Microsaic Regulatory News (MSYS)

Microsaic Systems plc

("Microsaic", "Microsaic Systems" or the "Company")

Preliminary Results for the year ended 31 December 2014

23 March 2015

Microsaic Systems plc (AIM: MSYS), the developer of chip-based scientific instruments, announces its preliminary results for the year ended 31 December 2014 and an update on trading since the year end.

2014 Highlights

· Signing of two further OEM agreements. One with Gilson Inc. for our single quadruple unit (the 4000 MiD®) and a second with a leading global scientific company for our triple quadrupole mass spectrometry technology

· Signing of an important agreement with Plexus Corp. for the manufacture of the 4000 MiD® to meet increasing demand

Post-period update

· Signing of an OEM agreement with GE Healthcare for both the 4000 MiD® and our MiDas™ unit

· Signing of a distributor agreement with Kinesis Ltd for the distribution of our 4000 MiD® in the UK, Europe and India

Financial summary

· Revenue up 32% to £1.20 million (2013: £0.91 million)

· Placing of 10,500,000 ordinary shares raising £4.41m before costs

· Cash at 31 December 2014 £4.55 million (2013: £3.24 million)

Colin Jump, Chief Executive of Microsaic Systems plc, commented:

"I am pleased with the progress that Microsaic has made across all areas of its business in 2014. We have signed a further three OEM agreements targeting specific applications, a manufacturing agreement that provides capacity to meet expected commercial demand and a distributor agreement for our own branded instruments in key markets. Together, this provides Microsaic with a strong base for the business to move forward and is a significant step forward from our position 12 months ago."

Contacts

About Microsaic Systems

Microsaic Systems plc is a high technology company developing and marketing next generation mass spectrometry (MS) instruments for the analysis of gaseous, liquid and solid samples. Microsaic has successfully miniaturised mass spectrometry into a desktop instrument by integrating the key MS components onto patented chip technologies (called ionchip®, spraychip® and vac-chip™). Microsaic's MS products retain the functionality of larger, conventional MS systems but are substantially smaller, lighter, consume less energy and have lower running costs. The Microsaic 4000 MiD® is the world's smallest MS system.

Mass spectrometry is a 'gold-standard' analytical technique used across many industry sectors, including pharmaceutical, diagnostics and healthcare, government, energy, utilities, environmental, food and drink, security and defence, and industrial chemicals - a combined market of $3.9 billion in 2013. Microsaic aims to introduce compact, deployable MS products, based on its core technology, into a series of these target markets.

Microsaic Systems was established in 2001 by a team including founders from Imperial College London, and was admitted to AIM in April 2011 under the symbol MSYS.

www.microsaic.com

CHAIRMAN'S STATEMENT

I am pleased to present the Company's preliminary results for the year ended 31 December 2014.

Delivering on our strategic aims

We established a number of business objectives for 2014 to underpin our ambitions and I am pleased to announce progress in all areas as follows.

An increased investment in marketing and communications has been undertaken to promote your Company, its products, technologies and core brand values. This has led to an increasing amount of in-bound interest in our products from potential partners and customers. We anticipate this continuing as we move forward.

In 2014 we signed two further OEM agreements. One is with Gilson Inc. for our single quadruple unit (the 4000 MiD®) and a second with a leading global scientific Company for our triple quadrupole mass spectrometry technology.

In addition, we signed an important agreement with Plexus Corp. for the manufacture of the 4000 MiD®. This will facilitate the scaling up of our production capabilities to meet increasing demand. It will enable your Company to optimise its potential now and in the future.

Our R&D programmes remain key areas in which we continue to invest, and we were pleased to announce early in 2014 the launch of the MiDas™, a compact interface module. This new product is intended to extend the use of the 4000 MiD® more widely throughout the scientific research community. Further exciting R&D programmes are in various stages of planning and development to ensure your Company remains at the forefront of its chosen fields.

Financial results

Microsaic generated revenues of £1.20m in 2014, an increase of 32% over 2013 revenues (£0.91m). The growth in consumable revenue is particularly noteworthy. The loss before tax of £3.16m (2013: loss of £2.40m), is a result of a larger cost base and is a reflection of our continued investment in the future of your Company as we lay the foundations and structures for a successful commercial enterprise.

Shareholders

The board is grateful for the ongoing support of shareholders which allowed your board to raise further funds of £4.1m (after expenses) in October. These will provide the essential working capital required by your Company to finance its continuing growth and evolution.

Staff

On behalf of the Board, I would like to express my gratitude to our staff for their hard work, loyalty and for continuing to innovate, which is vital to the future success of the Company.

In addition, I am pleased to announce the appointment of Glenn Tracey as Chief Operating Officer. This is a new and important role given the increasing number of opportunities now available to your Company. Glenn will join the management team and report directly to Colin Jump.

The Board

As previously announced, Andrew Darby joined as our Finance Director in April, taking over from Malcolm Bateman. Peter Edwards, Technical Director, retired from the Board and Company in July. We thank both Malcolm and Peter for their important contributions to the business and wish them every success in the future.

Outlook

With the progress that the Company made in 2014 and the new announcements in 2015, the Board remains confident that Microsaic is well-positioned to capitalise on its leadership in its chosen fields and grow the business over the coming years.

Colin Nicholl

Chairman

CHIEF EXECUTIVE'S REVIEW

Introduction

Microsaic has enjoyed another highly productive year in 2014, making good progress in our on-going evolution into a successful commercial business. We continued to execute our strategy of developing commercial partnerships with international suppliers of complementary equipment so that we can sell our products through their existing sales channels. In parallel, we made significant technological advances that will in time give us the capability needed for our next generation of products. These will further broaden the range of applications that our miniaturised mass spectrometry (MS) instruments can address.

Our technology and our products

Microsaic's chip-based technology has allowed us to miniaturise the mass spectrometer - the gold standard for chemical analysis - far beyond any other product on the market. This miniaturisation greatly simplifies deployment, drastically reducing the overall cost of ownership and makes MS much more accessible to lab scientists than it has ever been before.

Today we market two products. Our lead MS instrument is the Microsaic 4000 MiD®, officially launched in March 2013. Sales of this product increased during the year, mainly through our OEM partner, Biotage AB, which features the 4000 MiD® as a core component of its Isolera™ Dalton instrument. In January 2014, we launched the MiDas™ compact interface module. This unit has been designed to extend the use of MS in the laboratory from specialist analytical chemists to the wider research community. The MiDas™ unit connects to the 4000 MiD® and offers automated sample preparation and handling for direct MS analysis in real-time at the lab bench or in the fume hood

Commercial strategy

The main route to market for our product is as an original equipment manufacturer (OEM) through partnerships with companies that have established global sales channels. These companies also have complementary products that when combined with our product can deliver synergistic benefits for the end users.

We signed additional agreements during 2014 with Gilson Inc. and with a leading global scientific company.

Our agreement with Gilson is for our 4000 MiD® to be combined with Gilson's high performance liquid chromatography instruments. I am pleased to report that initial units were shipped during January 2015 to Gilson where further development of the final combined product is being conducted.

Our agreement with a leading global scientific company is for our triple quadrupole technology for use in applied markets. Triple quadrupole technology provides us with an opportunity to extend the application of MS to the analysis of more complex materials, such as food, medical or environmental samples.

Since the year-end we have signed a further OEM agreement with GE Healthcare for a customised version of our 4000 MiD® to be deployed, together with the MiDas™, in combination with GE Healthcare's instruments as an innovative new analytical instrument for use in research and healthcare applications.

While commercial sensitivities prevent us disclosing more detail on the agreements we have signed or specific applications being targeted, we can state that we are delighted with the high quality of our partners and the strong working relationships we have established. This gives us confidence that resulting products have the best opportunity to fulfil their commercial potential.

Outsourcing the manufacture of the non-chip based components of the 4000 MiD® in preparation for production scale up was a key strategic aim during 2014. We were delighted therefore to sign an agreement in September 2014 with Plexus, a leading manufacturer to technology companies. The handover process is complete and the first finished units were delivered to us in early 2015.

Furthermore, since the year-end we have signed a distributor agreement with Kinesis, a leading international supplier of analytical consumables and equipment, for the distribution of the Microsaic-branded 4000 MiD® in the UK, Europe and India. Demonstration units have already been ordered and delivered.

We will continue to develop relationships with new potential commercial partners in the pharma, biotech and other targeted sectors.

Finally, to support our commercial strategy, we achieved ISO 9001 accreditation during 2014.

R&D

Our marketing plan for 2014 continued to be directed towards positioning Microsaic as a solution provider for chemical analysis, rather than simply as a mass spectrometer vendor. In line with this plan, we have been leveraging our technical expertise to develop next-generation products that we believe will significantly expand the range of applications that our innovative MS instruments can address and that end-users will increasingly demand.

In January 2014, we launched the MiDas™ compact interface module, described earlier.

Our R&D in 2015 will be directed towards achieving technical milestones in our OEM partnership opportunities, as well as developing next-generation products to expand our range of applications.

Microsaic maintains a large portfolio of patents, of which 52 are granted.

People

We have made significant investment in our business development, customer services and engineering teams over the last 18 months to position the Company for future commercial growth. The emphasis over the next 12 months will be to apply these teams in the execution of the business we have already won. We will continue to recruit new talent where it will complement the existing team in order to maintain a market-leading position.

The Company's Scientific Advisory Group, formed in 2013, met a number of times during the year and has made valuable contributions to the product marketing plan going forward.

Performance Measurement

The ongoing performance of the Company is managed and monitored using a number of key performance indicators.

The Company's revenues are monitored as follows:

Revenues comprise sales of products, consumables thereon and service income associated with delivering the products. The growth in consumables income reflects the growing user base.

The Company's profit and cash are monitored as follows:

The Company's profitability is monitored through monthly forecasting, which tracks where the business is and where it is forecast to be at a certain date. The cash position is monitored on a daily basis and re-forecast monthly.

The progress of the Company's research and development programmes is reviewed on a monthly basis by the senior management team. Progress is summarised for the board.

Financial Results

In line with the Company's transition from grant-generated revenues to product sales, an accounting policy change has been made to make the financial information more relevant. This will also make it easier for users to understand the financial statements. Accordingly, non-product sales are now presented under 'Other operating income' and cost of sales and operating expenses have been re-categorised so that cost of sales now includes only the raw materials cost of products sold. Operating expenses represents the cost base of the business. As a result of this accounting policy change, comparative figures have been restated.

Revenues increased 32% to £1,203,636 (2013: £908,442). Product sales increased by 21%, with a full in year contribution from Biotage, and consumables increased by 73%, reflecting the growing user base. In line with the Company's transition from being reliant on income from EU grants and prototype sales, other operating income was lower at £102,145 (2013: £256,793). Gross margins were 42% (2013: 36%) and, accordingly gross profit was £503,456 (2013: £326,919).

We have noted that one distribution channel has delivered softer than expected product sales in early 2015. The causes of this issue have been identified and management is taking steps to address this. The recently signed OEM agreements will begin contributing to sales growth as further new products are launched, anticipated in H2 2015 and 2016. 

Operating expenses (excluding share-based payments) were £3,713,881 (2013: £2,923,226). The increase in operating expenses was mainly due to the Company's investment in the building of OEM partnerships, all of which are located overseas, and the investment in the manufacturing process to make it capable of being outsourced and ready for mass production.

Therefore, the loss for the period, before share-based payments, tax and interest, was £3,108,280 (2013: £2,339,514).

In October, the Company placed 10,500,000 ordinary shares with new and existing shareholders. This represented a 20% increase in the Company's issued share capital. The gross proceeds raised from the issue amounted to £4.4m. The cash position at 31 December 2014 was £4.55m (2013 £3.24m).

As with previous years, the going concern basis has continued to be adopted in preparing the financial statements. Following the progress made by the Company to date and the progress anticipated in the near term, the Directors have a reasonable expectation that the Company will have access to adequate funds to continue operations for at least 12 months. Further details are provided in the notes to the financial statements.

Outlook 

The Board is pleased with the progress that Microsaic has made across all areas of its business in 2014. We have signed a further three OEM agreements targeting specific applications, a manufacturing agreement that provides capacity to meet expected commercial demand and a distributor agreement for our own branded instruments in key markets. Together, this provides Microsaic with a strong base for the business to move forward and is a significant step forward from our position 12 months ago.

We are continuing to gain increasing recognition for the potential of our innovative MS technologies and new products within the scientific analytical instrumentation market, where we believe we have an opportunity to make MS accessible across a broader range of applications and to a much larger number of lab scientists than ever before.

We are focused on three business objectives that underpin our ambitions for 2015 and beyond:

· Executing on our existing OEM agreements and distributor agreement

· Developing further OEM partnerships with synergistic companies, which can provide Microsaic with access to enhanced sales distribution channels alongside our own direct sales channel, and

· Furthering innovation and maintaining a leadership position in the field of miniaturised MS, which continues to be a core driver of our ongoing commercial strategy

All our activities are aligned to these priorities. Our 'plug & play' usability designs remain unique and the increasing market acceptance of our chip-based technology will provide the platform for further growth and differentiation from competitors. We remain intent on broadening the application base and enhancing user experience of the MiD® in order to make it the benchtop analytical tool of choice for chemists. It is my belief that these strengths and focused strategy continue to put Microsaic Systems in a strong position to capitalise in an evolving market.

Colin Jump

Chief Executive Officer

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2014

STATEMENT OF FINANCIAL POSITION

as at 31 December 2014

STATEMENT OF CHANGES IN EQUITY

AS AT 31 DECEMBER 2014

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2014

NOTES TO THE PRELIMINARY FINANCIAL INFORMATION

1. General information

The 2014 financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) as adopted by the European Union, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. This preliminary financial information is also prepared on this basis.

The preliminary financial information set out in this report does not constitute statutory accounts as defined by section 434 of the Companies Act 2006 and has not been audited.

The preliminary financial information for the year ended 31 December 2013 is based on the statutory accounts for that period. Those statutory accounts have been delivered to the Registrar of Companies and the auditors' report on those accounts was unqualified, however it included a reference to an emphasis of matter with regard to going concern, and their report did not contain statements under section 498(2) or section 498(3) of the Companies Act 2006.

The preliminary financial information for the year ended 31 December 2014 is based on the statutory accounts for that period. Those statutory accounts will be delivered to the Registrar of Companies in due course. The auditors have not yet reported on those accounts.

2. Basis of preparation

The financial information has been prepared on the historical cost basis, except where financial instruments are required to be carried at fair value under IFRS.

3. Going concern

The financial statements have been prepared on a going concern basis, which assumes that sufficient funds will be available for the Company to continue in operational existence for at least 12 months from the date of signing.

The Company's business activities together with the factors likely to affect its future development, performance and position are set out in the strategic review sections within the annual report.

The Company has been developing its technologies for the market place and as such has been absorbing funds. The Company is now in the commercialisation phase of its development, and the financing of operations in the future will be from employment of existing cash reserves and revenue from product sales.

The Directors have prepared trading and cash flow projections that extend beyond 12 months from the date of this report. These include increasing revenue levels which the Directors believe will be derived from the sale of its products and are supported by market feedback that has been received. There is no certainty that the expected level of sales will be achieved and if there was a significant shortfall it may be necessary for the Company to secure alternative sources of funding to enable it to remain a going concern. Whilst the Company has been successful securing funding in the past, this is no guarantee that it will be possible in the future. However, the Directors have a reasonable expectation that the Company will have access to sufficient funding to continue operations for at least twelve months from the signing of this report and therefore they continue to adopt the going concern basis for the preparation of the financial statements.

4. Segmental reporting

Throughout 2014 the Company operated in one business segment, that of research, development and commercialisation of scientific instruments. All of the Company's assets are held in the UK and all of its capital expenditure arises in the UK. The geographical analysis of revenue was as follows:

Further attribution of the non-UK revenue is not possible due to the nature of the sales via OEM agreements which are then distributed globally.

One customer represented 74% of total revenue (2013: 84%).

5. Tax

The Company has recognised taxation receivable in relation to R&D tax credits claimed for the year to 31 December 2013 and expected to be claimed for the year to 31 December 2014.

6. Loss per share

Potential ordinary shares are not treated as dilutive as the Company is loss making, therefore the weighted average number of ordinary shares for the purposes of the basic and diluted loss per share are the same.

7. Share capital

Following adoption of new articles of association in April 2011, the Company does not have a stated authorised share capital. The Company has one class of share, ordinary shares of 0.25p each, with each share carrying one vote and equal rights to discretionary dividends.

8. Share based payments

The Company operates approved and unapproved share option schemes as a means of encouraging ownership and aligning interests of staff and external shareholders.

These share based payments have been measured at their fair value at the date of grant and the fair value expensed to the statement of comprehensive income on a straight line basis over the vesting period. Fair value has been measured using the Black-Scholes model.

Year to Year to

31 Dec 2014 31 Dec 2013