Ixico Regulatory News (IXI)

7 January 2016

Financial Results for the year ended 30 September 2015

Executing the digital healthcare strategy

IXICO plc (AIM: IXI) ("IXICO" or the "Company"), the brain health company, today announces its final results for the year ended 30 September 2015.

Highlights

· Long term contract award of Phase II/III global study in neurodegenerative disease

o Contract from leading global pharmaceutical company

o Highlights growing position in neuroscience clinical trial market

o Expected to run over at least seven years with a revenue value of c. $1 million per year

o Utilising TrialTracker™ and Assessa® digital technology platforms

· Huntington's disease is a growing specialism

o Two existing contracts significantly expanded to c.£2.5 million

o Third contract awarded in April 2015

· VirtualScopics Inc. alliance achieving commercial traction

o Two new contract awards in the year using TrialTrackerTM

o Implementation of TrialTracker™ into VirtualScopics platform completed

· Financial performance underpinned by strong revenue growth*

o Revenues increased in the year to £3.1 million

o Other income increased to £1.1 million (2014: £1.0 million) giving a combined total income of £4.2 million

o Loss after tax reduced to £1.2 million (2014: £2.3 million) and loss per share reduced to 7.9p/share (2014: 10.4p/share)

o Cash of £1.9 million at 30 September 2015

*2014 figures refer to the 16 months ended 30 September 2014

Post year end highlights

o Strategic collaboration with a leading pharmaceutical company to develop and pilot Assessa® for the clinical management of Multiple Sclerosis

o Acquisition of Optimal Medicine Limited and placing of £2.7m before expenses

Derek Hill, IXICO's CEO, said:

'I am delighted to report growth in our clinical trials service business and excellent progress in developing strategic partnerships with pharmaceutical companies using our digital technology platform, generating new and larger contracts.

We believe that our digital technologies are aligned with the aims of healthcare providers and payors to improve patient outcomes and the pharmaceutical industry's focus on demonstrating the broader health and pharmoeconomic benefit of its treatment.

Our experience of working in the regulatory environment in which a pharmaceutical company operates, combined with our relationships and products developed to support both clinical trials and clinical practice, represents a significant growth opportunity moving forward. The acquisition of Optimal Medicine is part of our strategy to be a leader in digital healthcare, to take initial steps into the US digital healthcare market, and is in line with the Company's stated strategy to broaden IXICO's product offering through acquisition.

We believe that the commercial opportunity for the enlarged group is gathering momentum that will take us forward in the year ahead. We will continue to work closely with our customers, collaborators and business partners to realise our vision and would like to thank them as well as all our staff, shareholders and advisers for their continued commitment, enthusiasm and support."

IXICO also announces that its Annual Report has now been posted to shareholders and is also available online at www.ixico.com. Additionally, the Company announces that its AGM will be held on 29 January 2016. The AGM will take place from 09:30am at the offices of FTI Consulting, 200 Aldersgate Street, London EC1A 4HD.

About IXICO

IXICO, the brain health company, uses its innovative and proprietary digital platform technologies to help those involved in researching and treating serious diseases to make rapid, informed decisions targeted at improving patient outcomes. IXICO has significant experience working with global pharmaceutical and biotechnology companies supporting clinical studies in the field of neuro-degenerative disorders including dementia, Alzheimer's disease, Huntington's disease and Multiple Sclerosis.

More information is available on www.ixico.com

Enquiries:

IXICO plc

Derek Hill, CEO

Susan Lowther, CFO

Charles Spicer, VP Corporate Development 

+44 (0) 20 3763 7499

Peel Hunt LLP (Nominated Adviser and Broker)

James Steel

Oliver Jackson

+44 20 7418 8900

Daniel Stewart & Company (Joint Broker)

Martin Lampshire

David Coffin

+44 20 7776 6550

FTI Consulting Limited (Investor and Public Relations)

Simon Conway

Mo Noonan

Matthew Moss

+44 20 3727 1000

Introduction and Overview

We are very pleased to report a strong performance in the year ended 30 September 2015 which, together with the announcements made post the year end, demonstrate excellent progress in the business and particularly in the execution of our digital healthcare strategy.

Please note that the comparatives refer to the sixteen months ended 30 September 2014.

Revenue increased in the year to £3.1 million which together with income from grants and above the line tax credit (reported as other income) of £1.1 million resulted in a combined total income of £4.2 million (2014: £4.3 million). Revenue was generated from clinical trials services provided to our pharmaceutical customers and licensing revenues from our alliance partner, VirtualScopics.

Total operating expenses (including non-recurring administrative expenses of £0.2 million) of £4.3 million for the year (2014:£5.6 million) reflect continued, planned investment in product development.

Losses after tax and non-recurring administrative expenses reduced in the year to £1.2 million (2014: £2.3 million).

Operational Review

OUR VISION

Our mission is to be a leader in digital healthcare for brain health delivering products and high value data solutions to key stakeholders in pharmaceutical companies, healthcare providers (clinicians and hospitals) and payers. We are making demonstrable progress with this business objective with the acquisition of Optimal Medicine providing additional products and a US salesforce and also continue to achieve growth in the provision of clinical trials services.

CLINICAL TRIALS SERVICES

Whilst the market remains highly competitive and the development of new pharmaceutical therapies remains highly challenging, we have seen increased interest in the year from the pharmaceutical industry in potential treatments for dementia and other neurodegenerative conditions, which has translated into increased revenues from TrialTrackerTM. Our longstanding expertise and reputation in dementia has been enhanced by our expansion into other disease areas. New contract wins in Huntington's disease demonstrate success in broadening our brain health expertise.

Our clinical trials services revenue continues to grow and we were pleased to be awarded new, long term contracts during the year. These contracts provide a strong foundation from which we are extending our business reach. We are particularly encouraged by the interest from our existing pharmaceutical customer base in our ability to provide clinical decision support solutions.

Long term contract award

On 28 August 2015 we announced the award of a long term contract from a leading global pharmaceutical company with a revenue value of c. $1 million per year. The project is for a large Phase II/III global clinical study in neurodegenerative disease which is expected to run over at least seven years and involves the collection and manipulation of MRI data including data from advanced MRI techniques. This significant project recognises our experience working with specialist imaging centres at multiple global sites and also utilises our digital technology platforms TrialTracker™ and Assessa® to collect imaging data and measure and monitor changes in disease pathology in subjects enrolled in the study.

Huntington's disease - an important disease area

On 26 November 2014 we announced that contracts for two separate clinical trials in Huntington's disease with two top 15 pharmaceutical companies had been extended and that the revenue from these two contracts would be significantly enhanced to a potential £2.5 million over approximately three years. This increase in scope and revenue occurred within six months of the initial award which we believe is a clear endorsement of our decision to move into this important disease area. This view was further supported on 23 April 2015 when we announced a contract for a third clinical trial in Huntington's disease with a new US based speciality pharmaceutical drug development customer. IXICO will be providing a battery of advanced MRI imaging techniques generating clinical trial endpoints. We believe that this contract demonstrates the success of our developing specialism in both the disease area and also our capabilities in advanced MRI imaging techniques.

VirtualScopics alliance - continuing to deliver value and increasing commercial traction

Our international commercial alliance with VirtualScopics (NASDAQ:VSCP), a leading provider of quantitative medical imaging based in Rochester, New York demonstrates the value of partnering as we are delivering enhanced and broader services to pharmaceutical customers on a global basis. On 29 June 2015 we announced that, together with VirtualScopics, we had been awarded contracts with two top 15 pharmaceutical companies, one in metastatic solid tumours and one in a rare neurodegenerative disease. TrialTracker™ is being used in both studies to collect and manage imaging data and MRI data.

On 16 December 2014, we announced that VirtualScopics had purchased a license to IXICO's TrialTracker™ platform together with maintenance and support. We were delighted that VirtualScopics had decided to make TrialTracker™ their business platform of choice after a detailed review of existing technology solutions. The implementation was completed in early 2015 and was the first time that TrialTracker™ had been deployed by another company as part of their business systems and processes. The technical support provided to VirtualScopics following the implementation has been an important part of our transition to setting up and supporting an independent user base.

Active engagement and collaborations

IXICO actively engages in collaborative consortia that include pharmaceutical companies and leading academics. This enables us to strengthen relationships with customers, potential customers and thought leaders, to develop and showcase our capabilities, to meet the evolving needs of the pharmaceutical industry in both drug development and support of marketed drugs. We are actively involved in both the executive and steering committees of the Dementia Platform UK where we are deploying our digital technology, and working collaboratively with pharmaceutical companies to develop new technologies to support future clinical trials.

We continue to work at the forefront of the regulatory agenda to improve the tools available to support the development of new treatments for brain diseases including Alzheimer's disease and Parkinson's disease. In particular, we work with the Critical Path Institute Coalition Against Major Diseases (CAMD) and engage with the European Medicines Agency (EMA) and Food and Drug Administration (FDA) to advance technologies for identifying the most appropriate patient groups for testing experimental drugs. This work also has implications for the identification of patients who will receive the drugs in the clinic, once they are approved.

DIGITAL HEALTHCARE

The brain health market

Brain health represents a major societal challenge with 6.3% of the US healthcare budget spent on brain health and a $600billion global cost of dementia. The Central Nervous System (CNS) drug market is estimated to be worth approximately $80billion with the potential, wider digital therapies market size in the order of $32billion. Growth in the relevant digital healthcare market sector is expected to have a compound annual growth rate of 36-40% from 2013 to 2020.

Our increased presence in the digital brain health market represents a natural progression for IXICO and an opportunity to build upon both our existing relationships with pharmaceutical companies and our digital technologies for assessing and monitoring CNS disorders.

IXICO's experience and sector knowledge

IXICO has experience providing pharmaceutical companies with TrialTracker™ and associated services for electronic data capture and analysis in clinical trials. As a result we are familiar with the pharmaceutical industry's requirement for an evidence based approach to drug development and the wider regulatory environment in which a pharmaceutical company operates. The directors believe that this experience provides the Group with strong foundations for commercial success as its technology is being translated into products to support clinical practice, a market that they believe offers significant growth opportunities.

Digital healthcare companion products

We believe that digital technologies are increasingly aligned with both healthcare providers' aims to improve patient outcomes and the pharmaceutical industry's clearly articulated focus on demonstrating the broader health and pharmaeconomic benefit of its treatments. We also believe that the successful aggregation of data to optimise patient outcomes and cost effectiveness represents a significant business opportunity for the Group and therefore we continue to invest in our digital products outside of clinical trials services and in business development opportunities to leverage value from already collected data. These digital technologies include:

TrialTracker™ our proprietary image data and query management platform that supports and underpins our clinical trials business;

Assessa® our proprietary CE marked class 2a medical device providing clinical decision support for dementia diagnosis; and

MyBrainBook® which is a web application that provides personalised care of people living with cognitive impairment, including those with dementia.

Further information about the commercial development of our two newest products, Assessa® and MyBrainBook® is set out below.

Assessa®

Assessa® was developed to be used in the diagnosis and management of patients with a possible neurological or psychiatric disorder and combines imaging, demographic, cognitive and functional information with sophisticated analytics, to provide clinical decision support. It can also be used to assist in the stratification, differential diagnosis and prediction of the likely progression of dementia. Assessa® has regulatory approval to be sold as a decision support tool in the EU and Canada.

During the last twelve months we have seen growing interest from our pharmaceutical collaborators and customers in utilising Assessa® as a companion digital platform with specific functionality being developed, implemented and supported by IXICO to be used alongside drugs that are either in development or are already being prescribed in clinical practice.

On 9 October 2015 we announced the award of a strategic collaboration with a leading pharmaceutical company to develop and pilot an adapted version of Assessa® for the clinical management of multiple sclerosis. The purpose of the collaboration is to develop a digital platform to assist in the clinical monitoring and management of a side effect known as PML. We expect this collaboration to make a material contribution to revenue in the next 12-18 months, with the opportunity for this project to subsequently expand.

We believe that this collaboration, together with the pipeline of other comparable opportunities represents a key growth area for the company.

In January 2015 the first patients were enrolled in a clinical pilot study in a community setting (in collaboration with InHealth, Cambridge Cognition Holdings plc, Imperial College London and the Alzheimer's Society). IXICO is providing an adapted version of Assessa®. The results and data from the pilot study are part of our plan to continue to add real world data to our platform.

MyBrainBook®

We have identified early opportunities to deploy our digital technologies in a healthcare setting and an example of this is the MyBrainBook® pilot with NHS healthcare providers, social care commissioners and third sector organisations such as charities commissioned by the NHS to provide to support following diagnosis. We believe that this pilot study will provide validation of MyBrainBook in a clinical setting. Such validation is important as we position MyBrainBook as a technology which can generate revenue from healthcare providers who provide care and support to patients with cognitive problems and that other market segments can be accessed through commercial partnerships.

OTHER INCOME

Development and evaluation of new products Income from grants and above the line tax credit (reported as other income) increased to £1.1 million in the year (2014: £0.9 million) in support of our partnering activities whilst also providing early evaluation and pilot opportunities for the new products that we are bringing to the market. In the year we were awarded new grant funding of £1.2 million from UK and European sources and at 30 September 2015, £1.9 million (2014: £1.6 million) remained to be drawn down in the next five years. These projects generate income but also support our business development through enabling us to work closely with current and potential customer partners, and to develop and evaluate new products and services jointly with those partners.

On 16 January 2015 we announced our involvement in the European Prevention of Alzheimer's dementia Initiative (EPAD) project of 35 partners including European pharmaceutical partners (EFPIA) and leading universities and academic institutions. We are providing TrialTracker™ to collect and manage imaging data and Assessa® to identify subjects who are most likely to benefit from treatment.

On 12 May 2015 we announced an Innovate UK grant funded project to quantify vascular disease burden in patients with CNS diseases to support more accurate differential diagnosis of CNS diseases in the clinic, enabling the design and execution of better targeted clinical trials. IXICO as the lead partner will incorporate vascular disease biomarkers in to the Assessa® platform, working with Imperial College London and the University of Edinburgh.

Intellectual Property

In the year we continued to invest in the maintenance of our existing patent portfolio and new filings related to our digital health products. We continue to identify opportunities to enhance our proprietary database of clinical and biomarker data, which supports the application of our platform across multiple brain disease areas and provides value for both IXICO and its partners.

CORPORATE DEVELOPMENT

Acquisition of Optimal Medicine and placing

On 8 December 2015 we completed the acquisition of Optimal Medicine Limited and a placing and broker option of £2.7m, before expenses. Optimal Medicine develops digital healthcare products for clinical decision support with its first product mehealth®, a decision support technology for physicians diagnosing and treating patients with Attention Deficit Hyperactivity Disorder (ADHD).

The directors believe that Optimal Medicine's products, initial revenue and patient data will provide additional potential revenue streams in the field of brain health and further opportunities to partner with pharmaceutical and healthcare companies.

The net proceeds of the placing will be used to support and fund general working capital, recruitment of US and European business development employees and further development of the enlarged group's IT, delivery and deployment infrastructure.

CONCLUSION AND OUTLOOK

For the year ended 30 September 2015, we have delivered growth in our clinical trials services business and excellent progress in developing strategic partnerships with pharmaceutical companies using our digital technology platform.

The acquisition of Optimal Medicine and the associated placing are part of our growth strategy and we believe that the commercial opportunity for the enlarged group is gathering momentum that we will take forward in the year ahead.

We will continue to work closely with our customers, collaborators and business partners to realise our vision and would like to thank them as well as all our staff, shareholders and advisers for their continued commitment, enthusiasm and support.

Financial Review

The financial performance for the year ended 30 September 2015 includes revenues generated from the Group's clinical trials services business, preliminary revenues from its digital healthcare products together with investment in people and product development. The comparatives refer to the sixteen months ended 30 September 2014.

Revenue

Revenue for the period of £3.1 million (2014: £3.4 million) was generated from services provided to pharmaceutical customers and licensing revenues from our alliance partner, VirtualScopics.

Other income

Other income for the period comprised income from grants of £0.9 million (2014: £0.8 million) and RDEC of £0.1 million (2014: £0.1 million).

Research and development

Research and development expenses of £1.2 million (2014: £1.4 million) were in line with expectations and the Group's plans to invest in new product development.

Sales and marketing expenses

Sales and marketing expenses of £0.6 million (2014: £0.9 million) were in line with expectations.

Administrative expenses

Administrative expenses of £2.2 million (2014: £2.3 million) were in line with expectations.

Non recurring administrative expenses of £0.2 million comprised transaction fees whilst the 2014: £0.9 million comparatives comprised transaction fees and dilapidation costs following the reverse acquisition listing of the business in October 2013.

Finance income and expense

Finance income represents interest received and receivable from the Group's cash balances and money market investments.

Taxation

The Group has elected to take advantage of the research and development expenditure credit ('RDEC'), whereby a company may surrender corporation tax losses incurred on qualifying research and development expenditure for a corporation tax refund. In addition, the Group has claimed research and development tax credits under the small or medium enterprise research and development credit scheme.

The corporation tax refund due for the year is £0.3 million (2014: £0.3 million) has been recognised as a current tax receivable.

Non-current assets

Non-current assets at 30 September 2015, included property, plant and equipment of £0.1 million (2014: £0.1 million) and Intangible assets of £0.3 million (2013: £0.5 million). The Group has identified that the value of the registered intellectual property has diminished as the estimated future cash flows will be £nil following the licensor's notification that the study has been terminated. Following this termination there will be no further clinical development and therefore the intellectual property will not generate future cash flows from milestones or commercialisation. The Group has recognised an impairment loss of £120,000 in the year ended 30 September 2015.

Current assets

Current assets at 30 September 2015 of £3.8 million (2014: £4.8 million) reflected an increase in trade and other receivables to £1.6 million (2014: £1.2 million) and reduced cash and cash equivalents of £1.9 million (2014: £3.3 million).

The Group holds all cash and cash equivalents in sterling and US dollar accounts with institutions with a recognised high rating (typically AA or above) or with one of the major clearing banks.

Current liabilities

Total current liabilities at 30 September 2015 were £1.5 million (2014: £1.5 million).

Equity

Total equity of £2.7 million at 30 September 2015 (2014: £3.8 million) reflected additional accumulated losses of £1.1 million.

Cash flow

Operating cash outflows in the year were £1.3 million and resulted in a closing cash balance of £1.9 million (2014: £3.3 million).

Results and dividends

The Group's net loss after tax for the year reduced to £1.2 million (2014: £2.3 million).

The Directors do not recommend the payment of a dividend.

Financial risk management

The financial risk management and objectives of the Group are set out in note 23.

Political donations

The Group made no political donations during the period (2014: £nil).

Consolidated Statement of Comprehensive Income

for the year ended 30 September 2015 and 16 months ended 30 September 2014

Consolidated and Company Statements of Financial Position

as at 30 September 2015 and 30 September 2014

Consolidated Statement of Changes in Equity

for the year ended 30 September 2015

Company Statement of Changes in Equity

for the year ended 30 September 2015

Consolidated and Company Statements of Cash Flows

for the year ended 30 September 2015, 16 months ended 30 September 2014 and 12 months ended September 2014

Notes to the Financial Statements

1. GENERAL INFORMATION

IXICO plc ('the Company') is a public limited company incorporated in England & Wales and is admitted to trading on the AIM of the London Stock Exchange under the symbol IXI. The address of its registered office is 4th Floor, Griffin Court, 15 Long Lane, London EC1A 9PN.

The Company is an established provider of clinical trials services to the global pharmaceutical industry. The Company provides its proprietary, innovative technologies to those involved in researching and treating serious diseases, especially dementia, to enable timely decision making and improve patient outcomes.

On 14 October 2013 the Company, then named Phytopharm plc, became the legal parent of IXICO Technologies Limited. Reverse acquisition accounting was adopted since the substance of that transaction is that IXICO Technologies Limited is the accounting parent. IXICO Technologies Limited produced its previous annual statutory financial statements for the year ended 31 May 2013 and, following the transaction changed its accounting period end to 30 September. Accordingly, the accounting period was extended for the sixteen month period commencing 1 June 2013 through 30 September 2014.

The comparative financial information consolidate the results of IXICO Technologies Limited for the sixteen month period commencing 1 June 2013 through 30 September 2014 together with the results of IXICO plc and its subsidiaries from the acquisition date of 14 October 2013 through 30 September 2014.

2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION

Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') as

adopted by the European Union, IFRIC interpretations and the Companies Act 2006 applicable to companies operating under IFRS.

The consolidated financial statements have been prepared under the historical cost convention modified by the revaluation of certain financial instruments.

The consolidated financial statements are presented in Sterling (£). This is the predominant functional currency of the Company, and is the currency of the primary economic environment in which it operates. Foreign transactions are accounted in accordance with the policies set out below.

Basis of consolidation

The consolidated financial statements incorporate the results of IXICO plc and of its subsidiaries (together 'the Group'). Subsidiaries are entities over which the Company has the power to govern the financial and operating policies so as to obtain benefits from its activities.

Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the Group. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income and expenses relating to transactions between members of the Group are eliminated in full on consolidation.

Going concern

At the time of approving the consolidated financial statements, and based on a review of the group's forecasts and business plan, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they have adopted the going concern basis of accounting in preparing the consolidated financial statements.

Significant management judgement in applying accounting policies and estimation uncertainty

When preparing the consolidated financial statements, the Directors make a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses.

Significant management judgements

The following are significant management judgements in applying the accounting policies of the Group that have the most significant effect on the financial statements.

Revenue recognition

The Group recognises revenue with regard to amounts chargeable to customers under service contracts. The policy is to recognise testing services upon achievement of milestones set out in the related agreements. This is expected to approximate to the timing of the physical performance of the service activity on such contracts. Recognising revenue also requires significant judgment in determining actual work performed and the estimated costs to complete the work. Assessing whether the Group is acting as agent in respect of an agency relationship, depends on facts and circumstances and requires judgement.

Recovery of deferred tax assets

Deferred tax assets have not been recognised for deductible temporary differences and tax losses as the Directors consider that there is not sufficient certainty that future taxable profits will be available to utilise those temporary differences and tax losses.

Estimation uncertainty

Information about estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different.

Reverse acquisition and intangible assets

The Group applied the principles of IFRS 3's reverse acquisition accounting in respect of the Phytopharm plc transaction, modified to record the excess of the fair value of consideration transferred over the fair value of net identifiable assets as a listing expense.

The key judgements involved were the identification and valuation of intangible assets which required the estimation of future cash flows and the selection of a suitable discount rate and the determination that the difference between the fair value of the consideration effectively given and the aggregate of the fair values of the separable net assets acquired effectively represents the cost of acquiring the public listing, and has been treated as an administrative expense.

Share-based payments

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted, detailed in note 21 of the consolidated financial statements.

Changes in accounting policies

The Group adopted IFRS 10, 'Consolidated financial statements', IFRS 12, 'Disclosure of interests in other entities' and IAS 27, 'Separate financial statements' on 1 October 2014. This resulted in the Group changing its accounting policy for the basis of consolidation and definition of control but has had no further impact on the 2015 consolidated financial statements.

Accounting developments

At the date of approval of the consolidated financial statements, the following Standards and Interpretations which have not been applied in the consolidated 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 (IASB effective date 1 January 2018)(i)

•  IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)(i)

•  Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38 (IASB effective date

1 January 2016)(i)

•  Annual Improvements to IFRSs 2010-2012 Cycle (effective 1 February 2015)

•  Annual Improvements to IFRSs 2011-2013 Cycle (effective 1 January 2015)

•  Annual Improvements to IFRSs 2012-2014 Cycle (effective 1 January 2016)(i)

•  Amendments to IAS 27: Equity Method in Separate Financial Statements (effective 1 January 2016)(i)

•  Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the Consolidation Exception (effective 1 January 2016)(i)

•  Disclosure Initiative: Amendments to IAS 1 Presentation of Financial Statements (effective 1 January 2016)(i)

(i) Not adopted by the EU as at 16 June 2015.

Where relevant, the Group is still evaluating the effect of these Standards issued but not yet effective, on the presentation of its consolidated financial statements.

Reverse acquisition

Although the legal form of this transaction is an acquisition of IXICO Technologies Limited by IXICO plc the substance is the reverse of this. Accordingly the business combination has been prepared using reverse acquisition accounting, modified to record the excess of the fair value of consideration transferred over the fair value of net identifiable assets as a listing expense.

Under the specific requirements of the Companies Act 2006 and IFRS 3 'Business Combinations', reverse acquisition accounting has been adopted for the period ended 30 September 2014. The key features of this basis of consolidation are:

• consolidated financial statements are a continuation of the results and balances of the legal subsidiary, IXICO Technologies Limited,

• the reserves of the Group are those of the legal subsidiary pre-combination together with the results of the whole Group post transaction date,

• the equity of the Group represent the equity structure of the legal parent, IXICO plc with comparatives re-stated using the exchange ratio of 15.67 established on acquisition,

• where the legal parent issues shares as consideration for the reverse acquisition, the company is obliged once the necessary conditions are satisfied, to record the share premium to the merger relief reserve,

• the difference between the equity of the legal parent and the issued equity instruments of the legal subsidiary pre-combination is recognised as a separate component of equity, and

• the IXICO plc Group will be brought into the consolidation from the date of its reverse acquisition at fair values at that date.

Where an acquiree's existing share-based payment awards are replaced by the acquirer, the exchange of share-based payment awards in conjunction with a reverse acquisition are accounted for as modifications of share-based payment awards in accordance with IFRS 2 'Share-based Payment'. When the legal acquirer voluntarily replaces the acquiree's share-based payment awards with its own awards either all or a portion of the value of the replacement awards forms part of the consideration transferred. The value of the replacement share-based payment awards relating to pre-combination service is included in consideration transferred and post-combination service is accounted for as compensation expense in the post-combination consolidated financial statements.

Revenue

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.

Revenue from short term professional services contracts, such as consultancy and training, is recognised as the service is performed.

Revenue on longer term contracts for services is recognised according to the substance of the Group's obligations under a contract. Where the substance of a transaction is that the Group's contractual obligations are performed gradually over time, revenue is recognised as contract activity progresses, to reflect the Group's partial performance of its contractual obligations. Where the substance of a contract is that a right to consideration does not arise until the occurrence of a critical event, revenue is not recognised until the event occurs.

Where longer term contracts for services allows for the reimbursement for certain expense incurred by the Group in the execution of the service contract, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered. These reimbursements are included in revenue and are subject to a nil gross margin.

Where it has been assessed that the Group is acting as agent in respect of an agency relationship, revenues are recognised on a net basis after deducting revenue earned by the principal.

Revenue relating to licence income is recognised when risk and reward have passed to the customer and there is no significant ongoing obligation upon the Group.

Revenue recognised in the income statement but not yet invoiced is held on the consolidated statement of financial position within 'trade and other receivables'. Revenue invoiced but not yet recognised in the income statement is held on the consolidated statement of financial position within 'trade and other payables'.

Other income

Government grants received relating to tangible fixed assets are treated as deferred income and released to the consolidated statement of comprehensive income over the expected useful lives of the assets concerned. Other grants received are recognised on a work done basis.

The Group has elected to take advantage of the research and development expenditure credit ('RDEC') introduced in the Finance Act

2013. A company may surrender corporation tax losses on research and development expenditure incurred on or after 1 April 2013 for a corporation tax refund. Relief is given as a taxable credit on 10% of qualifying R&D expenditure. The Group recognises research and development expenditure credit as an item of other income, taking advantage of the 'above the line' presentation.

Research and development expenditure

Research and development costs are written off to the consolidated statement of comprehensive income in the year in which they are incurred. All research and development costs, whether funded by grant or not, are included within operating expenses and classified as research and development costs.

All ongoing development expenditure is currently expensed in the year in which it is incurred. Due to the regulatory and other uncertainties inherent in the development of the Group's programmes, the criteria for development costs to be recognised as an asset, as prescribed by IAS 38 'Intangible assets', are not met until the product has been submitted for regulatory approval, such approval has been received and it is probable that future economic benefits will flow to the Group. The Group does not currently have any such internal development costs that qualify for capitalisation as intangible assets.

Exceptional items

Exceptional items are disclosed separately in the consolidated financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. They are material items of income or expense that have been shown separately due to the significance of their nature or amount. These amounts are of a non-recurring nature.

Share-based payments

Equity-settled share-based payments are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 21 of the consolidated financial statements. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions.

The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

Employee benefits

All employee benefit costs, notably holiday pay and contributions to the Group or personal defined contribution plans, are recognised in the statement of comprehensive income as they are incurred. The Group operates a defined contribution pension scheme. The assets of this scheme are held separately from those of the Group in independently administered funds. The Group does not offer any other post- retirement benefits.

Employee share trust

The Group recognises the assets and liabilities of the trust in its own accounts and shares held by the trust are recorded at cost as a deduction at arriving at total equity until such time as the shares vest unconditionally to employees. The trust is a separately administered trust, funded by contributions from employees and the Group.

Operating leases

Rentals payable under operating leases are charged to the consolidated statement of comprehensive income on a straight line basis over the lease term.

Property, plant and equipment

Property, plant and equipment are stated at historic purchase cost less accumulated depreciation.

The cost of property, plant and equipment is its purchase cost, together with any directly attributable expenses of acquisition. Depreciation is calculated so as to write off the cost of property, plant and equipment, less its estimated residual value, on a straight line basis over the expected useful economic lives of the assets concerned.

The principal rates used for this purpose are:

•  Leasehold improvements: straight line over the shorter of 5 years or the lease term

•  Fixtures and fittings: 33% straight line

•  Equipment: 33% straight line

The assets' residual values and useful lives are reviewed, and adjusted if necessary, at each balance sheet date.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within the consolidated statement of comprehensive income.

Intangible assets

Acquired intangible assets are recognised as an intangible asset if it is separable from the acquired business or arises from contractual or legal rights, is expected to generate future economic benefits and its fair value can be reliably measured.

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses.

Intangible assets are amortised using the straight-line method over their estimated useful economic life of 5 years. Amortisation is disclosed under administrative expenses in the consolidated statement of comprehensive income.

The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes are treated as changes in accounting estimates.

Intangible assets are assessed for impairment whenever there is an indication that the intangible asset may be impaired.

Impairment of assets

Non-current assets are reviewed for impairment both annually and when there is an indication that an asset may be impaired (when events or changes in circumstances indicate that carrying value may not be recoverable). An impairment loss is recognised in the consolidated statement of comprehensive income for the amount by which the asset's carrying value exceeds its recoverable amount.

The recoverable amount is the higher of an asset's fair value less cost to sell and value in use. Non-financial assets, other than goodwill, which have suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

Investments in group undertakings

Investments in group undertakings are carried at cost less any impairment provision. Such investments are subject to an annual impairment review.

Trade and other receivables

Trade and other receivables are initially recognised at fair value and subsequently stated at amortised cost using the effective interest

method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (exceeding credit terms) are considered indicators that the trade receivable is impaired.

The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the statement of comprehensive income within 'administrative expenses'. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against 'administrative expenses' in the consolidated statement of comprehensive income.

Current tax

Current tax represents United Kingdom tax recoverable and is provided at amounts expected to be recovered using the tax rates and laws that have been enacted at the balance sheet date.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand with original maturities at inception of three months or less.

Foreign currency translation

Transactions denominated in foreign currencies are translated into sterling at actual rates of exchange ruling at the date of transaction. Monetary assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange ruling at the end of the financial year. All foreign currency exchange differences are taken to the consolidated statement of comprehensive income in the year in which they arise.

Trade and other payables

Trade and other payables are non-interest bearing and are initially recognised at fair value and subsequently stated at amortised cost.

Equity instruments

Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Financial instruments

Financial assets and financial liabilities are recognised on the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least

12 months after the end of the reporting period.

Deferred taxation

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements in accordance with IAS 12 'Income taxes'. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax asset is recognised only to the extent that it is probable that sufficient taxable profit will be available in future years to utilise the temporary difference. Deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither the accounting, nor taxable profit or loss.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

3. REVERSE ACQUISITION

With effect from 14 October 2013 the Company, then named Phytopharm plc, became the legal parent of IXICO Technologies Limited. The aggregate consideration for the acquisition was £4,843,000 satisfied by the initial issue of 8,014,403 new ordinary shares and put and call options over 465,350 shares which in substance reflect replacement awards issued by IXICO plc to satisfy outstanding share options under the IXICO Technologies Limited unapproved share option scheme.

Due to the relative values of the companies, the former IXICO Technologies Limited shareholders became the majority shareholders with approximately 55% of the share capital of the enlarged Group.