Avacta Group Regulatory News (AVCT)

25 Sep 2007 07:00

Avacta Group plc

Preliminary Results for the 15 month period to 31 July 2007

Avacta Group plc ("Avacta", "Avacta Group" or the "Company"), the advanced biophysics technology company, announces its preliminary results for the 15 month period to 31 July 2007. These are Avacta's maiden results following the successful admission to AIM on 8 August 2006.

Highlights:

* Successful fund raising and admission to AIM * + Initial placing to raise ‚£1.0m (before expenses) and admission to AIM in August 2006 + Secondary placing to raise ‚£2.7m (before expenses) in April 2007 * Delivery on all targets since flotation * + Two broad technology platforms to proof of principle stage + Confirmed multiple applications in biopharmaceuticals, defence, biosecurity and clinical diagnostics + Laboratory prototype device to detect hazardous materials delivered to the MOD + Company soundly placed to move to first technology revenues * Key partnerships and grant support in place: MOD, DTI, OSI, HPA, CSL, Cancer Research UK and Leeds University * Three year agreement with UCB Celltech * + Co-development of a new technology to assist with biopharmaceutical drug development * Expanded range of analytical services launched with immediate take up * + New service product provides viral vaccine manufacturers with detailed characterisation of their pharmaceutical products * Strong analytical services order pipeline following marketing investment * + 13 new client wins + Master Service Agreement with UCB Celltech * Pre exceptional loss per share 0.19p (2006: 0.04p). Basic and diluted loss per share 0.20p (2006: 0.04p) * Net cash at period end of ‚£2.5 million

Professor Alastair Smith, CEO commented:

"We are pleased to have met, and in many cases exceeded, the targets set out at the time of our admission to AIM. In the coming year we are committed to growing our analytical services revenues to provide quality, sustainable earnings and cash flow in conjunction with the production of a number of technology product prototypes in collaboration with partners such as UCB Celltech and the MOD."

25 September 2007Enquiries:Avacta 0870 835 4367 Professor Alastair Smith, Chief Executive Officer Tim Sykes, Chief Financial Officer Nexus Financial Limited 0207 451 7050 Nicholas Nelson / Kathy Boate WH Ireland Limited 0161 832 2174 David Youngman / Robin Gwyn BankOra Limited 0207 099 1940 Henry Turcan / Michael Brennan

Chairman's and Chief Executive Officer's Report

Business overview

We are delighted to report accelerated progress across the Avacta Group since our admission to AIM via the reverse takeover of Readybuy plc in August 2006. As part of the admission, ‚£1.0m was raised by way of a placing of new ordinary shares at 2.25 pence per share to enable us to develop our core technology platforms to the proof of principle stage. Having successfully demonstrated the value of the technology in a number of partnership programmes, a further placing of new ordinary shares raised ‚£2.7m at 2.5 pence per share in April 2007 allowing the Company to recruit more staff at the operational level, resource the costs of product development and recruit a Commercial Director who reports directly to the board. We believe that Avacta is now soundly placed to take its developing portfolio of products through the commercialisation process to first revenues. We have also invested in a targeted marketing programme for our analytical services business ("Avacta Analytical") and we have seen a strong development in the order pipeline since this programme began.

Strategy

At the time of the admission to AIM, Avacta's strategy was to use its expertise in the field of biophysics to develop its core technological platforms to provide solutions to clearly identified problems in high value markets. In this regard, we identified three high value target markets for our products and services; biopharmaceuticals, homeland defence and security and clinical diagnostics. We have seen significant technical and commercial progress in each of these three markets.

The Directors believe that the ability of Avacta to provide multiple products with applications in diverse high value markets by leveraging its core biophysical technology platforms is a key strength and de-risks the Company's business plan.

Product development and pipeline

Biopharmaceutical

Our primary objective is to deliver new analytical technology which enables biopharmaceutical companies to reduce the failure rate of candidate drugs in the drug development pipeline. We have progressed this and have a collaborative, co-funded product development programme with UCB Celltech with financial support also being provided by the DTI. Our development team is on schedule to deliver the prototype device as planned in the near future.

We have existing strong links with a number of key players in the biopharmaceutical sector, created by Avacta Analytical, and these links give us a clear opportunity for rapid market acceptance of the first product.

Homeland defence and security

During the latter part of 2006, we delivered a laboratory prototype rapid chemical detection device to the UK Ministry of Defence ("MOD") for evaluation. The ability to quickly detect the presence of dangerous substances using a portable field device has obvious applications for the military, homeland security and the disease control and emergency services. This prototype device was successfully tested and on 3 September 2007 we announced a contract with the MOD to deliver a full system for field trials.

We have also secured funding from the DTI Office of Science and Innovation to work with the Government's Health Protection Agency ("HPA") and Central Science Laboratories ("CSL") to deliver a handheld pathogen detection system with potential applications in the detection of infectious bacteria and viruses such as foot and mouth, anthrax, MRSA, H5N1 avian flu virus and SARS. This partnership with HPA and CSL will provide Avacta with access to expertise in pathogen detection, bio-assay reagents and sophisticated containment testing facilities which could give Avacta some competitive advantage in this application. We remain on target to deliver a prototype system to our partners in Government laboratories in the current financial year.

Clinical diagnostics

We are making progress into this large, potentially lucrative market more quickly than we anticipated. Our pathogen detection technology, when combined with the right biomarkers, has the potential to provide early stage screening for a number of diseases and we are exploring an opportunity for breast and colorectal cancer screening applications.

We also recently announced a new partnership with Cancer Research UK and Leeds NHS trust on 13 August 2007 to apply our technology to identify abnormalities of cells and tissue that are indicative of cancer. The research will be based at Avacta and the University of Leeds and will be carried out in conjunction with the Leeds General Infirmary. The aim is to aid the detection of cancerous material reliably and speedily during routine screenings and surgical operations. This is an exciting opportunity for Avacta to leverage its existing technology to provide a potentially valuable tool for pathologists and surgeons.

Avacta Analytical

Avacta Analytical is now established as a leader in contract services provision, specialising in biophysical analysis, to the biopharmaceutical market. Pioneering work has been undertaken to develop new service offerings and we are now fully operational and running to the GLP standards required in this demanding sector. We have undertaken a targeted marketing programme, exhibiting at several major international events and we have already seen encouraging growth in pipeline with several major new client wins. Avacta Analytical is managed by a team that has a track record in GLP/GMP contract services provision and the high quality of service that Avacta Analytical provides is reflected in the significant amount of repeat business that we generate and in the establishment of a Master Service Agreement with UCB Celltech, which we announced during late 2006. A new service was launched during spring 2007 with immediate take up - the Vivax Toolkit. This service joins the established Biophysical Toolkit and provides vaccine manufacturers with services to provide detailed characterisation of their pharmaceutical products. Further new service offerings form an essential part of our growth plan for Avacta Analytical.

Financial overview

The accelerated level of investment in our technological progress has increased the reported operating loss of the Group to ‚£1.4m (2006: loss ‚£0.2m) which is in line with the board's expectations. This includes one time costs charged to profit relating to the reverse takeover of Readybuy plc and the placing completed in April 2007 of approximately ‚£0.1m, and recurring costs associated with our status as a public company of approximately ‚£0.2m.

Revenues in Avacta Analytical grew and investment in marketing and operational capability positions this business well for future growth. This investment led to a small loss in this division of ‚£0.1m (2006 : ‚£Nil).

Operating cash outflow was ‚£0.2m better than the operating loss due to non-cash charges for the amortisation of goodwill arising on the reversal (‚£174,000) and for share options (‚£50,000). The latter charge for share options is required by FRS20, `Share based payment` for the first time this year.

There is no charge for taxation during the period. The cumulative tax losses of the group to carry forward are approximately ‚£1.3m gross. The potential deferred tax asset has not been recognised.

Loss per share before exceptional items increased to 0.19p (2006: 0.04p). Basic (and diluted) loss per share was 0.20p (2006: 0.04p).

The basis of preparation of these results, which adopt the principles of reverse acquisition accounting, is set out within Note 2.

Fund raising during the period

The placing of approximately 45.0m new ordinary shares at 2.25p per share raised ‚£1.0m gross at the time of the admission to AIM. After ‚£0.4m of associated expenses, the net cash inflow was ‚£0.6m. ‚£0.2m of the fees was written off against the share premium account, ‚£0.1m has been capitalised as a cost of investment and ‚£0.1m has been charged within exceptional items.

The placing of 108.4m new ordinary shares at 2.5p per share raised ‚£2.7m gross during April 2007. After ‚£0.1m of associated expenses, the net cash inflow was ‚£2.6m. These costs have been largely written off against the share premium account.

The Group continues to manage the cash position to maximise interest income, while at the same time minimising any risk to these funds. Surplus cash funds are deposited with commercial banks that meet credit criteria approved by the Board, for periods between one and six months. At 31 July 2007, the Group had ‚£ 2.4m on short term deposit (2006: ‚£Nil).

People

Over the past year we have doubled our headcount to 20 staff to fully resource the technological development of our existing portfolio of devices and support the development of Avacta Analytical. We have also recently appointed a Commercial Director who brings a track record of commercialisation of technology products and this will allow us to build on the commercial partnerships already in place and deliver significant further routes to market for our technology and services. This appointment complements an already outstanding group of highly committed and talented individuals.

Outlook

We are pleased to have met, and in many cases exceeded, the targets set out at the time of our admission to AIM. In the coming year we are committed to growing our analytical services revenues to provide quality, sustainable earnings and cash flow in conjunction with the production of a number of technology product prototypes in collaboration with partners such as UCB Celltech and the MOD.

Dr Gwyn Humphreys, Chairman

Professor Alastair Smith, Chief Executive Officer

25 September 2007

Consolidated Profit and Loss Account for the year ended 31 July 2007

Note 2 Year ended Year ended 31 July 31 July 2007 2006 Note ‚£000 ‚£000 Turnover 212 197 Operating costs (1,656) (415) -------------- -------------- Operating loss before (1,361) (218) exceptional items Exceptional items 3 (83) - -------------- -------------- Operating loss (1,444) (218) Interest receivable 53 9 Interest payable (2) - -------------- -------------- Loss on ordinary (1,393) (209) activities before taxation Taxation - 2 -------------- -------------- Loss for the financial (1,393) (207) year -------------- -------------- Loss per ordinary share - Basic and diluted 4 (0.20)p (0.04)p -------------- --------------

There is no material difference between the loss on ordinary activities before taxation and the loss for the financial years stated above, and their historical cost equivalents.

All of the above activities are continuing.

There were no recognised gains or losses other than the loss for the financial year.

Group and Company Balance Sheets as at 31 July 2007

Group Company Note 2 31 July 31 July 30 April 2007 2006 2007 2006 Note ‚£000 ‚£000 ‚£000 ‚£000 Fixed assets Tangible assets 148 38 1 - Intangible assets 3,389 - - - Investments - - 617 - ------------- ------------- ------------- ------------- 3,537 38 618 - Current assets Debtors 170 46 430 - Cash at bank and in hand 2,527 175 2,449 32 ------------- ------------- ------------- ------------- 2,697 221 2,879 32 Creditors - amounts (175) (88) (120) (16) falling due within one year ------------- ------------- ------------- ------------- Net current assets 2,522 133 2,759 16 ------------- ------------- ------------- ------------- Total assets less 6,059 171 3,377 16 current liabilities Creditors - amounts falling due after more than one year (41) - - - ------------- ------------- ------------- ------------- Net assets 6,018 171 3,377 16 ------------- ------------- ------------- ------------- Capital and reserves Called up share capital 856 702 856 96 Share premium account 4,882 1,549 4,882 1,426 Other reserve 2 1,834 (1,869) - - Profit and loss account 2 (1,554) (211) (2,361) (1,506) ------------- ------------- ------------- ------------- Shareholders' funds 5 6,018 171 3,377 16 ------------- ------------- ------------- -------------

Consolidated Cash Flow Statement for the year ended 31 July 2007

Note 2 2007 2006 Year ended 31 July Year ended 31 July Note ‚£000 ‚£000 ‚£000 ‚£000 Net cash outflow from operating 6 (1,248) (212) activities Returns on investments and servicing of finance Interest received 53 9 Interest paid (2) - ----------- ----------- Net cash inflow from returns on investment and servicing of 51 9 finance Taxation - 2 Capital expenditure and financial investment Purchase of tangible fixed (130) (38) assets Acquisitions Net cash inflow from 192 - acquisition Management of liquid resources Cash used to increase short (2,425) - term deposits ----------- ----------- Cash flow before use of (3,560) (239) financing Financing Net proceeds from issue of 3,435 381 shares New finance lease agreements 58 - Payments to acquire tangible fixed assets (6) - under finance leases ----------- ----------- Net cash inflow from financing 3,487 381 ----------- ----------- (Decrease) / increase in cash (73) 142 ----------- ----------- Reconciliation of net cash flow to movement in net funds 2007 2006 ‚£000 ‚£000 (Decrease) / increase in cash (73) 142 Management of liquid resources 2,425 - ----------- ----------- Increase in net funds from cash flows and 2,352 142 movement in net cash in the year New finance leases (52) - Net cash at 1 August 175 33 ----------- ----------- Net cash at 31 July 2,475 175 ----------- ----------- Notes

1. The consolidated financial information for the period ended 31 July 2007 has been prepared on a basis consistent with the previous year, except for the first time adoption of FRS 20 Share based payment, and in accordance with applicable UK accounting standards. The preliminary announcement does not constitute the Group's statutory financial statements within the meaning of s240 of the Companies Act 1985. The financial information for the year ended 31 July 2007 has been extracted from the un-audited financial statements. The comparative information for the group has been derived from the un-audited financial statements of Avacta Limited for the year ended 31 July 2006.

The statutory accounts for the period ended 31 July 2007 will be sent to shareholders by 31 October 2007. Copies will be available at the Company's registered office: The Biocentre, York Science Park, Heslington, York, YO10 5NY and on the Company's website at www.avacta.com. Readybuy plc's 2006 accounts, which contain an unqualified audit report, have been filed with the Registrar of Companies.

2. The Group has applied reverse acquisition accounting rules, the principle guidance for which is within FRED36, Business Combinations. Avacta Limited is therefore considered the parent undertaking that acquired Avacta Group plc (formerly Readybuy plc). The overall affect of this is that the financial statements are prepared from Avacta Limited's perspective, rather than Avacta Group plc's. In effect, this means :

* the comparatives are those of the Avacta Limited group, rather than those of Avacta Group plc (Readybuy plc); * the results, comparative results and cumulative reserves are those of the Avacta Limited group plus the post acquisition results of Avacta Group plc for the year ended 31 July 2007 and the comparatives for the year ended 31 July 2006; * goodwill, which is calculated by reference to the fair value of the acquired assets of Avacta Group plc (Readybuy plc) of ‚£3.6m has been recognised and is being amortised over 20 years; * a reverse acquisition reserve ("Other reserve") of ‚£1.8m has been created; however, * the share capital and share premium is that of Avacta Group plc (Readybuy plc).

3. Exceptional items represent the professional and other fees related to the reversal of Avacta Limited into the Company, the subsequent re-admission to AIM and the Placing.

4. Basic and diluted loss per ordinary share

The calculation of earnings per ordinary share is based on the profit or loss for the period and the weighted average number of equity voting shares in issue. The number of shares in issue has been restated to reflect the reverse acquisition of the Company. Therefore the number of shares in the comparative period is the aggregate of the weighted average of the actual number of shares in issue and the shares issued by the Company to acquire Avacta Limited.

Note 2 2007 2006 Loss (‚£000) (1,393) (207) Exceptional items (‚£000) (83) - ------------- ------------- Loss before exceptional items (‚£000) (1,310) (207) ------------- ------------- Weighted average number of shares 692,426 544,083 (number `000) ------------- ------------- Basic and diluted loss per ordinary (0.20)p (0.04)p share (pence) ------------- ------------- Loss before exceptional items per (0.19)p (0.04)p ordinary share (pence) ------------- -------------

5. Reconciliation of movement in shareholders' funds

Note 2 2007 2006 ‚£000 ‚£000 Group : Loss attributable to ordinary (1,393) (207) shareholders Other recognised gains : - Share option charge 50 - - Issue of share capital (net 3,487 381 of issue costs) - Impact of reverse 3,703 - acquisition ------------- ------------- Addition to shareholders' 5,847 174 funds Opening shareholders' funds 171 (3) ------------- ------------- Closing shareholders' funds 6,018 171 ------------- -------------

6. Net cash inflow from operating activities

Note 2 2007 2006 ‚£000 ‚£000 Group : Operating loss (1,444) (218) Depreciation of tangible 20 3 fixed assets Amortisation of goodwill 174 - arising on reversal Share option charge 50 - (Increase) / decrease in (124) 36 debtors Increase / (decrease) in 76 (33) creditors ------------- ------------- Net cash outflow from (1,248) (212) operating activities ------------- -------------

7. International Financial Reporting Standards ("IFRS") conversion

Avacta must prepare its financial statements under IFRS for the year ending 31 July 2008. A company-wide project, with the objective of ensuring compliance with International Accounting Standards (as adopted by the EU), is underway. The three principal accounting areas that may require accounting treatments that are different to that under UK GAAP are goodwill, research and development expenditure and deferred taxation.