Final Results

Deltex Medical Group PLC 15 March 2007 Deltex Medical Group plc Preliminary results for the year ended 31 December 2006 15 March 2007 - Deltex Medical Group plc ('Deltex Medical' or 'Company'), the UK's leading haemodynamic monitoring company, today announces its preliminary results for the year ended 31 December 2006. Financial Highlights •Turnover increased by 15% to £3,511,000 with 80% of growth from recurring revenue streams •Operating losses increase to £2,102,000 (2005: £1,774,000) after TECO acquisition and restructuring of European distribution network •Cash of £418,000 with a further £465,000 of new equity raised since year end •Company enters 2007 with lowest rate of cash burn and operating loss since first listing Operating Highlights •All regions show sustainable growth driven by recurring probe revenues •Steady stream of evidenced based research supports new monitoring applications •SupraQ adopted by Medway Maritime Hospital for critical care applications; enhanced prototype SupraQ completed in 2007 •Accelerating uptake from a range of reference customers including European teaching hospitals and US military •Medicare proposed reimbursement approval lays ground for accelerated penetration of USA •Company configured for growth in all its key markets Nigel Keen, Chairman of Deltex Medical, said: '2006 has been a year of transformation for Deltex Medical. Since receiving endorsements for our CardioQ product from the Freeman study, we have seen accelerated deployment of the product in active use - particularly in operating theatres. Product deployment is driving probe sales and further endorsement by leading medical institutions, in the UK, Continental Europe and the USA is laying a solid foundation for growth across all our key markets for 2007 and beyond.' For further information, please contact:- Deltex Medical Group plc 01243 774 837 Nigel Keen, Chairman njk@deltexmedical.com Andy Hill, Chief Executive ahill@deltexmedical.com Ewan Phillips, Finance Director eap@deltexmedical.com Gavin Anderson & Company 0207 554 1400 Deborah Walter dwalter@gavinanderson.co.uk Robert Speed rspeed@gavinanderson.co.uk Charles Stanley Securities 020 7149 6457 Philip Davies philip.davies@csysecurities.com Russell Cook russell.cook@csysecurities.com Notes for Editors Deltex Medical manufactures and markets the CardioQ monitor, which uses disposable ultra-sound probes inserted into the oesophagus to determine the amount of blood being pumped around the body - 'circulating blood volume'. Reduced circulating blood volume is known as hypovolaemia, which leads to insufficient oxygen being delivered to the organs. This causes medical complications including peripheral and major organ failure which can lead to death. Hypovolaemia, which is akin to severe dehydration, affects virtually every patient having surgery because of the combined effects of pre-operative starvation, the impact of the anaesthetic agents and trauma from the surgery itself. Using fluids and drugs, guided by the CardioQ, to optimise the amount of circulating blood significantly reduces post-operative complications allowing patients to make a faster, more complete recovery and return home earlier. The CardioQ incorporates the Company's proprietary software and a small diameter, easy-to-use, minimally invasive, disposable oesophageal probe that is used for transmitting and receiving an ultra-sound signal. By using this technology, the CardioQ provides clinicians with the ability to haemodynamically optimise critically ill patients and those undergoing routine moderate to major surgery through the controlled administration of fluid and drugs. Haemodynamic optimisation has been scientifically proven to improve the speed and quality of patient recovery and reduce hospital stay. There are already over 1,250 CardioQs currently in use in hospitals worldwide and distribution arrangements are in place in over 30 countries. In addition, there are currently more than 90 clinical publications on the use of the CardioQ which have repeatedly:- •Validated the results of the Monitor against known standards for measuring cardiac output, demonstrating that the technology works •Proved that the CardioQ works in a wide range of surgical procedures •Demonstrated that the Company's technology provides significant health and economic benefits by helping to reduce post-operative complications and length of hospital stays by an average of 30 to 40 per cent for a wide range of patients. The SupraQ is an entirely non-invasive device which uses an ultrasound probe held at the base of the patient's neck to track the flow of blood in the aorta; it presents the same data as the CardioQ in a similar format and is used for taking snapshots or monitoring over short periods. Chairman's Statement Group Summary Deltex Medical's CardioQ monitor uses disposable ultrasound probes inserted into the oesophagus through the mouth or nose to determine the amount of blood being pumped around the body - 'circulating blood volume'. Reduced circulating blood volume is known as hypovolaemia and occurs as a consequence of blood loss or dehydration. If blood volume is reduced significantly, the body cannot deliver sufficient oxygen to the vital organs. This causes medical complications including peripheral and major organ failure, which can lead to the patient being severely compromised or death. Hypovolaemia affects almost all patients undergoing surgery because of the combined effects of pre-operative starvation, the impact of anaesthetic gases and the trauma of surgery itself. Guided by the CardioQ and using fluids and drugs to optimise the amount of circulating blood and the heart's performance, doctors can significantly reduce post-operative complications allowing patients to make a fuller, more complete recovery and return home earlier. The opportunities the CardioQ offers for improved quality and efficiency of care through helping patients get better, quicker can be summarised: the CardioQ saves lives and saves money. It is Deltex Medical's strategy to make the use of the CardioQ a standard of care in operating theatres for all patients undergoing moderate and high risk surgery as well as for its use to be the treatment of choice in intensive care units for the real-time monitoring of severely ill patients. Adopting the CardioQ as a standard of care allows hospitals to both improve the quality of care they give and the efficiency with which they give it. These proven efficiency benefits allow the hospital to choose to either increase capacity, reduce costs, or redeploy existing resources to meet local priorities. Trading Results Unaudited Sales 2006 2006 2006 2006 2006 2006 2005 2005 2005 2005 2005 2005 Probes Monitors Probes Monitors Other Total Probes Monitors Probes Monitors Other Total units units £'000 £'000 £'000 £'000 units units £'000 £'000 £'000 £'000 Direct markets UK CardioQ 24,075 53 1,837 324 124 2,285 21,475 34 1,559 191 88 1,838 UK SupraQ - 14 - 280 - 280 - 3 - 60 - 60 ----- ------ ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- UK total 24,075 67 1,837 604 124 2,565 21,475 37 1,559 251 88 1,898 USA 4,760 11 349 58 5 412 4,515 12 303 50 5 358 Distributor markets Europe 5,625 6 276 25 11 312 6,375 50 289 328 6 623 Far East & Latin 4,730 15 170 51 1 222 3,685 14 128 34 1 163 America ----- ------ ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- 39,190 99 2,632 738 141 3,511 36,050 113 2,279 663 100 3,042 ----- ------ ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- Sales Group sales increased by 15% to £3,511,000 in year ended 31 December 2006 (2005: £3,042,000). In our largest and most developed market, the UK, Deltex Medical delivered sales growth of 35% compared to 2005. Over 75% of UK sales came from the recurring revenue streams of probe sales and monitor maintenance. Across the Group, 78% of group revenues and 80% of the sales growth came from probe sales and monitor maintenance. Monitor sales generated £738,000 for the Group, an increase of £75,000 over 2005. Included in this are £280,000 relating to sales of 14 SupraQ monitors, all in the UK; the SupraQ is not yet generally released to the market, rather the Company has sold monitors to specific customers whose research into applications for the device is expected to create a market for it in the longer term; the purchase and sale agreements for these monitors include the Company acquiring on a barter basis rights over data generated in defined research projects. Ten monitors were sold for use in a five centre project in Obstetrics, two for use in Accident and Emergency and a further two for use in a major scientific expedition to Everest organised by University College London: in the first two cases the aim is to establish protocols for routine use of the SupraQ to benefit patients, in the third to establish the strengths and weaknesses of the monitor in rugged conditions outside hospitals to enable us to develop a version specifically for use in harsher environments such as ambulances, accident scenes and battlefields. Cash Total cash at 31 December 2006 was £418,000, which included £297,000 drawn down under the Company's working capital facility. Since the end of the year the Company has raised a further £465,000 in cash after expenses by the issue of 2,843,163 new ordinary shares. Total cash consumption before financing in 2006 was £1,702,000, £425,000 higher than in 2005 (£1,277,000). This increase reflects a number of non-recurring items including the purchase and integration of the TECO oesophageal Doppler monitoring business and the working capital impact of restructuring the European distributor business: without these, cash consumption would have been lower than in 2005. It also reflects a small number of selected additions to our cost base to support expansion as well as expenditure on specific projects such as developing better monitoring solutions for awake patients, expanding our international sales presence and promoting the results of the influential randomised controlled trial from the Freeman hospital which were published in August 2006. Despite the increase in total cash consumption, the Company entered 2007 with its lowest ever rate of underlying cash burn (i.e. the difference between normalised run-rates for revenues and costs). Furthermore, each of the Company's sales operations (UK, USA and international distribution) are now delivering sustainable growth so that the underlying rate of cash burn is reducing both every month and at a faster rate than ever before. The Directors believe that the Company has sufficient cash available to it to see it through to the point where its cash generation from operations is greater than its operating cost base. Operating result Operating losses increased to £2,102,000 (2005: £1,774,000) as a result of one-off items such as the costs of the TECO acquisition and integration, the restructuring of our European distribution network and activity to promote the results of a major new clinical study. The total effect of these items was significantly greater than the increase in operating loss, reflecting the continued underlying progress towards profitability. Clinical Evidence Clinical trials In August 2006 the British Journal of Surgery published the results of a major new randomised controlled clinical trial of the CardioQ during surgery. The study on bowel surgery patients at the Freeman hospital in Newcastle-Upon-Tyne was funded by the Royal College of Surgeons and was the seventh high quality CardioQ outcome study to be published in a leading peer reviewed journal. It demonstrated that in those patients whose circulating blood volume was optimised using the CardioQ, serious post-operative complications, emergency post-operative admissions to critical care units and emergency readmissions to hospital were almost entirely eliminated. The study found that CardioQ patients were also fit to go home three days earlier than non-CardioQ patients. Routine use of the CardioQ during surgery is now a core part of the Freeman hospital's 'enhanced recovery' or 'fast-track' programme for major bowel surgery: this programme delivers amongst the lowest mortality rates, the lowest readmission rates and the shortest lengths of stay not just in the UK but in the whole of the developed world. The Company is aware of two major randomised controlled clinical outcome studies underway using the CardioQ. In France, the clinicians conducting a multi-centre study looking at death rates after surgery to repair broken hips have treated their first patients. The first patients have also been treated in a new study at the Freeman hospital looking at the impact of the CardioQ in major urological surgery. There are also a number of less significant clinical trials or audits underway or pending using the CardioQ in a variety of settings. Fast track surgery Fast-track surgery, an approach which is based on optimising the patient's health before, during and after surgery, is gathering momentum amongst surgeons throughout Continental Europe and the UK and establishing early acceptance in the USA. Initially focused on colo-rectal surgery, fast-track surgery is being adopted in other surgical areas including orthopaedic, vascular, urological and gastro-intestinal surgery. Deltex Medical is positioning the CardioQ as being key to any evidence-based fast-track approach to surgery. The growing clinical interest in fast-track surgery coincides with increasing political and macro-economic pressures on the majority of developed healthcare systems to reduce lengths of hospital stays, reduce the amount of care delivered in hospitals and provide it instead as close as possible to the patient's home. The CardioQ's proven clinical and economic benefits clearly and demonstrably offer unique value to healthcare providers in dealing with these pressures. US reimbursement authorities In February 2007 the Centers for Medicare & Medicaid Services (CMS) announced provisional conclusions following a review of a 1980s decision to exclude oesophageal Doppler monitoring (ODM) from any reimbursement coverage. CMS has put forward for a mandatory public consultation period its recommendation that ODM be eligible for reimbursement for use in ventilated patients in intensive care units and surgical patients requiring haemodynamic optimisation. CMS's recommendations are justified by its own findings together with those of an as yet unpublished health technology assessment from the US government funded Agency for Healthcare Research and Quality (AHRQ). CMS concluded with reference to the published outcome studies: 'In summary, we believe that the published literature demonstrates sufficient evidence that hemodynamic monitoring with esophageal Doppler does result in improved health outcomes for Medicare beneficiaries.' Technology differentiation All the favourable outcome studies on ODM considered by CMS and AHRQ used the CardioQ or predecessor Deltex Medical ODM systems. Furthermore, the Directors are not aware of any study either published or pending publication which shows any comparable technology other than ODM to have been used successfully to direct fluid administration during surgery to improve patient outcomes and reduce hospital lengths of stay. Alternative approaches to haemodynamic monitoring use derived rather than direct measurements of blood flow and are unable to report changes in flow either as quickly or as accurately as ODM. There is therefore currently no clinically credible competition to the CardioQ in the operating theatre market, which is several times the size of the intensive care market. Markets United Kingdom UK probe growth UK probe sales in each and every month of 2006 were ahead of the level achieved in the corresponding month in 2005, continuing the trend established throughout 2005. This trend has continued into the first quarter of 2007 and February was the twenty-eighth consecutive month where UK probe sales were ahead of the corresponding month in the prior year. Continued steady growth of probe sales into UK intensive care units was supplemented by the faster rate of growth of sales into UK operating theatres. UK monitor growth Despite the continuing adverse financial condition of the NHS sales of CardioQ monitors in the UK recovered to 53 units in 2006 after falling in both 2004 (39 units) and 2005 (34 units). UK market positioning The UK is the most developed market for our products and UK doctors have led the world in their understanding and acceptance of the benefits of active haemodynamic management of patients undergoing major surgery or those in critical care. There is some degree of active clinical advocacy for more frequent use of the CardioQ system in virtually all NHS hospitals and in many hospitals this clinical support is both broad and deep; the majority of anaesthetists have for some time recognised that they ought to be monitoring and haemodynamically optimising at least some of their moderate and major risk surgical patients. During the year demand from clinicians for Deltex Medical's devices continued to grow rapidly in the UK as did the number of clinical settings in which the CardioQ system has been shown to be both cost effective and clinically beneficial to the patients doctors are treating. There was a marked increase in the numbers of surgeons lending active support to anaesthetists in order to prioritise implementation of the CardioQ as a standard of care for their patients: both intra-operative and peri-operative fluid management are increasingly high up the agendas at clinical meetings for surgeons and at multi-disciplinary meetings focused on care pathways for patients undergoing major surgery. This broadening support has contributed to the increases reported in both monitor and probe sales in the UK although the rate of conversion of clinical interest to commitment by the hospital's administrators remains slow. United States of America In the USA, our other key directly supported market, we achieved probe sales growth of 15%. This growth has continued into 2007 and January was the Company's best ever month for probe sales in the USA. Over the last two years, our small US sales and training team have consistently reported increasing levels of interest in haemodynamic management from both surgeons and anaesthetists and this has started to feed through into sales. Probe sales in the USA in every quarter of 2006 were higher than the corresponding quarter in 2005 and the first quarter of 2007 will be the sixth consecutive one where US probe sales have exceeded those in the corresponding quarter of the previous year. We sold 11 CardioQs in the USA, including eight monitors to one of the country's leading colo-rectal surgical units. Shortly after the year-end we sold five monitors to the US Army in Iraq for evaluation in mobile military hospitals: early feedback from Iraq has been encouraging. Our goal in the USA remains to build a value proposition and sustainable business model that can be tailored to each of the key healthcare provider models in the USA and then seek an appropriate strategic partner to support rolling this model out across the whole of the market. The final reimbursement decision announcement by CMS is scheduled for publication on or before 3 June 2007; CMS's conclusions are likely to influence the timeframe and scope for working with potential partners, as well as the range of likely candidates. Achieving an adequate level of reimbursement is essential for wide scale adoption of a new medical technology in the USA and a recommendation for coverage is the critical first step in that process. Distributed markets In the first half of the year the Company restructured its trading relationships with key distributors in Europe to reduce the working capital associated with half-yearly or yearly ordering by encouraging them to reduce stock holding and move to regular monthly orders. This process was designed both to help the Company with production planning and manufacturing efficiency and to ensure greater visibility of the effectiveness of the marketing programmes undertaken by both the Company and its distributors. This restructuring resulted in lower probe sales in the first half of the year than in the corresponding period of 2005 as distributors adjusted their probe inventory levels. However, probe sales to our European distributors recovered strongly in the second half of the year to £175,000, over 80% ahead of the second half of 2005 (£96,000) and over 70% ahead of the first half of the year (£101,000). Every month since May 2006, when we introduced the monthly standing order programme, our probe sales under it have either matched or exceeded the preceding month. The distributor in Peru, our most successful market outside Europe, continued to order on an annual basis while our second largest market, Korea, together with some of the less developed markets, moved to monthly standing orders for probes. Probe sales to distributors in these territories increased by £42,000 (32%) over the year. Sales of monitors to our distributors in Europe were significantly lower than in 2005 at £25,000 compared to £328,000 (including £138,000 of barter sales connected with a multi-centre trial of the CardioQ in France). This reflects the Company's focus on establishing regular probe sales to establish a strong platform for sustainable future growth as well as our strategy of reducing stock levels at distributors so that our trading results going forward more rapidly reflect the growing underlying uptake of our products in a number of international markets. Monitor sales to the Far East and Latin America showed a modest increase over 2005. Research and Development During 2006 we made significant progress towards better haemodynamic monitoring solutions for awake patients. Our key R&D priorities for 2007 are to prepare the next generation of CardioQ monitor and the new pulse-wave SupraQ with single patient disposable probe for launch in 2008. We have also started projects looking at improving our probe manufacturing processes both to improve capacity as volumes grow and to reduce our unit costs of production through automation and redesign of components, packaging and production flows. We are in late-stage trials of a new design of a probe for use in patients as they wake up following surgery that will allow post-operative monitoring to continue for a prolonged period as dictated by clinical necessity. Board membership Peter Smedvig, a director of Deltex Medical since 1996, has decided not to stand for re-election at the Company's Annual General Meeting to be held in May 2007. On behalf of the Board, I would like to thank Peter for his valuable contribution to the Board over the years and wish him well with all his future endeavours. Prospects The continued growth in supportive clinical trial data and the experience of hospitals throughout the world using the CardioQ continues to reinforce the clinical and economic benefits of haemodynamic optimisation using our products. The pressures bearing down on healthcare providers both for better quality care and reductions in cost mean that technologies such as the CardioQ that can deliver both will win out over those that cannot. The clinical evidence needed to make the CardioQ a standard of care is in place. The recently published draft recommendation by the US authorities that use of oesophageal Doppler is 'reasonable and necessary' and therefore should be reimbursed across a wide range of patients undergoing surgery and in intensive care indicates that the clinical evidence may shortly begin to be implemented into widescale practice. Sales of both CardioQs and probes in the first quarter of 2007 to date have been encouraging and we are seeing growth in both underlying usage of our products and our actual sales in each of the UK, USA and our international distributor markets. We remain confident in our ability to deliver increasing and sustainable value for our shareholders by making the CardioQ and its related devices standards of care in the major world healthcare markets by focusing on delivering better, more cost effective care for patients undergoing major surgery or in intensive care. Nigel Keen Chairman 15 March 2007 Consolidated profit and loss account for the year ended 31 December 2006 Unaudited Unaudited 2006 2005 As restated Note £'000 £'000 Turnover 2 3,511 3,042 Cost of sales (1,182) (1,076) ---- ---- Gross profit 2,329 1,966 ---- ---- Net operating expenses (4,431) (3,740) ---- ---- Operating loss (2,102) (1,774) Net interest (3) 3 ---- ---- Loss on ordinary activities before taxation (2,105) (1,771) Tax on loss on ordinary activities 23 22 ---- ---- Loss for the financial year (2,082) (1,749) ========= ========= Loss per share - basic and diluted 5 (2.7p) (2.5p) ========= ========= The above results all relate to continuing operations. The loss on ordinary activities before taxation and the loss for the financial year have been computed on the historical cost basis. Statement of Group total recognised gains and losses for the year ended 31 December 2006 Unaudited Unaudited 2006 2005 As restated £'000 £'000 Loss for the financial year (2,082) (1,749) Currency translation differences in foreign currency net investment (9) 9 --- --- Total gains and losses relating to the year (2,091) (1, 740) Prior year adjustment - FRS 20 6 (768) - ---- ---- Total recognised gains and losses recognised since the last annual report (2,859) (1,740) ========= ========= Consolidated balance sheet At 31 December 2006 Unaudited Unaudited 2006 2005 As restated £'000 £'000 Fixed assets Tangible assets 47 85 ---- ---- Current assets Stocks 383 443 Debtors: amounts falling due within one year 1,286 967 amounts falling due after more than one year 52 99 Cash at bank and in hand 418 606 ---- ---- 2,139 2,115 Creditors: amounts falling due within one year (1,457) (1,089) ---- ---- Net current assets 682 1,026 ---- ---- Total assets less current liabilities 729 1,111 Creditors: amounts falling due after more than one year - (1) Provision for liabilities and charges (50) (34) ---- ---- Net assets 679 1,076 ========= ========= Capital and reserves Called up share capital 800 726 Share premium account 14,086 12,712 Capital redemption reserve 17,476 17,476 Other reserves 1,014 768 Profit and loss account (32,697) (30,606) ---- ---- Equity shareholders' funds 679 1,076 ========= ========= The prior year amounts have been restated to reflect the adoption of FRS20 'Share - based payment' as set out in note 6. Consolidated cash flow statement for the year ended 31 December 2006 Unaudited 2006 2005 Note £'000 £'000 Net cash outflow from operating activities 3 (1,656) (1,263) ---- ---- Returns on investments and servicing of finance Interest received 7 9 Finance lease interest (1) (3) Finance interest (10) (3) ---- ---- Net cash (outflow)/ inflow from returns on investments and servicing of finance (4) 3 ---- ---- Taxation 32 - ---- ---- Capital expenditure Purchase of tangible fixed assets (12) (17) ---- ---- Net cash outflow from capital expenditure (12) (17) ---- ---- Acquisitions and disposals Acquisition of trade (62) - ---- ---- Net cash outflow acquisition and disposals (62) - ---- ---- Net cash outflow before financing (1,702) (1,277) ---- ---- Financing Other borrowings 78 114 Capital element of finance lease rentals (6) (7) Issue of ordinary share capital 1,491 571 Expenses of share issue (43) (10) ---- ---- Net cash inflow from financing 1,520 668 ---- ---- Decrease in net cash in the year (182) (609) ========= ========= 1 Nature of the financial information The financial statements for Deltex Medical Group plc have yet to be approved for the year ended 31 December 2006. The financial information set out in this announcement does not constitute the Company's statutory accounts for the year ended 31 December 2006 or 31 December 2005. The financial information for the year ended 31 December 2005 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies except for the restatement of comparatives for the first time adoption of FRS20 'Share-based payment'. The auditors reported on those accounts; their report was unqualified and did not contain a statement under either Section 237 (2) or Section 237 (3) of the Companies Act 1985. The statutory accounts for the year ended 31 December 2006 are expected to be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General meeting. The preliminary results have been prepared in accordance with applicable accounting standards. The particular accounting policies adopted are the same as those adopted in the financial statements for the year ended 31 December 2005, with the exception of the treatment of share option costs where FRS 20 has now been adopted. The financial information does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The Group awards directors, employees and certain of the Company's distributors equity-settled share-based payments, from time to time, on a discretionary basis. In accordance with FRS 20 'Share-based payment', equity settled share-based payments are measured at fair value at the time of grant. Fair value is measured by use of Black Scholes based model. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of shares that will eventually vest. The options are subject to vesting conditions of up to six years, and their fair value is recognised as an expense with a corresponding increase in 'other reserves' equity over the vesting period. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. Further information regarding the adoption of FRS 20 is given in note 6 to the preliminary announcement. 2 Turnover and segmental analysis The Group's activities consist solely of the manufacture, maintenance and marketing of medical devices. By origin, all sales are United Kingdom sales except for £412,000 of sales from our U.S. subsidiary (2005: £358,000). Unaudited 2006 2006 2006 2006 2005 2005 2005 2005 Probes Monitors Other Total Probes Monitors Other Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Analysis of turnover by destination Direct markets United Kingdom 1,837 604 124 2,565 1,559 251 88 1,898 United States of America 349 58 5 412 303 50 5 358 Distributor markets Rest of Europe 276 25 11 312 289 328 6 623 Rest of the World 170 51 1 222 128 34 1 163 --- ---- ---- ---- --- ---- ---- ---- 2,632 738 141 3,511 2,279 663 100 3,042 ======= ======== ======== ======== ======= ======== ======== ======== 3 Reconciliation of operating loss to net cash outflow from operating activities Unaudited Unaudited 2006 2005 As restated £'000 £'000 Operating loss (2,102) (1,774) Depreciation on tangible fixed assets 49 66 Impairment of trade acquisition 62 - Decrease in stocks 73 178 Increase in debtors (282) (189) Increase in creditors 307 193 Credit in respect of service costs settled by award of share options 246 261 Foreign exchange differences (25) (2) Increase in provisions 16 4 --- --- Net cash outflow from operating activities (1,656) (1,263) ======= ======= 4 Dividends The directors do not recommend payment of a dividend (2005: nil). 5 Loss per share The loss per share calculation for 2006 is based on the loss of £2,082,000 and weighted average number of shares in issue of 76,537,400. For 2005 the loss per share calculation was based upon the restated loss of £1,749,000 and weighted average number of shares in issue of 70,366,000. The Group had no dilutive potential ordinary shares in either year, which would serve to increase the loss per ordinary share. Therefore, there is no difference between the loss per ordinary share and the diluted loss per ordinary share. 6 Prior year adjustment Following the adoption of FRS20, 'Share-based payment' the Group's reserves have been restated. The fair value of the share-based payments debited to the profit and loss reserve and credited to 'other reserves' were £507,000 in respect of periods ending on or before 31 December 2004. The profit and loss account for the year ended 31 December 2005 was debited with a charge of £261,000. The profit and loss account for the year ended 31 December 2006 includes a charge of £246,000 in respect of share based payments. Under the previous accounting policy, UITF 17, £130,000 would have been charged in 2006 (2005: £Nil). 7 Distribution of announcement Copies of this announcement are being sent to all shareholders and will be available for collection free of charge from the Company's registered office at Terminus Road, Chichester, West Sussex PO19 8TX. Copies of the Report and Accounts for the year ended 31 December 2006 will be sent to shareholders in due course. This information is provided by RNS The company news service from the London Stock Exchange

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