CHAIRMAN'S STATEMENT

The outlook for Oxford Advanced Surfaces Group plc (OAS) remains promising and we have continued to advance our technology to ensure that our solutions are market ready and can easily be scaled to mass production. I had hoped to have positive news on the commercial front by now but its absence is not a failure of the technology to deliver.  The last six months have been well spent, developing our market knowledge, understanding the commercial and "point of proof" requirements of our customers and pushing forward our technical understanding. In fact we have made significant advances in our technology.

VISARC^TM

The anti-reflective coating (ARC) market is extensive. Our VISARC™ coatings are based on nanoparticles suspended in a binder and can be deposited by conventional wet processing methods such as spin, dip and roll-to-roll techniques. Most high-performing ARCs currently on the market must be applied using PVD (physical vapour deposition) methods. The equipment required for PVD is expensive in comparison to wet-coating methods, and in some instances, such as large displays, is impractical.  VISARC™ offers all the benefits of a wet-coat combined with near to PVD optical performance.

VISARC^TM for displays - this market is well developed (c. $1.3 billion per annum and growing due to introduction of global digital TV solutions) with display and TV manufacturers demanding higher-performing ARCs than those currently available.   We have demonstrated that we can achieve the required optical performance with our VISARC^TM technology.  We are in the process of providing further samples to our potential partners and also developing scalable formulations for commercial adoption.

VISARC^TM for eyewear - of the world's ophthalmic eyewear only 20% are produced with an ARC (a retail market worth approximately $3.6 billion in 2010). The majority of the existing market is currently satisfied via PVD either by direct supply from the lens manufacturer or through ophthalmic chains with large centralised prescription laboratories that can carry the significant costs of PVD machinery and technicians.  However there is an industry identified need for a faster and cheaper alternative to provide in-store ARC which will also develop a significant untapped market currently precluded due to cost and availability. A number of potential customers are currently reviewing OAS's VISARC^TM technology solution which provides in-store same-day service using low-cost spin-coating equipment already available in most labs.

VISARC^TM for solar - improving the efficiency and performance of solar panels using an ARC has long been sought after.  The coating can be applied internally to photovoltaic cells or to the complete assembly (the panel), where the surface is in contact with the external elements.  Wet coat single layer ARCs provide an economic solution in this market.  We have started work on better understanding the market and have commenced early stage environmental testing of VISARC^TM to meet the stringent weathering demands of this application.

Onto^TM

Onto™ is a proprietary wet chemical process technology unique to Oxford Advanced Surfaces. The application of the process requires no specialist equipment for operation, allowing our customers to integrate the chemistry into their existing manufacturing process.

The Onto™ Technology exploits a reactive chemistry facilitating the rapid and convenient modification of the surface and bulk properties of a wide range of materials in various forms. For example, it will bind with plastics (polymers), diamond, metals and minerals. Whilst it will covalently bond with almost anything, we believe it provides the most compelling cost-effective benefits with organic materials, where alternative technologies are less effective.

Onto™ surface modification - the process involves coating the base material, whether in sheet, fabric, fibre or other macro-molecular form, with Onto™ followed by curing with a suitable energy source. This generates a molecular layer bonded permanently to the base material. We are currently developing a range of value-add surfaces treatments for membranes, an example of which is modifying the properties of battery separator membranes.  This could help meet major cost and performance challenges particularly in high-performance batteries for the electronic vehicle market.

Onto cross-linking - Chemical cross-linkers link two different molecules, typically polymer chains, to form larger complex molecules. Onto™ cross-linking species are materials that contain multiple reactive head groups per cross-linking molecule. The Onto™ cross-linker can be chemically designed to be compatible with specific chemical formulations including polymer blends and suspensions. Once a compatible cross-linker has been designed then simple chemical mixing/formulation can be used to form a homogeneous mix of chemical formulation and cross-linker. Curing is then achieved using a suitable energy source. OAS has focussed specifically in the area of printed and plastic electronics where our unique technology can help adhere, and prevent delamination of, the most desirable materials in electronics processing, for example in flexible displays. This has followed on from our successful Technology Strategy Board funded grant package with PETEC.

Intellectual Property Portfolio (IP)

 Our IP has been further strengthened. We have had a number of patent grants within our four core patent families in Onto™, and our initial VISARC^TM patent published in August.  We currently have two patent families in VISARC^TM.  This provides a strong IP core as well as surrounding IP that protects the application of our technology in the market.

Outlook

Our technology has developed and we are now in a position where we can provide customers with more than the base technology; we can provide pre scale-up solutions that can be piloted and then scaled to full production. Our IP portfolio is growing and is robust.   We believe the outlook remains positive and we continue to push for the first commercial deal. 

Michael Bretherton

Chairman

30 September 2011

Company Number: 5845469

GROUP FINANCIAL REVIEW

The unaudited interim condensed consolidated financial statements have been prepared for the six months to 30 June 2011.

Trading

Group revenue for the period ended 30 June 2011 was £nil (2010: £152,000). 

As detailed in the Chairman's report, the group has focussed on preparing its core technologies for adoption which has required additional development.  This work has been completed internally and we are now providing samples to key customers that reflect closer to market technology than we have delivered before.  As a direct result we have not generated any revenue in the previous six months, although this does not echo the technological and advancements we have made.  Our grant funded work was completed during 2010 and the group has not sought any further grant funding at this stage, preferring to focus on identified customer requirements for our key technologies.  The completion of the grants has however delivered excellent results in plastic electronics, an area in which we are developing commercial opportunities as a priority.  Further grant funding will be sought in the future where the grants available meet our commercial development strategy.  The group also undertook a number of small fee-free projects in order to develop its future product offerings around VISARC^TM and Onto^TM.

Loss before Tax

The loss before tax for the six months was £929,000 (2010: £795,000) after credits of £3,000 (2010: charges of £127,000) related to share based payments.  Excluding share based payment charges the adjusted loss before tax for the six months was £932,000 (2010: £668,000).  The increase in the loss before tax is due to the reduction in turnover, combined with an increase in research and development costs.  This reflects the additional costs we have incurred in preparing the technologies for scale-up in order to ease the route to commercialisation, particularly in VISARC^TM.

The share based payments net credit arose due to the reversal of the charges incurred for options issued to Mike Eason (£48,000) that have now been cancelled following his resignation in March of this year.

Research and development costs increased from £467,000 to £535,000, driven by our investment in preparing VISARC^TM for commercialisation.  The increase in administration costs from £378,000 to £402,000 was driven by additional legal and professional fees supporting our commercial development.

Interest from deposits for the six months amounted to £77,000 (2010: £100,000).  This reflects the lower deposit rates available in the market.

Balance Sheet

The group has a robust balance sheet and the directors believe that it is sufficient to support the business for the foreseeable future.  In particular the group has £6,753,000 of cash held in instant access and term deposits specifically for developing and commercialising its technology.

Cash flow

The group's overall cash and short-term investment position reduced by £727,000 during the six months (2010: £606,000). The net cash outflow from operations amounted to £863,000 (2010: £766,000) whilst £64,000 (2010: £70,000) was invested in laboratory equipment, computers and office fittings to support business growth and technology development.  Investment in new patents amounted to £12,000 (2010: £27,000).

Treasury activities and policies

The group carries a significant cash sum, which is managed prudently.  In order to minimise the risk to the group's capital, the funds are invested across a number of financial institutions with strong credit ratings.  The deposits range from instant access to 12 month term deposits and are regularly monitored by the Board.

Share option scheme

The group operates a share option scheme (both EMI and unapproved) to provide long-term incentives and reward to key and high performing members of staff.  The scheme is an equity settled scheme and is operated for the benefit of employees of the group.  As a result certain employees of the group's subsidiaries, Oxford Advanced Surfaces Limited and Oxford Energy Technologies Limited, hold options in the scheme.

Philip Spinks

Chief Financial Officer

30 September 2011

Company Number: 5845469

There were no items of other comprehensive income for the periods covered by these statements and therefore the loss for the year is also the total comprehensive loss for the year net of tax.