AOR.L Regulatory News (AOR)

AorTech International plc

("AorTech", "the Company" or "the Group")

Preliminary audited results for the year ended 31 March 2014

AorTech International plc (AIM: AOR), the biomaterials and medical device IP company, today announces its preliminary results for the year ended 31 March 2014.

Financial summary

· Group revenue from continuing operations US$0.4m (2013 US$0.3m)

· Operating loss from continuing operations US$764k (2013: US$1,205k loss from continuing operations)

· Cash reserves decreased from US$987k to US$642k

Other developments

· Business completed transition to exploiting its IP and outsourcing its polymer manufacture

· Significantly lower cost base going forward, following exit from US

· Board restructured following exit of former CEO

For further information contact:

AorTech International plc 

Eddie McDaid, Chief Executive Tel: +44 (0)7802 920869

AorTech International plc 

Bill Brown, Chairman Tel: +44 20 3206 7335  

finnCap Limited

Stuart Andrews / James Thompson Tel: +44 20 7220 0500 

A copy of this announcement will be available at aortech.com/investor/announcements. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.

About AorTech:

AorTech has developed biostable, implantable polymers, including Elast-Eon™ and ECSil™ the world's leading long-term implantable co-polymers, now manufactured on their behalf by Biomerics LLC in Utah, USA. With several million implants and seven years of successful clinical use, AorTech polymers are being developed and used in cardiology and urological applications, including pacing leads, cardiac cannulae, stents and implantable sensor technology. Devices manufactured from AorTech polymers have numerous US FDA PMA approvals, 510k's, CE Marks, Australian TGA and Japanese Ministry of Health approvals.

Elast-Eon™ and ECSil™'s biostability is comparable to silicone while exhibiting excellent mechanical, blood contacting and flex-fatigue properties. These polymers can be processed using conventional thermoplastic extrusion and moulding techniques. A range of materials in a variety of application-specific formulations for use in medical devices and components are available.

CHAIRMAN'S STATEMENT

I set out below my report to the shareholders of AorTech for the year ended 31 March 2014.

Audited results for the year

During the year, the Group discontinued its manufacturing operations as part of the transition to an IP-focused business. The accounts have therefore been presented on the basis of the continuing operations with a charge shown for the losses from the discontinued activities. The references to financial performance below are based on continuing operations only.

Group revenue for the year was $418,000 (2013, $313,000). Operating loss after exceptional items was $764,000 (2013: $1,205,000). The net loss for the year was $823,000 (2013: $3,258,000) after exceptional finance costs of $59,000 (2013: $2,048,000). These finance costs relate to a provision in respect of potential additional redemption premium due to loan note holders. 

The Group's administrative expenditure before exceptional items was $859,000 (2013: $1,091,000). The reduction in this expenditure arises as a direct consequence of the closure of the US manufacturing facility and the transition of the business to an IP company. The exceptional administrative expenses of $83,000 relate to legal fees incurred in the dispute with the Group's former Chief Executive, Mr Maguire, of which further details are set out below.

The Group's cash position at 31 March 2014 was $642,000. This shows a decrease of approximately $345,000 from the corresponding date last year. As previously disclosed, the cash position has been reduced by the additional investment required to establish the manufacturing license with Biomerics LLC together with the legal fees referred to above.

Business Model

The exit from polymer manufacture provided the opportunity to develop a more attractive business model, on a significantly lower cost base, of exploiting the IP held by the Group. This process has now been completed with the exit from manufacturing during the year and the transfer of manufacturing know-how under license to Biomerics. The process to ensure Biomerics were able to validate our manufacturing suffered delays but is now nearing completion.

The structure of the Board has changed to reflect the new business structure. Eddie McDaid was appointed as Chief Executive Officer of the Group in December 2013 and Roy Mitchell took over the role of Finance Director which was previously performed by Eddie.

Maguire Dispute

We announced in June that AorTech is in dispute with Mr Frank Maguire, the Company's previous CEO who resigned in November 2013. Following Mr Maguire's resignation several matters arose which created serious concerns for your Board.

We have found evidence showing that during his employment with AorTech Mr Maguire sought to undertake business transactions, unbeknown to the Board, with existing and potential licensees. Upon his resignation from AorTech, Mr Maguire took up a senior appointment with a company called Foldax which is involved in the development of a TAVI heart valve.

Our investigations discovered that Mr Maguire had during the previous two years been negotiating a potential heart valve deal between AorTech and a company and individuals connected to Foldax.  In addition our investigations revealed that, during his period of employment with AorTech, Mr Maguire had been negotiating with another of AorTech's licensees for a transaction between himself and the licensee to the exclusion of AorTech. AorTech's Board had not been informed of these meetings and discussions.

As a result of these investigations, AorTech has taken legal action against Mr Maguire for amongst other matters breach of his contract, breach of his fiduciary duties, misappropriation of trade secrets and the retaining of confidential documents, files and assets which are the property of AorTech International.

At an initial court hearing on 1 August 2014, the Court indicated it would deny motions in which Mr Maguire asked the Court to dismiss AorTech's claims identified above.

It is the Board's present intention to vigorously pursue Mr Maguire through the appropriate legal processes in order to protect AorTech's know-how and trade secrets and, in doing so, protect the Company and its shareholders' interests. This may include seeking, as appropriate, damages from Mr Maguire and his co-venturers.

At the initial court hearing on 1 August Mr Maguire was instructed to return all of AorTech's property including all data and confidential information relating to AorTech's know-how and trade secrets.

A substantial amount of time, effort and work has been incurred, in particular by both our Chief Executive Eddie McDaid and our Finance Director Roy Mitchell, in not only investigating these matters but also in implementing the appropriate legal processes. However such work has been necessary in view of the serious allegations which arose from Mr Maguire's actions.

AorTech is taking advice from our US attorneys on the possibility of taking further action against Mr Maguire and indeed against Foldax, particularly where it relates to our IP, know-how and trade secrets.

AorTech has over many years maintained appropriate insurance cover to protect our IP, know-how and trade secrets. I am pleased to confirm that AorTech has recently received confirmation that insurance coverage, in accordance with the policy terms, will be available to meet the ongoing costs of its action against Mr Maguire.

Heart Valve

We have not made the progress with the Heart Valve project we would have wished, but the Board are now trying to get some indications of interest back up to speed and restore momentum to the project. 

Biomerics

One of the key objectives of your Board during 2013 was to ensure that we were in a position to benefit from developments being carried out by existing licensees and to assure their ongoing supply of polymer, as well as creating a model for bringing our polymers to a much wider medical market. On 1 October 2013 we announced a licence with Biomerics LLC for the manufacture and distribution of our Elast-Eon™ materials.

This licence required a process of transferring our manufacturing know-how to Biomerics. It became clear a few months into the relationship that the former CEO had significantly underestimated both the costs and time scale required to complete the technology transfer in a professional manner. The contract called for AorTech to contribute up to $100,000 towards the technology transfer process, of which $50,000 was paid on signing the contract. In addition to this, a further $110,000 has had to be invested. Biomerics have also incurred $155,000 in costs relating to labour costs for the validation process. Biomerics are effectively reimbursed these costs out of gross margin made on polymer and material sales. By the year end, we had reimbursed $47,000 of these costs.

The validation and technology transfer is now in its final phase and we are pleased that the first shipments of Elast-Eon™ were made by Biomerics to AorTech's licensees at the end of July 2014. The delays experienced by Biomerics in its validation processes has inevitably resulted in delays in expected sales from the Biomerics transaction. However Biomerics has already received enquiries from several new potential customers who have shown an interest in AorTech's Elast-Eon™ material.

Update on licensees

As announced in our trading and commercial update on 16 June 2014, our licensees are continuing to progress their products through the development and regulatory phases, although some have experienced delays during the past twelve months.

Conclusion

The last twelve months, in particular the last six months has been a very difficult period for your Board in view of the inordinate length of time that has been spent on the investigation of the actions of Mr Maguire, our previous CEO. In addition, the delays in both the validation process of Biomerics, our manufacturing partner, and in the regulatory processes experienced by several of our licensees have had an adverse effect on the anticipated revenues both for this last financial year and the current financial year.

On the positive side, AorTech together with it's manufacturing partner Biomerics, has achieved a successful technology transfer to enable and secure the continuation of future supply of Elast-Eon™ material to not only our present customers but also to future potential customers. Biomerics has already, at this early stage, received a number of enquiries from several companies regarding the potential use of AorTech's Elast-Eon™ material in various medical devices.

The restructuring of AorTech is now complete resulting in substantial cost savings going forward into the future. 

I take this opportunity to recognise on behalf of the shareholders the time, effort and hard work which has been carried out by the Board. This past twelve months has demonstrated the determination and commitment of your Board to continue to protect the interests of its shareholders and the Company and to enhance shareholder value in future years.

This current year will be one of continuing change and hopefully result in resolution of some of the matters raised in this report. 

Bill Brown

Chairman

15 August 2014

Consolidated income statement

Consolidated statement of comprehensive income

No items of other comprehensive income can be subsequently reclassified to profit and loss.

The Group financial statements were approved by the Board on 15 August 2014.

Notes:

1. Basis of preparation

The Group financial statements are for the year ended 31 March 2014. They have been prepared in compliance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC) interpretations as adopted by the European Union as at 31 March 2014.

The Group financial statements have been prepared under the historical cost convention.

The accounting policies remain unchanged from the previous year.

2. Going concern

After considering the year end cash position, making appropriate enquiries and reviewing budgets and profit and cash flow forecasts for a period of at least twelve months from the date of signing these financial statements, the Directors have formed a judgement at the time of approving the financial statements that there is a reasonable expectation that the Group has sufficient resources to continue in operational existence for the foreseeable future. For this reason the Directors consider the adoption of the going concern basis in preparing the Group financial statements is appropriate.

3. Preliminary announcement

The summary accounts set out above do not constitute statutory accounts as defined by Section 434 of the UK Companies Act 2006. The summarised consolidated balance sheet at 31 March 2014, the summarised consolidated income statement, the summarised consolidated statement of comprehensive income, the summarised consolidated statement of changes in equity and the summarised consolidated cash flow statement for the year then ended have been extracted from the Group's statutory financial statements for the year ended 31 March 2014 upon which the auditor's opinion is unqualified and did not contain a statement under either sections 498(2) or 498(3) of the Companies Act 2006. The audit report for the year ended 31 March 2013 did not contain statements under Section 498(2) or Section 498(3) of the Companies Act 2006. The statutory financial statements for the year ended 31 March 2013 have been delivered to the Registrar of Companies. The 31 March 2014 accounts were approved by the Directors on 15 August 2014, but have not yet been delivered to the Registrar of Companies.

4. Earnings per share

The basic loss per Ordinary share of 27.09 US cents (2013: loss of 17.53 US cents) is calculated on the loss of the Group of US$1,309,000 (2013: loss of US$847,000) and on 4,832,778 (2013: 4,832,778) equity shares, being the number of shares in issue during the year. Of this, 17.03 US cents (2013: 67.43 US cents) is calculated on the loss from continuing operations, whilst a loss of 10.06 US cents (2013: earnings of 49.90 US cents) results from discontinued operations.

The diluted earnings per share is not materially different from the basic earnings per share. The diluted loss per share does not differ from the basic loss per share as the exercise of share options would have the effect of reducing the loss per share and is therefore not dilutive under the terms of IAS 33.

5. Discontinued operations

During the year ended 31 March 2013, the Group settled a dispute with St Jude Medical, a key US customer. A consequence of that settlement was the effective transfer of the US manufacturing facility to St Jude Medical. The Directors considered, at that time, that the St Jude transaction and related asset disposal did not constitute a discontinued operation under the definition in IFRS 5.

On 1 October 2013, the Group signed an agreement with Biomerics LLC for the manufacture and distribution of our patented materials, including to our existing licensees. In the opinion of the Directors, the Biomerics transaction transformed the Group into a pure intellectual property company. As a consequence, results attributable to manufacturing activity constitute a discontinued operation, and have been presented as such in the Income Statement. Comparative figures have been adjusted accordingly.

The results of the discontinued manufacturing operations are shown in more detail below.

Notice of Annual General Meeting

Notice of the seventeenth Annual General Meeting of AorTech International Plc will be posted with the Annual Report and Accounts and will be held in the offices of Kergan Stewart LLP, 163 Bath Street, Glasgow G2 4SQ on Monday, 29 September 2014 at 11:00am.

Posting and availability of accounts

The annual report and accounts for the year ended 31 March 2014 will be sent by post to all registered shareholders on 26 August 2014. Additional copies will be available for a month thereafter from the Company's Weybridge office. Alternatively, the document may be viewed on, or downloaded from, the Company's website: www.aortech.com.