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Accelerated product development programmes all on plan Optim, the leading product in the portfolio, is set for launch late 2008 / early PDF

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Avacta Group plc Interim results for the six months ended 31 January 2008 Avacta Group plc ( Avacta or the Company ) announces its interim results for the six months ended 31 January Avacta provides
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Avacta Group plc Interim results for the six months ended 31 January 2008 Avacta Group plc ( Avacta or the Company ) announces its interim results for the six months ended 31 January Avacta provides advanced biophysics technology and services to the biopharmaceutical, pharmaceutical, defence, security, and clinical diagnostics sectors. KEY POINTS Acquisition of Oxford Medical Diagnostics Limited announced on 14 November 2007 complementary gas analysis diagnostic technology added to the Avacta range Accelerated product development programmes all on plan Optim, the leading product in the portfolio, is set for launch late 2008 / early 2009 Reseller partner identification and recruitment continues apace Analytical services revenues ahead of plan at 225,000 (2007 : 78,000) strategic alliances have extended service capability and market reach Loss per share of 0.06p (2007 : loss 0.12p) Cash at bank of 1.9m (2007 : 0.4m) Key hires made to complete the team for the commercial phase Alastair Smith, Chief Executive Officer, commented: The progress over the past six months in all areas of the business has been excellent. Technology product developments and their commercialisation are on track and the growth of the analytical services business, which provides critical market intelligence as well as cash flow, is exceeding our expectations. We have put ourselves in a very strong position to deliver against the challenging targets we set for ourselves for 2008 and 2009 and I look forward to being able to report further strong progress over the next few months. 14 April 2008 Enquiries: Avacta Group plc Tel: Alastair Smith, Chief Executive Officer Tim Sykes, Chief Financial Officer Nexus Financial Limited Tel: Nicholas Nelson / Kathy Boate WH Ireland Limited Tel: David Youngman Novum Securities Limited Tel: Henry Turcan / Michael Brennan CHAIRMAN S AND CHIEF EXECUTIVE OFFICER S REPORT We are delighted to report the interim results for the six month period ended 31 January Overview The Company has made solid progress in both its Technology and Analytical services businesses over the last six months. Market validation of the proposed products from the Technology business has been extremely encouraging. The Analytical services business has grown revenues to 225,000, almost threefold against the same period last year, following well targeted marketing spend, a widening of our service offering and enhanced operational capabilities. Financial overview Revenues improved to 225,000 for the six month period (2007 : 78,000). There is no particular seasonality to the business. The operating loss before non-recurring items and share based payment charges was 484,000 (2007 : 660,000). The improvement reflects the growth in the Analytical services business following a period of targeted investment in marketing which is supporting continued investment in the research and development of our analytical and diagnostic technologies. As at 31 January 2008 the Group had net cash of 1.9m. The year ended 31 July 2008 is the first year that the Company will present its consolidated financial statements under International Financial Reporting Standards ( IFRS ) and this is the first consolidated half-yearly financial information prepared under IFRS. The impact of the transition has been relatively low. The area most affected is the treatment of the reverse acquisition under IFRS3 Business combinations. Under IFRS, the Group cannot amortise goodwill but must review it annually for impairment. This means that 0.2m of previously amortised goodwill accounted for under UK GAAP has been reinstated resulting in 3.5m of goodwill being recognised from the reverse. With the provisional goodwill arising on the subsequent acquisition of OMD of 4.4m (based on the maximum contingent value that could be due), we are carrying 7.9m of goodwill on the Group balance sheet. The other area that is affecting the Company relates to costs incurred on the specific product development programmes that will meet the criteria requiring those costs to be capitalised. As at 31 January 2008, costs that met the criteria amounted to 0.1m. Technology The Company s portfolio of products, built around the core technologies of laser analysis and automated fluid handling, is moving closer to market and all products under development are progressing to plan. The Directors expect that the first product, Optim, will start generating revenues within the next twelve months. Optim is a high value specialised analytical instrument which will provide drug developers with vital information at an early stage of the drug development process and is designed to reduce the risk of late stage failure and help to bring successful drugs to market more quickly and more cheaply. Optim is unique in its ability to provide multiple different measurements which are carried out simultaneously on very small sample volumes, automatically handled within Avacta s own design disposable micro-fluidic chips. Optim has been designed to appeal to a wide range of end users avoiding the need for expert operators and ensuring that it can be adopted by a broad range of potential customers across the sector. Furthermore, Optim augments the Company s Analytical services business by providing customers with on-line access to Avacta s scientific team to assist in data interpretation, when required. The Company intends to go to market directly with Optim, believing that its brand and reach in the biopharmaceutical/biotech market is sufficiently established. The Company has researched the likely demand for Optim with existing Analytical services clients and a wider population of prospective customers and has had very encouraging feedback. Avacta s core technologies for biopharmaceutical analysis lend themselves to applications in detection and diagnosis and the Company s strategy is to approach customers via third party resellers and original equipment manufacturers. Indeed, four prototype products aimed at chemical/biological hazard detection and veterinary/human point-of-care diagnostics are nearing completion and the Company has progressed discussions with several commercial partners regarding manufacturing and distribution agreements. Much investment has been made in these unique products and the Board has made a commitment to ensuring that all valuable intellectual property ( IP ) is appropriately protected. Valuable intellectual property is crucial to the success of Avacta and the Company has acquired potentially valuable IP relating to a technique which allows for detection of pathogens through their DNA sequences. Such methods have the potential to replace the widespread and hugely valuable method of polymerase chain reaction ( PCR ) because they produce results much more rapidly. Analytical services The Company s Analytical services business displayed continuing growth in the pipeline following well targeted marketing activity which positions the business strongly for the second half and beyond. There is a strong element of repeat business which is encouraging in these, still early, days of the business. Avacta has also established several commercial partnerships to extend its reach and widen the services under offer and revenues have already commenced from these relationships. The Company continues to expand its client base within the biopharma/biotech sector which will assist greatly in the direct sales strategy of our complementary technology products. Acquisition of Oxford Medical Diagnostics Limited The acquisition of OMD meets the Company s long term objectives of providing high value solutions in the veterinary and human diagnostics markets whilst also contributing a nearer term revenue stream through industrial gas sensing applications where commercial progress has been greatly accelerated since acquisition. OMD s technology will be developed into products for detecting trace amounts of gases in the breath or in the headspace above clinical samples in closed containers to provide a non-invasive and rapid diagnostics tool. The Directors believe that breath diagnostics has the potential to create a step change in point-of-care patient testing and OMD has a strong intellectual property position in this area. It has been given an exclusive licence to a patent granted in the US, has ongoing applications in other geographies and is in the process of negotiating a collaboration agreement with a European company and a leading hospital clinician to develop the first applications. Outlook The technological and commercial progress that we have made in our unique applications and services in the field of biophysics has ensured a growing awareness of Avacta amongst the drug development community. We expect to bring products to market over the next twelve months through direct sales into our core markets of biopharmaceutical, biotech and general life sciences and from partnerships with resellers in other sectors. The growth in our Analytical services business is continuing apace and is creating a solid market presence to drive sales of our first product, Optim, and we look forward to providing further positive news in the coming months. Gwyn Humphreys Chairman Alastair Smith Chief Executive Officer Consolidated income statement for the six months ending 31 January 2008 Unaudited Unaudited Unaudited 6 months to 31 Jan months to 31 Jan 2007 Year ended 31 July Revenue Operating costs (734) (846) (1,482) Operating loss before non recurring items and share based payment charges (484) (660) (1,137) Non-recurring items Share based payment charges Total operating loss (509) (768) (1,270) Finance income Finance expenses (2) - (2) Loss before taxation (454) (753) (1,219) Taxation Loss for the period (433) (753) (1,219) Loss per ordinary share : - Basic and diluted 2 (0.06p) (0.12p) (0.18p) There were no recognised gains or losses in the period other than the profit for the period and therefore no statement of recognised income and expenses is presented. Consolidated statement of changes in equity as at 31 January 2008 Unaudited Unaudited Unaudited Unaudited Unaudited Share capital Share premium Shares to be issued Other reserve Retained earnings At 1 August ,549 - (1,869) (211) Result for the period (753) Arising on reverse takeover ,703 - Shares issued 45 1, Costs of issuing shares - (271) Share based payment charges At 31 January ,368-1,834 (939) Result for the period (466) Shares issued 109 2, Share based payment charges At 1 August ,882-1,834 (1,380) Result for the period (433) Shares issued Shares to be issued in respect of the acquisition of Oxford Medical Diagnostics Limited - - 1, Share based payment charges At 31 January ,812 1,563 1,834 (1,788) Consolidated balance sheet as at 31 January 2008 Unaudited Unaudited Unaudited As at 31 Jan 2008 As at 31 Jan 2007 As at 31 July Non-current assets Property, plant & equipment Intangible assets development costs Intangible assets goodwill 7,927 3,563 3,563 8,296 3,630 3,711 Current assets Trade and other receivables Cash and cash equivalents 1, ,527 2, ,697 Total assets 10,552 4,217 6,408 Current liabilities Trade and other payables (306) (207) (164) Hire purchase agreements (12) - (11) (318) (207) (175) Non-current liabilities Hire purchase agreements (35) - (41) Deferred consideration (1,900) - - (1,935) - (41) Total liabilities (2,253) (207) (216) Net assets 8,299 4,010 6,192 Equity attributable to equity holders of the Company Called up share capital Share premium account 5,812 2,368 4,882 Shares to be issued 1, Other reserve 1,834 1,834 1,834 Retained earnings (1,788) (939) (1,380) Total equity 8,299 4,010 6,192 Consolidated cash flow statement for the six months ending 31 January 2008 Unaudited Unaudited Unaudited 6 months to 31 Jan months to 31 Jan 2007 Year ended 31 July 2007 Note Operating activities Loss for the period (433) (753) (1,219) Depreciation Net finance income (55) (15) (51) Income tax credit (21) - - Share based payment charges Operating cash outflow before changes in working capital (465) (735) (1,200) Movement in trade and other receivables (88) (152) (124) Movement in trade and other payables Operating cash outflow from operations (449) (775) (1,248) Interest received Interest paid (2) - (2) Income tax received /(paid) Net cash flow from operating activities (373) (760) (1,197) Investing activities Purchase of plant and equipment (119) (37) (130) Development expenditure capitalised (120) - - Acquisition of subsidiaries 3 (4) Net cash flow from investing activities (616) (605) (1,135) Financing activities Net proceeds from the issue of shares ,435 New finance lease agreements Payments to acquire tangible fixed assets under finance lease agreements (6) - (6) Net cash flow from financing activities ,487 Net decrease in cash and cash equivalents (602) 258 2,352 Cash and cash equivalents at the beginning of the period 2, Cash and cash equivalents at the end of the period 1, ,527 Notes to the half yearly financial information 1. Basis of preparation This interim report, for a six month period, does not comprise full accounts within the meaning of the Companies Act The interim financial information is not audited. These interim financial statements adopt the recognition and measurement requirements of those Standards expected to be applied in the Group s first financial statements prepared under International Financial Reporting Standards ( IFRS ). The resulting accounting policies are set out in note 5. A reconciliation of equity and profit under UK GAAP with equity and profit under IFRS is also set out at note 4. Comparative figures for the year ended 31 July 2007 are based on the statutory accounts prepared under UK GAAP which have been filed with the Registrar of Companies and on which the auditors gave an unqualified report, as adjusted for the first time adoption of IFRS. Comparative figures for the six month ended 31 January 2007 are also based on the statutory accounts covering that period, prepared under UK GAAP, which have been filed with the Registrar of Companies and on which the auditors gave an unqualified report, as adjusted for the first time adoption of IFRS. The financial information contained in this interim report does not constitute statutory accounts as defined in section 240 of the Companies Act The Group s statutory accounts for the year ended 31 July 2007, prepared under UK GAAP, have been filed with the Registrar of Companies. The auditors report on those accounts was unqualified and did not contain a statement made under Section 237(2) or Section 237(3) of the Companies Act Explanatory notes to the adjustments from UK GAAP to IFRS The year ended 31 July 2008 is the first year the Group will present its consolidated financial statements under IFRS and this is the first consolidated half-yearly financial information prepared under IFRS. In preparing its comparative information for the six months to 31 January 2007, the Group has adjusted amounts previously reported in the half yearly financial information prepared in accordance with UK GAAP. An explanation of how the transition from UK GAAP to IFRS has affected the Group s financial position and financial performance, not previously reported in the annual financial statements for the year ended 31 July 2007, is set out in the tables below. The adjustments have been required to comply with the following reporting standards: IFRS3 Business combinations requires goodwill to be capitalised and subjected to an annual impairment test rather than amortised by way of equal annual charges as required by UK GAAP. The standard also requires separable, identifiable, intangible assets arising on acquisition to be capitalised at fair value and amortised over their estimated useful economic lives. IAS38 Intangible assets requires that development expenditure meeting certain criteria be capitalised and amortised over its useful economic life. Under UK GAAP all such development expenditure was expensed as incurred. 2. Loss per ordinary share Unaudited Unaudited Unaudited 6 months to 6 months to Year ended 31 Jan Jan July 2007 Retained loss for the period ( 000) (433) (753) (1,219) Weighted average number of shares ( 000) 774, , ,426 Basic and diluted loss per ordinary shares (pence per share) (0.06p) (0.12p) (0.18p) 3. Acquisitions On 14 December 2007, the Company acquired the entire issued ordinary share capital of OMD by way of a share for share exchange with approximately 64,000 of cash. The Company allotted and issued 21,954,035 new Ordinary shares of 0.1p ( Ordinary Shares ) fully paid to the shareholders of OMD. Further, the Company agreed to allot a further 21,954,035 new Ordinary Shares to the shareholders of OMD, deferred subject to the agreement of the completion net asset value of OMD. These Ordinary Shares were issued on [ ] March Further still, the Company agreed to issue a number of new Ordinary shares and options over new Ordinary Shares to the value of approximately 2,530,000 of which approximately 1,900,000 is contingent upon the realisation of certain future commercial and technological milestones. 630,000 relates to the future conversion of OMD preference shares into approximately 12.1m new Ordinary Shares and the value of 2.8m replacement options. The assets and liabilities of the OMD have been consolidated at their provisional fair values to Avacta as set out below. The Company is assessing the level of separately identifiable intangible assets that meet the appropriate criteria and are capable of being measured as intangible assets other than goodwill. 000 Tangible fixed assets 61 Debtors 73 Cash at bank and in hand 41 Creditors (33) Net assets acquired 142 Goodwill 4,364 4,506 Purchase consideration Fair value of shares issued 933 Fair value of shares or options over shares to be issued 3,463 Costs 110 4,506 Gross cash outflow on acquisition 69 Unpaid costs at 31 January 2008 (65) 4 On 8 August 2006, the Company acquired the entire issued ordinary share capital of Avacta Limited by way of a share for share exchange. The Company allotted and issued 499,999,998 new Ordinary shares of 0.1p fully paid to the shareholders of Avacta Limited as consideration. The Company has accounted for this acquisition using reverse acquisition accounting which requires that Avacta Limited be recognised as the substantial acquirer of the Company. The assets and liabilities of the Company have been consolidated at their fair values to Avacta Limited as set out below. Cash at bank and in hand 192 Prepayments 1 Accruals (3) Placing proceeds receivable 909 Net assets acquired 1,099 Goodwill 3,563 4,662 Purchase consideration Fair value of shares issued 4,662 Cash inflow on acquisition 4. Reconciliation of equity and profit under UK GAAP with equity and profit under IFRS Reconciliation of profit - six months ended 31 January 2007 Unaudited Unaudited Unaudited UK GAAP Effect of transition to IFRS IFRS Revenue Operating costs (933) 87 (846) Operating loss before non recurring items and share based payment charges (747) 87 (660) Non-recurring items Share based payment charges Total operating loss (855) 87 (768) Finance income Finance expenses Loss before taxation (840) 87 (753) Taxation Loss for the period (840) 87 (753) Loss per ordinary share : - Basic and diluted (0.13p) 0.01p (0.12p) Reconciliation of profit - year ended 31 July 2007 Unaudited Unaudited Unaudited UK GAAP Effect of transition to IFRS IFRS Revenue Operating costs (1,656) 174 (1,482) Operating loss before non recurring items and share based payment charges (1,311) 174 (1,137) Non-recurring items Share based payment charges Total operating loss (1,444) 174 (1,270) Finance income Finance expenses (2) - (2) Loss before taxation (1,393) 174 (1,219) Taxation Loss for the period (1,393) 174 (1,219) Loss per ordinary share : - Basic and diluted (0.21p) 0.03p (0.18p) The 87,000 (year ended 31 July 2007 : 174,000) adjustment relates to the impact of the adoption
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