
The eSensor
®
instrument and cartridge consumable system is primarily suited to undertaking relatively
complex molecular tests which require the analysis, detection or identification of many different targets
at once. The electrochemical detection technology is protected by strong international intellectual
property, including 70 patents in the US alone, which have benefited from an investment of
approximately $100m by Motorola during its period of ownership.
Earlier this year Osmetech received 510(k) clearance from the US FDA for its Cystic Fibrosis carrier
detection test and its eSensor
®
4800 DNA Detection instrument platform. This FDA approval is a first for
a combined instrument and consumable Cystic Fibrosis assay. The system assesses whether an individual
carries mutations in the Cystic Fibrosis gene and is used by adult couples contemplating pregnancy.
The core technology for the instrument platform and microarray consumable forming part of this
approval will also be used for running tests for other conditions to be launched in the future.
4 Osmetech Annual Report and Accounts 2006 Chief Executive Officer’s review
continued
eSensor
®
XT-8
Later this year we shall be introducing our second generation instrument, the eSensor
®
XT-8 with new
consumable cartridge, which will be able to routinely run complex assays including the Cytochrome P450
(“CYP 450”) pharmacogenomics assays described later.
The eSensor
®
XT-8 system will deliver a number of operational, design and performance benefits
including:
• Significant reduction in processing time
• Smaller foot print
• Modular and expandable with higher throughput potential
• Integrated CPU
• Programmable eSensor
®
cartridge
• Increased chip density to enable wider analysis of gene mutations
• Improved data management capabilities
A successful third party evaluation for a fully functional prototype XT-8 instrument and our first CYP450
assay for Warfarin testing took place in December 2006. We now plan to exhibit the platform at the
Clinical Virology Symposium in the US next month moving to clinical trials in support of an FDA
submission in the third quarter of 2007. Following FDA approval, we anticipate a launch in the US by the
end of 2007 with an international launch scheduled for 2008.
SensiTube™
The SensiTube™ product line, previously known as OPTI TUBE™, consists of plastic tubes and
ergonomically designed sealing caps and carousel for use in the Roche LightCycler, a market leading
instrument used in PCR analysis. SensiTube™ is a cost effective, robust alternative to Roche glass
capillaries that eliminates the dangers of glass breakage and minimises the risk of laboratory personnel
being exposed to potentially dangerous samples and glass shards. The same plastic technology has
been incorporated into consumables to be supplied for use with Osmetech’s GeneSensor™ instrument.
Osmetech has also granted a worldwide non-exclusive license to Roche for the manufacture and sale of
plastic consumable vials using this proprietary plastic tube technology, in respect of which the Company
has recently been granted its first patent.
GeneSensor™
The GeneSensor™ instrument is primarily suited to undertaking relatively simple molecular tests. Whilst
our primary objective is to further develop the commercial potential for our eSensor
®
system, we plan to
fully launch the GeneSensor™ as a research instrument later this year followed by the introduction of an
FDA-cleared instrument and accompanying Factor V and Factor II IVD tests for thrombophilia in early
2008. In time we expect that the instrument platform and proprietary consumable will be used for
testing a wide range of conditions.
The combination of the eSensor
®
and GeneSensor™ products should enable both complex and simple
molecular diagnostic tests to be performed accurately by hospitals in a cost effective and easy to use
format. Unlike many competing products, the two products combine both an instrument platform and
proprietary test specific consumables. New tests launched will use the same instrument platform and
consumable format thereby increasing sales revenues for each instrument in use.
Osmetech Annual Report and Accounts 2006 5  Chief Executive Officer’s review
continued
The increase in administrative expenses and operating loss for the continuing operations of the Group
for 2006 reflects both the comparison with an 8 month period for 2005 and the inclusion of the results of
Clinical Micro Sensors, Inc for a full 12-month period following its acquisition on 26 July 2005. We
anticipate that administrative expenses for continuing operations will show a marginal increase in 2007
as more of our Molecular Division’s products reach commercialisation.
The operating loss for the period of £12.4m compared to a net cash outflow from operating activities of
£11.2m, with the difference of £1.2m largely explained by the share compensation charge of £0.8m, a
non-cash item accounted for in accordance with Financial Reporting Standards No.20, “Share Based
Payment” (FRS 20). Also in accordance with FRS 20 we have restated the prior year charge for share
compensation charges.
At 31 December 2006, cash and liquid resources were £7.1m. Following the receipt of the proceeds (net
of expenses) from the sale of the Critical Care Division, cash and liquid resources on 31 January 2007
were £27.5m. The majority of our cash and liquid resources are denominated in US dollars and will be
retained as such to meet the anticipated funding requirements of our Molecular Diagnostics Division
arising in the same currency.
We have announced today that we have agreed to acquire the warrants issued to Motorola as
consideration for the acquisition of Clinical Micro Sensors in July 2005. The warrants are over 7,811,428
ordinary shares (representing 3.85% of the issued share capital) and will be cancelled by the Company
thereby removing any dilution effects that would result from their exercise. The cash cost to the
Company is approximately £469,000, representing 6 pence per warrant which were exercisable into
ordinary shares at 17.5 pence.
Outlook
The importance of the developing global Molecular Diagnostics market with high product margin
potential is becoming increasingly recognised by healthcare companies, for example GeneOhm and TM
BioSciences were recently acquired by larger players. Furthermore, healthcare giant Abbott Laboratories
recently announced that it was to sell its core laboratory diagnostics business to GE Healthcare but
would retain its Molecular Diagnostics and Diabetes Care (glucose monitoring) businesses. It is also
likely that the growth of “companion” diagnostics in the pharmacogenomics market segment will lead
to closer alliances with pharmaceutical companies.
The sale of our Critical Care blood gas and electrolyte analyser business has enabled Osmetech to
become a ‘pure play’, well funded molecular diagnostics business operating in a high growth market.
The Company’s recent business development activities have given Osmetech the financial flexibility to
execute its strategy of building a portfolio of commercial-stage molecular diagnostic products. We
expect to be able to add further content in order to develop a pipeline of new molecular diagnostic
tests to be run on the Company’s instrument platforms. In addition, we anticipate that we will be able to
secure license agreements and partnerships to leverage the Company’s assets in non-healthcare
diagnostic markets, where predicted growth rates are similarly attractive.
We have a growing presence in this exciting market. With our experienced management and a proven
product technology backed by a strong intellectual property portfolio, Osmetech has considerable
scope to build significant value in its Molecular Diagnostics Division.
James White
Chief Executive Officer
20 March 2007
Osmetech Annual Report and Accounts 2006 7 Board of directors
for the 12 months ended 31 December 2006
Gordon James Hall,
Non-Executive Chairman
Gordon Hall, aged 64, was Managing Director of Shield Diagnostic Group plc (now Axis-Shield plc) until October 1997 and prior to
this held senior positions at Abbott Laboratories. He was appointed to the Board as executive Chairman on 24 September 1998,
becoming non-executive Chairman on 1 February 2001.
James Nicholas Gerald White,
Chief Executive Officer
James White, aged 36, was previously a senior consultant in Arthur D Little Limited’s corporate finance practice, where he
specialised in advising venture capitalists on investments in small and medium sized companies. He was Operations Manager of
Osmetech from September 1998 until appointed to the Board as Chief Operating Officer on 1 October 1999. He was appointed
Chief Executive Officer on 22 December 2000.
David Anthony Sandilands,
Chief Financial Officer
David Sandilands, aged 45, was Group Financial Director at Bluebird Toys plc, until its take-over by Mattel Inc. of the USA. Mr
Sandilands qualified as a Chartered Accountant with Price Waterhouse and was appointed to the Board as Chief Financial Officer
on 1 July 1999.
Gordon Bruce Kuenster,
Non-Executive
Gordon Kuenster, aged 73, has founded and developed major medical diagnostic companies. He was appointed Group Vice
President and a director of Squibb Corporation, following its acquisition of Advance Technology Laboratories Inc. He is Chairman
of UMD Technology Inc, a medical technology company. He was appointed to the Board on 3 February 1998 as Director of
Development and was appointed Chief Technology Officer on 1 October 1999, becoming a non-executive director on
3 September 2002.
Alfred Marek
Executive (resigned 31 January 2007)
Alfred Marek, aged 61, was President of Osmetech’s Critical Care Division based in Atlanta, having joined the Company at the time
of the OPTI acquisition in April 2003. He was previously with AVL and was instrumental in developing their entire blood gas
business prior to its sale to Roche in 2000. Mr Marek was appointed to the Board on 21 April 2004 and resigned on 31 January
2007 following the sale of the Critical Care Division to IDEXX Laboratories, Inc.
Bruce Allen Huebner
Executive (appointed 12 February 2007)
Bruce Huebner, aged 56, is President of Osmetech’s Molecular Diagnostics Division and joined the Group in May 2005 just prior to
the acquisition of Clinical Micro Sensors, Inc. from Motorola Inc. He was previously Executive Vice President and Chief Operating
Officer of Gen-Probe and President and Chief Operating Officer of Nanogen, two major international companies in the genetics
and infectious diseases markets.
8 Osmetech Annual Report and Accounts 2006 Report of the directors
for the 12 months ended 31 December 2006
The directors submit their report together with the audited financial statements for the 12 months ended 31 December 2006.
Results and dividends
The results of the Group for the year are set out on page 17.
The directors do not recommend the payment of a dividend (31 December 2005: £NIL)
As the Company has adopted FRS 20 ‘Share-based Payments’, prior year figures have been restated to reflect the impact of equity
settled share based compensation plans as set out in notes 1 and 24.
Principal activities, trading review and future developments
The principal activity of the Group is the design, development, manufacture and sale of healthcare diagnostics and medical
devices incorporating sensing technology.
The principal activities of the subsidiaries, Osmetech Inc and Clinical Micro Sensors Inc, are the same as Osmetech plc. Osmetech
Technology Inc, is a holding Company. Osmetech GmbH was established as a sales operation having exclusive rights to distribute
Osmetech’s Critical Care Division products in Germany, prior to the disposal of the Division. Molecular Sensing Limited, Molecular
Sensors Limited are dormant companies.The principal activity of the seventh subsidiary, Osmetech AESOP Trustee Limited, is to
act as a trustee to an employee share ownership trust.
Enhanced Business Review
Operations
Osmetech is a fast developing, international healthcare diagnostics business with operations in Boston and Pasadena in the US
serving the high growth Molecular Diagnostics market targeting hospitals and reference laboratories. Osmetech Molecular
Diagnostics has been built through the acquisitions and subsequent development of the businesses of Molecular Sensing plc in
2004 and Clinical Micro Sensors Inc (‘CMS’) in 2005.
On 31 January 2007, the Group’s Critical Care blood gas and electrolyte analyser business based in Atlanta, US was sold for
$44.9m representing a significant return on the original investment made when this business was acquired in 2003. Whilst the
results for 2006 and 2005 include those of the Critical Care Division (“CCD”), these have been separately disclosed as discontinued
operations. Detailed commentary in relation CCD is not relevant to the future performance of the Group and therefore this review
concentrates on our Molecular Diagnostics business.
The financial position and performance of the Group is set out on pages 17 to 20. A review of the business, its markets and future
developments is included in the Chairman’s Statement and Chief Executive Officer’s Reports set out on pages 2 to 7.
Business risks
The Board considers that the principal risks and uncertainties facing the Group may be summarised as follows:
• Recruitment and retention of employees: The Group operates in a knowledge based industry employing many highly skilled,
specialist staff. The Group aims to provide a challenging and rewarding working environment for its employees and has share
options incentives for key staff.
• Regulatory compliance: Osmetech operates in a regulated industry with its US based operations and market governed by the
requirements of the US Food and Drug Administration (“FDA”). We have received FDA 510k Pre-marketing Approval for our
Cystic Fibrosis carrier detection test and eSensor
®
4800 DNA Detection instrument platform and it is our intention to produce
other FDA cleared tests in the future. Both of our US sites operate under current Good Manufacturing Practice (cGMP).
Securing and maintaining the necessary regulatory approvals, accreditations and quality standards is of fundamental
importance to the future success of the Group.
Osmetech Annual Report and Accounts 2006 9 Report of the directors
continued
Enhanced Business Review continued
• Product development: Although the Directors believe that there is a strong and growing demand for the molecular diagnostics
products being developed by the Group, the ability of these products to meet the specifications demanded and therefore the
speed of market penetration and the achievability of target prices is not certain. Prior to acquisition or license by Osmetech,
the Group’s core technologies have received considerable investment and we believe that the principal technological and
scientific risks have now largely been overcome. Additional efforts are continuing in production scale up in order to meet
increasing market demands.
• Market Acceptance of Osmetech’s Products: Commercial success will be dependent upon on the market acceptance of the
Group’s products, including the ability to: convince customers that the Enlarged Group’s technology is an attractive alternative
to other technologies; manufacture products in sufficient quantities with acceptable quality and at an acceptable cost; and sell,
place and service sufficient quantities of the products. The Group believes that the market opportunities for genetic testing in
particular are considerable, driven by improved patient care and healthcare cost management. These benefits have been
recognised by the FDA who welcome the prospect of further approved tests to promote the wider use of such testing.
• Intellectual Property Rights (“IP”). The Group’s success relies in part on maintaining meaningful patent protection on its
inventions, technologies and discoveries. To compete effectively the Group will depend on its ability to develop and maintain
proprietary aspects of its technology, and to operate without infringing the proprietary rights of others or, if necessary, to
obtain rights to third-party proprietary rights. Whilst this is a complex area the Directors believe that Osmetech has a strong IP
position, particularly in the field of electro-chemical detection. The molecular diagnostics market is at a relatively early stage of
development and we believe that Osmetech’s IP will create barriers to entry.
Key performance indicators
The principal key performance indicators (“KPIs”) are detailed below:
• As reported on page 27, research and development costs in the year amounted to £5,601,000 (8 months ended 31 December
2005 – £2,665,000). Included within these total amounts are £4,768,000 (8 months ended 31 December 2005 – £2,120,000)
relating to continuing operations. In addition to the specific comments in the Chief Executive’s Report, we consider that
successful progress with product development activities is critical to the future success of the business for which KPIs are
difficult to quantify. Product development programmes for our Molecular Diagnostics Division are described in detail in the
Chief Executive’s Report.
• As reported on page 20, operating cash outflows during the period were £11.2m (8 months ended 31 December 2005 – £4.3m),
of which £11.2m (8 months ended 31 December 2005 – £4.5m) related to continuing operations.
• As reported on page 18, the Group had a total of £7,089,000 of cash and liquid resources at 31 December 2006 (2005 –
£7,207,000). These balances increased significantly on 31 January following the sale of the Critical Care Division.
• As reported on page 27, the Group increased its average headcount in the year by 34% to 159 full-time equivalent employees
(2005 – 119). Of these totals, average headcount relating to continuing operations was 75 in the year (2005 – 41). Voluntary staff
turnover in the year for continuing operations was 15% (2005 – 15%), which we believe to be relatively stable compared with
our industry peers.
Charitable and political contributions
The Group did not make any charitable or political contributions during the year (31 December 2005: £NIL).
10 Osmetech Annual Report and Accounts 2006 Report of the directors
continued
Directors
The directors of the Company at 31 December 2006 and their interests, all held beneficially, in the ordinary share capital of the
Company at the balance sheet date were as follows:
Ordinary Shares of 0.10p each
31 December 2006 31 December 2005
G J Hall 104,965 104,965
J N G White 208,093 208,093
D A Sandilands 61,597 61,597
A Marek 26,190 26,190
G B Kuenster 613,950 33,054
Directors’ options are disclosed in note 6.
Mr A Marek resigned as a director on 31 January 2007. Mr B A Huebner was appointed as a director on 12 February 2007
Mr D A Sandilands was granted Long Term Incentive Awards to acquire 253,963 ordinary shares of 0.10p each in the capital of the
Company at nominal value on 30 January 2007.
Save as mentioned above, there have been no changes in the directors or movements in the directors’ interests in the Company’s
share capital between 31 December 2006 and 20 March 2007.
In accordance with the Articles of Association and, having been appointed since the date of the last Annual General Meeting,
Mr B A Huebner retires and, being eligible, offers himself for election as a director at the Annual General Meeting to be held on
3 May 2007. Mr Huebner’s appointment is terminable by up to 3 months’ notice.
In accordance with the Articles of Association, Mr G J Hall will retire by rotation and, being eligible, offers himself for re-election.
Mr G B Kuenster, who is 73 years of age will retire and, being eligible, offers himself for re-election. Mr Hall and Mr Kuenster do
not have service agreements with the Company. Mr Hall’s and Mr Kuenster’s appointments are terminable by at least 12 months’
notice.
Directors’ interests in contracts
No director was, or is, materially interested in any contract subsisting during, or at the end of the financial year which was
significant in relation to the business of the Group.
Substantial shareholdings
In addition to the directors’ shareholdings shown above, the directors have been notified or are aware of the following interests in
3 per cent. or more of the issued ordinary share capital of the Company as at 5 March 2007:
Shareholder Number of Shares Per cent
MOFO Nominees Limited 18,000,000 8.88
Chase Nominees Limited (Account USSLEND) 14,050,000 6.93
Vidacos Nominees Limited 2303 Account 13,246,698 6.53
Chase Nominees Limited (Account SUTL) 12,892,312 6.36
Apollo Nominees Limited CRE Account 11,111,111 5.48
Goldman Sachs Securities (Nominees) Limited ILSEG Account 10,527,497 5.19
BNY GIL Client Account (Nominees) Limited LST Account 7,235,932 3.57
Pershing Keen Nominees Limited PSL981 Account 7,021,501 3.46
HSBC Global Custody Nominee (UK) Limited 934567 Account 6,744,718 3.26
Osmetech Annual Report and Accounts 2006 11 Report of the directors
continued
Compliance
The Company is mindful of the provisions of the Combined Code. However, as an AIM listed company, the Combined Code is not
mandatory and the Company has therefore not produced a separate Corporate Governance or Directors’ Remuneration Report.
Going Concern
Having reviewed the Group’s budgets and financial projections and after making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The financial
statements, therefore, are prepared on a going concern basis.
Directors’ responsibilities
The directors are responsible for preparing the Annual Report and financial statements in accordance with applicable laws and
regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law, the
directors have elected to prepare the financial statements in accordance with United Kingdom Accounting Standards and
applicable law. The financial statements are required by law to give a true and fair view of the state of the affairs of the Company
and of the Group and of the profit and loss of the Group for that period. In preparing those 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 and;
• state whether applicable UK Accounting Standards have been followed, and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will
continue in business
Each person who is a director at the date of the approval of this report confirms that:
1) so far as the director is aware, there is no relevant audit information of which the Company’s auditors are unaware, and:
2) the director has taken all steps that he ought to have taken as a director in order to make himself aware of any information and
to establish that the Company’s auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of S234ZA of the Companies Act 1985.
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the
financial position of the Company and Group and to enable them to ensure that the financial statements comply with the
Companies Act 1985. They are also responsible for the system of internal control, for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The maintenance and integrity of the web site is the responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that have occurred
to the information contained in the financial statements since they were initially presented on the web site.
Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information
included in the annual reports may differ from legislation in other jurisdictions.
Supplier Payment Policy
The Company has due regard to the payment terms of suppliers and settles all undisputed accounts in accordance with the
payment terms agreed with the supplier for each business transaction. The Group had 15 days (31 December 2005 – 39 days) of
purchases outstanding at the end of the financial year.
12 Osmetech Annual Report and Accounts 2006 Report of the directors
continued
CREST
The Company’s ordinary shares are eligible for settlement through CREST, the system for securities to be held and transferred in
electronic form rather than in paper. Shareholders are not obliged to use CREST and can continue to hold and transfer shares in
paper without loss of rights.
Independent Auditors
A resolution to reappoint Deloitte & Touche LLP as the Company’s auditor will be proposed at the Annual General Meeting.
Electronic Communications
The Company may deliver shareholder information including Annual and Interim Reports, Forms of Proxy and Notices of General
Meetings in an electronic format to shareholders.
Shareholders wishing to receive shareholder information in the conventional printed form will continue to do so and need take no
further action. If you would like to receive shareholder information in electronic format, please register your request on the
Company’s Registrar’s electronic database at www.capitaregistrars.com. You will initially need your unique “investor code”, which
you will find at the top of your share certificate. There is no charge for this service. If you wish to subsequently change your mind,
you may do so by contacting the Company’s Registrars by post or through their web site.
If you elect to receive shareholder information electronically, please note that it is the shareholder’s responsibility to notify the
Company of any change to their name, address, e-mail address or other contact details. Shareholders should also note that, with
electronic communication, the Company’s obligations will be satisfied when it transmits the notification of availability of
information or such other document as may be involved to the electronic address it has on file. The Company cannot be held
responsible for any failure in transmission beyond its control any more than it can for postal failure. In the event of the Company
becoming aware that an electronic notification is not successfully transmitted, a further two attempts will be made. In the event
that the transmission is still unsuccessful a hard copy of the notification will be mailed to the shareholder. In the event that specific
software is required to access information placed on the Company’s website it will be available via the website without charge.
Before electing for electronic communications shareholders should ensure that they have the appropriate equipment and
computer capabilities sufficient for the purpose. The Company takes all reasonable precautions to ensure no viruses are present in
any communication it sends out but cannot accept responsibility for loss or damage arising from the opening or use of any e-mail
or attachments from the Company and recommends that shareholders subject all messages to virus checking procedures prior to
use. Any electronic communication received by the Company that is found to contain any virus will not be accepted.
Should you have any further questions on this please contact the Company’s Registrars, Capita Registrars on 0870 162 3131.
Annual General Meeting – Explanation of Special Business
Resolution 6
The Directors may only allot shares or grant rights over shares if authorised to do so by shareholders. The general authority
granted at the annual general meeting held on 3 May 2006 is due to expire at the annual general meeting in 2007. Accordingly,
Resolution 6 will be proposed as an ordinary resolution to grant a new authority to allot unissued share capital up to an aggregate
nominal value of £67,605 (representing 67,605,000 ordinary shares of 0.10p each, being approximately one third of the total issued
ordinary share capital as at 20 March 2007). If given, this authority will expire at the earlier of (A) 30 June 2008 and (B) the
conclusion of the next annual general meeting of the Company to be held in 2008. Other than in respect of the Company’s
obligations under its employee share schemes, the Directors have no present intention of utilising the authority set out in this
resolution to issue any of the authorised but unissued share capital of the Company.
Osmetech Annual Report and Accounts 2006 13 Report of the directors
continued
Resolution 7
The Directors also require additional authority from shareholders to allot shares or grant rights over shares or sell treasury shares
where they propose to do so for cash and otherwise than to existing shareholders pro rata to their holdings. The general authority
granted at the annual general meeting held on 3 May 2006 is due to expire at the annual general meeting in 2007. Accordingly,
Resolution 7 will be proposed as a special resolution to grant such authority. If given, this authority will expire at the earlier of (A)
30 June 2008 and (B) the conclusion of the next annual general meeting of the Company to be held in 2008. Apart from rights
issues, open offers and other pre-emptive issues, the authority will be limited to the issue of shares and sale of treasury shares for
cash up to an aggregate nominal value of £ 40,563 (being 40,563,000 ordinary shares of 0.10p each, representing approximately 20
per cent. of the issued ordinary share capital at 20 March 2007). This authority does not accord with IPC guidelines, but the
directors regard the authority as desirable to maximise the options open to the Company in the coming year.
Resolution 8
Resolution 8 will give the Company authority to purchase its own shares in the markets up to a limit of 10 per cent. of its issued
ordinary share capital as at 20 March 2007. The Company will only be able to purchase its own shares pursuant to this authority to
the extent that it has sufficient distributable reserves. The Company does not currently have any distributable reserves.
Nevetheless, the Directors believe it is advantageous for the Company to have this authority in place so that, if and when it does
have such reserves, the Company has the flexibility to make market purchases of its own shares in order to manage its capital
base.
If the Company were to be in a position to be able to utilise this authority, the maximum and minimum prices at which it can
purchase its own shares are stated in the resolution. In the event that shares are purchased, they would either be cancelled (and
the number of shares in issue would be reduced accordingly) or, subject to the Companies (Acquisition of Own Shares) (Treasury
Shares) Regulations 2003 (the “Regulations”), retained as treasury shares. The Regulations enable companies to hold shares
repurchased as treasury shares with a view to possible re-sale at a future date rather than having to cancel them. The Company will
consider holding repurchased shares pursuant to the authority conferred by this resolution as treasury shares. This would give the
Company the ability to re-issue treasury shares quickly and cost effectively and would provide the Company with additional
flexibility in the management of its capital base. In the event that the Company has sufficient distributable reserves, the Directors
will only exercise this authority if they are satisfied that a purchase would result in an increase in expected earnings per share and
would be in the interests of shareholders generally.
By order of the Board
S A Craig
Secretary
20 March 2007
14 Osmetech Annual Report and Accounts 2006 Independent auditors’ report
Independent auditors’ report to the members of Osmetech plc
We have audited the group and individual company financial statements (the “financial statements”) of Osmetech plc for the year
ended 31 December 2006 which comprise the consolidated profit and loss account, the consolidated and individual company
balance sheets, the consolidated cash flow statement and its associated notes a) to c), the consolidated statement of total
recognised gains and losses, the statement of accounting polices and the related notes 1 to 27. These financial statements have
been prepared under the accounting policies set out therein.
This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. 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 auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions
we have formed.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with applicable United
Kingdom law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in
the Statement of Directors’ Responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant United Kingdom legal and regulatory
requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view in accordance with the relevant
financial reporting framework and are properly prepared in accordance with the Companies Act 1985. We also report to you
whether in our opinion, the Directors’ report is consistent with the financial statements. In addition, we report to you, if in our
opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we
require for our audit, or if information specified by law regarding directors’ remuneration and other transactions with the company
and other members of the group is not disclosed.
We read the directors’ report and the other information contained in the Annual Report and consider whether it is consistent with
the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements
or material inconsistencies with the financial statements. Our responsibilities do not extend to any further information outside the
Annual Report.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices
Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate to the circumstances of the company and the
group, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order
to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material
misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy
of the presentation of information in the financial statements.
Osmetech Annual Report and Accounts 2006 15 Independent auditors’ report
continued
Opinion
In our opinion:
• the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice,
of the state of the group’s and the individual company’s affairs as at 31 December 2006 and of the group’s loss for the year
then ended;
• the financial statements have been properly prepared in accordance with the Companies Act 1985; and
• the information given in the Directors’ Report is consistent with the financial statements.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
Manchester
20 March 2007
16 Osmetech Annual Report and Accounts 2006 Consolidated profit and loss account
for the 12 months ended 31 December 2006
Osmetech Annual Report and Accounts 2006 17
12 months ended 8 months ended
31.12.06 31.12..05
Restated
Note £ £
Turnover 2
Continuing operations 48,635 –
Discontinued operations 10,522,461 5,588,121
10,571,096 5,588,121
Cost of sales
Continuing operations (31,350) –
Discontinued operations (6,948,233) (3,428,516)
(6,979,583) (3,428,516)
Gross profit
Continuing operations 17,285 –
Discontinued operations 3,574,228 2,159,605
3,591,513 2,159,605
Administrative expenses
Continuing operations (12,523,868) (5,428,154)
Discontinued operations (3,431,356) (2,251,987)
Total administrative expenses (15,955,224) (7,680,141)
Operating (loss)/profit 4
Continuing operations (12,506,583) (5,428,154)
Discontinued operations 142,872 (92,382)
(12,363,711) (5,520,536)
Net finance income 284,582 190,769
Loss on ordinary activities before taxation (12,079,129) (5,329,767)
Taxation 8 126,211 185,397
Loss for the period transferred from reserves 20 (11,952,918) (5,144,370)
Basic and Diluted Earnings per share:
Continuing operations (7.31p) (4.61p)
Discontinued operations 0.09p (0.08p)
(7.22p) (4.69p)
Prior year results have been restated to show the effects of the applying FRS 20 ‘Share-based Payments’ as outlined in notes 1 and 24.
Consolidated statement of total recognised gains and losses
for the 12 months ended 31 December 2006
12 months ended 8 months ended
31.12.06 31.12.05
Restated
£ £
Loss for the financial year/period (11,952,918) (5,144,370)
Currency translation (loss)/gain on on foreign currency net investments (901,680) 370,553
Total recognised losses relating to the year/period (12,854,598) (4,773,817)
Prior year adjustment – FRS 20 (see Note 24) 80,419
Total gains and losses recognised since last annual report (12,774,179) Consolidated balance sheet 
at 31 December 2006
18 Osmetech Annual Report and Accounts 2006
2006 2005
Restated
Note ££ ££
Fixed assets
Intangible assets 11 2,049,019 2,062,949
Tangible assets 12 1,740,419 1,451,766
3,789,438 3,514,715
Current assets
Stocks 14 2,261,293 1,719,302
Debtors 15 2,020,270 3,019,365
Investments 16 5,686,021 6,300,000
Cash at bank and in hand 1,403,085 907,177
11,370,669 11,945,844
Creditors: amounts falling due within one year 17 (2,328,575) (2,676,401)
Net current assets 9,042,094 9,269,443
Net assets 12,831,532 12,784,158
Capital and reserves
Called up share capital 18 7,028,640 6,957,640
Share premium account 18 51,703,745 39,654,069
Merger reserve 18 1,885,533 1,885,533
Other reserves 18 2,136,021 1,354,725
Profit and loss account 20 (49,922,407) (37,067,809)
Equity shareholders’ funds 21 12,831,532 12,784,158
These financial statements were approved by the Board of Directors on 20 March 2007. Company balance sheet
at 31 December 2006
Osmetech Annual Report and Accounts 2006 19
2006 2005
Restated
Note ££ ££
Fixed assets
Intangible assets 11 36,619 24,132
Tangible assets 12 76,705 2,345
Investments 13 23,423,893 11,225,312
23,537,217 11,251,789
Current assets
Debtors 15 254,916 865,789
Investments 16 5,686,021 6,300,000
Cash at bank and in hand 368,641 397,570
6,309,578 7,563,359
Creditors: amounts falling due within one year 17 (385,064) (414,580)
Net current assets 5,924,514 7,148,779
Net assets 29,461,731 18,400,568
Capital and reserves
Called up share capital 18 7,028,640 6,957,640
Share premium account 18 51,703,745 39,654,069
Merger reserve 18 1,885,533 1,885,533
Other reserve 18 2,136,021 1,354,725
Profit and loss account 20 (33,292,208) (31,451,399)
Equity shareholders’ funds 21 29,461,731 18,400,568
These financial statements were approved by the Board of Directors on 20 March 2007.
Signed on behalf of the Board of Directors
D A Sandilands Director Consolidated cash flow statement
for the 12 months ended 31 December 2006
20 Osmetech Annual Report and Accounts 2006
12 months ended 8 months ended
31.12.06 31.12.05
Note £ £
Net cash outflow from operating activities (a) (11,154,209) (4,327,016)
Returns on investments and
servicing of finance (c) 277,996 178,414
Taxation (c) 384,093 –
Capital expenditure and financial investment (c) (1,285,738) (576,498)
Acquisitions and disposals 13 (c) – (340,751)
Cash outflow before management of liquid (11,777,858) (5,065,851)
resources and financing
Management of liquid resources (c) 613,979 (5,300,000)
Financing (c) 12,120,676 10,291,875
Increase/(decrease) in cash 956,797 (73,976)
Reconciliation of net cash flow to movement in net funds
for the 12 months ended 31 December 2006
12 months ended 8 months ended
31.12.06 30.12.05
Note £ £
Increase/(decrease) in cash in the period 956,797 (73,976)
(Decrease)/increase in liquid resources (613,979) 5,300,000
Exchange differences (460,889) 97,441
Change in net funds (118,071) 5,323,465
Net funds at beginning of year/period 7,207,177 1,883,712
Net funds at end of year/period (c (ii)) 7,089,106 7,207,177 Notes to the consolidated cash flow statement
for the 12 months ended 31 December 2006
Osmetech Annual Report and Accounts 2006 21
(a) Reconciliation of operating loss to operating cash flows
12 months ended 8 months ended
31.12.06 31.12.05
£ £
Operating (loss)/profit
Continuing operations (12,506,583) (5,428,154)
Discontinued operations 142,872 (92,382)
(12,363,711) (5,520,536)
Depreciation and amortisation
Continuing operations 493,810 278,551
Discontinued operations 251,709 158,092
745,519 436,643
Loss on disposal of fixed assets
Continuing operations – 27,831
Discontinued operations 8,064 109,082
8,064 136,913
Increase in stocks
Continuing operations (284,475) (190,763)
Discontinued operations (453,815) (201,204)
(738,290) (391,967)
Share compensation charge
Continuing operations 620,442 385,658
Discontinued operations 160,854 45,923
781,296 431,581
Decrease/(increase) in debtors
Continuing operations 519,162 (278,184)
Discontinued operations (19,334) 63,004
499,828 (215,180)
(Decrease)/increase in creditors
Continuing operations 5,004 723,649
Discontinued operations (91,919) 71,881
(86,915) 795,530
Net cash (outflow)/inflow from operating activities
Continuing operations (11,152,638) (4,481,412)
Discontinued operations (1,571) 154,396
(11,154,209) (4,327,016)
(b) Major non-cash transactions
There are no major non-cash transactions in the 12 months ended 31 December 2006.The major non-cash transaction in the eight
months to 31 December 2005 was the consideration for the acquisition of Clinical Micro Sensors, Inc. This comprised entirely of the
issue of a warrant over ordinary shares. The fair value of the warrant issued was £923,144. Notes to the consolidated cash flow statement
continued
22 Osmetech Annual Report and Accounts 2006
(c) Analysis of cash flows
(i) Gross cash flows
12 months ended 8 months ended
31.12.06 31.12.05
£ £
Returns on investments and servicing of finance
Interest received 277,996 178,414
Taxation
Research and Development tax credit received 384,093 –
Capital expenditure and financial investment
Payments to acquire intangible fixed assets (257,580) (9,997)
Payments to acquire tangible fixed assets (1,028,158) (566,501)
(1,285,738) (576,498)
Management of liquid resources
Transfer from/(to) term Deposits 613,979 (5,300,000)
Financing
Shares issued 12,780,000 11,000,000
Share issue expenses (659,324) (708,125)
12,120,676 10,291,875
(ii) Analysis of changes in net funds
At Cash Exchange At
31.12.05 flows differences 31.12.06
£££ £
Cash at bank and in hand 907,177 956,797 (460,889) 1,403,085
Current asset investments 6,300,000 (613,979) – 5,686,021
Net Funds 7,207,177 342,818 (460,889) 7,089,106 Notes forming part of the financial statements
for the 12 months ended 31 December 2006
Osmetech Annual Report and Accounts 2006 23
1  Accounting policies
The financial statements have been prepared under the historical cost convention and are in accordance with applicable United
Kingdom law and accounting standards. The Company has taken advantage of the exemption conferred by section 230 of the
Companies Act 1985 from presenting its own profit and loss account. The following accounting policies have all been applied
consistently throughout the year, with the exception of the policy for share-based payments which is explained in Note 24.
Basis of preparation
The financial statements have been prepared on a going concern basis, under the historical cost convention and in accordance
with the Companies Act 1985 and applicable United Kingdom Accounting Standards.
Basis of consolidation
The consolidated accounts incorporate the financial statements of Osmetech plc and all of its subsidiary undertakings made up to
31 December 2006. The Company uses the acquisition method of accounting to consolidate the results of its subsidiary
undertakings. The results of subsidiary undertakings are included from the date of acquisition.
Changes in accounting policies
The financial statements reflect the adoption of FRS 20 ‘Share-based Payments’ (‘FRS 20’). The prior period figures have been
restated, as set out in Note 24 to include the cost and balance sheet position under FRS 20.
Investments
Investments held as fixed assets are stated at cost less provision for impairment.
Acquisitions and Disposals
On acquisition of a business, fair values are attributed to the Group’s share of net separable assets under the acquisition method in
FRS 6 ‘Acquisitions and Mergers’. Where there is no readily ascertainable market, the fair value of intangible assets purchased as
part of a business acquisition is limited to an amount that does not create or increase negative goodwill. The results and cash flow
relating to a business are included in the consolidated profit and loss account and the consolidated cash flow statement from the
date of acquisition.
Goodwill
Purchased goodwill, representing the excess of the fair value of the consideration over the fair value of the assets acquired, is
capitalised and amortised on a straight line basis over its useful economic life. This is presumed to be between 10 and 15 years
depending on the business acquired, unless circumstances change significantly resulting in an impairment of the carrying value.
Turnover
Turnover represents sales of goods and services to third parties as well as income received from licence and development
agreements. Turnover is stated exclusive of value added tax and other sales related taxes. Revenue from the sale of goods,
typically instruments and consumables, is recognised when the goods are shipped or despatched. Revenue from services is
recognised either in the period invoiced or if the service relates to a specific period, the revenue is recognised evenly over the
period to which the charges relate.
Income from licence and development agreements is typically in the form of fees on signature, milestone payments on the
achievement of pre-determined events and royalties on the sale of the product once marketed. Turnover is recognised when
licence rights are granted to the extent that the Group has performed its contractual obligations, based on the fair value of the
right to consideration for each component of the agreement. Unearned amounts are carried forward as deferred income
Tangible fixed assets
Tangible fixed assets are stated at cost, net of depreciation and any provision for impairment. Notes forming part of the financial statements
continued
24 Osmetech Annual Report and Accounts 2006
1  Accounting policies continued
Depreciation
Depreciation is provided to write off the cost, less estimated residual values, of all tangible fixed assets, except for assets under
construction, over expected useful lives. It is calculated at the following rates:
Short leasehold improvements – over the life of lease
Plant, machinery and laboratory equipment – 10 – 35% per annum on cost
Office equipment – 25 – 50% per annum on cost
No depreciation is charged in respect of assets under construction until the assets are fully completed at which point they are
transferred into plant, machinery and laboratory equipment.
Taxation
Current tax, including UK corporation tax, research and development tax credits and foreign tax, is provided at amounts expected
to be paid or recovered using the tax rates enacted or substantively enacted by the balance sheet date.
Deferred taxation
Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a
right to pay less tax at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing
differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in
which they are included in the financial statements. Deferred tax assets are recognised to the extent that it is regarded as more
likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted.
Finance costs
Finance costs associated with the issue of debt are deducted from the proceeds of the issue and charged to profit over the term
of the debt so that the amount charged is at a constant rate on the carrying amount.
Financial instruments
In relation to the disclosures made in note 26:
• Short term debtors and creditors are not treated as financial assets or financial liabilities.
• The Group does not hold or issue derivative financial instruments for trading purposes.
• Forward exchange contracts are used to fix the value of the related asset or liability in the contract currency and at the contract
rate and any gains or losses on these instruments are offset. Where the instrument is used to hedge a committed or probable
future transaction, gains and losses are deferred until the transaction occurs.
Foreign currency
Profit and loss accounts of foreign subsidiary undertakings are translated into sterling at the average rate. Assets and liabilities of
the foreign subsidiary undertakings are translated into sterling at the rates of exchange ruling on the balance sheet date.
Exchange differences which arise from translation of the net investment in foreign subsidiary undertakings and the translation of
the profit and loss between closing rate and average rate are taken to reserves.
All other differences are taken to the profit and loss account with the exception of differences on foreign currency borrowings,
which, to the extent that they are used to finance or provide a hedge against foreign equity investments, are taken directly to
reserves to the extent of the exchange differences arising on the net investment in those enterprises. Notes forming part of the financial statements
continued
Osmetech Annual Report and Accounts 2006 25
1  Accounting policies continued
Intellectual property rights
Patent costs are capitalised and written off on a straight line basis over the shorter of the life of the patent or its useful economic
life. The Group’s other intellectual property rights are stated at cost and amortised over their useful economic lives in relation to
revenues generated.
Licences
Licences are depreciated over the life of the product to which it relates, after the first sale of the product.
All research and development expenditure is charged to the profit and loss account in the year in which it is incurred.
Stock
Stocks are valued at the lower of cost or net realisable value. Cost is calculated as follows:
Raw materials – cost of purchase on first in, first out basis
Finished goods – cost of raw materials and labour and attributable overheads based on the normal level of activity.
Net realisable value is based on estimated selling price less further costs to completion and disposal.
Pension costs
Contributions to defined contribution pension schemes are charged to the profit and loss account in the year in which they
become payable.
Operating leases
Rentals under operating leases are charged on a straight line basis over the lease term, even if the payments are not made on
such a basis.
Share based compensation arrangements
The Group operates equity-settled share based compensation plans. In accordance with transitional provisions, FRS 20 has been
applied to all grants of equity instruments after 7 November 2002 that were unvested as at 1 May 2005.
The Group issues equity-settled share based payments to certain employees. Equity-settled share based payments are measured
at fair value at the date of grant. The fair value determined at the grant date is expressed on a straight line basis over the vesting
period, based on estimates of the number of options that are expected to vest. Fair value is based on both Black-Scholes and
binomial models, according to the relevant measures of performance.
At each balance sheet date, the Group revises its estimate of the number of options that are expected to become exercisable with
the impact of any revision being recognised in the profit and loss account and a corresponding adjustment to reserves over the
remaining vesting period. The proceeds received net of any transaction costs are credited to share capital (nominal value) and
share premium when the options are exercised. Notes forming part of the financial statements
continued
26 Osmetech Annual Report and Accounts 2006
2  Turnover
The turnover is wholly attributable to the Group’s principal activity and is analysed as follows:
By Destination:
8 months ended
12 months ended 31.12.06 31.12.05
Continuing Discontinued Discontinued
operations operations Total operations
£££ £
United Kingdom – 85,400 85,400 160,378
Rest of Europe – 1,383,726 1,383,726 810,330
USA 48,635 6,166,832 6,215,467 2,589,017
Far East – 2,303,960 2,303,960 1,724,266
Rest of World – 582,543 582,543 304,130
48,635 10,522,461 10,571,096 5,588,121
By country of origin:
USA 48,635 10,027,500 10,076,135 5,280,235
Germany – 494,961 494,961 307,886
48,635 10,522,461 10,571,096 5,588,121
All of the turnover in the eight months ending 31 December 2005 related to discontinued operations.
3  Analysis of (loss)/profit before taxation and net assets
(Loss)/profit before taxation by geographical segment:
12 months ended 31.12.06 8 months ended 31.12.05 restated
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total
£££ £££
UK (2,468,910) – (2,468,910) (2,302,790) – (2,302,790)
Rest of Europe – (83,090) (83,090) – (74,802) (74,802)
USA (9,753,091) 225,962 (9,527,129) (2,943,629) (8,546) (2,952,175)
(12,222,001) 142,872 (12,079,129) (5,246,419) (83,348) (5,329,767)
Net assets by geographical segment:
As at 31.12.06 As at 31.12.05 restated
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total
£££ £££
UK 6,903,667 – 6,903,667 8,137,896 – 8,137,896
Rest of Europe – 155,782 155,782 – 196,938 196,938
USA 1,873,651 3,898,432 5,772,083 1,384,912 3,064,412 4,449,324
8,777,318 4,054,214 12,831,532 9,522,808 3,261,350 12,784,158
Net assets are allocated to geographical area based on the location of the asset. Notes forming part of the financial statements
continued
Osmetech Annual Report and Accounts 2006 27
4  Operating loss
12 months ended 8 months ended
31.12.06 31.12.05
restated
£ £
This is arrived at after charging:
Amortisation of intangible fixed assets 147,576 89,763
Depreciation 597,943 346,880
Auditors’ remuneration – audit services: Osmetech plc 39,000 36,500
– audit services: Other Group companies 42,663 45,773
– non audit services 41,624 143,502
Operating lease rentals – plant and machinery 31,966 19,618
– other 764,816 428,275
Research and development 5,601,235 2,665,491
Loss on disposal of fixed assets 8,064 136,913
Share compensation charge 781,296 431,581
5  Employees
12 months ended 8 months ended
31.12.06 31.12.05
£ £
Staff costs for all employees, including executive directors, consist of:
Wages and salaries 7,032,936 4,037,277
Social security costs 579,465 507,785
Other pension costs 250,473 133,753
7,862,874 4,678,815
The average monthly number of employees of the Group during the year, including executive directors, was as follows:
Number Number
31.12.06 31.12.05
Manufacturing 58 46
Research and development 47 41
Selling and administration 54 32
159 119
6  Directors
12 months ended 8 months ended
31.12.06 31.12.05
£ £
Emoluments:
Emoluments 671,645 465,398
Defined contribution pension scheme payments 63,376 45,342
735,021 510,740 Notes forming part of the financial statements
continued
28 Osmetech Annual Report and Accounts 2006
6  Directors continued
12 months ended 8 months ended
31.12.06 31.12.05
£ £
Highest paid director:
Emoluments 282,628 202,818
Defined contribution pension scheme payments 25,550 15,800
308,178 218,618
There are 3 (2005:3) directors who are members of defined contribution schemes.
Directors’ interests
The interests of the directors in ordinary shares of Osmetech plc, which are all held beneficially as reported in the report of the
directors on page 11.
Options
Total options Total options
on ordinary on ordinary
shares of Lapsed/waived Granted shares of Exercise
0.10p during the during the 0.10p Date of Price per Excersisable
Director 31.12.05 Period Period 31.12.06 Grant share From To
G J Hall 100,000 – – 100,000 25.09.98 20.0p 21.10.01 21.01.08
J N G White 6,590,248 – – 6,590,248 02.09.05 0.1p 03.09.05 02.09.15
493,822 – – 493,822 02.09.05 0.1p 02.10.05 02.09.15
2,070,280 – – 2,070,280 02.09.05 0.1p 02.10.05 02.09.15
D A Sandilands 3,295,124 – 3,295,124 02.09.05 0.1p 03.09.05 02.09.15
493,822 – 493,822 02.09.05 0.1p 02.10.05 02.09.15
788,229 – 788,229 02.09.05 0.1p 02.10.05 02.09.15
G B Kuenster 135,000 – – 135,000 26.04.00 262.5p 26.04.03 26.04.10
100,000 – – 100,000 20.03.01 110.0p 20.03.04 20.03.11
100,000 – – 100,000 29.01.02 127.5p 29.01.05 29.01.12
A Marek 1,000,000 – – 1,000,000 01.04.03 23.3p 01.04.04 01.04.13
1,977,074 – – 1,977,074 02.09.05 0.1p 03.09.05 02.09.15
The mid-market price of the shares at 31 December 2006 was 25.25p (31 December 2005 – 27.00p) and the range during the period was between 15.75p and 33.75p; (31 December 2005
– 14.00p and 27.00p).
7  Net finance income
12 months ended 8 months ended
31.12.06 31.12.05
£ £
Interest on bank balances and term deposits 284,582 190,769
284,582 190,769 Notes forming part of the financial statements
continued
Osmetech Annual Report and Accounts 2006 29
8  Tax on loss on ordinary activities
The tax credit comprises:
12 months ended 8 months ended
31.12.06 31.12.05
restated
£ £
Current tax:
UK Corporation tax receivable (126,146) (185,397)
Adjustment in respect of prior years research and development tax credit (65) –
Total tax on loss on ordinary activities (126,211) (185,397)
The difference between the total current tax shown above and the amount calculated by applying the standard rate of UK
corporation tax to the loss before tax is as follows:
12 months ended 8 months ended
31.12.06 31.12.05
restated
£ £
Loss on ordinary activities before tax (12,079,129) (5,329,767)
Tax credit at 30% (3,623,739) (1,598,930)
Effects of
– losses which are available to set against future profits 3,502,082 1,361,221
– research and development tax (credit)/charge (93,578) 46,349
– expenses not deductible for tax purposes 75,352 6,630
– depreciation in excess of capital allowances 6,192 1,659
– movement in short term timing differences 7,545 (2,326)
Adjustment in respect of prior year (65) –
Total current tax credit (126,211) (185,397)
Factors that may affect the future tax charge
A deferred tax asset has not been recognised in respect of timing differences relating to tax losses carried forward as there is
insufficient evidence that the asset will be recovered. The amount of the asset not recognised at a standard rate of 30% is
£11.1 million (31 December 2005 – £8.5 million). In addition, a deferred tax asset in respect of capital allowances of £110,000
(31 December 2005 – £335,000) has not been recognised. These assets will be recoverable if the Group generates profits in the
future from the same trade in which the losses were incurred.
9  Loss attributable to the Company
The loss for the financial year dealt with in the financial statements of the parent company was £1,840,809 (eight months ended
31 December 2005 as restated – £1,467,667). As permitted by Section 230 of the Companies Act 1985, no separate profit and loss
account is presented in respect of the parent company. Notes forming part of the financial statements
continued
30 Osmetech Annual Report and Accounts 2006
10  Earnings per share
12 months ended 8 months ended
31.12.06 31.12.05
Weighted average number of shares in issue during the year/period 165,457,028 109,740,819
(Loss)/profit Loss per (Loss) in Loss per
in year share period share
£ pence £ pence
Continuing operations (12,095,789) (7.31) (5,061,022) (4.61)
Discontinued operations 142,871 0.09 (83,348) (0.08)
Total (11,952,918) (7.22) (5,144,370) (4.69)
FRS 22 requires presentation of diluted Earnings per share when a company could be called upon to issue shares that would
decrease net profit or increase net loss per share. For a loss making company with outstanding share options, net loss per share
would only be increased by the exercise of out-of-the-money options. Since it is inappropriate to assume that option holders
would act irrationally, no adjustment is made to diluted Earnings per share for out-of-the-money share options.
11  Intangible assets
Patents and Intellectual Licence
Trademarks Property Goodwill costs Total
££££ £
Group
Cost
At beginning of year 278,273 600,000 1,512,759 730,117 3,121,149
Additions 16,716 – – 240,864 257,580
Currency translation adjustment – – (68,324) (65,230) (133,554)
At end of year 294,989 600,000 1,444,435 905,751 3,245,175
Amortisation:
At beginning of year 254,142 600,000 204,058 – 1,058,200
Charge for the year 4,228 – 134,892 8,456 147,576
Currency translation adjustment – – (9,587) (33) (9,620)
At end of year 258,370 600,000 329,363 8,423 1,196,156
Net book value
At 31 December 2006 36,619 – 1,115,072 897,328 2,049,019
At 31 December 2005 24,131 – 1,308,701 730,117 2,062,949
Company
Cost
At beginning of year 278,273 600,000 878,273
Additions 16,715 – 16,715
At end of year 294,988 600,000 894,988
Amortisation:
At beginning of year 254,141 600,000 854,141
Charge for the year 4,228 – 4,228
At end of year 258,369 600,000 858,369
Net book value
At 31 December 2006 36,619 – 36,619
At 31 December 2005 24,132 – 24,132 Notes forming part of the financial statements
continued
Osmetech Annual Report and Accounts 2006 31
12  Tangible assets
Short Plant, machinery
leasehold Assets under and laboratory Office
improvements construction equipment equipment Total
££££ £
Group
Cost
At beginning of year 159,311 44,825 1,326,886 628,446 2,159,468
Additions 13,166 348,894 340,363 325,735 1,028,158
Disposals – (8,064) – (16,228) (24,292)
Currency translation adjustment (18,826) (5,297) (156,812) (72,195) (253,130)
At end of year 153,651 380,358 1,510,437 865,758 2,910,204
Depreciation
At beginning of year 24,483 – 437,521 245,698 707,702
Provided in the year 38,478 – 338,204 221,261 597,943
Disposals – – – (16,228) (16,228)
Currency translation adjustment (5,334) – (74,277) (40,021) (119,632)
At end of year 57,627 – 701,448 410,710 1,169,785
Net book value
At 31 December 2006 96,024 380,358 808,989 455,048 1,740,419
At 31 December 2005 134,828 44,825 889,365 382,748 1,451,766
Company
Cost
At beginning of year – 4,897 4,897
Additions 90,771 – 90,771
At end of year 90,771 4,897 95,668
Depreciation
At beginning of year – 2,552 2,552
Provided in the year 15,170 1,241 16,411
At end of year 15,170 3,793 18,963
Net book value
At 31 December 2006 75,601 1,104 76,705
At 31 December 2005 – 2,345 2,345 Notes forming part of the financial statements
continued
32 Osmetech Annual Report and Accounts 2006
13  Fixed asset investments
(a) Subsidiary undertakings
Investments Loan Total
££ £
Company
Cost
At beginning of year 3,871,273 14,152,659 18,023,932
Additions – 12,398,165 12,398,165
Repayments – (199,584) (199,584)
At end of year 3,871,273 26,351,240 30,222,513
Provision for impairment
At beginning and end of year 645 6,797,975 6,798,620
Net book value
At 31 December 2006 3,870,628 19,553,265 23,423,893
At 31 December 2005 3,870,628 7,354,684 11,225,312
The following were subsidiary undertakings at the end of the year and have all been included in the consolidated accounts.
Proportion of
Country of voting rights and
incorporation ordinary share
Name or registration capital held Nature of business
Osmetech Technology Inc. USA 100% Holding Company
Osmetech Inc. USA 100%* Same as ultimate parent company
Clinical Micro Systems Inc. USA 100%* Same as ultimate parent company
Osmetech GmbH Germany 100% Sales operation
Molecular Sensing Limited UK 100% Dormant
Molecular Sensors Limited UK 100% Dormant
Osmetech AESOP Trustee Limited UK 100% Dormant
The country of operation is the same as its country of incorporation or registration.
*Shares held by Osmetech Technology Inc.
(b) Other investments
Proportion of
Country of voting rights and
incorporation ordinary share
Name or registration capital held Nature of business
Atlas Genetics Limited UK 11.7% Electrochemical DNA detection
OHMx Corporation USA 5.4%* Electrochemical detection
* Shares held by Clinical Micro Sensors, Inc.
Both of these investments are in unquoted private companies. The investments were received in exchange for non-cash
consideration. The fair value of these investments is considered to be zero.
(c) Acquisitions and disposals
On 26 July 2005, the Group acquired the entire share capital of Clinical Micro Sensors Inc., from Motorola Inc., for a total
consideration of £923,144, being the deemed value, under the Black-Scholes model for pricing, of a warrant issued to Motorola to
subscribe for 7,811,428,ordinary shares at a price of 17.5 pence per share and acquisition costs of £340,751. Notes forming part of the financial statements
continued
Osmetech Annual Report and Accounts 2006 33
13  Fixed asset investments continued
The acquisition has been accounted for using the acquisition method of accounting. After adjustments to the valuation of assets
and liabilities to reflect their fair value, the fair value of the assets acquired amounted to £1,263,895. The fair value of these assets
has now been finalised in the period ended 31 December 2006 and remains unchanged.
14  Stocks
31.12.06 31.12.05
£ £
Raw materials and work in progress 1,752,110 1,232,552
Finished goods 509,183 486,750
2,261,293 1,719,302
There is no material difference between the replacement cost of stocks and the amount at which they are stated in the financial
statements.
The Company has no stock.
15  Debtors
31.12.06 31.12..05
Group Company Group Company
££ ££
Due within one year
Trade debtors 1,422,103 – 1,797,700 3,583
Other debtors 116,237 10,812 360,408 66,756
Called up share capital not paid –– 290,000 290,000
Taxation recoverable 126,146 126,146 384,027 384,027
Prepayments and accrued income 355,784 117,958 187,230 121,423
2,020,270 254,916 3,019,365 865,789
16  Investments – term deposits
31.12.06 31.12.05
£ £
Group and Company
Cash deposits with terms in excess of 7 days 5,686,021 6,300,000
17  Creditors: amounts falling due within one year
31.12.06 31.12..05
Group Company Group Company
££ ££
Trade creditors 647,053 78,697 1,124,036 172,220
Taxation and social security 21,758 9,524 36,248 25,337
Accruals and deferred income 1,659,764 296,843 1,516,117 217,023
2,328,575 385,064 2,676,401 414,580 Notes forming part of the financial statements
continued
34 Osmetech Annual Report and Accounts 2006
18  Share capital and other reserves (Group and Company)
31.12.06 31.12.05
£ £
Authorised:
Ordinary share capital:
1,120,000,000 shares of 0.10p each (31 December 2005 – 1,120,000,000 shares of 0.10p each) 1,120,000 1,120,000
1,200,000,000 deferred shares of 0.99p each (31 December 2005 – 1,200,000,000 shares of 0.99p each) 11,880,000 11,880,000
Authorised share capital – total 13,000,000 13,000,000
Allotted, called up and fully paid:
Ordinary share capital:
201,354,973 shares of 0.10p each (31 December 2005 – 130,354,973 shares of 0.1p each) 201,355 130,355
674,978,300 deferred shares of 0.99p each (31 December 2005 – 674,978,300
deferred shares of 0.99p each) 6,682,285 6,682,285
6,883,640 6,812,640
Allotted and called up ordinary share capital:
Ordinary share capital:
1,450,000 shares of 0.10p (31 December 2005 – 1,450,000 shares of 0.1p) 1,450 1,450
14,500,000 deferred shares of 0.99p each (31 December 2005 – 14,500,000 shares of 0.99p each) 143,550 143,550
145,000 145,000
Called up share capital – total 7,028,640 6,957,640
Share
Share Premium Merger Other
capital Account Reserve Reserve
££££
Movement in the year
At 1 January 2006 as previously reported 6,957,640 39,654,069 1,885,533 1,435,144
Prior year adjustment (Note 24) – – – (80,419)
At 1 January 2006 restated 6,957,640 39,654,069 1,885,533 1,354,725
Shares issued in the period 71,000 12,709,000 – –
Share issue costs – (659,324) – –
Share compensation charge – – – 781,296
At 31 December 2006 7,028,640 51,703,745 1,885,533 2,136,021
The following ordinary shares of 0.10p each were issued during the year for cash consideration:
Date Number Consideration
11 July 2006 71,000,000 18p
On 25 July 2005 the Company’s issued and unissued ordinary shares of 1p each in the share capital of the Company were
subdivided into 1 ordinary share of 0.01p each and 1 deferred share of 0.99p each. On 30 September 2005, a special resolution
was passed by shareholders consolidating the ordinary shares of 0.01p each in the share capital of the Company into ordinary
shares of 0.10p each on the basis of 1 ordinary share of 0.10p for every 10 ordinary shares of 0.01p each. The deferred shares have
no dividend or voting rights. Notes forming part of the financial statements
continued
Osmetech Annual Report and Accounts 2006 35
18  Share capital and other reserves (Group and Company) continued
Warrants
The Company had warrants outstanding as follows:
Number of ordinary shares
under warrant as at Subscription
Date 31.12.06 31.12.05 Price Exercisable between
26 July 2005 7,811,428 7,811,428 17.5p 27 July 2005 to 26 July 2010
7,811,428 7,811,428
The warrants were issued to Motorola Inc as consideration for the acquisition of Clinical Micro Sensors Inc. They are exercisable by
Motorola Inc (in whole or in part) at any time prior to the close of business on 26 July 2010. Any exercise of subscription rights
must be accompanied by remittance for the subscription price.
An agreement has been reached, post year end, to buy back these warrants, as disclosed in note 27.
19  Share based payments
The Company has granted options under the Osmetech plc Enterprise Management Incentive Plan (“EMI Plan”), the Osmetech
plc 2003 US Equity Compensation Plan (“US Plan”) and Long Term Incentive Awards (“LTIP’s”) and has entered into individual
option agreements and unapproved options as follows:
1. EMI Plan:
Number of ordinary shares
under option as at Subscription
Date 31.12.06 31.12.05 Price Exercisable between
17 September 2002 75,000 75,000 17.5 p 17 December 2002 and 17 September 2012
24 February 2003 142,601 142,601 23.9 p 17 December 2003 and 24 February 2013
13 October 2004 – 1,175 93.6 p 13 October 2004 and 30 July 2011
2 September 2005 987,644 987,644 0.10p 2 October 2005 and 2 September 2015
1,205,245 1,206,420 Notes forming part of the financial statements
continued
36 Osmetech Annual Report and Accounts 2006
19  Share based payments continued
2. US Plan:
Number of ordinary shares
under option as at Subscription
Date 31.12.06 31.12.05 Price Exercisable between
1 April 2003 1,825,000 2,100,000 23.3p 1 April 2004 and 1 April 2013
3 August 2005 2,600,000 2,870,000 19.25p 3 August 2006 to 3 August 2015
29 August 2005 – 275,000 19.25p 29 August 2006 to 29 August 2015
7 September 2005 – 50,000 19.25p 7 September 2006 to 7 September 2015
26 September 2005 25,000 25,000 18.10p 26 September 2006 to 26 September 2015
5 October 2005 500,000 500,000 17p 5 October 2006 to 5 October 2015
24 October 2005 25,000 25,000 14.75p 24 October 2006 to 24 October 2015
1 November 2005 515,000 540,000 14.25p 1 November 2006 to 1 November 2015
7 November 2005 – 50,000 17.5p 7 November 2006 to 7 November 2015
14 November 2005 – 25,000 20.5p 14 November 2006 to 14 November 2015
2 December 2005 100,000 100,000 24.25p 2 December 2006 to 2 December 2015
8 December 2005 170,000 170,000 22.75p 8 December 2006 to 8 December 2015
24 March 2006 2,810,000 – 22.25p 24 March 2007 to 24 March 2016
27 March 2006 35,000 – 22.50p 27 March 2007 to 27 March 2016
18 May 2006 50,000 – 22.25p 18 May 2007 to 18 May 2016
21 June 2006 780,000 – 18.50p 21 June 2007 to 21 June 2016
5 July 2006 970,000 – 21.25p 5 July 2007 to 5 July 2016
10 August 2006 110,000 – 18.75p 10 August 2007 to 10 August 2016
5 October 2006 250,000 – 16.50p 5 October 2007 to 5 October 2016
28 November 2006 150,000 – 25.00p 28 November 2007 to 28 November 2016
10,915,000 6,730,000
3. Individual Option Agreements:
Number of ordinary shares
under option as at Subscription
Date 31.12.06 31.12.05 Price Exercisable between
25 September 1998 111,700 111,700 20p 21 October 2001 and 21 October 2008
26 April 2000 135,000 135,000 262.5p 26 April 2003 and 26 April 2010
20 March 2001 25,000 25,000 110p 1 March 2004 and 20 March 2011
20 March 2001 75,000 75,000 110p 20 March 2004 and 20 March 2011
29 January 2002 100,000 100,000 127.5p 29 January 2005 and 29 January 2012
24 February 2003 4,500 4,500 23.9p 24 February 2004 and 24February 2013
13 October 2004 76,375 76,375 34p 13 October 2004 and 22 November 2008
527,575 527,575
4. Unapproved Options:
Number of ordinary shares
under option as at Subscription
Date 31.12.06 31.12.05 Price Exercisable between
2 September 2005 2,858,509 2,858,509 0.10p 2 October 2005 to 2 September 2015
2,858,509 2,858,509 Notes forming part of the financial statements
continued
Osmetech Annual Report and Accounts 2006 37
19  Share based payments continued
5. LTIP’s:
Number of ordinary shares
under option as at Subscription
Date 31.12.06 31.12.05 Price Exercisable between
2 September 2005 14,498,544 14,498,544 0.10p 3 September 2005 to 2 September 2015
14,498,544 14,498,544
Employee participation in these schemes is at the discretion of the Remuneration Committee or senior management of the
Company. Share options granted under LTIPs, EMI Plan and Unapproved Options dated 2 September 2005 are exercisable at a
price of 0.1 pence per share subject to the achievement of specific non-market based performance criteria. For LTIPs, exercise is
also subject to the achievement of share price targets. All other options are exercisable at a price equal to equal to the average
quoted market price of the Company’s shares on the date of grant and generally vest between 1 and 3 years.
Options are generally exercisable for a period up to 10 years after grant and are forfeited if the employee leaves the group before
the options vest. At 31 December 2006 all options are equity-settled. Following the sale of the Company’s Critical Care Division
(“CCD”) on 31 January 2007, the US Plan was amended to allow the Company to cash settle options held by CCD employees
leaving the Group (“CCD Options”). For those option holders wishing to exercise and immediately sell their shares, the Company
intends to cash settle any appreciation in value calculated on the difference between the closing bid price of an Osmetech share
on the date of exercise and the related exercise price. At 31 December 2006, the CCD Options totalled 5,055,000 (2005 –
2,600,000) and have an exercise period expiring on 31 December 2007.
Equity settled share-based payments are measured at fair value at the date of grant. The fair value determined at the date of grant
of equity settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s
estimate of shares that will eventually vest.
The fair value of the LTIPs is measured by use of a binomial model. The Black Scholes model is used to determine the fair value of
other options. The models include adjustments, based on management’s best estimate, for the effects of exercise restrictions and
behavioural considerations. The option life is derived by the models based on these assumptions and other assumptions identified
below. Expected volatility is calculated using an analysis of volatility over an historical 3 year period.
The total expense included within operating loss in respect of share-based payments was £781,000 (8 months ended 31 December
2005 – £432,000).
Details of the share options outstanding are as follows:
12 months ended 31.12.06 LTIPs, EMI Plan and Unapproved Other options (exercise price Other options (exercise price
Options dated 02.09.05 at or below 25 pence per share) above 25 pence per share)
Weighted Weighted Weighted
average average average
Number exercise price Number exercise price Number exercise price
of options (pence) of options (pence) of options (pence)
Outstanding at beginning of period 18,344,697 0.10 7,063,801 20.13 412,550 149.86
Granted during the period – – 5,230,000 21.24 – –
Forfeited during the period – – (1,045,000) 20.36 (1,175) 34.00
Exercised during the period ––––––
Expired during the period ––––––
Outstanding at end of period 18,344,697 0.10 11,248,801 20.62 411,375 150.19
Range of prices 0.10 14.25 – 24.25 34.00 – 262.50
Contractual remaining life 8.67 years 8.48 years 3.70 years
Exercisable at end of period 3,846,153 0.10 3,470,468 21.30 411,375 150.19 Notes forming part of the financial statements
continued
38 Osmetech Annual Report and Accounts 2006
19  Share based payments continued
8 months ended 31.12.05 LTIPs, EMI Plan and Unapproved Other options (exercise price Other options (exercise price
Options dated 02.09.05 at or below 25 pence per share) above 25 pence per share)
Weighted Weighted Weighted
average average average
Number exercise price Number exercise price Number exercise price
of options (pence) of options (pence) of options (pence)
Outstanding at beginning of period – – 6,711,053 23.06 893,753 86.56
Granted during the period 18,344,697 0.10 4,630,000 18.62 – –
Forfeited during the period – – (4,277,252) 23.08 (481,203) 32.29
Exercised during the period ––––––
Expired during the period ––––––
Outstanding at end of period 18,344,697 0.10 7,063,801 20.13 412,550 149.86
Range of prices 0.10 14.25 – 25.00 34.00 – 262.50
Contractual remaining life 9.67 years 8.75 years 4.70 years
Exercisable at end of period 769,231 0.10 1,733,801 22.89 412,550 149.86
For those share options granted in the period, the assumptions (including revisions thereto in relation to LTIPs) used in the
calculation of the fair values were as follows:
12 months ended 31.12.06 8 months ended 31.12.05
LTIPs Other options LTIPs Other options
Vesting period (years) 42 2.5 1.36
Expected volatility (%) 69.9 58.5 69.9 69.9
Expected life (years) 43 4 3.45
Risk free rate (%) 4.14 4.62 4.14 4.19
Expected dividend yield (%) 00 00
Probability of achieving non-market based performance
criteria (where applicable) (%) 50 100 70 100
20  Profit and Loss Account (Group and Company)
Group Company
££
At 1 January 2006 as previously reported (37,148,228) (31,531,818)
Prior year adjustment (Note 24) 80,419 80,419
At 1 January 2006 restated (37,067,809) (31,451,399)
Loss for the period (11,952,918) (1,840,809)
Exchange gain on consolidation (901,680) –
At 31 December 2006 (49,922,407) (33,292,208) Notes forming part of the financial statements
continued
Osmetech Annual Report and Accounts 2006 39
21  Reconciliation of movements in equity shareholders’ funds
31.12.06 31.12.05
Restated
Group Company Group Company
££ ££
Loss for the period (11,952,918) (1,840,809) (5,144,370) (1,467,667)
Other recognised losses relating to the year/period (901,680) – 370,553 –
New share capital subscribed including premium 12,120,676 12,120,676 10,291,875 10,291,875
Share compensation charge 781,296 781,296 512,000 512,000
Warrants issued –– 923,144 923,144
Net increase/decrease in equity shareholders’ funds 47,374 11,061,163 6,953,202 10,259,352
Opening equity shareholders funds as previously stated 12,784,158 18,400,568 5,911,375 8,221,635
Prior year adjustment (Note 24) –– (80,419) (80,419)
Opening equity shareholders funds as restated 12,784,158 18,400,568 5,830,956 8,141,216
Closing equity shareholders funds as restated 12,831,532 29,461,731 12,784,158 18,400,568
22  Commitments
At the balance sheet date the Group had annual commitments under noncancellable operating leases as set out below:
31.12.06 31.12.05
Land and Land and
buildings Other buildings Other
££ ££
Operating leases which expire:
Within one year – 15,395 ––
Between two and five years 777,852 48,406 859,749 35,200
Over five years –– ––
777,852 63,801 859,749 35,200
23  Related party transactions
The Company has taken advantage of the exemption not to disclose transactions with other Group undertakings as voting rights
are controlled within the Group and consolidated financial statements are publicly available.
No director was, or is, materially interested in any contract subsisting during, or at the end of the financial year which was
significant in relation to the business of the Group. Notes forming part of the financial statements
continued
40 Osmetech Annual Report and Accounts 2006
24  Prior year adjustment
As a result of adopting FRS 20 “Share based Payments”, the balance sheet has been restated to reflect the impact of equity
settled share based compensation plans. The effects of this change in accounting policy on the financial statements are disclosed
below:
Per 2005 Restated 2005
Financial FRS 20 financial
statements adoption statements
£££
Group
Profit and loss account
Operating loss (5,600,955) 80,419 (5,520,536)
Net finance income 190,769 – 190,769
Taxation 185,397 – 185,397
Loss for the period transferred from reserves (5,224,789) 80,419 (5,144,370)
Balance sheet
Fixed assets 3,514,715 – 3,514,715
Current assets 11,945,844 – 11,945,844
Creditors: amounts falling due within one year (2,676,401) – (2,676,401)
Net assets 12,784,158 – 12,784,158
Called up share capital 6,957,640 – 6,957,640
Share premium account 39,654,069 – 39,654,069
Merger reserve 1,885,533 – 1,885,533
Other reserve 1,435,144 (80,419) 1,354,725
Profit and loss account (37,148,228) 80,419 (37,067,809)
12,784,158 – 12,784,158
25  Pension costs
The Company makes contributions into money purchase pension schemes for the benefit of its employees. The assets of the
schemes are held separately from those of the Company in independently administered funds. The pension cost charge represents
contributions payable and paid by the Company to the funds, and amounted to £250,473 for the year (8 months ended 31
December 2005 – £133,753). At 31 December 2006, the Company had £33,450 of unpaid pension contributions (31 December 2005
– £7,900).
26  Financial instruments
The numerical disclosures in this note deal with financial assets and financial liabilities as defined in Financial Reporting Standard
13 (FRS 13) and Financial Reporting Standard 25 (FRS 25)– “Derivatives and Other Financial Instruments: Disclosures”. Certain
financial assets such as investments in subsidiaries are excluded from the scope of these disclosures.
As permitted by FRS 13 and FRS 25, short-term debtors and creditors have been excluded from the disclosures other than the
currency risk disclosures.
There is no material difference between the fair values and book values of the Group’s financial instruments, either in the current or
prior year.
The Group’s treasury activities are designed to provide suitable, flexible funding arrangements to satisfy its requirements. The
Group uses financial instruments comprising cash and term deposits. The main risks arising from the Group financial instruments
are interest rate and liquidity risks. The Board reviews policies for managing each of these risks and they are summarised below.
These policies have remained unchanged from previous years. Notes forming part of the financial statements
continued
Osmetech Annual Report and Accounts 2006 41
26  Financial instruments continued
The Group aims to achieve a balance between continuity and flexibility of funding by maintaining a range of maturities on its liquid
resources. The Group also mixes the duration of its deposits to reduce the impact of interest rate fluctuations.
The Group has limited foreign currency risk since overseas subsidiaries derive revenues and incur expenses denominated
predominantly in the currencies of the countries in which they operate. All monetary assets and liabilities of the Group are materially
denominated in the operating or functional currency of the operating unit involved.
There is no material difference between the fair values and book values of the Group’s financial instruments.
Interest bearing financial assets
Functional currency of operations
31.12.06 31.12.05
Group Sterling US Dollar Euro Group Sterling US Dollar Euro
££££ ££££
Cash 1,403,085 368,640 957,108 77,337 907,177 412,109 370,735 124,333
Term Deposits 5,686,021 1,900,000 3,786,021 – 6,300,000 6,300,000 – –
7,089,106 2,268,640 4,743,129 77,337 7,207,177 6,712,109 370,735 124,333
The sterling and US dollar cash balances attract interest at floating rates based on the Bank of England Base rate and US Prime
Rate respectively.
The term deposits are of 34 day’s duration, at a weighted average fixed rate of 4.87% (31 December 2005 – 1 month’s duration,
4.55%).
27  Post Balance Sheet Events
Sale of Critical Care Division
As noted on pages 2 and 3, the Critical Care Division was sold on 31 January 2007 for a cash sum of $44,900,000 before costs. The
gain on disposal will be accounted for in the 12 months ended 31 December 2007.
Cancellation of Warrants
On 20 March 2007, the Company acquired 7,811,428 warrants previously held by Motorola, Inc. (“Motorola”). The warrants were
originally issued to Motorola in consideration for Osmetech’s acquisition of Clinical Micro Sensors Inc. which was completed in July
2005. The warrants entitled Motorola to subscribe for up to 7,811,428 ordinary shares of 0.1 pence each in the capital of Osmetech
(representing 3.85% of the current issued share capital) at a price of 17.5 pence per share at any time up to 26 July 2010.
Osmetech has, in return for the cancellation of the warrants, paid to Motorola a total of £468,686 which represents a price of six
pence per warrant. 42 Osmetech Annual Report and Accounts 2006
Notice of annual general meeting
Notice is hereby given that the Annual General Meeting of Osmetech plc (the “Company”) will be held at the offices of Ashurst,
Broadwalk House, 5 Appold Street, London EC2A 2HA on 3 May 2007 at 11.00 am for the purpose of considering and, if thought
fit, passing the following resolutions:
Ordinary Business
1. To receive and consider the accounts for the 12 months ended 31 December 2006, together with the reports of the directors
and auditors thereon.
2. To elect B A Huebner as a director.
3. To re-elect G J Hall as a director.
4. To re-elect G B Kuenster as a director.
5. To re-appoint Deloitte & Touche LLP as auditors of the Company until the conclusion of the next annual general meeting and
to authorise the directors of the Company to determine their remuneration.
Special Business
To consider, and if thought fit, to pass the following resolutions of which number 6 will be proposed as an ordinary resolution and
numbers 7 and 8 will be proposed as special resolutions:
6. That, the directors be and they are hereby generally and unconditionally authorised for the purposes of and pursuant to
section 80 of the Companies Act 1985 (the “Act”) to exercise all the powers of the Company to allot relevant securities (within
the meaning of section 80(2) of the Act) up to an aggregate nominal amount of £67,605 (representing 67,605,000 ordinary
shares of 0.10p each) provided that this authority shall, unless renewed, varied or revoked, expire at the earlier of (A) 30 June
2008 and (B) the conclusion of the next annual general meeting of the Company to be held in 2008 and provided further that
the Company may before the expiry of such period make any offer, agreement or arrangement which would or might require
relevant securities to be allotted after such expiry and the directors of the Company may allot relevant securities pursuant to
any such offer, agreement or arrangement as if the authority hereby conferred had not expired.
7. That, subject to the passing of Resolution 6 above, the directors of the Company be and they are hereby empowered to both
allot equity securities (within the meaning of section 94(2) of the Act) of the Company for cash pursuant to the authority
conferred by Resolution 6 above and to sell relevant shares (as defined in section 94(5) of the Act) held by the Company as
treasury shares (as defined in section 94(3A) of the Act) (“treasury shares”) for cash (as defined in section 162D(2) of the Act) in
each case as if section 89(1) of the Act did not apply to any such allotment or sale, provided that this power shall, unless
renewed, varied or revoked, expire at the earlier of (A) 30 June 2008 and (B) the conclusion of the next annual general
meeting of the Company to be held in 2008 and provided further that this power shall be limited to the allotment of equity
securities for cash and the sale of treasury shares:
(i) in connection with a rights issue, open offer or other pre-emptive issue in favour of ordinary shareholders where the
equity securities respectively attributable to the interests of all ordinary shareholders are proportionate (as nearly as
practical) to the respective numbers of ordinary shares held by them but subject to such exclusions or other arrangements
as the directors may deem necessary or desirable in relation to fractional entitlements, treasury shares, record dates or
legal or practical problems arising in, or pursuant to, the laws of any territory or the requirement of any regulatory body or
stock exchange in any territory; and
(ii) otherwise than pursuant to paragraph (i) above up to an aggregate nominal amount of £40,563 (representing 40,563,000
ordinary shares of 0.10p each) and provided further that the Company may, at any time before the expiry of such power
make any offer or enter into any agreement which would or might require equity securities to be allotted, or treasury
shares to be sold after the expiry of such power and the directors may allot equity securities, or sell treasury shares, in
pursuance of any such offer or agreement as if such power conferred hereby had not expired. Osmetech Annual Report and Accounts 2006 43
Notice of annual general meeting
continued
8. That the Company is hereby generally and unconditionally authorised for the purposes of section 166 of the Act to make
market purchases (within the meaning of section 163(3) of Act) of any of its ordinary shares of 0.10p each in the capital of the
Company on such terms and in such manner as the directors of the Company may from time to time determine, and where
such shares are held as treasury shares, the Company may use them for the purposes of its employee share schemes provided
that:
(i) the maximum number of ordinary shares which may be purchased is 20,281,500 representing approximately 10 per cent.
of the issued ordinary share capital at 20 March 2007;
(ii) the minimum price which may be paid for each ordinary share is 0.10p which amount shall be exclusive of expenses, if any;
(iii) the maximum price which may be paid for each ordinary share is an amount equal to 105 per cent. of the average of the
middle market quotations for the ordinary shares of the Company as derived from the AIM Appendix to the Daily Official
List of the London Stock Exchange plc for the five business days immediately preceding the day on which such share is
contracted to be purchased;
(iv) unless previously renewed, revoked or varied, this authority shall expire at the earlier of (A) 30 June 2008 and (B) the
conclusion of the annual general meeting of the Company to be held in 2008; and
(v) under this authority the Company may make a contract to purchase ordinary shares which would or might be executed
wholly or partly after the expiry of this authority, and may make purchases of ordinary shares pursuant to it as if this
authority had not expired.
By order of the Board Registered Office:
S A Craig c/o Ashurst
Secretary Broadwalk House
5 Appold Street
London EC2A 2HA
29 March 2007
NOTES:
(1) A member of the Company may appoint one or more proxies to attend and, on a poll, to vote instead of the member. A proxy
of a member need not also be a member.
(2) The instrument appointing a proxy, and the power of attorney or other authority (if any) under which it is signed, or a notarially
certified copy of that power or authority must be deposited with the Company’s Registrars, Capita Registrars, Proxy Processing
Centre, Telford Road, Bicester, OX26 4LD. You may also deliver it by hand to The Registry, 34 Beckenham Road, Beckenham,
Kent, BR3 4TU during normal business hours, not less than 48 hours before the time for holding the meeting. A form of Proxy
accompanies this document for use by members.
(3) Completion of the Form of Proxy will not preclude a member from attending and voting in person.
(4) As permitted by Regulation 41 of the Uncertificated Securities Regulations 2001, only those holders of ordinary shares who are
registered on the Company’s share register as at 11.00 am on 1 May 2007 shall be entitled to attend the Annual General
Meeting and to vote in respect of the number of shares registered in their names at that time. Changes to entries on the share
register after 11.00 am on 1 May 2007 shall be disregarded in determining the rights of any person to attend and/or vote at
the Annual General Meeting.
(5) The register of directors’ interests in the share capital of the Company, copies of service agreements under which the directors
of the Company are employed and copies of terms and conditions of appointment of non-executive directors are available for
inspection at the Company’s registered office during normal business hours from the date of the notice of this meeting until
the date of the Annual General Meeting and will be available for inspection at the place of the Annual General Meeting for at
least 15 minutes prior to and during the meeting. 44 Osmetech Annual Report and Accounts 2006 Please insert I/We
full name
(Please use block letters)
and address of
of
being member(s) of the above-named company, hereby appoint the Chairman of the Annual General Meeting
or (see note 1)
as my/our proxy to vote for me/us and on my/our behalf at the Annual General Meeting of the Company to be held at the offices
of Ashurst, Broadwalk House, 5 Appold Street, London EC2A 2HA on 3 May 2007 at 11.00 am and at any adjournment thereof.
I/we request such proxy to vote on the following resolutions as mentioned below (see note 2)
Signature (see note 3) Dated this day of 2007
Joint holders (if any) (see note (5))
Name Name 
Name Name 
NOTES:
(1) If you wish to appoint some other person as your proxy please insert his/her name and address, initial and strike out the words “the Chairman of the Meeting”. A
proxy need not be a member of the Company. Appointing a proxy will not preclude you from personally attending and voting at the meeting (in substitution for your
proxy vote) if you subsequently decide to do so.
(2) Please indicate with an “X” in the appropriate box how you wish your votes cast. Unless otherwise instructed the proxy will exercise his/her discretion as whether, and
if so how he/she will vote. A withheld vote is not a vote in law and will not be counted in the calculation of votes.
(3) This Form of Proxy must, in the case of an individual, be signed by the appointer or his/her attorney or, in the case of a corporation, be given under its common seal
or signed on its behalf by an attorney or a duly authorised officer or, if it is subject to the Companies Act 1985 (as amended), in accordance with Section 36A thereof.
(4) To be valid this Form of Proxy and any power of attorney or other authority under which it is executed (or a duly notarised copy thereof) must be lodged with the
Registrars of the Company, Capita Registrars, Proxy Processing Centre, Telford Road, Bicester, OX26 4LD. You may also deliver it by hand to The Registry, 34
Beckenham Road, Beckenham, Kent, BR3 4TU during normal business hours, not less than 48 hours before the time appointed for the meeting, or adjourned meeting
at which it is to be used.
(5) In the case of joint holders of a share the vote of the senior who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes of the
other joint holders and for this purpose seniority shall be determined by the order in which the names stand in the statutory register of members in respect of the
share.
(6) Any alteration in this Form of Proxy must be initialled by the person in whose hand it is signed or executed.
Ordinary Business FOR AGAINST WITHHELD
1. To receive and consider the accounts for the 12 months ended 31 December 2006,
together with the reports of the directors and auditors thereon.
2. To re-elect B A Huebner as a director.
3. To re-elect G J Hall as a director.
4. To re-elect G B Kuenster as a director.
5. To re-appoint Deloitte & Touche LLP as auditors of the Company until the conclusion of
the next annual general meeting and to authorise the directors of the Company to 
determine their remuneration.
Special Business
6. To authorise the directors to allot shares of the Company up to a maximum
amount of £67,605.
7. To empower the directors to allot shares for cash on a pre-emptive basis and otherwise
up to a maximum amount of £40,563.
8. To authorise the Company to make market purchases of its ordinary shares up to
a maximum number of 20,281,500 ordinary shares.
Osmetech Annual Report and Accounts 2006 45
✄
OSMETECH plc: Proxy for use at annual general meeting BUSINESS REPLY Licence Number
RRHB-RSXJ-GKCY
Proxy Processing Centre
Telford Road
Bicester
0X26 4LD
2 2 2
THIRD FOLD
FIRST FOLD
SECOND FOLD   Directors 
Gordon J Hall (Non-Executive Chairman)
James N G White (Chief Executive Officer)
David A Sandilands (Chief Financial Officer)
Gordon B Kuenster (Non-Executive)
Bruce A Huebner (Executive)
Secretary
Sally A Craig
Corporate Governance Standing Committees
Audit Committee
Gordon J Hall (Chairman)
Gordon B Kuenster
Remuneration Committee
Gordon J Hall (Chairman)
Gordon B Kuenster
Correspondence address
1 Liverpool Street
London
EC2M 7QD
Tel: 020 7849 6027
Fax: 020 7956 2001
Registered office (not for correspondence)
c/o Ashurst
Broadwalk House
5 Appold Street
London EC2A 2HA
Website: http://www.osmetech.com
Registered number
2849544
Stockbroker and Financial Advisor 
Hoare Govett Limited
250 Bishopsgate
London
EC2M 4AA
Auditors
Deloitte & Touche LLP
PO Box 500
2 Hardman Street
Manchester
M3 3HF
Solicitors
Ashurst
Broadwalk House
5 Appold Street
London
EC2A 2HA 
Registrars and transfer office
Capita Registrars
Northern House
Woodsome Park 
Fenay Bridge
Huddersfield
HD8 0LA
Tel: 0870 162 3131
Principal banker
National Westminster Bank plc
41 Greengate Street
Stafford
ST1 2JD
Directors and advisers xx    Osmetech Annual Report 2004