Microsaic Regulatory News (MSYS)

Microsaic Systems plc

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

Preliminary Results for the year ended 31 December 2013

30 April 2014

Microsaic Systems plc (AIM: MSYS), the developer of chip-based scientific instruments, announces its preliminary results for the year ended 31 December 2013 and an update on trading since the year end.

2013 Highlights

· Signing of an additional OEM agreement for the sale of the 4000 MiD® as a stand-alone instrument

· Launch of the Microsaic 4000 MiD® miniature mass spectrometer at Pittcon international trade fair

· Launch of the Isolera™ Dalton by Biotage AB, the first OEM product containing 4000 MiD®

Post-period update

· Launch of the MiDas™ compact interface module

· Signing of pre-contract OEM agreement for the sale of the 4000 MiD® and MiDas™ for use in protein separation applications

· Appointment of Andrew Darby as Finance Director 

Financial summary

· Revenue up 92% to £1.17 million (2012: £0.61 million)

· Placing of 9,951,443 ordinary shares raising £4.28m before costs

· Cash at 31 December 2013 £3.24 million (2012: £1.79 million)

· Total statutory loss for the year to 31 December 2013 £2.29 million (2012: £1.87 million)

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

"The Board is pleased with the progress Microsaic has made in 2013, a year in which the Company has achieved a number of key milestones in its on-going evolution towards becoming a leader in the miniaturised instrumentation market. The core strategy of developing commercial partnerships with global businesses has delivered tangible results, with the launch of the Isolera™ Dalton and the recent agreement in the field of protein separation with a leading international company representing major strides forward for the business. The positive market reaction to Microsaic's 'plug & play' technology, its broadening range of applications, and the growing interest from further potential OEM partners gives the Board great confidence in the outlook for the coming years."

Contacts

About Microsaic Systems

Microsaic Systems develops and sells chip-based scientific instruments for the chemical identification of substances. The Company's products are based on the 'gold-standard' scientific technique of mass spectrometry.

Microsaic Systems has developed a miniaturised mass spectrometer based on its patented, chip-based technologies (ionchip®, spraychip® and vac-chip™), that is smaller, lighter, quieter, more energy efficient and cheaper to run than conventional mass spectrometer systems.

Mass spectrometry is used across many industry sectors, including government, energy, utilities, pharmaceutical, diagnostics and healthcare, environmental, food and drink, security and defence, and industrial chemicals - a combined market of $3 billion in 2012.

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.

CHAIRMAN'S STATEMENT

I am pleased to present the Company's Annual Report & Financial Statements for the year ended 31 December 2013.

2013 was a year where Microsaic achieved a number of key milestones, most notably the launch of the 4000 MiD®. It also saw the launch of the first OEM product to contain the 4000 MiD®, the Biotage Isolera™ Dalton. The Company's product development program continued apace with the more recent release of the MiDas™, which will extend the reach of Microsaic's technology into a wider range of applications and environments. The 4000 MiD® and the MiDas™ together form the core technologies behind our successful recent signing of a further commercial agreement for the detection of proteins. We are excited by the opportunity to work with a major global healthcare equipment company. The opportunities provided by our 'chip' based technologies and 'plug and play' offering will continue to grow, as we extend the capabilities of our technology and product range over the years to come.

Our relationship with Biotage AB has moved forward and we continue to work closely with them. In addition to this relationship, we are excited by the size and quality of companies that continue to approach us to discuss commercial opportunities. These relate to opportunities for our single quad technology, but also our in development triple quad where a number of major global companies are expressing a keen interest. This product has undergone successful prototype demonstrations and continues to make positive progress towards completion.

Over the last few years there has been a tangible transformation in the nature of our business. The evolution from a university spinout into a quoted commercial enterprise is evident. The Company's strategy, structure, culture, and infrastructure have all developed significantly which has led to a growing level of public and industry recognitions.

In the past 12 months there have been two changes to the Board. Last summer Eric Yeatman stood down from the role of Chairman. I would like to thank Eric for his invaluable input during his nine year tenure as Chairman. During this time the Company has achieved a growing reputation in pioneering mass spectrometry miniaturisation. We are pleased that Eric continues to serve as a member of the Board and brings expertise to bear on the advancement of our unique technology.

More recently we announced the resignation of Malcolm Bateman who has stepped down as Finance Director and will leave the Company at the end of April 2014 to pursue his other interests. Malcolm joined Microsaic in 2006 as Financial Controller and was appointed to the Board in 2011. He played a major part in the 2011 IPO and has been an important member of the management team over the past eight years. We would like to thank him for his contribution in securing Microsaic's development, and wish him well in the next stage of his career. We are pleased to welcome Andrew Darby ACA as our new Finance Director.

I would again like to thank our shareholders for their support during the last year. Over 2014 we shall continue to build upon the achievements already made and continue to capitalise on the opportunities that are becoming increasingly evident.

Colin Nicholl

Chairman

CHIEF EXECUTIVE'S STATEMENT

Microsaic has enjoyed a highly productive year in 2013, making notable progress in our on-going evolution into a successful commercial business. We continue to execute our strategy of developing commercial partnerships, whilst at the same time growing direct sales to end users. In parallel, we have continued to make significant technological advances that will in time give us the capability needed for our next generation of products. This will further broaden the range of applications that our miniaturised mass spectrometry (MS) instruments can address.

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 cutting power consumption and other running costs, and makes MS much more accessible to lab scientists than it has ever been before.

Our lead MS instrument, the Microsaic 4000 MiD®, was officially launched in March 2013 at Pittcon, the major annual international trade fair focused on scientific and laboratory equipment, which took place in Philadelphia, USA. The market's response and subsequent acceptance of the 4000 MiD® has been enthusiastic and through a combination of direct sales and shipments to our OEM partner we achieved a near doubling of our revenue for the full year 2013 to £1.17 million (£0.61m in 2012).

Commercial strategy

Our 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. During the year, we strengthened our relationship with our existing OEM partner, Biotage AB. In June Biotage AB launched its fully integrated system for flash chromatography and mass identification which incorporated our core MS instrument, the 4000 MiD®. Demand for the integrated product, the Isolera™ Dalton, has been good and shipments of the 4000 MiD® to Biotage are in line with expectations.

We continue to develop relationships with new potential commercial partners in the pharma, biotech and other related sectors. In this regard we were pleased to announce in April 2013 the signing of an OEM agreement for the global, non-exclusive marketing and sale of the 4000 MiD® as a stand-alone instrument for use in direct and rapid MS analysis. Successful trials have also been completed with a number of other potential partners and discussions are advancing with several of these aimed at securing commercial agreements.

We were pleased to announce on 14 April 2014 the signing of a pre-contract commercial agreement to provide the miniature mass spectrometer - the Microsaic 4000 MiD® - as an Original Equipment Manufacturer (OEM). The agreement is for the global, exclusive marketing and sale of the 4000 MiD®, along with the recently released MiDas™ interface unit, as a stand-alone instrument for use in protein separation applications. The partner is a major international healthcare equipment company.

The agreement is focused on the use of the 4000 MiD® in conjunction with protein separation, a major application that is used globally and has increasing market demand. It follows a period of R&D collaboration in which Microsaic has successfully adapted and enhanced the 4000 MiD® to address this new application. We will work towards completion and signing of a full commercial contract, which is anticipated to include a commitment to purchase up to 50 units and consumables of the 4000 MiD in the first year, increasing to over 200 units and consumables from the fourth year onwards. The initial period of the contract is expected to be 48 months. The selling price is in line with the Board's expectations. Shipments under the agreement are anticipated to commence in Q1 2015.

In addition to OEM agreements for our products in the major MS application areas, we achieved a number of direct sales to customers in new and high-value application areas. Direct contact with users is proving to be valuable as a means of prioritising future product development and R&D programmes. A number of key direct sales have already been achieved and a pipeline has been established for the coming year.

The 4000 MiD® is currently manufactured at our facility in Woking, but in line with our commercial strategy, and as sales increase in 2014, we will be outsourcing the production of the units to an accredited third-party supplier.

New technologies

Our marketing plan for 2013 has been 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. The MiDas™ unit has been designed to extend the use of MS in the laboratory from specialist analytical chemists to the wider research community. It connects to the 4000 MiD® and offers automated sample preparation and injection for direct MS analysis in real-time at the lab bench or in the fume hood.

Our strategy is to commercialise MiDas™ alongside the 4000 MiD® through partnerships with well-established suppliers in the areas of analytical and medicinal chemistry, and directly to customers in niche application areas.

In June 2013, we presented a working prototype of our chip-based triple quadrupole mass spectrometer for the first time, at the American Society of Mass Spectrometry (ASMS). This new technology can analyse more complex materials, such as medical (e.g. blood or saliva) or environmental samples, and is an important achievement that has the potential to further extend Microsaic's leading position in miniaturised MS instrumentation. We recently exhibited our latest progress with this system at the major trade fair Pittcon in March 2014, where the reception from delegates was very encouraging. Negotiations are on-going with a number of possible key MS instrument partners to develop the triple quadrupole into a fully commercial product, with an expected launch date in 2015.

At the same event, we displayed our concept product, 4500 MiD® instrument for the first time. This system is an extension of the 4000 MiD® and has been designed for the mass identification of larger molecules in sample mixtures, such as proteins and peptides. We intend to launch this product in the next twelve months and are already engaged in discussions with potential OEM partners to develop this system further for commercialisation in several areas.

Financial results

Revenues increased 92% to £1,165,235 in 2013 (2012: £606,281). OEM sales volumes of the 4000 MiD® have been the principal contributor to this rise, with regular monthly shipments being made. Sales of consumables are also rising, and will become more significant over time as the installed base grows.

Research and development revenue streams are becoming a less significant proportion of the total company income, but continue to make a contribution. Spending on R&D amounted to £927,379 and was focused on product enhancements in order to open up new application opportunities for the MiD® and on our triple quadrupole mass spectrometer.

The total comprehensive loss for the year was £2,285,158 compared to £1,867,069 in the previous year. Excluding the effects of share-based payments accounting, the operating expenses for 2013 and 2012 were £1,462,395 and £1,228,084 - the increase arising from business development and marketing activities and augmenting the business infrastructure as commercial operations ramp up.

In May, the Company placed 9,951,443 ordinary shares with new and existing shareholders. This represented a 23% increase in the Company's issued share capital. We wish to thank our investors for supporting this placing, which will enable the Company to execute its organic revenue growth plans, as well as allow investment in the development and production of instruments and technologies. The gross proceeds raised from the issue amounted to £4.28m. Cash in hand at 31 December 2013 was £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 twelve months. Further details are provided in the notes to the financial statements.

Enhancing the team

To ensure the Company is equipped with the necessary skills and personnel to drive continuing revenue growth and to support the transition into a successful commercial business, we have made a number of new hires during the year. We have created a new business development team, whose objective is to grow direct sales and establish new commercial relationships and routes to market. Our customer services team has been enhanced significantly and the engineering team has been expanded in order to ensure our OEM and direct customers have the technical support they require. I am now confident that we have the commercial and technical personnel in place to support senior management as we look to drive the growth of the business in the years ahead.

I am delighted to report the appointment of Andrew Darby as Finance Director. Andrew Darby has over 17 years of experience in senior finance, strategic and operational roles within quoted companies in the information technology sector. He joins Microsaic from Active Risk Group plc, formerly an AIM-listed company specialising in enterprise risk management software solutions.

In October, we announced the formation of the Company's first Scientific Advisory Group. Members of the Group have impressive credentials across a wide range of areas in industry and research, and will be able to advise us on future applications for our chip-based technology.

Outlook 

I am very pleased with the progress that Microsaic made across all areas of its business in 2013. We have built a strong foundation around the 4000 MiD® though our OEM partnerships and are confident of signing further agreements with other interested OEM partners who have established global sales distribution channels. Sales are building and we are gaining 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 now have the team in place needed to support the expected growth and development of our business. We are focused on three business strategies that underpin our ambitions for 2014 and beyond:

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

· Stepping up marketing communications and the promotion of the core brand values of Microsaic.

· Outsourcing the manufacture of the main product ensuring high-quality build, reliability and high volume capacity.

All our activities are aligned to these three 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 puts 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 2013

All operations are continuing operations.

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2013

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2013

NOTES TO THE PRELIMINARY FINANCIAL INFORMATION

1. General information

The 2013 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 2012 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 2013 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 reported on those accounts and their report 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.

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

The Company currently has one business segment, being the research, development and commercialisation of scientific instruments. This is undertaken wholly within the United Kingdom and therefore a segmental analysis of turnover, profits/losses on ordinary activities before tax and net assets has not been presented. The Company is managed on the basis of its performance as a whole and not by any segments.

5. Tax

The Company has recognised taxation receivable in relation to R&D tax credits claimed for the year to 31 December 2012 and expected to be claimed for the year to 31 December 2013.

6. Loss per share

Year to Year to

31 Dec 2013 31 Dec 2012

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

Number £

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 2013 31 Dec 2012

The share based payments credit of £48,568 for 2012 is due to the write back of prior year share based payment charges totalling £81,901 following the exit of staff members from the Company's share option schemes.