NLG.L Regulatory News (NLG)

15 June 2016

Arria NLG plc

 ("Arria", the "Company" or the "Group")Half Year Results

Arria NLG plc (AIM: NLG), a technology leader in Natural Language Generation ("NLG"), is pleased to announce its half year results for the six month period ended 31 March 2016.

Operational Highlights

· Major new product launch initiative announced in the period - launch of Recount, our first SaaS product and SDK Developer Cloud, our software development kit, targeted for second half of the year.

· Platform product sales continue to strengthen.

· Number of Platform product clients contributing to revenue in the period continued to increase to 6 for the six months ended 31 March 2016 (HY15: 5).

· Major partnership agreement announced in the period with Genpact Inc.

· Client reach continues to broaden entering into US utilities, business process outsourcing and information technology services.

· Successful continuation of patent program with a further 3 patents announced in the period increasing the total patent portfolio granted by 75% from 4 to 7. Subsequent to the period end a further two patents were granted bringing the total to 9.

Financial Highlights

· Despite total revenues decreasing to £226k (HY15: £904k) following the loss of the Shell contract in April 2015, total non oil and gas revenues increased 133% to £226k (HY15: £97k).

· Total costs excluding amortization and share based payment charges increased 19% to £3.4 million (HY15: £2.8 million) reflecting investment in new product development strategy.

· Operating loss excluding amortisation and share based payment charges increased by 62% to £3.2 million (HY15: £1.9 million) reflecting loss of oil and gas client revenues and investment in new product strategy.

· Loss before tax was £8.4 million (HY15: £2.7 million).

· Concluded successful placing of 18.75 million ordinary shares at 32p for an initial aggregate consideration of £6.0 million (subject to sharing agreements and variable upwards or downwards - (see notes 7 and 14 for further details).

· Concluded the issue £1.573 million convertible loan notes with attached 4.482 million unlisted B Warrants in the period ended 31 March 2016.

· Subsequent to the period end concluded further fundraising of £262,000 by way of convertible loan notes and issue of 0.761 million unlisted B Warrants all of which has been received (see note 17 for further details).

Commenting on the results, Stuart Rogers Arria Chairman and CEO said "We have continued to make good and steady progress across the first half of the financial year in delivering the Company's strategic plan. In addition to growing new strategic relationships with large companies such as Genpact, and continuing to develop our valuable and growing portfolio of patents, we have invested in future growth by creating further business lines. Our first Software as a Service (SaaS) product, called Recount, is being brought to market in the summer of 2016. Recount provides small and medium sized business owners with a full-time virtual financial adviser. Further, Arria NLG will be licensing its Software Development Kit (SDK), the NLG Developer Cloud. We believe that we remain well positioned to take advantage of the business trends currently being seen and where ever-challenging business needs are met by new and innovative Artificial Intelligence technologies such as ours which our shareholders have helped us bring to the market. We would like to take this opportunity to thank our continually supportive investor base and our employees for their hard work."

For further information, please visit www.arria.com or contact:

Arria NLG

Arria NLG's core product is known as the Arria NLG Platform, a form of artificial intelligence software specialised in extracting information from complex data sources and communicating that information in natural language (i.e. as if written by a human). The scientific foundation for the Arria NLG Platform is based on more than 30 years of research and development by the founders of Arria Data2Text Limited at the University of Aberdeen. For additional information, visit www.arria.com. Follow Arria NLG on Twitter, LinkedIn, Google+ and YouTube.

CHAIRMAN'S STATEMENT

I am pleased to present our financial results for the six months ending 31 March 2016 and to update you on our progress made during the first half of this financial year. Arria NLG has made good commercial and financial progress during the period, as you will read in the detailed financial sections following this letter. As we have said frequently, the continued commitment and support from our shareholders is testament to their ongoing belief in the value proposition of the Company's NLG capabilities and in particular of our positioning within the market as the dominating force in realising the commercial potential of Natural Language Generation.

Arria NLG is a scientific leader in the development of NLG tools. Since we were admitted to trading on the AIM market of the London Stock Exchange in 2013, we have expanded our customer base and evolved our core NLG technologies in preparation for a series of global product launches during 2016.

Arria NLG's main asset is a set of software components called the Arria NLG Platform. The Arria NLG Platform represents the combined work of leading scientists in the field of NLG, built on research those scientists began over 30 years ago. The Arria NLG Platform converts a large range of structured data sources into rich narrative content and provides written and graphical insights, recommendations, and forecasts for a wide variety of commercial and industrial use cases. The Arria NLG Platform is a collection of tools and systems that have been protected by US patents and patent applications and are continuously being improved upon.

Progress is reported in three areas: (a) expanding the business through new client acquisition, (b) expanding the revenue producing potential of the Company by developing new channels for distribution of Arria's NLG technologies, and (c) protecting the intellectual property through patent filings.

Commercial Progress and Business Update

The primary commercial accomplishments of this reporting period were the announcement of the framework agreement with Genpact and its subsequent extension into multiple production applications (announced following the period end), gaining one large US-based utility customer, and establishing a framework agreement with INOVX Solutions.

During the reporting period the Company signed a Framework Agreement for configuration, development and licensing of applications using Arria NLG's patented NLG software with a major electric utility in the eastern region of the United States.

The contract outlined a statement of work and costs for an initial application to create a problem-detection dashboard in one of the utility's regional operating units, with specific deployment, licensing and payment schedules. Additionally, the framework agreement provided the terms for future configuration, deployment and licensing of further applications using Arria's NLG technologies.

INOVX Solutions Inc. is a global leader in advanced asset integrity management software in the oil and gas industry, that is partnering with Arria NLG's unique NLG Platform to provide real-time advanced data analysis and commentary to INOVX's 3D asset modeling software. Through its 'Asset Virtualization®' INOVX generates virtual environments to allow field assets to be monitored and managed through interaction with 3D models. This partnership will further enhance the INOVX user's experience by communicating expert insights written up by Arria's NLG Platform in real time.

Embedded subject matter expertise is a key feature of the Arria NLG Platform. It enables companies, such as INOVX, to capture years of specialized field knowledge into software that the company and its users can then retain for years to come. Arria NLG uses its patented Natural Language Generation technology to create a 'Virtual Data Scientist' to analyse and communicate what is happening in the data using the language and terminology specific to the company and its users.

The partnership joins two leading Artificial Intelligence technologies at a crucial point of development for 'giving a voice to the Internet of Things'. With the application of Arria's NLG Platform, INOVX will make a marked step forward to innovate its product with the power of advanced NLG from Arria NLG.

Genpact began in 1997 as a business unit within General Electric. In January 2005, Genpact became an independent company to bring their process expertise and unique capabilities in lean management to clients beyond GE, and then in August 2007, they became a publicly-traded company (NYSE: G) based in Silicon Valley. Genpact is the architect of the Lean DigitalSM enterprise and a global business process outsourcing and information technology services company with a market capitalization in excess of US$5 billion.

Under the framework agreement with Genpact, Arria NLG supplies its natural language generation and other artificial intelligence technologies to Genpact to provide real-time advanced data analysis and commentary while automating credit reporting and financial planning and analysis for Genpact's customers. The partnership offers Arria NLG the opportunity to leverage the global reach of Genpact's expansive real-world business processing environments.

To support this client growth and to help extend Arria NLG's technologies into new channels of distribution, successful capital raising activities continued during the reporting period. We announced a successful funding by way of convertible loan notes in March, and earlier in the period the Company announced a subscription agreement placing 18.75 million ordinary shares at 32p for an initial aggregate consideration of £6.0 million subject to sharing agreements with Lanstead, a specialist international investment firm, of which to the date of this report the Company has received £1.371 million (see notes 7 and 14 for further details).

A Growing Portfolio of NLG Patents

Arria NLG has been awarded nine US patents in the last three years, of which six cover advances in core technology used in the Arria NLG Platform. The other three patents cover features (including referring expression generation and user directed reporting) that would be desirable features of any NLG system, including competitors' NLG systems. Arria NLG has many more US patents pending and continues to file patent applications on its most significant innovations. The 20-year terms granted by these patents will provide competitive obstacles to competitors attempting either to incorporate covered feature enhancements to their existing NLG systems or to upgrade their systems to the level of sophistication offered by the Arria NLG Platform.

During the reporting period, Arria NLG was granted three patents, with the following specifics:

Method And Apparatus For Referring Expression Generation - which covers an essential component of Arria NLG's products for information analysis and delivery. The Company's products automate the real-time analysis and delivery of reports, whilst also generating language that follows intuitive rules for how humans communicate and comprehend information. The innovations embodied in the new patent allow a report's second or subsequent mention of a complex machine, device or process to be expressed in a word or two, rather than by its full name. For example, the operator of an electrical power plant, who receives the actionable intelligence contained in an Arria NLG report, is not required to read in full repeated references to the same components of a particular machine after the report establishes that this component of this machine is being discussed.

Method And Apparatus For Updating A Previously Generated Text - which covers a key component of Arria NLG's information analysis and delivery products. The Company's products not only automate the real-time analysis and delivery of reports, they also dynamically update the reports as frequently as the user desires, or in response to changes in the data such as alert thresholds being crossed more frequently or to a greater degree. A less intelligent NLG system typically re-writes the report, often a very different report from the one originally created, whereas the new patented features allow the Arria NLG Platform to update the existing report in a more concurrent fashion, an approach that a human expert would take when updating his or her own work.

Method and Apparatus for Situational Analysis Text Generation - a continuation of the US patent application that resulted in US Patent No. 8,762,134, bearing the same title. The new patent claims additional innovations disclosed, but not claimed in US Patent No. 8,762,134. Arria NLG's patents and patent applications cover critical NLG processes that the Company currently applies to innovative applications delivered to our growing list of global clients, as well as to a range of SaaS-delivered packaged applications that are in development for a number of markets and to the Company's proprietary Software Development Kit.

Arria NLG's expanding patent portfolio strengthens its plan to become the global leader in automating data analysis and information delivery in any industrial or consumer setting.

Future Commercial Direction

Our main assets are our people and the set of software components called the Arria NLG Platform. Arria NLG's business direction is to license the NLG Platform via three different service offerings. First, we use the NLG Platform to build bespoke applications for large corporate customers, such as Genpact and INOVX, who need to automate reporting across their businesses. Second, we are building our own Software as a Service (SaaS) products using the NLG Platform. And third, we provide key elements of the NLG Platform as a Software Development Kit (SDK) that allows third-party developers to build narrative extensions to their own applications. Three different uses of Arria NLG's technologies, three different distribution channels and three robust service offerings to generate potential future revenues.

Our first SaaS product, called Recount, is being brought to market in the summer of 2016. Recount provides small and medium sized business owners with a full-time virtual financial adviser. Recount takes business data from financial management systems (beginning with Xero and QuickBooks, then rolling out to other cloud based accounting systems, business intelligence and CRM products) and provides insights, perspective and guidance via rich narratives that contain both written and graphical explanation. The usual charts and dashboards provided by such systems are improved upon via concise written insights and the kind of insightful commentary usually provided by a user's accountant, analyst or sales manager. This is not just another robo-advisor: it's a sophisticated explanatory tool that communicates the meaning and significance of financial data in natural language.

With their decades of experience, Arria NLG's scientists and engineers have identified the key functionalities that need to be available to anyone who wants to build a sophisticated NLG application. Until recently we have only leveraged those learnings internally through automation of software development steps, making it possible for our teams to quickly build new applications using a tool set building on a common code base. We are now confident that our tool kit is at a level of maturity where it makes sense to license the toolkit to third parties as a Software Development Kit (SDK), so that software developers who lack NLG expertise can build NLG applications in the same way that Arria NLG does.

To provide a commercial model for this enterprise, Arria NLG is building what we call the NLG Developer Cloud. This is a collection of software components, associated tools, resources and documentation that together enable experienced developers to create NLG applications. The Arria NLG Platform is by default provided as a hosted service in the cloud, supporting revenue models based on usage. For customers who require on-premise use for data security or other reasons, installation of the NLG Platform on the customers' servers is also possible.

FINANCIAL REVIEW

In the September 2015 financial statements the Chairman's letter identified the extension of Arria NLG's core NLG technology into two new directions - the launch of our first stand-alone SaaS product targeting the financial management and reporting market, and the release of our SDK. The financial performance of the Group in the subsequent 6 months reflects the first stages of the successful execution of the strategic plan in the first half of this financial year. Key financial highlights from the period are illustrated below;

· Despite total revenues decreasing to £226k (HY15: £904k) following loss of the Shell contract in April 2015, total non oil and gas revenues increase 133% to £226k (HY15: £97k).

· Total number of clients contributing to revenue in the period increased from 5 to 6 as the Group continued to expand its commercial reach into industry sectors outside of oil and gas.

· Operating loss excluding amortisation and share based payment charges increased by 62% to £3.2 million (HY15: £1.9 million) reflecting loss of oil and gas client revenues and investment in new product strategy.

· Operating costs excluding amortisation and share based payments charges increased by 31% to £3.0 million (HY15: £2.3 million). The increase reflects the ongoing investment in new product development strategy.

· Average net monthly costs during the period, excluding non-recurring transaction related costs, amortisation, depreciation, capitalized software development costs and share based payments charges were £468k (£325k (HY15: £325k) representing a 44% increase against the same period in the prior year.

· Loss before tax was £8.4 million (HY15: £2.7 million).

· Average staff numbers for the period were 63 (HY15: 49). At 31 March 2016, approximately 71% of staff were involved in the delivery side of the business (HY15: 65%). The percentage of total staff involved in delivery is expected to increase as staff numbers grow.

· At 31 March 2016 the Group had £2.1 million net cash (HY15: £1.0 million) and net assets of £18.1 million (HY15: £21.29 million).

· On 15 October 2015 a total of 18,750,000 new ordinary shares of £0.001 each in the Company were conditionally subscribed for by Lanstead, (a specialist international investment firm) at an issue price of 32 pence per new ordinary share (see note 7 and 14 for further details).

· During the period 4.55 million Long Term Incentive Plan share options were issued. This resulted in a share based payment charge of £617,819 (see note 6 for further details).

· Subsequent to the period end the Company successfully concluded a subscription for £262,000 of convertible loan notes of £1.00 each with certain of the Company's existing shareholders and other investors, the principal terms of which were the same as the loan notes allotted on 18 March 2016.

Going Concern

In considering the ability of the Group to meet its financial obligations as they fall due, the Board has considered the expected trading performance of the Group, including working capital requirements and the level of overheads to be funded. The Directors have prepared a business plan and cash flow forecast for the period to 31 December 2017.

The forecast contains certain assumptions about future sales, the gross margins achievable and the level of other operating expenses. In addition to this business plan, the Directors have considered various downside sensitivities and management actions that could be undertaken to ensure the ongoing operation of the Group. The Group is in the process of seeking further fundraising in the form of equity or convertible debt, including listing on the New Zealand and Australian Stock Exchanges, to provide adequate working capital to support the commercialisation of its Natural Language Generation technology and enable the Group to continue as a going concern. The extent and frequency of funding required will depend on the speed and quantum with which the Group secures additional profitable revenue growth. The Directors are confident of securing sufficient additional funding within the next financial year, for its near term requirements.

Having reviewed the business plan and subject to the uncertainties described above, the Directors have a reasonable expectation that the Group will have adequate resources to continue operating for the foreseeable future. Therefore, the Directors continue to adopt the going concern basis in preparing the interim financial statements and these do not include adjustments that would result if the Group was unable to continue as a going concern. Should fundraising negotiations prove unsuccessful, the Group would be unable to meet its debts as they fall due in the foreseeable future. As a result, the Directors have concluded that pending successful agreement of additional funding there exists a material uncertainty which may cast significant doubt over the ability of the Group to continue as a going concern.

Outlook and prospects

The principal risks facing the business have not changed significantly during this first half year and are consistent with the risks disclosed in the Strategic Report within the Annual Report and Financial Statements for the year ended 30 September 2015.

Growing the base of satisfied customers also should lead to growing revenues. The overall structure of Arria NLG's business today is far more robust than that of just two years ago. Within the last two years, Arria NLG has diversified its customer base, not only by industry, but by the type of companies we serve. Arria NLG's strongly supported commercial relationship with Shell was undone by the historic and unprecedented changes in the oil and gas market. In the place of this near-singular focus on Shell, Arria NLG has grown its number of clients, the industrial diversity of those clients, and attracted several partnership opportunities with global companies offering business process consulting services.

At the heart of every Arria NLG success story is a client, and our plan is to grow our customer base, both within the Company's traditional global corporate market, and also by encompassing the needs of mid-sized organisations and the software developer community as well. A fundamental component of Arria NLG's plan is to strengthen and evolve the capabilities of its core product, the Arria NLG Platform, and also to package these capabilities to form two new distribution directions: targeted Software-as-a-Service (SaaS) offerings to medium-sized businesses and the NLG Developer Cloud, a software development kit (SDK) that provides a set of tools for third-party developers to use.

In four short years, Arria NLG has transitioned the technology, known as Natural Language Generation, from the halls of academia at the University of Aberdeen to an established and growing business commercialisation. We have developed real installed applications with global companies who have a growing appreciation of and appetite for what Arria's NLG technologies can do for their businesses.

Arria NLG's four years of growth to this stage have been achieved due to many fortunate circumstances, for which the Company is grateful: a growing group of supportive shareholders, insightful and visionary founders, access to capital, talented, innovative and loyal employees, strong professional adviser firms, the nature of the technology itself, and the changing nature of business demands for faster intelligence and a growing reliance on artificial intelligence technologies. Arria NLG remains well positioned to take advantage of these business trends where ever-challenging business needs are met by new and innovative Artificial Intelligence ("AI") technologies such as what our shareholders have helped us bring to the market.

Stuart Rogers

Chairman and Chief Executive Officer

15 June 2016

INTERIM CONDENSED STATEMENT OF COMPREHENSIVE INCOME

The results reflected above relate to continuing activities.

The above statement should be read in conjunction with the accompanying notes.

INTERIM CONDENSED STATEMENT OF FINANCIAL POSITION

EQUITY AND LIABILITIES

Equity attributable to holders of the parent

The above statement should be read in conjunction with the accompanying notes.

INTERIM CONDENSED STATEMENT OF CHANGES IN EQUITY

The above statement should be read in conjunction with the accompanying notes.

INTERIM CONDENSED STATEMENT OF CASH FLOWS

The above statement should be read in conjunction with the accompanying notes.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED

31 MARCH 2016

1. GENERAL INFORMATION

The condensed interim financial statements are for ARRIA NLG plc (the Company) and its controlled entities (the Group).

The Group develops software that provides Natural Language Generation ("NLG") services and SaaS (Software as a Service) services to industry.

The Company is a public limited company domiciled in the United Kingdom and incorporated under registered number 07812686 in England and Wales. The Company's registered office is Space One, 1 Beadon Road, Hammersmith, London W6 0EA, United Kingdom.

These condensed interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 September 2015 were approved by the directors on 10 December 2015 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, however did contain an emphasis of matter paragraph in respect of going concern and did not contain any statement under section 498 of the Companies Act 2006. These condensed interim financial statements have been reviewed, not audited.

2. BASIS OF PREPARATION

These condensed interim financial statements for the six months ended 31 March 2016 have been prepared in accordance with the AIM rules and with IAS 34, 'Interim financial reporting', as adopted by the European Union. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 30 September 2015 which have been prepared in accordance with IFRSs as adopted by the European Union.

Going Concern

At the interim balance sheet date, the group had net assets of £18.1 million, including cash of £2.1 million. The Group made a loss before tax of £8.4 million in the period and expects to continue to make losses in the near term as it invests in developing new markets for its products and secures its position in commercialising Natural Language Generation. In the medium term, the focus will be on growing revenues in order to achieve profitability and positive cash flows.

On 9 June 2016 the Company entered into subscription agreements with certain investors, pursuant to which the investors agreed to subscribe for £262,000 of convertible loan notes (for further details see note 17).

In considering the ability of the Group to meet its financial obligations as they fall due, the Board has considered the expected trading performance of the Group, including working capital requirements and the level of overheads to be funded. The Directors have prepared a business plan and cash flow forecast for the period to 31 December 2017. The forecast contains certain assumptions about future sales, the gross margins achievable and the level of other operating expenses. In addition to this business plan, the Directors have considered various downside sensitivities and management actions that could be undertaken to ensure the ongoing operation of the Group. The Group is in the process of seeking further fundraising in the form of equity or convertible debt, including listing on the New Zealand and Australian Stock Exchanges, to provide adequate working capital to support the commercialisation of its Natural Language Generation technology and enable the Group to continue as a going concern. The extent and frequency of funding required will depend on the speed and quantum with which the Group secures additional profitable revenue growth. The Directors are confident of securing sufficient, additional funding within the next financial year, for its near term requirements.

Having reviewed the business plan and subject to the uncertainties described above, the Directors have a reasonable expectation that the Group will have adequate resources to continue operating for the foreseeable future. Therefore, the Directors continue to adopt the going concern basis in preparing the interim financial statements and these interim financial statements do not include adjustments that would result if the Group was unable to continue as a going concern. Should fundraising negotiations prove unsuccessful, the Group would be unable to meet its debts as they fall due in the foreseeable future. As a result, the Directors have concluded that pending successful agreement of additional funding there exists a material uncertainty which may cast significant doubt over the ability of the Group to continue as a going concern.

3. ACCOUNTING POLICIES

The accounting policies adopted are consistent with those of the previous financial year.

Adoption of new and revised International Financial Reporting Standards

New and amended standards adopted by the Group

There are no standards that have been adopted by the Group for the first time for the financial year beginning on 1 October 2015 that have a material impact on the Group.

New standards issued which are not yet applicable

IFRS 9 - Financial Instrument

IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted subject to EU endorsement. The Group is yet to assess IFRS 9's full impact.

IFRS 15 - Revenue from contracts with customers

IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 'Revenue' and IAS 11 'Construction contracts' and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted subject to EU endorsement. The Group is assessing the impact of IFRS 15.

IFRS 16 - Leases

Under the previous guidance in IAS 17, a lessee had to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). The new standard requires lessees to recognise almost all lease contracts on the balance sheet; the only optional exemptions are for certain short term leases and leases of low-value assets. An interest expense on the lease liability and depreciation on the 'right-of-use' asset will also have to be recognised. IFRS 16 will be effective for the first time for the year beginning 1 October 2019 (subject to EU endorsement). The Group is assessing the impact of IFRS 16.

4. ESTIMATES

In preparing these Condensed interim financial statements, the significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 30 September 2015, with the exception of the accounting treatment of the issue of ordinary shares in the period to Lanstead (see note 14 for further details).

5. FINANCIAL RISK MANAGEMENT

Financial instruments and fair value estimation

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk & cash flow interest rate risk), credit risk and liquidity risk. The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 30 September 2015.

There have been no changes in the risk management policies since the year end.

Fair Value Estimation and Techniques

The table below analyses financial instruments carried at fair value. All instruments are Level 2 derivative instruments on the basis that they are not traded in an active market and are valued using valuation techniques based on observable data:

Derivative Financial Asset

The derivative financial asset is consideration receivable from Lanstead which has been treated as a derivative financial asset. Its fair value has been determined by reference to the Company's share price at the balance sheet date as measured against a benchmark share price of £0.426667. If the actual share price exceeds the benchmark price during any of the 18 settlement months, the Company will receive more than 100% of the monthly settlement due for that month, should the share price fall below the benchmark price, the Company will receive less than 100% of the expected monthly settlement for that month, both on a pro rata basis (see note 14 for further details).

The embedded derivative is revalued at the balance sheet date based on the share price prevailing at that date and any change in fair value is recognised in the Income statement. The loss on derivative asset recognised at 31 March 2016 is based on the closing share price of £0.2063 measured against the benchmark price of £0.466667.

Derivative Liability

The Group's derivative liability is also classified as a level 2 instruments on the basis that it is not traded in an active market and is valued using valuation techniques based on observable data. The valuation technique used is a discounted cash flow analysis using observable market interest rates which value the host debt instrument, with residual being the fair value of the derivative liability.

Group's Valuation Process

The Group's finance department performs the valuations of financial assets and liabilities required for financial reporting purposes. This team reports directly to the Chief Financial Officer (CFO) and the Audit Committee (AC). Discussions of valuation processes and results are held between the CFO, AC and the finance team at least once every half year, in line with the Group's reporting dates.

6. OPERATING LOSS

The Group's operating loss has been arrived at after charging:

(1) Research and development costs contain £262,000 employee related costs (HY15: £415,000).

(2) £451,000 of research and development costs were capitalised in the six months ended 31 March 2016 (HY15: Nil).

Share Based Payments

(1) Issued a total of 4.55 million LTIP share options in December 2015 at an exercise price of £0.001 per share. The awards are made as restricted stock units under the LTIP. 1.9 million shares were fully vested on issue, 0.4 million shares lapsed or were cancelled, and the remaining options vest progressively over the next two years subject to personal and company performance criteria.

(2) Issued a total of 4.7 million loan notes that had a total of 14.4 million warrants attached (see note 13 for further details).

7. FINANCE EXPENSE

(1) In October 2015, Lanstead, an institutional investor, agreed to subscribe for 18,750,000 million new ordinary shares in the Company at an issue price of 32 pence per share for an aggregate consideration of £6.0 million. In addition, Arria NLG entered into two sharing agreements with Lanstead. 15 per cent. of the £6,000,000 gross proceeds of the subscription, being £900,000, were retained by the Company and the balance of £5,100,000 was pledged by the Company pursuant to two sharing agreements with Lanstead (see note 14 for further details).

The consideration receivable from Lanstead has been treated as a derivative financial asset and its fair value has been determined by reference to the Company's share price at the balance sheet date as measured against a benchmark share price of £0.426667. If the actual share price exceeds the benchmark price during any of the 18 settlement months, the Company will receive more than 100% of the monthly settlement due, should the share price fall below the benchmark price, the Company will receive less than 100% of the expected monthly settlement. Both on a pro rata basis.

The loss on derivative asset recognised at 31 March 2016 is based on the closing share price of £0.2063 measured against the benchmark price of £0.466667.

8. SEGMENT NFORMATION

The Board of Directors is the Group's chief operating decision-maker. Management has determined the operating segments based on the information reviewed by the Board of Directors for the purpose of resource allocation and assessment of performance, and considers the Group has one operating segment, being the provision of computer software. Revenue is all generated from one geographical location, being the UK. Corporate costs are head office costs which cannot be allocated to the segment.

The following is an analysis of revenues and results from operations and assets by business segment:

9. INCOME TAX

Income tax credit is recognised based on management's estimate of the weighted average annual income tax rate expected for the full financial year. The average UK annual tax rate used for the year to 30 September 2015 was 20.50%. The UK tax rate for the six months ended 31 March 2016 was 20%.

Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2015 on 26 October 2015. These include reductions to the main rate to reduce the rate to 19% from 1 April 2017 and to 18% from 1 April 2020.

A further change to the UK corporation tax rate was announced in the Chancellor's Budget on 16 March 2016. The change announced is to reduce the main rate to 17% from 1 April 2020.

10. LOSS PER SHARE

Basic earnings per share for each period is calculated by dividing the earnings attributable to shareholders by the weighted average number of ordinary shares in issue during the period based on the capital structure of Arria NLG plc. Details of the earnings and weighted average number of ordinary shares used in each calculation are set out below. As the Group is loss-making, share options in issue are anti-dilutive and therefore diluted loss per share is equal to the basic loss per share.

11. OTHER INTANGIBLE ASSETS

NET BOOK VALUE

The residual carrying value of intellectual property on the balance sheet at 31 March 2016 arose on the acquisition of Arria Data2Text Limited on 1 May 2012.

In the period ended 31 March 2016 £452,000 of research and development costs were capitalised (HY15: Nil). These costs are staff costs related to the development of Recount and Developer Cloud (SDK).

Following a review of the business opportunities available to the Group during the prior year, the Directors determined to continue to focus on developing the NLG software in advance of SQM3 in the near term. An impairment review based on value in use was performed at the year end resulting in an impairment charge of £133,000 being recognised at 30 September 2015. The carrying value of intellectual property relating to SQM3 at 31 March 2016 was £Nil (HY15: £133,000).

12. PROPERTY, PLANT AND EQUIPMENT

13. BORROWINGS

(i) Convertible notes

The Company issued the following convertible loan notes;

On 30 September 2014 the Company entered into a subscription agreement with the Ikonic Fund SAC Limited ("Ikonic"), pursuant to which Ikonic agreed to subscribe for £3.08 million of loan notes in three tranches. On 11 June 2015 Ikonic agreed to the early drawdown of the last two instalments. In consideration of Ikonic agreeing to the early drawdown of the two instalments, the Company also granted 6 million unlisted B Warrants for new ordinary shares (with a nominal value of £0.001 per share) in the Company, exercisable for a period up to 11 June 2019, at £0.12p per new ordinary share. These B Warrants were accounted for as share based payments.

13. BORROWINGS

Between the period July 2015 and March 2016 the Company entered into subscription agreements with various shareholders to subscribe for a total of £2.838 million of convertible loan notes. The loan notes have attached, 9.41 million unlisted B Warrants for new ordinary shares (with a nominal value of £0.001 per share) in the Company, exercisable to 11 June 2019 at £0.12 per new ordinary share. The B Warrants were issued on the basis of 2 warrants for every 1 US$ equivalent of loan note. These were accounted for as share based payments.

All current loan notes have a maturity date of 31 October 2019 and accrue interest at a rate of 5% above the Bank of England base rate as at 31 October of each year. Interest payments commenced 31 October 2015 and are payable annually on 31 October each year thereafter until the maturity date. The Company can redeem the loan notes, without penalty or fee, at any time upon 10 business days' notice to the holders of the loan notes (the "Noteholders"). The Noteholders are entitled to convert the loan notes and any accrued but unpaid interest into new ordinary shares at a price of £0.40 per share (subject to adjustment in certain customary circumstances) during the first 10 business days of each calendar year and also following receipt of notice that the Company intends to redeem the loan notes.

*1 The derivative liability arises as the loan agreements contain an option for the holder to convert the notes to ordinary shares and an option for the Company to repay the notes early. These options to convert and repay early give rise to a compound embedded derivative. Part of the proceeds received are allocated to the derivative instrument. (See Note 5 for further details).

*2 Accrued interest is calculated by applying the effective interest rate of 10.51% to the loan liability component.

14. SHARE CAPITAL AND PREMIUM

The issued share capital in the period was as follows:

Issue of Ordinary share capital in the period

On 15 October 2015 a total of 18,750,000 new ordinary shares of £0.001 pence each in the Company were conditionally subscribed for by Lanstead, (a specialist international investment firm) at an issue price of 32 pence per new ordinary share. 15 per cent. of the £6,000,000 gross proceeds of the subscription, being £900,000, were retained by the Company and the balance of £5,100,000 was pledged by the Company pursuant to two sharing agreements with Lanstead (the "Sharing Agreements"). The Sharing Agreements, details of which are set out below, entitle the Company to receive back those proceeds on a pro rata monthly basis over a period of 18 months, subject to adjustment upwards or downwards each month depending on the Company's share price at the time, as explained in more detail below. The Sharing Agreements provide the opportunity for the Company to benefit from positive future share price performance.

The Sharing Agreements

As part of the subscription, the Company entered into the Sharing Agreements, pursuant to which the Company returned an amount equal to 85 per cent. of the gross proceeds of the subscription to Lanstead. The Sharing Agreements will enable the Company to share in any share price appreciation over the Benchmark Price (as defined below). However, if the Company's share price remained less than the Benchmark Price then the amount received by the Company under the Sharing Agreements will be less than the 85 per cent. of the gross proceeds of the subscription which were pledged by the Company to Lanstead at the outset.

Each of the Sharing Agreements provide that the Company will receive 18 monthly settlement amounts as measured against a benchmark share price of 42.66667 pence per share (the "Benchmark Price"). The monthly settlement amounts for each Sharing Agreement were structured to commence two months following the admission to AIM of the new ordinary shares under the relevant Sharing Agreement.

If the measured share price (the "Measured Price"), calculated as the average volume weighted share price of the Company's ordinary shares over an agreed period prior to the monthly settlement date, exceeds the Benchmark Price, the Company will receive more than 100 per cent. of that monthly settlement due on a pro rata basis according to the excess of the Measured Price over the Benchmark Price. There is no upper limit placed on the additional proceeds receivable by the Company as part of the monthly settlements and the amount available in subsequent months is not affected. Should the Measured Price be below the Benchmark Price, the Company will receive less than 100 per cent. of the monthly settlement calculated on a pro rata basis and the Company will not be entitled to receive the shortfall at any later date.

For example, if on a monthly settlement date the calculated Measured Price exceeds the Benchmark Price by 10 per cent., the settlement on that monthly settlement date will be 110 per cent. of the amount due from Lanstead on that date. If on the monthly settlement date the calculated Measured Price is below the Benchmark Price by 10 per cent., the settlement on the monthly settlement date would be 90 per cent. of the amount due on that date. Each settlement as so calculated would be in final settlement of Lanstead's obligation on that settlement date.

Assuming the Measured Price equals the Benchmark Price on the date of each and every monthly settlement, Arria NLG would receive aggregate proceeds of £6.0 million (before expenses) from the subscription and related Sharing Agreements, made up of the £900,000 of the subscription initially retained by the Company and 18 monthly settlements of approximately £283,333. The Company agreed to pay Lanstead's legal costs incurred in the subscription and entering into the Sharing Agreements and in addition, agreed to issue to Lanstead 937,500 ordinary shares of £0.001 each in the Company (the "Value Payment Shares").

In no event will fluctuations in the Company's share price result in any increase in the number of new ordinary shares issued by the Company or received by Lanstead.

During January 2016 263,900 ordinary shares of were issued under the Company's LTIP scheme and had an exercise price of £0.001 per ordinary share. These new ordinary shares issued rank pari passu with the existing ordinary shares (see note 6 for further details).

15. MERGER RESERVE

The merger reserve arose on the acquisition of SQi3 Solutions Limited on 28 September 2012, Arria Data2text Limited on 25 October 2013 and Global IP Inc., on 25 October 2013 reflecting the consideration paid in shares. The Company took advantage of merger relief under the Companies Act 2006 and did not record the premium on these shares. The premium was credited to the merger reserve.

During the year ended 30 September 2015 £6.262 million was transferred from the merger reserve to accumulated losses, as the investments in SQi3 Solutions Limited and Global IP Inc and associated goodwill were impaired at 30 September 2014 and 30 September 2015.

16. RELATED PARTY TRANSACTIONS

Key management compensation

Key management includes Directors (executive and non-executive), the Chief Financial Officer, Chief Operating Officer, and Company Secretary. The compensation paid or payable to key management is shown below:

17. SUBSEQUENT EVENTS

Genpact Extends Three NLG Applications to Phase II Development

Following the successful completion of initial prototypes, Arria NLG has now been commissioned to work with Genpact in developing three fully market-ready applications for Genpact's customer base, initially in the banking and financial services industries. The applications are designed to improve existing automation systems by providing numerous complex business reporting processes which will transform the ability to perform existing tasks with the speed and scale advantages of advanced AI technology. The applications are: i) Model Documentation and Validation; ii) Financial Planning and Analysis (FP&A) Reporter; and iii) Credit Assessment.

Issue of patents

Subsequent to the period end Arria NLG was granted to further patents increasing to total number of patents granted from seven to nine. The two additional patents were granted by the US Patent and Trademark Office.

● The eighth patent granted was on Arria NLG's Method, Apparatus, and Computer Program Product for User-Directed Reporting which created an important new feature, and part of the Arria NLG Platform. The patent covers a new feature of Arria NLG's products, which automates real-time data analysis and generates reports using language that follows intuitive rules for how humans communicate and comprehend information. This patent covers flexible modification of search parameters not only for reports that may be generated with Arria NLG's advanced artificial intelligence technology, but also with more rudimentary, template based NLG systems offered by several of Arria NLG's competitors.

● The ninth patent granted was on Arria NLG's Method and Apparatus for Annotating a Graphical Output. This patent covers new features of Arria NLG's products, which automate real-time data analysis and generate reports using language that follows intuitive rules for how humans communicate and comprehend information. The innovations protected by this new patent tie together graphs and graphical annotations with the corresponding narrative in natural language reports that the Arria NLG software generates. The new patent is part of a broad diversification plan that Arria NLG has instituted to enhance versatility and improve ease of use, as well as to increase the analytic power and actionable conclusions of its NLG products.

Listing on the New Zealand Stock Exchange and the Australian Securities Exchange

On 30 June 2015 the Company announced a fund raising of £3.75 million by way of the issue of convertible loan notes (the "Loan Notes") and unlisted B warrants (the "B Warrants"). In this announcement the board of the Company (the "Board") stated its intention of exploring other sources of finance, including undertaking a public offering of shares in conjunction with a listing on the New Zealand Stock Exchange (the "NZX").

The Company is well advanced in preparing for the NZX listing as well as a listing on the Australian Securities Exchange (the "ASX") and an associated fundraising. In connection with these listings the Company intends to maintain a listing in the United Kingdom and the Board is considering the most suitable structure for this.

A further announcement will be made in the coming weeks with regards to the likely timing and structure of the transaction.

As part of the listings on the NZX and the ASX the Company plans to raise additional funding and the Company has commenced discussions with a number of potential investors on this matter. Should the listings and the associated fund raising not complete before the end of the summer the Company will need to seek alternative sources of finance in the short term. The Company has plans in place to raise capital in the short term as needed.

Issue of convertible loan notes and warrants

On 9 June 2016 the Company allotted £262,000 of convertible loan notes pursuant to subscription agreements entered into by certain investors. The loan notes have attached, 761,044 unlisted B Warrants for new ordinary shares (with a nominal value of £0.001 per share) in the Company, exercisable in the period to 11 June 2019, at £0.12 per new ordinary share. These will be accounted for as share based payments. The loan notes for these other investors are constituted by a loan note instrument with substantially the same terms and conditions as those announced previously.

INDEPENDENT REVIEW REPORT TO ARRIA NLG PLC

Report on the condensed interim financial statements

Our conclusion

We have reviewed the condensed interim financial statements (the "interim financial statements") in the condensed interim financial statements of Arria NLG plc for the 6 month period ended 31 March 2016. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the AIM Rules for Companies.

Emphasis of matter

Without modifying our conclusion on the interim financial statements, we have considered the adequacy of the disclosure made in note 2 to the condensed interim financial statements concerning the group's ability to continue as a going concern. The directors are in the process of seeking further fundraising to provide adequate working capital to support the commercialisation of Natural Language Generation technology and should fundraising not be successful, the group would not be able to meet its debts as they fall due in the foreseeable future. These conditions, along with the other matters explained in note 2 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the group's ability to continue as a going concern. The interim financial statements do not include the adjustments that would result if the group was unable to continue as a going concern.

What we have reviewed

The interim financial statements comprise:

• the interim condensed statement of financial position as at 31 March 2016;

• the interim condensed statement of comprehensive income for the period then ended;

• the interim condensed statement of cash flows for the period then ended;

• the interim condensed statement of changes in equity for the period then ended; and

• the explanatory notes to the interim financial statements.

The interim financial statements included in the condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the AIM Rules for Companies.

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The condensed interim financial statements are the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the condensed interim financial statements in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.

Our responsibility is to express a conclusion on the interim financial statements in the condensed interim financial statements based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the AIM Rules for Companies and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the condensed interim financial statements and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

 15 June 2016

a) The maintenance and integrity of the Arria NLG plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.

b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.