Genedrive Regulatory News (GDR)

For release: 16 November 2018

genedrive plc ("genedrive" or the "Company")

Unaudited Preliminary Results 

genedrive plc (AIM: GDR), the near patient molecular diagnostics company, today announces its unaudited Preliminary Results for the year ended 30 June 2018:

Operational Highlights

● Proprietary Genedrive® Hepatitis C (HCV) test obtained CE marking and commercial roll-out began.

● Distribution agreements signed with Sysmex EMEA, Sysmex APAC and Arkray for India.

● Streamlined and focused the Company on global diagnostic opportunities through the divestment of Services Divisions.

● £1.6m of funding secured from Innovate UK to develop and refine mTB and future HCV sample preparation processes.

● Receipt of UK multi-partner grant award to develop and implement a point of care test to avoid anti-biotic induced hearing loss (AIHL) in newborn children.

Financial Highlights

● First commercial sales of Genedrive HCV ID Kit® to support registrations and Key Opinion Leader engagement.

● Services Divisions disposed on 8 June 2018 for up to £1.9m.

● Cash at 30 June 2018 of £3.5m (2017: £5.1m).

Post Year End

· The Group has received its first commercial deployment order for $0.9m from US Department of Defense for Genedrive® instruments and assays. Subject to manufacture and shipping this order is expected to be recognised as revenue in the first half of the current financial year

· Genedrive HCV ID Kit® under review by the World Health Organisation for Pre-Qualified status

· The Group has today announced its intention to raise £6.0m (gross) from a combination of equity and debt. A further £0.5m may also be raised via a broker option. If successful and approved by shareholders the Company will:

· Enter into a £2.5m convertible loan note arrangement with the Business Growth Fund.

· Place new shares sufficient to raise £3.5m of new equity with a further £0.5m via a broker option.

· Amend the terms of the GHIF bond to extend the maturity date to December 2023, allow deferral of interest to December 2021 and also amend the conversion prices.

David Budd, Chief Executive Officer of genedrive plc, said: "We continue to deliver on our strategy of focusing the Group on molecular diagnostics. Progress during the year has been positive. We have the first to market point-of-need molecular test for HCV and we are well positioned in what is significant market where many millions of people are affected in low- and middle-income countries but diagnosis rates are low.

We intend to have three assays on the market in the medium term - HCV, mTB and AIHL. With the financing announced today, we are well placed to grow the business and exploit the opportunities the Genedrive platform presents in the attractive market for decentralised diagnostics testing."

- Ends -

For further details please contact:

genedrive plc

David Budd: CEO +44 (0)161 989 0245

Matthew Fowler: CFO

Peel Hunt LLP

James Steel +44 (0)207 418 8900

Oliver Jackson

Stanford Capital

Patrick Claridge +44 (0)203 815 8880

Consilium Strategic Communications

Chris Gardner +44 (0)203 709 5700

Matthew Neal

Laura Thornton

genedrive@consilium-comms.com 

Notes to Editors

About genedrive plc

genedrive plc is a molecular diagnostics company developing and commercialising a low cost, rapid, versatile, simple to use and robust point of need molecular diagnostics platform for the diagnosis of infectious diseases and for use in patient stratification (genotyping), pathogen detection and other indications. The Genedrive® HCV ID test has received CE-IVD Certification and has been launched in Africa and Asia Pacific. genedrive has distribution agreements with subsidiaries of Sysmex Corporation for the distribution of the Genedrive® platform in the EMEA and SE Asia (ex-India), and with ARKRAY Healthcare pvt Ltd for the distribution of the Genedrive® HCV ID Kit and Genedrive® platform in India. The company also has tests in development for tuberculosis (mTB) and Antibiotic Induced Hearing Loss (AIHL)

Further details can be found at: www.genedriveplc.com and www.genedrive.com 

CHAIRMAN'S STATEMENT

Ian Gilham, Ph.D.

Chairman

I am pleased to report on the positive operational progress the Group has made during the 2017/18 year. The Group has delivered many of the strategic milestones it set out, and is now positioned as a focused diagnostics company, ready to realise the varied opportunities of the Genedrive® system.

Delivering Our Strategy

We are executing our plans to bring a HCV test to market. During the year the Genedrive HCV ID Kit® was CE-marked, we entered distribution agreements to go to market with world class partners in Sysmex and Arkray, excellent data was released from a South African based performance study, and we began commercial sales through Sysmex as we entered the registration processes for target markets.

In June we announced a grant award from the National Institute of Clinical Research to develop and implement a Point-of-Care test for use within NHS hospitals across the UK. This additional test leverages the cost and speed advantages of Genedrive® for acute care, in a new market distinct from our focus in Global Health settings.

In the second half of 2017/18 we secured grant funding of £1.1m to part-fund the development of a Genedrive® companion sample preparation system for mTB. Following the review of our commercial strategy, and termination of our previous Indian distribution arrangements, we plan to return to market with a product with performance characteristics suitable for the larger geographic market in which we now have a footprint. We are part-way through this programme of work to bring an mTB test back to market during the year ending 30 June 2021.

Focusing our efforts on Genedrive® has been a core operational priority, and on the 8 June the Services Divisions was divested to a consortium led by Cath Booth, a former director of genedrive plc. The proceeds from the disposal will help support our development programmes.

Looking Forwards

We are currently registering in markets with the Genedrive HCV ID Kit®. While it is an expanding opportunity, we are first to market with a decentralised molecular HCV test and have the first mover advantage in engaging with clinicians and payers.

To complement HCV we are investing in mTB. Part funded by the £1.1m grant award from Innovate UK we have plans to bring Genedrive® back to this significant global market within two and a half years. mTB is a large and well-funded diagnostics market, and building on our knowledge and experience from the Indian market we are confident we will bring a strong product to market with unique selling points.

Outside of development activities, we have begun to receive income from our pathogen detection programme with the US Department of Defense, (DoD). This project has been fundamental to the development of Genedrive® and continues to provide attractive cash flows for the Group, albeit with limited visibility of the potential future demand. Post year end we received an order for $0.9m and we are encouraged by the engagement of the DoD.

To fund these developments we announced today our intention to raise £6.0m (gross) via a combination of equity and debt with a further £0.5m via a broker option. The fundraising will strengthen our financial position and will bridge the gap to self-sufficiency that will arrive when all three development programmes are revenue generating.

Governance and People

For our annual report the Group will adopted the Quoted Companies Alliance Corporate Governance Code, full details will be disclosed in the statutory accounts. While the code is new to the Group, the values and principles are not, and adopting the code has only codified how the Board was acting previously. During the year the Board has undergone changes in personnel and I believe the composition now fits correctly the positioning and strategy of the Group: Tom Lindsay joined as Non-Executive Director in April 2018 bringing a wealth of experience in the decentralised molecular testing market, and Chris Yates joined as Non-Executive Director and Chairman of the Audit Committee in August 2018, Chris has considerable experience in UK publically listed markets. Cath Booth resigned from the Board on the 8th June 2018 as part of her acquisition of the Services business. In addition to these changes, Robert Nolan and Roger Lloyd will not be seeking re-election at the next Annual General Meeting. I would like to thank Cath, Robert and Roger for their services to the Group over what has been a significant period of time and change.

Outlook

It has been another year of progress as we delivered against our milestones to redirect the company as a diagnostics focused business. We have today confirmed a proposed financing to enable us to have three assays on market in the medium term, (HCV, mTB and Antibiotic Induced Hearing Loss) in addition to our work with the UD DoD. This financing is due to close in December 2018. I am very optimistic about the future for the Group and believe we are well placed to grow the business and exploit the attractive market for decentralised diagnostics testing.

I would also like to take this opportunity to express thanks to our staff, the Board and our investors for their support during the year.

Dr Ian Gilham

Chairman

CHIEF EXECUTIVE'S REVIEW

David Budd

Chief Executive Officer

Overview

During the year we accomplished many of the objectives we set ourselves on our plan to become a focused molecular diagnostics company. Over the past two years, we have put a strong team in place that can drive a product menu strategy to ultimately deliver shareholder and customer value. We have aggressively sought grant funding to engage external partners in product engineering and industrial design support, which complement our own assay development capabilities. These world-class partners de-risk our product development programmes and give us confidence in delivering to our timelines.

Our Performance

HCV

The Genedrive HCV ID Kit® is the first low cost, qualitative molecular decentralised testing product on the market. We successfully obtained CE marking in September 2017, quickly followed with partnerships with Sysmex for EMEA and APAC, and then Arkray for India.

We made our first commercial sales in March 2018 to support registrations and KOL engagement. As previously announced, in country registrations have been slower than planned because we delayed initial filings to take advantage of extending our storage claims on the product following successfully stability studies, and latterly to reflect the change in name of our trading entity following the disposal of Services. These initial product sales have been followed up subsequently and we currently plan to be registered in up to 30 countries over the next twelve months. While we are targeting these first tier countries with Sysmex, we continue to work on further regions with the desire to bring further partners and markets online.

Antibiotic Induced Hearing Loss

In June 2018 we announced that the Group was part of an award from UK NHS National Health Research for the development and implementation of a point of care test for the prevention of hearing loss in newborn children. Significantly, the grant is both for the development and the initial implementation in selected NHS Trusts, which will de-risk the sometimes difficult part of introducing new tests within the NHS environment in the future.

We do not anticipate difficulties in developing the assay and so we are focusing attention and resource on overcoming practical difficulties of customer adoption, including IT and connectivity requirements. If proven, there is a sizeable and attractive market which the Group plans to start to exploit during the calendar year 2020.

This is an exciting new development for the Group that leverages the speed and portability of the Genedrive® to provide diagnostics testing at the point of need in an acute care setting, a new potential market for test development. For the first time Genedrive® will be targeted outside of emerging markets.

mTB

Tuberculosis remains an important target market for the Group. The market for mTB testing is large and well defined, and the market needs stated from KOLs and global health organisations clearly points to molecular testing as the desired method in future to replace traditional microscopy.

Having been awarded £1.1m from Innovate UK in January 2018 to refine and develop an alternative sample preparation process, the Group took the decision to re-enter markets with a new mTB test that will build on these sample preparation improvements. The £1.1m funding will provide a substantial portion of the capital required to support the improvements. There will also be assay reformulation to create a test suitable for detection of the most prevalent drug resistant strains of mTB, and not just the most common in India. We are also reworking on design for manufacture requirement to decrease manufacturing costs. The up-front sample improvements and the changes to the assay formulation will give a product and price suited to the global reach of our new distribution networks.

Other

We successfully completed our development programme with the US Department of Defense (DoD) for pathogen identification), and final development revenue from this contract was £1.6m (2017: £2.2m) in the year. The programme now moves to a commercial phase, with the DoD purchasing Genedrive® units and testing cartridges as needed. The Group is encouraged by the initial $0.9m order and believes there is potential for further engagement win the DoD in 2019. The project has been a success in all parameters: supporting development of Genedrive® capabilities, providing funding to the Group, delivering a complex product to the customer specification, and providing ongoing revenue. Subject to manufacturing and shipping the $0.9m order is expected to be recognised as revenue in the first half of the current financial year. We currently have no visibility or expectations of what future customer demand might be, but are working to establish visibility with the customer.

While we are focused on developing revenue from three assays, we will continue to monitor and look for other collaborations that are accretive and non-dilutive.

Services

On 8 June we disposed of the Services Businesses previously referred to as Preclinical Research Services and Pharmaco-genomic Services, thereby delivering on our strategy to dispose of non-core activities and focus on the attractive global diagnostic market. The consideration was £1,150k up front with up to an additional £750k based on the R&D tax credits earned in the 36 months post sale. The disposal provides Genedrive with funds to invest in diagnostics, and the new owners now have the ability to grow a services based business with our former Epistem colleagues.

Outlook

Genedrive is now a commercial stage diagnostics business in HCV and DoD and we are transitioning towards a menu of assays. Today we have announced a proposed financing to help the Group drive towards demonstrable revenue growth and to advance the Group's portfolio of additional tests, which if successful, are expected to increase shareholder value and enhance the strategic value of the Groups diagnostics technologies.

We have made significant progress since 2016, and while the Group still has much to strive and work for, I am pleased with the progress made in the year. We have a very knowledgeable and committed team which I am very proud of, strong commercial partners, and large market opportunities ahead. Our progress over the past two years provides me and the Board with confidence that we can continue to do so in the future.

David Budd

Chief Executive Officer

FINANCIAL REVIEW

Matthew Fowler

Chief Financial Officer

Results for the year delivered revenue and other income of £1.9m (2017: £2.6m). Research and development costs were £5.2m (2017: £5.0m) and the increase reflects our continued commitment to develop and improve our Genedrive® technology, with specific in year costs related to obtaining CE marking and extending stability claims. Administration costs were £2.0m, down substantially from the prior year £2.6m as we focus on cost control. The operating loss for the year was £7.4m (2017: £7.4m) and is stated after the impairment of intangible assets of £2.1m (2017: £2.4m).

Financing costs of £0.4m (2016: £0.2m) relate to the dollar denominated Global Health Investment Fund (GHIF) convertible bond and are all non-cash charges. The charges include the unwind of the discount on the long term debt, £0.2m (2017: £0.2m), interest costs £0.3m (2017: £0.3m) and positive foreign exchange movements of £0.1m (2017: £0.1m loss).

The loss on activities was £7.8m (2017: £7.6m) and the tax credit for the year was £0.8m (2017: £1.0m), meaning the loss for the financial year after tax was £7.0m (2017: £6.6m).

On the 8th June the Group disposed of the business and assets of its Services Divisions. These Divisions comprised the segments previously reported as Preclinical Research Services and Pharmaco-genomic Services. The initial consideration was £1,150k subject to normal working capital adjustments, plus up to an additional £750k deferred consideration based on the Research and Development tax credits earned by the business in the 36 months post disposal. The division has been reported under discontinued operations; it contributed £1.1m after tax, made up of a profit on disposal of £0.6m and an operating profit of £0.4m.

Total comprehensive expenses for the year from continuing and discontinued operations was £6.0m (2017: £6.4m). The basic loss per share from continuing operations was 37.6p (2017: 35.7p).

Cash Resources

Operating cash outflows are stated after losses, working capital and tax, and were £2.5m (2017: £1.8m). Operating losses were £4.3m (2017: £3.9m). Working capital contributed £0.6m including discontinued operation, lower that the £1.3m inflows from 2017 owing to the correction of debtor management in that year. Tax credit received was £1.2m (2017: £0.8m) and relates to cash received under the Corporation Tax Research and Development tax relief scheme operated in the UK. The current year tax debtor is £1.0m (2017: £1.2m) and while still a significant element of funding for the Company, this is down on 2017 owing to the lower qualifying costs following the disposal of Services and a greater mix of non-qualifying costs related to work connected to UK funded grants.

Offsetting this £2.5m outflow, net cash contribution from the disposal of Service was £1.0m. The overall decrease in cash was £1.6m (2017: £4.1m increase) meaning a closing cash position of £3.5m (2017: £5.1m).

Balance Sheet

Balance sheet Net liabilities at 30 June 2018 totalled £2.4m (30 June 2017: £3.4m net assets). Given the level of cash in the business post the proposed financing announced today, the negative net assets are not of material concern to the Board. However, Section 656 requires a public company whose net assets are half or less of its called-up share capital to call a General Meeting for the purpose of considering whether any, and if so what, steps should be taken to deal with the situation. A General meeting was announced and convened on 13 September 2018.

Non-current assets were £3.1m down from the prior year £3.6m owing to the impairment of intangible fixed assets, depreciation, amortisation and the disposal of assets related to the Services business. The carrying value of intangible assets was reviewed in the year and the value was impaired down to nil. The portion of the consideration for Services that will be received at least twelve months from the balance sheet date has been fair valued, discounted and reported as non-current, £0.3m (2017: £nil).

Current assets of £5.4m (2017: £8.4m) included cash of £3.5m (2017: £5.1m) and tax receivable of £1.0m (2017: £1.2m), with the remaining working capital related items making up £1.0m lower than the prior year £2.1m owing to the disposal of Services and reduction in assets and liabilities. The liability attached to the convertible loan increase from £5.2m in 2017 to £5.6m at the balance sheet date. The increase is non cash and related interest and the unwinding of the discount.

We have today confirmed a proposed financing to enable us to bring three assays to the market in the medium term. The financing is due to close in December 2018.

Matthew Fowler

Chief Financial Officer

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 June 2018

CONSOLIDATED BALANCE SHEET

As at 30 June 2018

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 June 2018

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 30 June 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2018

General Information

genedrive plc ("the Company") is a company incorporated in the UK.

genedrive plc and its subsidiaries (together, "the Group") is a molecular diagnostics business developing and commercialising a low cost, rapid, versatile, simple to use and robust point of need or point of care diagnostics platform for the diagnosis of infectious diseases and for use in patient stratification (genotyping), pathogen detection and other indications.

genedrive plc is a public limited company, whose shares are listed on the London Stock Exchange Alternative Investment Market.

1. Significant accounting policies

This note provides a list of the principal accounting policies adopted in the preparation of these consolidated financial statements to the extent that they have not already been disclosed in the other notes below. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods represented in these consolidated financial statements.

Basis of accounting

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and therefore comply with Article 4 of the EU IAS Regulation, International Financial Reporting Interpretations Committee ("IFRIC") interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial statements have been prepared on a historical cost basis as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

The consolidated financial statements consolidate those of the Company and its subsidiaries (together referred to as the 'Group'). They are presented in pounds sterling and all values are rounded to the nearest one thousand (£k) except where otherwise indicated.

Following the disposal of the Group's Services business, the respective results for this business are disclosed as a discontinued operation. Where necessary the results for the year ended 30 June 2017 have been restated to present these as discontinued operations.

The Group funds its day-to-day working capital requirements through its bank resources.

Going concern: the Directors have concluded that it is necessary to draw attention to the announced fund raise that is due to complete after the Groups accounts are signed. In order for the Group to continue as a going concern, the Group has proposed to raise £6.0m (gross) from a combination of equity and debt, with a further £0.5m via a broker option. The Group's broker has obtained non-binding commitments from investors indicating support for a £6.0m (gross) fundraise. These commitments are not yet confirmed and also owing to the size of the fund raise relative to the market capitalisation of the Group, shareholder approval is required before these commitments may become unconditional.

While the Board is confident that it will achieve firm commitments and approval from shareholders, until it is confirmed at a general meeting there is a material uncertainty as to the whether the fund raise will conclude successfully. Owing to reporting obligations for the Groups annual accounts, the Group cannot wait until after the shareholder approval to release its accounts Therefore at the date of these financial statements the fund raising commitments are not unconditional and this represents a material uncertainty that may cast significant doubt on the group and company's ability to continue as a going concern. However, based on the commitments received to date, and the relative likelihood of shareholders rejecting the fund raise, the Board believe it is appropriate to continue to adopt the going concern basis of accounting in preparing these financial statements. These financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

The auditors' report on the 2018 financial statements has not yet been issued. The auditors have indicated that their report will contain a "material uncertainty related to going concern" section drawing attention to the existence of a material uncertainty that may cast significant doubt about the Group's and Parent Company's ability to continue as a going concern.

Critical accounting estimates

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed below:

● Determining what components of expenditure fit the definitions of the R&D tax credit regime requires an estimation and interpretation of tax rules on research and development costs. There have been no changes to historic assumptions in the year and there is no expectation of a change in the level of uncertainty within the next financial year. If the qualifying costs used to calculated the R&D tax credits are 10% higher/ lower than estimated then the value of the tax debtors in the balance sheet would increase/(decrease) by £98k.

● Determining the market value of the Debt Component of the Convertible Bond requires the Board to make a judgement about the market rate of interest to apply to instrument of this nature. There have been no changes to historic assumptions in the year and there is no expectation of a change in the level of uncertainty within the next financial year. If the change in the discount rate cause a 10% higher/ lower bond valuation, the balance sheet liabilities would increase/(decrease) by £563k.

● The consideration for the disposal of the Services business included deferred consideration based on the R&D tax credits claimed by the business in the three years post disposal. The deferred consideration is carried at the discounted fair value of the expected R&D tax credits. The estimated value of the R&D tax credits is the value claimed in the year ending June 2018. If the R&D tax credits are 10% higher/ lower than estimated the value of the deferred consideration would increase/(decrease) by £51k.

Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Basis of consolidation

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Inter-company transactions, balances and unrealised gains on transaction between group companies are eliminated. Unrealised losses are also eliminated. Where necessary, amounts reported by subsidiaries have been adjusted to conform with the Group's accounting policies.

Revenue

Revenue is measured at the fair value of the consideration received or receivable and net of discounts and sales-related taxes.

Revenue recognition

a. Contract revenue

Contract revenue is recognised by reference to the stage of completion of the related transaction at the end of the reporting period. The group recognises revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the group's activities, as described below.

b. Collaboration & licensing revenue

Contractually agreed upfront payments and similar non-refundable payments in respect of collaboration or licence agreements which are not directly related to on-going research activity are recorded as deferred income and recognised as revenue over the anticipated duration of the agreement. Where the anticipated duration of the agreement is modified, the period over which revenue is recognised is also modified.

Non-refundable milestone and other payments that are linked to the achievement of significant and substantive technological or regulatory hurdles in the research and development process are recognised as revenue upon the achievement of the specified milestone.

Income which is related to on-going research activity is recognised as the research activity is undertaken, in accordance with the contract.

c. Other income - development grant funding

Income receivable in the form of Government grants to fund product development is recognised as development grant funding over the periods in which the Group recognises, as expenses, the related eligible costs which the grants are intended to compensate and when there is reasonable assurance that the Group will comply with the conditions attaching to them and that the income will be received. Government grants whose primary condition is that the Group should purchase or otherwise acquire non-current assets are recognised as deferred revenue in the Consolidated Balance Sheet and transferred to the Statement of Comprehensive Income on a systematic and rational basis over the useful lives of the related assets.

d. Product sales

Revenue from product sales is recognised on shipment to customers in line with contractual agreements.

Segment reporting

A segment is a group of assets, liabilities and operations engaged in providing products or services that are subject to risks and returns that are different from those of other parts of the business. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors.

Research and development

Research expenditure is written off as it is incurred. Development expenditure is written off as it is incurred up to the point of technical and commercial validation. Thereafter, costs that are measurable and attributable to the project are carried forward as intangible assets, subject to having met the following criteria:

● demonstration that the product will generate profitable future economic benefit and of an intention and ability to sell the product;

● assessment of technical feasibility;

● confirmation of the availability of technical, financial and other resources to complete the development;

● management intends to complete the development so the product will be available for use; and

● the expenditure attributable to the development can be reliably measured.

Intangible assets

Intangible assets are stated at cost less accumulated amortisation and any accumulated impairment losses. Amortisation is calculated so as to write off the cost of an intangible asset, less its estimated residual value, over the useful economic life of that asset, as follows:

● Acquired intellectual property - the shorter of 5% straight line basis or their estimated useful life

● Developed intellectual property - the shorter of 10% straight line basis or their estimated useful life

● Patents - over the shorter of 17 years or their estimated useful lives on a straight-line basis

No amortisation is charged on those assets which are not yet available for use.

Plant and equipment

Plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows:

Lab equipment - 25% reducing balance basis

Fixtures & fittings - straight line over 48 months

Other equipment - straight line over 48 months

Operating lease agreements

Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged to the income statement over the period of the lease.

Impairment of non-financial assets

Intangible assets that have an indefinite useful life or intangible assets not ready to use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (Cash Generating Units). Prior impairments of non-financial assets are reviewed for possible reversal at each reporting date.

Foreign currencies

(a) Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in Sterling which is the Group's presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement, except when deferred in equity as qualifying net investment hedges. Non-monetary items carried at fair value and denominated in foreign currencies are retranslated at the rates prevailing on the date when fair value is determined.

Share based payments

The Group issues equity-settled share-based payments to certain employees (including Directors). The fair value of the employee services received in exchange for the grant of the options is calculated using appropriate valuation models and is recognised as an expense over the vesting period.

The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted. Fair value is measured using the Black-Scholes pricing model. The expected life used in the model has been adjusted, based on management's best estimate, experience and behavioural considerations.

At each Balance Sheet date, the entity revises its estimates of the number of options that are expected to become exercisable.

It recognises the impact of the revision of original estimates, if any, in the Income Statement, and a corresponding adjustment to equity, over the remaining vesting period.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

The issuance by the Company of share options to employees of its subsidiary represents additional capital contributions and the fair value of such options and awards is therefore recognised as an increase in the Company's investment in Group undertakings with a corresponding increase in total equity shareholders' funds.

Share Incentive Plan (SIP)

The Company operates a SIP scheme and both issues new shares to settle the liability and offers the cash equivalent to employees. The liability to settle the shares accrued under the SIP scheme is thus treated as a cash settled liability on the balance sheet with the cost of the liability being expensed to the income statement. The balance sheet liability is adjusted periodically to reflect the change in the share price over the life of the scheme with the movement taken to the income statement. Any shares bought in anticipation of settling the SIP scheme are held as a debit in reserves. Where a leaver requests to take shares instead of cash, as permitted under the SIP scheme, the historic cost of shares acquired is moved from reserves to the balance sheet liability.

Pension Contributions

Contributions to personal pension plans of employees on a defined contributions basis are charged to the income statement in the period in which they are payable.

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is calculated on a first in and first out basis and includes bought in cost and, where appropriate, other direct costs. Net realizable value represents the estimated selling price less applicable selling costs. Where applicable, provision is made for slow-moving and obsolete inventory.

Trade and other receivables

Trade and other debtors are recognised and carried forward at invoiced amounts less provisions for any doubtful debts. Bad debts are written off when identified. After initial recognition, these are carried forward at amortised cost using the effective interest method.

Cash and cash equivalents

Cash and cash equivalents are included in the balance sheet at cost. Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

Interest-bearing loans and borrowings

All loans and borrowings are recognised initially at cost, which is the fair value of the consideration received, net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are measured at amortised cost using the effective interest method. Gains or losses are recognised in the consolidated income account when liabilities are derecognised or impaired, as well as through the amortisation process.

Investments

Investments in subsidiaries are stated at cost less any provisions for impairment. An impairment is recognised when the recoverable amount of the investment is less than the carrying amount.

Taxation

Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted, or substantively enacted, by the balance sheet date.

Taxation credits which fall under the category of Above the Line Research & Development credits ("ATL Research credit") as detailed in the Finance Act 2013 are offset against the expenditure to which they relate and, in the Statement of Profit and loss, are disclosed within Contract and Discovery and development costs, as appropriate.

Deferred tax is recognised in respect of all temporary differences identified at the balance sheet date, except to the extent that the deferred tax arises from the initial recognition of goodwill (if amortisation of goodwill is not deductible for tax purposes) or the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting profit nor taxable profit and loss. Temporary differences are differences between the carrying amount of the Group's assets and liabilities and their tax base.

Deferred tax liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and liabilities are offset where an entity has a legally enforceable right to offset and either intends to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Deferred tax is provided on temporary differences arising in subsidiaries, jointly controlled entities and associates, except where the timing of reversal of the temporary difference will not reverse in the foreseeable future. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the asset is realised or liability settled, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Measurement of deferred tax liabilities and assets reflects the tax consequence expected to fall from the manner in which the asset or liability is recovered or settled.

Financial instruments (including Convertible Bond)

Financial instruments are classified and accounted for, according to the substance of the contractual arrangement, as either financial assets, financial liabilities or equity instruments. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.

As disclosed in Note 19, the Company has in issue a convertible bond which is a compound instrument comprising a liability component, or debt host, and an equity derivative component.

On initial recognition, convertible bonds are recorded at fair value net of issue costs. The initial fair value of the debt host is determined using the market interest rate applied by a market participant for an equivalent non-convertible debt instrument. Subsequent to initial recognition, the debt host is recorded using the effective interest method until extinguished on conversion or maturity of the bonds. The amortisation of the debt host and the interest payable in each accounting period is expensed as a finance cost.

Equity derivatives embedded in the convertible instruments which are required to be recorded as financial liabilities are initially recognised at fair value. At each reporting date, the fair values of the derivative are reassessed by management. Where there is no market for such derivatives, the Company uses option pricing models to measure the fair value.

The amortisation of the debt host, interest payable in the period and gains or losses on the fair value of the derivative are disclosed with Finance income and costs detailed in note 7.

Parent Company Assets

The assets of the parent Company are subject to impairment review in each financial period.

New standards and interpretations not applied

The Group has not early adopted any Standards in the current or prior year.

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

● IFRS 9 Financial instruments

● FRS 14 Regulatory deferral accounts

● IFRS 15 Revenue from contracts with customers

● IFRS 16 Leases

● IRFIC 22 Foreign currency transactions and advance consideration Amendments to IAS 1 Disclosure initiative

● Amendments to IFRS 10, IFRS 12 and IAS 28 The application of the investment entities exemptions

● Amendments to IFRS 10 and IAS 28 Sale or contribution of assets between an investor and its associate or joint venture

● Amendments to IFRS 11 Accounting for acquisitions of interest in joint operations

● Amendments to IAS 16 and IAS 38 Clarification of acceptable methods of depreciation and amortisation

● Amendments to IAS 27 Equity method in separate financial statements

● Amendments to IAS 12 Recognition of deferred tax assets for unrealised losses

● Amendments to IAS 7 Disclosure initiative

● Amendment to IAS 16 and IAS 41 Agriculture: Bearer plants

● Annual improvements to IFRSs 2012-2014 cycle (Sep 2014)

● Annual improvements to IFRSs 2014-2016 cycle (Dec 2016)

The directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Group in future periods, except as follows:

IFRS 15 is effective for annual periods beginning 1 January 2018 and will replace IAS 11 Construction Contracts and IAS 18 Revenue. This standard requires the separation of performance obligations within contracts with customers and the contractual value to be allocated to each of the performance obligations. Revenue is then recognised as each performance obligation is satisfied. The standard will move the focus from risk and reward to control when assessing revenue recognition. The Group is currently reviewing its contracts, specifically where development income arrangements are in place and where goods are customer specific. Per the initial assessment it is not anticipated that transition to IFRS 15 will have a material impact on the Group.

IFRS 16 is effective for annual periods beginning 1 January 2019 and will replace IAS 17 Leases. This standard requires lessees to recognise assets and liabilities for all leases, unless the lease term is 12 months or less, or the underlying asset is low value. As at 30 June 2018, the Group holds a small number of operating leases which currently, under IAS 17, are expensed on a straight line basis over the lease term. Management has not yet performed a full assessment to quantify the financial impact of IFRS16, but all operating leases, with the exception of short-term leases, will be accounted for on the balance sheet. IFRS 16 will therefore result in an increase in both assets and liabilities in the balance sheet, a decrease in operating expenses and an increase in finance expenses in the income statement.

IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. An expected credit losses model replaces the incurred loss impairment model used in IAS39. It is anticipated that the classification and measurement basis for financial assets and liabilities will be largely unchanged by adoption of IFRS9 and the impact of the change in impairment model is not expected to be material.

2. Revenue

For internal reporting and decision making, the Group is organised into one segment Diagnostics. Diagnostics is commercialising the Genedrive® Point of Need molecular testing platform. In future periods, and as revenue grows, the Group may review management account information by type of assay and thus split out Diagnostics into segments - however for now the single segment is appropriate.

The chief operating decision maker primarily relies on turnover and operating profit to assess the performance of the Group and make decisions about resources to be allocated to each segment. Geographical factors are reviewed by the chief operating decision maker, but as substantially all operating activities are undertaken from the UK, geography is not a significant factor for the Group. Accordingly, only sales have been analysed into geographical statements.

The results of the operating division of the Group are detailed below.

Geographical segments

The Group's operations are located in the United Kingdom. The following table provides an analysis of the Group's revenue by customer location:

Revenue from continuing operations during the year related to grant income and funded development programmes of £1,853k (2017: £2,619k) and product sales of £127k (2017: £nil).

Revenues from customers accounting for more than 10% of total revenue in the current or prior years are detailed below:

(a) £1,602k of revenue was derived from the US Department of Defense (2017 - £2,233k);

(b) £221K of revenue was derived from Innovate UK (2017: £460k).

3. Operating loss

The Group operating loss is stated after charging/(crediting):

The prior year auditors remuneration included £18,500 related to the audit of the Convertible Bond amendment.

4. Particulars of employees

The average number of staff employed by the Group during the financial year was:

The aggregate employee costs (including Directors) were:

5. Directors' remuneration (key management)

For the current and prior year the key management of the Company is the senior management team of the Company and compromises Executive Board members plus four members of the senior staff. Full details of the Directors' remuneration and Directors' options are contained in the Directors' Remuneration Report.

6. Disposal of business segment

On 8 June 2018 the Group disposed of the business and assets of its "Services" business. This division comprised the segments previously reported as Preclinical Research Services and Pharmaco-genomics Services. The consideration was £1,150k subject to normal working capital adjustments, plus up to an additional £750k deferred consideration based on the Research and Development tax credits earned by the business in the 36 months post disposal. Management have made their best estimate of the future cashflows expected from the disposal and discounted these using the Company's WACC of 12.5%. The costs of the disposal of £163k include legal costs and corporate finance costs.

Result of discontinued operations

The results of the discontinued operation, which have been included in the income statement, were as follows:

The disposed business was not a separate legal entity. Any theoretical tax expense in the periods above would have been settled via group relief.

During the year the business contributed £332k to the Company's net operating cashflows. All of these cashflows where from operating activities and there were no investing or financing cashflows in the period.

7. Finance income/(costs)

8. Taxation on ordinary activities

(a) Recognised in the income statement

(b) Reconciliation of the total tax charge

The tax assessed on the profit on ordinary activities for the year is lower (2017: lower) that the weighted average applicable tax rate for the year ended 30 June 2018 of 19.00% (2017: 19.75%). The differences are explained below:

No deferred tax assets are recognised at 30 June 2018 (2017: £nil). Having reviewed future profitability in the context of trading losses carried, it is not probable that there will be sufficient profits available to set against brought forward losses.

The Group had trading losses, as computed for tax purposes, of approximately £9,854k (2017: £8,513k) available to carry forward to future periods.

The Finance Act 2016, which was subsequently enacted on 15 September 2016, includes provisions to reduce the corporation tax rates to 19.0% with effect from 1 April 2017 and 18.0% with effect from 1 April 2020. In addition, the Finance Bill 2017 was substantively enacted on 6 September 2017 which introduced a further reduction in the main rate of corporation tax from 18.0% to 17.0% from 1 April 2020. Both changes are reflected in the balance sheet figures and the overall effect on the deferred tax balance and tax credit for the year is not material.

In accordance with the provisions of the Finance Act 2000 in respect of research and development allowances, the Group is entitled to claim tax credits for certain research and development expenditure. These credits are disclosed partly as Above The Line Research & Development Credits ("ATL Research Credits") within Research and Development Costs and partly as Research and development tax credits within Taxation on ordinary activities. The total amount included in the financial statements in respect of Continuing Operations for the year ended 30 June 2018 is £817k (2017: £1,024k) which includes £59k (2017: £25k) disclosed as ATL Research Credit deducted from Research and Development Costs with the balance of £758k (2017: £992k) disclosed within Taxation on ordinary activities as detailed above.

9. Profit attributable to members of the parent company

The loss dealt with in the accounts of the parent company was £9,401k (2017:loss £24,813k).

10. Earnings per share per share

The basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders for the year by the weighted average number of ordinary shares in issue during the year.

As the Company is loss making, no potentially dilutive options have been added into the EPS calculation. Had the Company made a profit in the period: there would be no potentially dilutive share options because all share options in issue are underwater; there would be 74,096 of dilutive SIP shares.

11. Intangible assets

Group

The net book value of Intangible assets all relates to the Genedrive® unit and assays. The charges for amortisation are included in the Contract and Research and Development expense headings. During the year to 30 June 2018, the cost of the Company's Patents assessed as not being available for economic use amounted to £nil (2017: £nil).

During the year the Intangible assets have been assessed for impairment in accordance with the Company's Accounting Policies. The recoverable amount was determined on a value in use basis using the management approved 12 month forecasts. The base 12 month projection was inflated for year two and then deflated down to zero in year three - as the estimated useful economic life of the assets in their current state without further investment is two and a half years. These projected cashflows were discounted at a pre-tax discount rate of 12.5%. Following the exercise the value of intangible assets was impaired down to £nil.

12. Plant and equipment

13. Inventories

Genedrive units are treated as raw materials. The units are required to go through a testing and software process before being sold.

14. Trade and other receivables

Analysis of trade receivables

At the year end, net trade receivables were aged as follows:

The movement in the impairment provision for trade receivables is as follows:

Ageing of impaired receivables

There is no other class of financial assets that is past due but not impaired except for trade receivables. The Group's credit period generally ranges up to 60 days.

15. Cash and cash equivalents

Cash and cash equivalents comprise current accounts held by the Group with immediate access and short term bank deposits with a maturity of three months or less. Market rates of interest are earned on such deposits. The credit risk on such funds is limited because the counter parties are banks with high credit ratings assigned by international credit rating agencies.

16. Deferred revenue

The items recorded as deferred revenue are to be recognised over future periods as follows:

17. Trade and other payables

18. Deferred consideration payable in shares

The deferred consideration relates to the acquisition of Visible Genomics Ltd in July 2010. Under the terms of the acquisition £1,250k becomes payable in the form of shares in genedrive plc to the former owner of Visible Genomics Ltd. The liability becomes payable on the achievement of certain milestones. At 30 June 2018, the Directors reviewed the terms of the earn-out milestones and consider that the criteria will be met during a period less than twelve months following the balance sheet date. The liability is therefore classified as current.

On the 9 October 2018 the Company entered into an agreement with the former owner of Visible Genomics Ltd to alter the arrangements of the deferred consideration. Both parties agreed to amend the terms of the deferred consideration so that £300,000 would be payable in cash 30 days after a target date, £200,000 would be payable in shares calculated using the proposed placing price 12 months after the target date and 36 months after the target date 500,000 shares would be issued to the former owner of Visible Genomics Ltd. These terms are subject to an equity raise of £3.5m and as this has not taken place yet the agreement is not in effect.

19. Convertible Bond

On 21 July 2014, the Company entered into a Collaboration and Convertible Bond Purchase Agreement ('Agreement') with the Global Health Investment Fund 1 LLC ('GHIF' or the 'bond holder'). The purpose of the Agreement was to fund the Company's development, production and commercialisation of Genedrive® to address Global Health Challenges and achieve Global Health Objectives. Under the terms of the Agreement, the Company issued to GHIF a five-year Convertible Bond, with a 5% coupon payable half yearly, totalling 8.0m. Further, as part of the Agreement, GHIF and the Company entered into a Global Access Commitment. Under the Global Access Commitment, the Company will undertake appropriate regulatory strategic steps and registrations to secure access for Genedrive® in developing countries in tuberculosis, malaria or other infectious diseases as agreed between the parties. In addition the Company will establish a tiered pricing framework that is commercially reasonable and reflects the needs of poor patients in developing countries. The Company will, taking into account its profitability and other commercial interests, allocate sufficient capacity and product distribution to make Genedrive® and its assays accessible to people most in need in developing countries. In return GHIF will use commercially reasonable efforts through its global access network to ensure support for the Company in placing Genedrive® and its assays in global territories to reflect the needs and price sensitivity of poor patients in the developing world. Notwithstanding any early Conversion, Redemption or Termination of the agreement, the Global Access Commitment shall endure for 5 years from 22 July 2014. During the period of the Agreement, the Company has entered into undertakings commensurate with a Convertible Bond Agreement. These include: undertakings relating to incurring financial indebtedness & financial default; undertakings relating to maintenance of appropriate records; undertakings relating to standards of social responsibility and ethical behaviour.

On 23 June 2016, the Company and GHIF entered into a Deed of Amendment & Restatement of the Agreement, which came into effect on 11 July 2016. The principal effects of the Deed of Amendment were to extend the maturity of the GHIF Bond by two years to 21 July 2021. To split the GHIF Bond into two tranches: the first tranche of US$2m has a Conversion Price of £1.50 per Ordinary Share and the second tranche of US$6m has a Conversion Price remaining at £4.89 per Ordinary Share. To change the Company conversion option, on the first tranche of US$2m into new Ordinary Shares in circumstances where the average closing price of the Company's Ordinary Shares is greater than or equal to £2.50 per ordinary Share for a period of 20 consecutive days. To allow, for interest periods ending on or before (but not after) 21 January 2019, the Company to elect to pay none or a portion of the 5% interest payable semi-annually on the accrued and outstanding principal amount of the GHIF Bond and instead capitalise and compound some or all of such outstanding interest due until the earlier of the date on which the GHIF Bond is repaid if converted into Ordinary Shares.

Accounting

Due to the Convertible Bond being denominated in a different currency to the Company's functional currency, IFRS requires the Convertible Bond to be accounted for as a compound instrument, comprising a Debt Host (liability component) and a Derivative (equity component). The Debt host is required to be recorded initially at fair value. Whilst the coupon is 5%, IFRS requires that the fair value is calculated based on the rate of interest which a market participant would lend to the Company.

Given the nature of the Company's activities, the Company has used a rate of 10.0% in calculating this liability. The Derivative has been valued using a Quanto Option Valuation model which takes account of the multicurrency aspects of the Convertible Bond. The variables used in running the model are as follows: volatility of the Company's Share Price 24%, expected life of the Derivative 4.4 years, risk free interest rate 0.58% and a dividend yield of 0%.

Deed of Amendment to Convertible Bond Purchase Agreement

On 12 October 2018 the Company and GHIF entered into a Deed of Amendment & Restatement of the Agreement. The Deed of Amendment has not yet become effective. If it becomes effective, the principle features will be:

● extend the maturity of the GHIF Bond from 21 July 2021 to 31 December 2023.

● To change the Company conversion option,

● on the first tranche of US$2m to 125% of the placing price of the proposed fund raising

● On the second tranche of US$6m to a Conversion price of £1.50

● To allow the Company to elect to pay none or a portion of the 5% interest payable semi-annually on the accrued and outstanding principal amount of the GHIF Bond and instead capitalise and compound some or all of such outstanding interest due until the earlier of January 2022 or the date on which the GHIF Bond is repaid if converted into Ordinary Shares.

The amendment is not yet effective and as a result has no impact on the results and balances for the year ending 30 June 2018.

Convertible Loan Note Issued to Business Growth Fund

At the same time as agreeing the Deed of Amendment on the Convertible Bond Agreement, the Company simultaneously entered a new Convertible Loan Note agreement with the Business Growth Fund Investments LP. The Loan Note has not come into effect yet and as a result has no impact on the results and balances for the year ending 30 June 2018. If it becomes effective, the principle features will be:

● genedrive plc has issued an unsecured £2,500,000 Convertible Loan Note

● The loan note ranks pari-passu with the GHIF bond

● The loan note has a conversion price of 125% of the share price at the Company's proposed fund raise,

● The loan note attracts a 7% interest rate that maybe rolled up for 3 years

● The loan note will be redeemed in full on 30 June 2025 if not converted prior to this date.

As the fund raise has not taken place yet the agreement is not in effect.