RLM.L Regulatory News (RLM)

24 April 2014

PuriCore plc Preliminary Results for the Year Ended 31 December 2013

Long-Term Sustainable Growth Strategy Taking Shape

PuriCore plc (LSE: PURI), a global company focused on safe and effective protection against the spread of infectious pathogens, today announces its preliminary results for the year ended 31 December 2013.

FINANCIAL HIGHLIGHTS

· Group revenue up 15.6% (16.3% at constant currency) to $54.8m (2012: $47.4m), primarily due to strong performance in the Supermarket Retail business

§ Supermarket Retail revenue up 30.2% to $28.9m (2012: $22.2m)

§ Endoscopy revenue down 0.8% (up 0.5% at constant currency) to $23.3m (2012: $23.5m)

§ Wound Care and Dermatology revenue up 53.0% to $2.6m (2012: $1.7m)

· EBITDA* nearly doubled to $2.4m (2012: $1.3m)

· Gross profit margin decreased slightly to 32.4% (2012: 32.7%)

· Operating expenses increased to $18.5m (2012: $17.5m)

· Loss before interest and taxes reduced to $0.7m (2012: $2.1m)

· Cash flow generated from operating activities $1.5m (2012: $4.3m)

· Significantly strengthened balance sheet

§ Cash and cash equivalents of $3.4m (2012: $2.5m)

§ Extinguished convertible loan of £7.95m

§ Raised £2.3m (before expenses) in placing in January

§ No loans or borrowings ($13.4m as at 31 December 2012)

OPERATIONAL HIGHLIGHTS

Food & Agriculture

· Supermarket Retail: signed a major capital equipment sale and implemented three recurring revenue deals

§ Completed nearly all installations of a $14.0m Sterilox® Fresh order for a top-five US supermarket retailer

§ Initiated shipments of an estimated $13.5m, four-year agreement with a top-three US supermarket retailer for new ProduceFresh™ bottled concentrate

§ Completed implementation of an estimated $7.0m, four-year FloraFresh™ agreement with a top-three US supermarket retailer

§ Initiated shipments of an estimated $3.5m, four-year FloraFresh agreement with a leading US supermarket retailer

Health Sciences

· Endoscopy: recurring revenue increased 1%, consistent with strategy, to 79% of divisional revenue (2012: 78%)

· Wound Care and Dermatology: expanded marketing partnerships, regulatory clearances, and geographic focus

§ Received US FDA clearance for Vashe® Hydrogel formulation for itch related to atopic dermatitis

§ Initiated marketing partnerships with Onset Dermatologics for Dermatology and with SteadMed Medical for Wound Care and transitioned Vashe marketing rights to SteadMed Medical for ultrasonic application following the termination of a distribution agreement with Misonix

§ Entered the veterinary market with the launch of NovaZo™ Animal Health Wound Irrigation Solution

POST BALANCE SHEET EVENTS

· Signed Ueno Corporation as Vashe marketing partner for the Middle East and North Africa region; targeted to generate revenue of $9.0m over the next three years

* Earnings before interest, tax, depreciation, amortisation, and non-cash equity-related charges.

Michael Ashton, Executive Chairman of PuriCore, said:

"In 2013, we initiated a multi-year growth strategy that focuses on increasing recurring revenue through new products and partnerships to achieve longer-term sustainable growth in the business and improved margins. During this period of change, we have delivered strong revenue and EBITDA growth ahead of market expectations, especially in the second half of the year. We also strengthened our balance sheet, successfully restructured the Convertible Loan Notes, and raised more than £2 million through a placing of shares.

We remain focused on our growth strategy of delivering more predictable recurring revenue and improving margins. In the Supermarket Retail sector, we plan to expand the sales force and drive growth in revenue and product usage of ProduceFresh. Additionally, we will place more attention on the Floral market, increasing resources to drive FloraFresh sales and expand the target market to florists and into the floral supply chain. Consistent with market expectations, revenue is expected to soften in the short term as we balance declining revenue from capital equipment and grow consumables and other recurring revenue. In the UK, we remain focused on growing recurring revenue and on marketing our new Storage and Drying Cabinets and the new RapidAER. Our new US and Middle Eastern partnerships in Health Sciences, plus other international partnerships being pursued in all business areas, offer the opportunity to leverage greater marketing resources with targeted investment whilst delivering increased licensing and product revenue."

Chairman's Report

PuriCore reported 2013 revenue growth, primarily due to revenue increases in the Supermarket Retail business, and nearly doubled EBITDA,* significantly above market expectations. The Company deployed its new growth strategy focused on initiatives to drive recurring revenue. Gross margins decreased slightly during the year, largely due to a one-off inventory write-off. Operating expenses increased as planned due to investment in sales and marketing, IP associated with the development and launch of new products, and other growth initiatives. PuriCore significantly strengthened its balance sheet and was debt free at year-end. Loss from continuing operations for the period was reduced to $0.6 million, excluding a $5.8 million non-cash loss on the reduction of the conversion price on the converted loan.

FOOD & AGRICULTURE

Supermarket Retail: Fresh Produce and Floral

In the Supermarket Retail business, PuriCore continued to expand its customer base with several major contract wins, including a significant capital equipment order supported by an extended service plan and new concentrate product implementations. These commercial successes drove a significant increase in revenue for the Supermarket Retail business for the year with a jump of 30.2% to $28.9 million (2012: $22.2 million).

During the year, the Company engaged its strategy to drive recurring revenue in the Supermarket Retail business by expanding product formats and applications. In the fourth quarter, PuriCore launched its second consumable product for this business, ProduceFresh, a new bottled concentrate option for fresh produce. The product launch coincided with PuriCore's first major ProduceFresh order: an estimated $13.5 million, four-year agreement with a top-three US supermarket retailer. Revenue for this agreement initiated in October 2013 and will continue to be booked in the Company's financial accounts through to 2017.

Additionally, PuriCore continued to sell its Sterilox Fresh Systems to customers that prefer on-site generation for large-volume usage. The Company completed nearly all installations during 2013 for a $14.0 million agreement with a top-five US supermarket retailer. Under the terms of the agreement, the retailer also purchased a six-year service contract. The majority of the capital revenue was recorded in the 2013 financial accounts, and revenue related to the service contract will be recognised over the term of the agreement.

PuriCore has secured enterprise-wide agreements for its FloraFresh in two major US supermarket retailers. The Company completed the enterprise-wide roll out of FloraFresh as part of an estimated $7.0 million, four-year agreement with a top-three retailer that was announced in 2012. Additionally, PuriCore signed an estimated $3.5 million, four-year FloraFresh agreement with a second major retailer in November 2013. This retailer began using the product in December and is expected to complete full implementation of its floral programme utilizing FloraFresh in 2014. 

As at year-end, PuriCore held 24% of the market share for Sterilox Fresh Systems and ProduceFresh concentrate in the targeted supermarkets for the fresh produce application and 8% of the market share for the FloraFresh floral application.

R&D: Agriculture

PuriCore continued to advance its research and development efforts in agriculture. In 2013, the Company initiated an additional agriculture study focused on wheat but experienced delays due to continuing weather issues in the UK. Once the Directors have assessed the scope of the commercial opportunity, the Company plans to enter into discussions with appropriate partners.

HEALTH SCIENCES

Endoscopy

The Endoscopy business (including Surgical and Scientific) continued to focus on capitalizing on its strong presence in the UK National Health Service (NHS) hospitals and to manage costs to maximise profitability. During the period, Endoscopy revenue was $23.3 million (2012: $23.5 million), which represents a 0.5% increase at constant currency. Revenue remained relatively flat as the business invested in new products to satisfy changing market needs. The Company continued to focus on increasing recurring revenue, including services and consumables, which represented 79% of sales for the year (2012: 78%).

PuriCore continues its strategy to grow the UK market share beyond the current 300 hospitals in the NHS system and is targeting expansion into Europe. Following the purchase of Monmouth Surgical in 2012, PuriCore has expanded product offerings, which are now available in its new Surgical catalogue. The Endoscopy business continues to develop best-in-class products with the launch of the leading-edge Endoscope Storage and Drying Cabinets in 2013. Additionally, the Company is preparing for launch in the second quarter of 2014 of its new state-of-the-art endoscope washer disinfector, RapidAER,® which received CE Marking in the first quarter of 2014. Sales activities for this new AER offering are already underway.

Wound Care and Dermatology

Revenue in the Wound Care and Dermatology business (including Animal Health and Dental) increased by 53.0% to $2.6 million (2012: $1.7 million) through marketing partnership successes, including milestone payments.

PuriCore entered two new US marketing partnerships in the first half of 2013 and a Middle East and North Africa (MENA) partnership in the first quarter of 2014. The Company also continued to expand indications and product formats, including the newly launched Animal Health application, as well as to pursue European expansion and rest-of-world opportunities.

The marketing partnerships with SteadMed Medical for Vashe Wound Therapy in North America and with Onset Dermatologics for private-labeled Dermatology products in the US were established as the commercial arm of the franchise. In October 2013, PuriCore terminated its distribution agreement for a private-label version of its Wound Care solution for use principally in conjunction with the Misonix line of ultrasonic systems, and SteadMed Medical now serves as the marketing partner for this application. In February 2014, PuriCore signed a marketing and distribution agreement with Ueno Corporation for Vashe in 15 Middle East and North African countries. The agreement is targeted to generate approximately $9.0 million in Vashe revenue to PuriCore over the next three years. Initial shipments commenced in the first quarter of 2014.

In February 2013, PuriCore announced it received US FDA regulatory clearance for Vashe Skin and Wound Hydrogel formulation for the management and relief of pain, burning, and itching experienced with various dermatoses including atopic dermatitis. This clearance was a key milestone in PuriCore's marketing partnership with Onset Dermatologics and can be used also in Animal Health applications. PuriCore received an additional FDA regulatory clearance to further refine claims and to extend the shelf-life of the Vashe products.

In October 2013, PuriCore entered the US Animal Health market with the launch of NovaZo Animal Health Wound Irrigation Solution. The Company has focused initially on the US market utilizing a contract sales team and will pursue international partners for this new market. In April 2014, PuriCore launched a complementary product for the Animal Health market, NovaZo Wound Hydrogel Dressing.

OUTLOOK

The Company remains focused on its growth strategy of delivering more predictable recurring revenue and improving margins. In the Supermarket Retail sector, PuriCore plans to invest strategically in the business to expand the sales force and drive growth in revenue and product usage of ProduceFresh. Additionally, PuriCore will place more attention on the Floral market, increasing resources to drive FloraFresh sales and expand the target market to florists and into the supply chain with importers and distributors. Consistent with market expectations, revenue is expected to soften in the short term as PuriCore balances declining revenue from capital equipment and grows consumables and other recurring revenue. In the UK, PuriCore remains focused on growing recurring revenue and on marketing its new Storage and Drying Cabinets and the new RapidAER, which will open the door for international expansion. The new US and Middle Eastern partnerships in Health Sciences, plus other international partnerships being pursued in all business areas, offer PuriCore the opportunity to leverage greater marketing resources with targeted investment whilst delivering increased licensing and product revenue.

On behalf of the Board, I would like to thank the PuriCore team in the UK and the US for their outstanding work, diligence, and determination to continue to improve PuriCore's top- and bottom-line performance. In addition, we thank our shareholders for their continued commitment to the Company and their belief in the potential of PuriCore's technology.

Michael R.D. Ashton

Executive Chairman

24 April 2014

* Earnings before interest, tax, depreciation, amortisation, and non-cash equity-related charges.

Finance Director's Report

INCOME STATEMENT

Group revenue increased 15.6% (16.3% at constant currency) to $54.8 million for the period (2012: $47.4 million), driven largely by the significant revenue growth in the Supermarket Retail business from capital sales and capital leases. For 2013, PuriCore reported a significant increase in EBITDA* to $2.4 million (2012: $1.3 million), which was above market expectations.

Gross profit margin for the Company decreased slightly to 32.4% (2012: 32.7%). Gross margin was negatively impacted by the one-off provision of inventory deemed not compatible with the Company's new produce and floral concentrate platforms and Wound Care product lines. Excluding this inventory provision ($1.5 million), gross margin would have been 35.2%. Changes in business strategy resulted in the recognition of new 2013 Sterilox Fresh equipment leases as capital leases, contributing to the higher than expected revenue and EBITDA.

Operating expenses increased 5.2% to $18.5 million (2012: $17.5 million) due to planned investments in marketing and sales to support new opportunities, in expanding the intellectual property portfolio, and in resources to support growth. There was also a one-off charge ($0.4 million) related to the write-off of a receivable upon the termination of the Misonix distribution arrangement. PuriCore continued to invest in R&D, a portion of which was capitalised consistent with significant new product development and launch activities during the year, resulting in a decline in reported R&D operating expenses.

Loss before interest and taxes was $0.7 million for the year, as compared with $2.1 million in 2012. Net loss from operations was $6.4 million, including a $5.8 million non-cash loss on the discount of the conversion price on the converted loan notes. Excluding this amount, net loss was $0.6 million compared with a net loss in 2012 of $0.9 million, which included the benefit of the recognition of a deferred tax asset of $1.9 million. On a comparative basis, excluding both these items, net loss improved by $2.2 million.

CASH FLOW

PuriCore generated $1.5 million in cash flow from operating activities in 2013 (2012: $4.3 million), driven by working capital use and the growth in capital leases. In addition, PuriCore completed an equity placing in January 2013, raising approximately £2.3 million in new shares (before expenses) at a price of 43 pence per share. As at 31 December 2013, cash and cash equivalents were $3.4 million.

DEBT

In January 2013, the Company restructured and converted 95.28% of the £7.95 million of convertible loan notes.. As at 31 December 2013, PuriCore had no loans or borrowings (31 December 2012: $13.4 million) due to the conversion of the majority of the bonds and the repayment of the unconverted bonds and other obligations. As planned, PuriCore established a revolving line of credit in December 2013 to support working capital, concentrate product adoption, and general business needs of the growth strategy but did not draw down upon the line in 2013.

As a result of the debt extinguishment and other balance sheet improvements during the year, the Group was in a net asset position as at 31 December 2013. 

Marella Thorell

Finance Director

24 April 2014

* Earnings before interest, tax, depreciation, amortisation, and non-cash equity-related charges.

Consolidated Statement of Comprehensive Income

For the Years Ended 31 December

Consolidated Statement of Changes in Equity

For the Years Ended 31 December

Other reserves relate to share-based payments and warrant expense.

Consolidated Statement of Financial Position

At 31 December

Consolidated Statement of Cash Flows

For the Years Ended 31 December

The consolidated financial statements and related notes were approved by the Board of Directors and authorised for issue on 24 April 2014 and were signed on its behalf by:

Marella Thorell

Finance Director

Company no: 05789798

Risks and Uncertainties

Risk management is seen as an important element of internal control and is used to mitigate the Group's exposure to such risks.

The risks included here are not exhaustive. The Group operates in a competitive and rapidly changing environment. New risks emerge periodically, and it is not possible to predict all such risk factors for the Group's business or the extent to which any factor or combination of factors might cause actual results to differ materially from those contained in any forward-looking statements.

Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

RISKS RELATING TO THE GROUP'S BUSINESS

The Group has a significant concentration of revenue derived from a few customers.

A significant proportion of the Group's sales contracts are with a limited number of customers such as the NHS and certain large retail supermarket chains. Failure to deliver products and/or services to these customers, termination by any of these customers of their agreements, if any, with the Group, and/or a reduction in spending by these customers could have a material adverse effect on the Group's business, financial condition, and results of operations in the form of reduced revenues. The NHS is comprised of several Trusts, each of which is a separate customer, however, for the purpose of budget/spending management. Similarly, sales that are put through the NHS Supply Chain are made based on the creditworthiness of the underlying Trust. Further, the Group is endeavoring to diversify its customer base through additional product offerings, including the new concentrate products, and entry into new geographic markets to mitigate this risk.

The Group has a history of operating losses.

The Group has experienced operating losses in each year since its inception and, as at 31 December 2013, had an accumulated deficit of approximately $181.7 million. While there can be no assurance that the Group will achieve net profitability, there have been considerable improvements made in revenue growth and cash flow resulting in a lower net loss before interest and taxes in 2013 (net of exceptional item) than in 2012. In addition, the Group seeks to mitigate this risk through its establishment of a line of credit and strict cash management processes. However, the Group may need to consider future fundraising to support specific growth or investment initiatives.

The Group is reliant on core technology and development and is subject to competition.

The Group is reliant on its core technology platform, particularly in the Supermarket Retail and Wound Care businesses, and is potentially subject to competition from other companies that might have products in development or commercially available that are more advanced and/or less expensive. In relation to future products, competitors may precede the Group in commercialising, developing, and receiving regulatory approval for their products, and competitors may also succeed in developing products that are even safer, more effective, or more economically viable than products developed by the Group. As a result, the Group's products may not be competitive or available in the market in a timely manner therefore eroding the Group's market share and/or potential for growth or creating pricing pressure in the market. The Group seeks to mitigate these risks through strengthening the science and technology of its products, diversifying its product portfolio, endeavouring to rapidly increase market share and enter into new markets with opportunites for return, improving manufacturing efficiencies, and remaining vigilant and pro-active in regards to competitive threats, to the extent possible.

The Group's products are subject to various US, European, Middle Eastern, and other legislative and regulatory requirements.

The Group's products are subject to various US, European, Middle Eastern, North African, and other legislative and regulatory requirements. If the Group or its third party manufacturers fail to satisfy legislative and regulatory requirements, this could result in the imposition of sanctions on the Group, including fines, injunctions, civil penalties, import bans, delays, suspension or withdrawal of approvals, license revocation, seizures or recall of products, operating restrictions, and criminal prosecutions, any of which could materially harm the Group's product development and commercialisation efforts.

Legislative changes or regulatory reform of the healthcare systems in the countries in which the Group operates may also affect the Group's ability to sell its products profitably or at all. Further, the Group may not be successful in securing regulatory clearance for devices or products it may develop in the future. Even if regulatory clearance is granted, it is subject to continual review and this approval maybe withdrawn or restricted. Any or a combination of these factors could have a material adverse effect on the Group's business, financial condition and results of operations. The Group seeks to mitigate these risks through quality procedures to assess on-going compliance with regulatory guidance.

As the Group transitions to a recurring-revenue, consumables-based revenue model, consumption levels may not be as high as forecast whilst investments are necessary to establish the consumable platform at customers.

The Group has a mixture of capital equipment, leased equipment, service contracts, and consumables sales. With a stated intent to transition the business to a more consumables-based revenue model, future revenues are to a greater extent dependent upon on-going consumption levels from customers. If usage levels in future years do not achieve expectations, this could have a material adverse effect on the Group's business, financial condition, and results of operations if appropriate measures are not taken to reduce costs in line with reduced sales. Further, the Group must make initial investments in installing the delivery system for the consumable products at customer locations and may not re-coup the cost of this investment if consumption levels do not meet expectations. The Group seeks to mitigate this risk by closely monitoring and reporting to the customer on consumption, by maintaining close customer relationships to ensure usage of consumables, and by expanding the use and application of the consumables throughout the customers operations.

Rapid growth in the Group's Wound Care and Dermatology business is dependent upon successful marketing partnerships.

The Group has significant growth expectations for the Wound Care and Dermatology (including Animal Health) business built largely on marketing partners, which represents an important part of the Group's growth strategy going forward. It is possible that PuriCore will not be able to agree terms with new potential partners or that it will experience slower than expected revenue growth. The Group seeks to mitigate this risk by focusing on strengthening these existing partnership relationships and by developing line extensions to support the sales efforts. In addition, the Group concurrently assesses other means to growth the Wound Care and Dermatology business.

The Group is dependent on a limited number of sub-contract manufacturers to assemble many of its products and to produce certain components within these products.

The Group is dependent on a limited number of sub-contract manufacturers to produce its range of products. Although the Group regularly considers additional sub-contract manufacturers, there can be no guarantee that the Group will be able to access additional sources to manufacture these integral products. The Group believes that appropriate supply chain systems for order management and quality control will continue to be applied, but there is no guarantee that its sub-contractors will continue to devote adequate resources to the production of the Group's products or deliver sufficient quantities of finished products on a timely basis or at an acceptable cost or to enable the Group to maintain sufficient inventory to meet customer demand, which may delay or reduce revenue recognition. For new consumable products, the Group seeks to mitigate this risk by diversifying suppliers for concentrate products for the Wound Care and Dermatology business.

A large percentage of the Group's revenue is dependent upon the uptake and market success of rapidly developed and launched new products.

As the Company has increasingly focused on new product formats, a significant percentage of PuriCore's revenue is now depending upon the timely delivery by R&D, obtaining the necessary regulatory approvals to timescale, and market acceptance and performance of these products (and the complementary concentrate delivery system) that were developed and launched to deliver speed to market. To mitigate this risk, PuriCore has a system to prioritise regulatory efforts, development and testing of new products, to assess in-market performance, and to ensure market issues are addressed or improved as development and launch are planned. In addition, the Company redesigned its concentrate delivery system for Supermarket Retail concentrate products to improve simplicity and has established a program to monitor performance of these systems in the field.

RISKS RELATING TO THE MARKETPLACE IN WHICH THE GROUP OPERATES

The sectors in which the Group operates are subject to macroeconomic pressures that may result in tighter spending practices.

PuriCore's customers are primarily in the healthcare and retail supermarket sectors. These sectors are subject to spending policy changes as a consequence of a downturn in the economy. In the UK, the NHS has announced austerity measures to reduce costs. The Group's sales to the NHS may be subject to pricing and/or quantity pressures as a result. These pressures are present in the US healthcare sector as well. The retail supermarket sector has been impacted by decreases in consumer spending arising from the economic downturn, resulting in reduced spending on capital equipment. These macroeconomic pressures may result in lower revenues being realised by the Group.

RISKS RELATING TO THE ORDINARY SHARES

The share price of the Company may fluctuate significantly.

The share price may, in addition to being affected by the Group's actual or forecasted operating results, fluctuate significantly as a result of factors beyond the Company's control and may not always reflect the underlying asset value or the prospects of the Company. The factors that may affect the Company's share price are:

· liquidity of the Ordinary Shares and willingness of Shareholders to sell where there are demand or supply imbalances;

· fluctuations in stock market prices and volumes, and general market volatility;

· changes in laws, rules and regulations applicable to the Company, its operations and involvement in actual or threatened litigation;

· general economic and political conditions, including in the regions in which the Group operates; and

· changes in the structure of the European Union and financial implications of the sovereign debt crisis.

RISKS RELATING TO INTELLECTUAL PROPERTY

The Group may be unable to adequately protect its intellectual property.

The Group is the owner of intellectual property rights, comprising patents, trademarks, designs, copyright, trade secrets, and confidential information. While it may apply from time to time to register additional patents, trademarks, designs, and copyright and take reasonable steps to protect its trade secrets and confidential information, there can be no assurance that any of its registered intellectual property rights will not be successfully challenged or that third parties will not misappropriate such secrets and information. The Group relies to a great extent on its patents and whilst no validity challenges have previously been made there is no guarantee that they will not be made in the future. Other companies may obtain intellectual property rights based on developments in technology used by the Group. Without obtaining a license to utilise such intellectual property rights, the Group would be restricted from utilising such new developments.

Any misappropriation, or challenge to its intellectual property rights, or failure to obtain protection for a license in relation to such intellectual property could have a material adverse effect on the Group's business, financial condition, and results of operations and may require it to engage in costly litigation. The Group seeks to mitigate this risk by increasing investment in new patents and by and implementing a robust process to monitor and/or defend existing patents.

Intellectual property litigation and/or infringement actions may be brought against the Group or may need to be brought by the Group.

There can be no assurance that the Group will not receive a notification that any products or systems infringe any third-party intellectual property rights in the future. Any litigation to determine the validity of third-party infringement claims, whether or not determined in the Group's favour or settled by the Group, would be costly and could divert the efforts and attention of the management and technical personnel from productive tasks, which could have a material adverse effect on the Group's business, financial condition and results of operations.

The Directors cannot guarantee that infringement claims by third parties or claims by customers or end users of the Group's products resulting from infringement claims will not be asserted in the future or that such assertions, if proven to be true, will not materially adversely affect the Group's business, financial condition, and results of operations. In the event of an adverse ruling in any such matter, the Group could be required to pay substantial damages; cease the manufacture, use, and sale of infringing products; discontinue the use of certain processes; or obtain a license under the intellectual property rights of the third-party claiming infringement. A license may not be available on reasonable terms or at all. Any limitations on the Group's ability to market its products, or delays and costs associated with redesigning its products or payments of license fees to third parties, or any failure by the Group to develop or license a substitute technology on commercially reasonable terms could have a material adverse effect on the Group's business, financial condition and results of operations. There can be no assurance that the Group will not need to bring (or otherwise participate in) claims against third parties for infringement of intellectual property owned by the Group.

RISKS RELATING TO PRODUCT LIABILITY

The business of the Group exposes its products to potential product liability risks.

The fact that the Group is in the healthcare and retail supermarket sectors may expose it to potential product liability risks associated with the research, development, manufacturing, marketing, sale, installation, training, and use of its products.

The Group has product liability insurance in place. Whilst the Directors believe that the current levels of coverage are sufficient for its current products, there can be no assurance that the level of insurance carried now or in the future will be adequate to cover the financial damages resulting from a product liability claim or judgement. Any product liability claim or judgement that exceeds the Group's insurance coverage limits could have a material adverse effect on the Group. The Group seeks to mitigate this risk by maintaining levels of liability insurance, which the Directors believe is sufficient to address this risk.

Select Notes to the Financial Statements

For the Years Ended 31 December 2013 and 2012

BASIS OF PREPARATION

This preliminary announcement has been prepared on the basis of the recognition and measurement requirements of Adopted IFRSs that are endorsed by the EU and effective as at 31 December 2013.

The financial statements are presented in US dollars (USD), rounded to the nearest dollar. The USD has been chosen as the presentational currency as a significant portion of the Group's revenue and expenses are denominated in USD. The accounting policies set out below have, unless otherwise stated, been applied consistently throughout the year.

Some asset and liability amounts reported in the accounts are based on management estimates and assumptions that affect the reported amounts. There is therefore a risk of significant changes to the carrying amounts for these assets and liabilities within the next financial year. Management regularly reviews the estimates and assumptions that drive key financial calculations and disclosures. Key risks are considered in these calculations, where necessary.

The information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2013 or 2012 but is derived from those accounts. Statutory accounts for 2012 have been delivered to the registrar of companies and those for 2013 will be delivered in due course. The auditor has reported on those accounts, their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Going Concern

The financial statements have been prepared on a going concern basis, which the Directors believe to be appropriate for the following reasons.

The Group meets its day-to-day working capital requirements through cash balances and a bank revolving line of credit secured December 2013. The cash balance is $3.4 million at 31 December 2013 and $3.9 million at 31 March 2014. The bank line of credit is secured on the Group's accounts receivables, inventory, equipment, general intangibles, intellectual property, and other personal property assets. In addition, the Group is required to maintain certain covenants. The Group had no outstanding loans and borrowings at 31 December 2013 and $1.7 million at 31 March 2014.

The Directors have prepared cash flow forecasts to 31 December 2015. These forecasts make a number of assumptions, the most significant of which relate to the level of revenue growth, gross profit, and operating expenses. The base case cash flow forecasts show the Group will be able to continue to operate within its available facility and meet the covenants for that facility throughout the period to 31 December 2015. The Directors have prepared a reasonably possible downside sensitivity to the base case forecasts (including implementing mitigating actions such as spending deferrals), which also shows that the Group will be able to continue to operate within its available facility and meet the covenants for that facility throughout the period to 31 December 2015, albeit with reduced headroom.

The Directors consider the Group will continue to operate with sufficient funding and within its debt covenants for at least 12 months from the date of approval of these financial statements.

The Directors have concluded the assumptions discussed above do not cast significant doubt on the Group's and the Company's ability to continue to operate as a going concern and therefore they continued to prepare the financial statements on a going concern basis. The financial statements do not contain any adjustments that would result from the basis of preparation being inappropriate.

NOTE 1 - Segmental Analysis

The Group is managed by type of business. Segmental information is provided having regard to the nature of the goods and services provided and the markets served. Within Wound Care & Dermatology, the Group has classified certain businesses including Animal Health, Dental, and other business development activities.

An analysis of the Group's business segments for the years ended 31 December is as follows.

1 Corporate and unallocated includes costs associated with operating the Company.

Information about Geographical Areas

An analysis of the Group's revenue by geographic location of its customers for the years ended 31 December and assets and capital expenditures as at 31 December are as follows.

Products and Services Provided

PuriCore is a global company focused on safe and effective protection against the spread of infectious pathogens without causing harm to human or animal life or to the environment. PuriCore's antimicrobial technology and complementary products are used in well-established core businesses and emerging sectors broad markets: Health Sciences and Food & Agriculture. In the Health Sciences market, PuriCore's Endoscopy business is the leading full provider of all products and services required for a safe, efficient, and compliant endoscope decontamination to protect patients and staff in UK hospitals. PuriCore's Wound Care technology is used worldwide to treat chronic and acute wounds including diabetic ulcers and burns in humans, for atopic dermatitis as private-labelled Dermatology treatments for humans, and to manage wounds in all species of companion and farm animals in the Animal Health segment. In the Food & Agriculture market, PuriCore is a provider to US Supermarket Retailers for use in their produce departments to improve food safety, extend shelf life, and decrease food wastage. In Floral, PuriCore's products protect against fungal growth and extend the salable life of cut flowers throughout the distribution chain.

PuriCore's products are used in the following areas.

US (and Canadian) Supermarket Retail - PuriCore sells its Sterilox Fresh Systems and ProduceFresh bottled concentrate solution as an intervention that aims to address food safety and to improve shelf life and home life for fresh produce to leading Supermarket Retail customers as well as FloraFresh bottled concentrate solution that aims to improve the shelf life of floral products whilst decreasing labour costs.

UK Endoscopy (including Surgical and Scientific) - PuriCore aims to provide a full suite of equipment including Storage and Drying Cabinets and Automated Endoscope Reprocessors as well as supplies, chemistries, and services required for a compliant endoscope decontamination suite. In addition, this business sells a catalogue of surgical consumables and manufactures and sells a line of laboratory clean air equipment.

US Wound Care and Dermatology (including Animal Health) - Vashe Wound Therapy is a US Food and Drug Administration (FDA)-cleared medical device for use in debriding, lubricating, and moistening chronic and acute wounds. PuriCore has marketing partnerships for Vashe Wound Therapy in North America as well as in 15 Middle East and North African countries. In addition, Vashe Skin and Wound Hydrogel is an FDA-cleared medical device for use in the management and relief of pain, burning, and itching experienced with various dermatose including atopic dermatitis. The Company has a marketing partnership for private-labeled Dermatology products in the US utilising this itch regulatory clearance. PuriCore also sells the NovaZo line of Animal Health wound care products, including a solution and a hydrogel based on the Vashe technology, in the US.

US & UK Dental - Sterilox Solution acts to decontaminate water lines and maintain acceptable water quality levels providing a safer, healthier work environment for patients and staff.

During the year ended 31 December 2013, one US Supermarket Retail customer represented 18.7% ($10.2 million) of Group revenue.

NOTE 2 - Loss for the Year

An analysis of the Group's loss for the years ended 31 December has been arrived at after charging:

An analysis of Group auditor's remuneration for the years ended 31 December is as follows.

NOTE 3 - Finance Costs

An analysis of the Group's finance costs for the years ended 31 December is as follows.

1 In January 2013, the Company restructured its convertible loan notes by amending the conversion price from 70 pence per Ordinary Share to 40 pence per Ordinary Share thereby increasing the value of the loan notes to the note holders. In accordance with IAS32, a charge is recorded to recognise the difference at the date the terms were amended between the fair value of the consideration the loan note holders receive on conversion under the revised terms and the fair value of the consideration the loan note holders would have received under the original terms. The charge was recognised within profit and loss and has been recorded as an exceptional item.

NOTE 4 - Loss per Share

The calculation of the Group's basic and diluted loss per share for the years ended 31 December is based on the following data.

The Company's issued share capital at 31 December 2013 consisted of 50,135,432, 10 pence ordinary shares.

1 The calculation for diluted loss per share is identical to that used for basic loss per share. The exercise of share options would have the effect of reducing the loss per share and are therefore excluded since not dilutive under the terms of IAS 33 'Earnings per share.'

2 Adjusted loss for the year ended 31 December 2013 excludes the impact of the non-cash loss on discount of the convertible bond.

NOTE 5 - Trade and Other Receivables

The Directors consider the carrying amount of trade and other receivables approximates fair value. An analysis of Group and Company trade and other receivables as at 31 December is as follows.

An analysis of the Group's capital lease receivables as at 31 December is as follows.

An analysis of the Group's provision for impairment of receivables as at 31 December is as follows.

During the year ended 31 December 2013, the Company terminated its distribution agreement with Misonix for a private-label version of its Wound Care solution and recorded a $0.4 million charge for bad debt expense (net of the forgiveness of the Company's note payable to Misonix).

An analysis of the age profile of Group trade receivables as at 31 December is as follows.