Interim Results

Deltex Medical Group PLC 29 September 2005 Deltex Medical Group plc Interim results for the six months ended 30 June 2005 29 September 2005 - Deltex Medical Group plc ('Deltex Medical' or 'Company'), the AIM listed haemodynamic monitoring company, today announces its results for the six month period ended 30 June 2005. Financial Highlights • Turnover increased by 24% to £1.4 million • Loss reduced by over £1 million to £1.1 million • £500,000 in new equity finance • Cash burn rate reduced to lowest in Company's history • Sufficient cash to see Company to profitability Operating Highlights • Sales growth driven by probe sales • Probe sales increased in all key target markets • Continued expansion in UK sales pipeline; conversion into sales hampered by NHS Trust financial deficits • Company configured to reach profitability even in difficult UK market conditions • Improved prospects in UK private hospitals as well as NHS • New users in US military hospitals and Northern European intensive care and operating theatres Nigel Keen, Chairman of Deltex Medical, said: 'In the first half of 2005 we continued to make steady progress in all our key target markets towards our goal of making haemodynamic optimisation a standard of care for patients undergoing moderate and major surgery. 'In the UK, the desire by doctors to use our products is growing significantly more quickly than sales while NHS hospitals react to wide-spread reform of the market by cutting to the bare minimum investment in innovative technologies 'The Company is configured to reach profitability with its current cash resources, either very quickly through monitor sales or, if necessary, over a longer period through sustaining the current rates of growth in probe sales.' For further information, please contact:- Deltex Medical Group plc 01243 774 837 Nigel Keen, Chairman Andy Hill, Chief Executive Ewan Phillips, Finance Director Financial Dynamics David Yates 0207 831 3113 John Gilbert A conference call for analysts will be held today at 9.00am. Please call Gemma Cross Brown for further details on 0207 831 3113. 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. Chairman's Statement Group Summary Deltex Medical's CardioQTM 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 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'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 rapid monitoring of severely ill patients. Adopting the CardioQ as a standard of care empowers hospitals both to improve the quality of care they give and the efficiency with which they give it. The efficiency benefits allow the hospital to choose either to increase capacity, reduce costs, or redeploy existing resources to meet local priorities. Trading Results Sales Unaudited Half year to 30 June 2005 Probes Monitors Probes units units £'000 Direct markets United Kingdom 10,145 21 737 United States of America 2,160 3 139 Distributor markets Rest of Europe 4,460 10 193 Far East & Latin America 2,830 2 96 --- --- --- 19,595 36 1,165 ======= ======== ======== Trading Results (continued) Sales Unaudited Half year to 30 June 2005 Monitors Other Total £'000 £'000 £'000 Direct markets United Kingdom 115 42 894 United States of America 13 1 153 Distributor markets Rest of Europe 68 1 262 Far East & Latin America 4 1 101 --- --- --- 200 45 1,410 ======== ======== ======== Trading Results (continued) Sales Unaudited Half year to 30 June 2004 Probes Monitors Probes units units £'000 Direct markets United Kingdom 8,376 28 567 United States of America 2,170 - 133 Distributor markets Rest of Europe 4,202 18 172 Far East & Latin America 451 3 22 --- --- --- 15,199 49 894 ======= ======== ======== Trading Results (continued) Sales Unaudited Half year to 30 June 2004 Monitors Other Total £'000 £'000 £'000 Direct markets United Kingdom 127 24 718 United States of America - - 133 Distributor markets Rest of Europe 75 2 249 Far East & Latin America 11 - 33 --- --- --- 213 26 1,133 ======== ======== ======== The loss for the six months to 30 June 2005 was nearly halved to £1,095,000 (2004: £2,100,000). Group sales for the six months to 30 June 2005 were £1,410,000 (2004: £1,133,000), an increase of 24%. Probe sales accounted for 98% of the increase in group turnover as total probe sales increased by 30% from £894,000 in the prior period to £1,165,000 in 2005. Probe sales increased in each of the Company's key markets and accounted for 83% of group sales, compared to 79% in the first six months of 2004 and 73% in the equivalent period in 2003. Sales of probes in the UK continued to grow steadily in both intensive care units and operating theatres. Average monthly probe sales were nearly £30,000 a month higher than in the corresponding period in the previous year and reflected increased utilisation of the installed base of monitors. Our European distributors report that their probes sales are growing satisfactorily, and, on average, at faster rates than the 12% by which our sales to them grew; we expect growth in our sales of probes in Europe to more closely match end-user demand once certain of our distributors complete a managed reduction in their stock holdings. Sales of probes in the USA showed modest growth year on year but this was underpinned by stronger underlying growth at a number of our key target accounts. Sales of probes to our Far East and Latin American distributors are more volatile than in other parts of the business, but were significantly up on the prior period, increasing from £22,000 in the first half of 2004 to £96,000 in the first half of 2005. Sales of monitors at £200,000 were slightly lower than in the corresponding period (2004: £213,000) with the decrease being mainly attributable to the UK market and to our largest customer, the National Health Service ('NHS'). Over the last few months it has become increasingly clear that many NHS Hospital Trusts have been finding it very difficult or impossible to operate within their financial means with many of them reporting record deficits. While the Trusts try to come to terms with both new funding mechanisms and adverse pressures on people costs, many of them have aggressively restricted spending on new equipment. Deltex Medical is responding to these unusually challenging market conditions in a number of ways at both local and national level. In the meantime, each of those hospitals which we have previously reported as seeking wide-scale implementation of the CardioQ system are continuing to work with us towards installation of the necessary monitors. Furthermore, the number of hospitals actively working towards wide-scale use of our products is increasing as clinical demand for those products grows significantly more rapidly than sales. We believe that Deltex Medical offers hospitals a highly compelling value proposition and that we are very well placed to compete strongly for the funding available for innovative technology as market conditions improve. Overall, the value of monitor sales in Europe remained steady (£68,000 in 2005 compared to £75,000 in the corresponding period in 2004); ten of the monitors sold into Europe were the dedicated paediatric monitor, the CardioQPTM, launched in 2004. In the USA, monitor sales were £13,000 ahead of the prior period with encouraging signs that US hospitals are beginning to respond positively to the combined clinical and economic benefits of the CardioQ. The Company's key focus since 31 December 2004 has been to minimise the rate of cash absorbed by the business so that the cash available to the Company at 1 January 2005 would be sufficient to see the Company past the breakeven point even if the UK market for monitor sales remained difficult for a prolonged period. The average monthly rate of cash burn in 2004 was £160,000 per month. In the six months ended 30 June 2005, the Company reduced its headcount by over 20%, cut back overheads, renegotiated terms with suppliers and strengthened working capital management; together with the growth in probe sales, these steps reduced the monthly cash burn rate to approximately £60,000 per month before any of the larger scale monitor orders which we are pursuing. Cash at 30 June 2005 was £468,000 with the monthly cash burn reduced to its lowest level in the Company's history. The net cash outflow before financing in the six months ended 30 June 2005 was £818,000 (2004: £718,000) after the costs of the redundancy programme and related notice periods. The net cash outflow in the corresponding period in 2004 was after a number of non-recurring cash in-flows and the Company has seen a marked and sustainable reduction in cash consumption compared to 2004 since 30 June 2005. The Company entered the second half of 2005 configured so that it could reach profitability with the cash resources available to it either very quickly through conversion into sales of only a small part of the monitor sales pipeline, or more slowly through continued increases in probe sales to the existing base of installed monitors. In order to allow a limited increase in flexibility in the approach to key markets, a level of headroom appropriate to its size and the ability to accelerate the next phase of SupraQTM development, the Company has today placed 2,631,578 new ordinary shares of 1p each at 19p per share to raise £500,000 of cash. Application will be made for the new shares to be traded on AIM and it is expected that dealings will commence on Monday 10 October 2005. Markets UK The UK is our most developed market and, since July 2002 it has been the primary focus of our sales and marketing efforts. In the three years since then we have seen sustained growth, with probe sales more than doubling. September 2005 is the sixteenth consecutive month where probe sales in the UK for the month have been over £100,000 and the eleventh consecutive month where probe sales have been higher than in the corresponding month twelve months previously. There are now very few NHS hospitals in the UK where there is not at least some degree of active clinical advocacy for more frequent use of the CardioQ system and there are many hospitals where the clinical support is both broad and deep; the majority of anaesthetists now recognise that they ought to be monitoring and haemodynamically optimising at least some of their moderate and major risk surgical patients. This wide-scale clinical advocacy, supported by a substantial body of clinical evidence, is driving the continued steady growth in probe sales. However, we estimate that current clinical desire to use our technology is several times higher than actual usage rates and that the degree of clinical acceptance has grown several times quicker than actual probe sales in the last two years. Although the NHS has long been recognised as being slow to finance adoption of innovative medical technologies, the problem has been exacerbated recently by greater than normal financial restrictions. Many hospitals have run into financial deficit or are battling hard to avoid doing so. As a consequence many have scaled back dramatically already limited budgets both for purchasing capital items such as CardioQ monitors and revenue items such as our probes. To succeed in this environment, medical device companies have not only to demonstrate that the case for investment in its products is sound but that such an investment ought to be a high priority for each hospital. Deltex Medical is ideally positioned to do this, and in the six months ended 30 June 2005 succeeded in selling sufficient CardioQ monitors to NHS hospitals in Worcester and Birmingham to enable them to make haemodynamic optimisation of moderate and major risk surgical patients a standard of care. A third Trust in the South-East of England purchased half the additional monitors it needed and is assessing their impact prior to completing the capital investment. A number of hospitals around the UK have undertaken focused evaluations of the CardioQ in operating theatres to see if they can reproduce the benefits shown elsewhere. These exercises are time-consuming and often complicated by the difficulty in collating management information on a hospital wide basis, however all such exercises completed to date have shown reduced post-operative complications and reduced lengths of hospital stays and have therefore been consistent with all the randomised controlled clinical trials undertaken with the CardioQ. Feedback on results from other sites undertaking such evaluations is universally positive and completion of the projects in the second half of the financial year is expected to lead to monitor sales before the Company's year-end, provided the hospitals' senior managers can be engaged by the doctors and ourselves in reviewing and acting on the positive results of their local experience. The financial difficulties facing many NHS Trusts come at a time of far-reaching and fundamental change in the provision of healthcare in the UK, driven by the UK government's reform programme. Amongst other initiatives the government has introduced a set of national tariffs for surgical procedures and has encouraged private hospital providers to bid for contracts to treat large numbers of NHS patients undergoing elective surgery. These contracts are forcing the private providers to change their business models to focus on volume, price and quality. The CardioQ offers these providers real opportunities as higher risk procedures such as hip and knee replacements start to be covered by the contracts. Accordingly, over the last few months, the Company has entered into discussions with a number of the private provider groups and has recently completed a small pilot evaluation in one private hospital with encouraging results. In June a group of eminent anaesthetists, surgeons and intensivists gathered in London for the launch of a lobbying pamphlet 'Modernising Care for Patients Undergoing Major Surgery'. This document, produced by the 'Improving Surgical Outcomes Group' was based upon Deltex Medical's core marketing message, the ' Podium Solution', and has at its heart the belief that haemodynamic optimisation is the key to unlocking much of the resource required to implement a number of fundamental improvements in surgical patient care in UK hospitals. We are supporting the Improving Surgical Outcomes Group in its efforts to promote the goals of this document to doctors, senior health service managers, the Department of Health, politicians, patient groups and other stakeholders. These initiatives are aimed at raising awareness of the benefits of haemodynamic optimisation at both national and local levels. Europe In the first half of 2005 we continued to tailor our sales message to fit the specific circumstances of individual territories in continental Europe. As has been the case in the UK, the balance of revenue derived from monitors and probes has shifted in Europe between the first half of 2004 (probes 69% and monitors 30% of European sales) and 2005 (probes 74% and monitors 26% of European sales). This change reflects a redirection in focus in the more established distributors to increase utilisation of the installed base of monitors. In France, our most established distributor-led market, we have been working to support our distributor's efforts to increase utilisation of the installed monitor base in both the operating theatre and intensive care settings. In addition, we are establishing a relationship with key clinical opinion leaders with an interest in improving surgical outcomes under the auspices of the European-wide Enhanced Recovery After Surgery (ERAS) initiative. In Germany, we have seen a significant increase in doctors wishing to evaluate the CardioQ in their clinical practice, particularly in the operating theatre and post-operative recovery units. To date in 2005, 24 hospitals have approached our distributor to evaluate the CardioQ. We are working closely with the distributor to ensure that these evaluations are completed by the year-end. Already three hospitals have placed orders for single units following a successful evaluation and as a precursor to possible wider adoption. In May 2005 we announced that Radboud University Nijmegen Medical Centre in the Netherlands had become the first major university teaching hospital in Europe to adopt the CardioQ as a standard of care. Since this announcement, doctors at the hospital have continued to use their CardioQ and CardioQPTM monitors at the maximum level authorised by the hospital since their installation. Doctors championing the use of our products are working with senior hospital managers and our distributor to obtain additional funding to expand use into operating theatres and a new intensive care unit. United States of America For the past three years we have focused our efforts in the USA on supporting a small number of internationally recognised key opinion leaders. These doctors are strong advocates of the use of CardioQ in a variety of clinical settings and they are responsible for much of the physician-to-physician training that happens in the USA. In addition, we are pursuing a number of projects that will help us develop a scalable business that we can implement with a third-party at an appropriate point in the future. We continue to seek discussions with leading managed care organisations and private hospital providers in the USA to explore the potential value of routine use of CardioQ in these environments. We believe that, as is increasingly the case in the UK, we are positioned to offer clinical and efficiency benefits that would be of great value in this market. Sales have remained broadly flat since we refined and reduced our investment in the USA and this trend has continued for disposable probes in the first half of 2005. Sales of monitors in the USA however, were higher in the first half of 2005 compared to the same period in 2004. We are currently in discussion with three further hospitals that have evaluated the CardioQ and wish to purchase monitors and expect to end the year with monitor sales in the USA clearly ahead of those in 2004. In September 2005 we concluded the sale of four CardioQ monitors to the William Beaumont Army Medical Center in El Paso, Texas. The monitors are intended for use in medical and surgical patients in the intensive care unit and those patients undergoing elective or emergency surgery in the operating room. Physicians at the hospital are also working to make the CardioQ an integral part of patient care in a wider range of clinical applications, including trauma surgery and neurosurgery. The William Beaumont Army Medical Center treats active service personnel and their dependents and also provides field-based hospital facilities in areas of conflict around the world as required by the US military. Far East and Latin America Each of our distributors in the Far East and Latin America has trained personnel that can support the CardioQ in the field and the Company provides high-quality technical support at a low cost via telephone and over the Internet. Sales to these markets remain occasional and of varying value, however in the six months ended 30 June 2005 they were already £36,000 ahead of the whole of 2004 with improved payment profiles. The quality of the business in these regions has started to improve with a number of our distributors now reporting growing levels of regular probe sales. Research and Development During the first half of 2005 our research and development effort has focused on completing the clinical evaluation of two design variants of our wholly non-invasive monitoring platform, the SupraQTM. This has enabled us to understand better some of the anatomical and physiological constraints that affect the ease and consistency of signal acquisition with this approach. As a result of these evaluations we have identified a small number of hardware and software modifications that we believe will enable us to improve ease of use and reliability to the level required for a first generation commercial device with the potential to start to address the concept's known market potential. We are optimistic that these changes constitute proprietary knowledge and consequently may offer the opportunity to further strengthen our patent position. All of our research and development activity in the second half of 2005 and the first quarter of 2006 will be directed to completing these modifications, bench-testing and completing the documentation required to enable prototype units to be evaluated in the clinical setting. In parallel with this, we are working with our advisors to ensure that our intellectual property is properly protected. Prospects Deltex Medical is ideally placed to exploit the increased emphasis in its key markets on quality and cost-effectiveness of patient care. There are only two reasons why any healthcare provider should invest in new technology - either to improve care or reduce costs - and use of the Company's CardioQ monitor has been shown time and again to do both. Whether uptake of our products happens on an incremental basis, as individual doctors adopt them as a routine part of their clinical practice, or through rapid and widespread 'step-change' in hospitals, hospital groups or entire healthcare systems, we are ideally positioned to ensure that doctors are able to offer their patients the proven benefits of haemodynamic optimisation. We remain confident in our ability to deliver increasing and sustainable value for our shareholders through our strategy of focusing on the twin goals of better care, delivered more cost-effectively, for patients undergoing moderate and major surgery or those in intensive care. Nigel Keen Chairman 29 September 2005 Consolidated Profit and Loss Account for the six month period ended 30 June 2005 Unaudited Half Unaudited Half Audited Full year to30 year to 30 June year to 31 June 2005 2004 December 2004 £'000 £'000 £'000 Turnover 1,410 1,133 2,494 Cost of sales (603) (533) (907) ---- ---- ---- Gross profit 807 600 1,587 ---- ---- ---- Net operating expenses - ongoing (1,921) (2,056) (3,722) - exceptional - (650) (652) ---- ---- ---- Operating loss (1,114) (2,106) (2,787) Interest receivable and similar income 6 6 14 ---- ---- ---- Loss on ordinary activities before taxation (1,108) (2,100) (2,773) Tax on loss on ordinary activities 13 - 19 ---- ---- ---- Loss for the financial period (1,095) (2,100) (2,754) ========= ========= ========= Loss per share - basic and diluted (1.6p) (3.4p) (4.3p) ========= ========= ========= The above results all relate to continuing operations. The loss on ordinary activities before taxation and the loss for the period has been computed on the historical cost basis. Statement of Group Total Recognised Gains and Losses for the six month period ended 30 June 2005 Unaudited Half Unaudited Half Audited Full year to 30 June year to 30 June year to 31 2005 2004 December 2004 £'000 £'000 £'000 ---- ---- ---- Loss for the financial period (1,095) (2,100) (2,754) Currency translation differences in foreign currency net investment 6 2 (5) ---- ---- ---- (1,089) (2,098) (2,759) ========= ========= ========= Consolidated Balance Sheet at 30 June 2005 Unaudited 30 Unaudited 30 Audited 31 June 2005 June 2004 December 2004 £'000 £'000 £'000 Fixed assets Tangible assets 103 155 136 ---- ---- ---- Current assets Stocks 559 604 758 Debtors Amounts falling due within one year 755 810 783 Amounts falling due after more than one year 116 - 72 Cash at bank and in hand 468 370 1,207 ---- ---- ---- 1,898 1,784 2,820 Creditors: Amounts falling due within one year (1,032) (1,287) (920) ---- ---- ---- Net current assets 866 497 1,900 ---- ---- ---- Total assets less current liabilities 969 652 2,036 Creditors: amounts falling due after more than one year (5) - (7) Provision for liabilities and charges (38) - (35) ---- ---- ---- 926 652 1,994 ========= ========= ========= Capital and reserves Called up share capital 697 617 695 Share premium account 12,201 10,381 12,182 Merger reserve - 1,776 - Profit and loss account (29,448) (29,598) (28,359) Capital redemption reserve 17,476 17,476 17,476 ---- ---- ---- Equity shareholders' funds 926 652 1,994 ========= ========= ========= Consolidated Cash Flow Statement for the six month period ended 30 June 2005 Unaudited Half Unaudited Half Audited Full year to 30 year to 30 year to 31 June 2005 June December £'000 2004 2004 £'000 £'000 ---- ---- ---- Net cash outflow from operating activities (821) (780) (1,988) ---- ---- ---- Returns on investments and servicing of finance Interest received 7 6 15 Interest paid (1) - (1) ---- ---- ---- Net cash inflow from returns on investments and servicing of finance 6 6 14 ---- ---- ---- Taxation - 61 102 ---- ---- ---- Capital expenditure Purchase of tangible fixed assets (3) (5) (9) ---- ---- ---- Net cash outflow for capital expenditure (3) (5) (9) ---- ---- ---- Net cash outflow before financing (818) (718) (1,881) ---- ---- ---- Financing New finance leases - - 15 Other borrowings 78 - 105 Capital element of finance lease rentals (3) - (2) Issue of ordinary share capital 1 - 1,964 Expenses in connection with share issue - - (85) ---- ---- ---- Net cash inflow from financing 76 - 1,997 ---- ---- ---- (Decrease)/increase in net cash during the period (742) (718) 116 ========= ========= ========= Notes to the Interim Statement for the six month period ended 30 June 2005 1. Basis of preparation The financial information for the six months ended 30 June 2005 is not audited but has been prepared in accordance with generally accepted accounting principles in the UK. The accounting policies adopted are those which will be applied in the financial statements for the year ended 31 December 2005. These are consistent with those set out in the audited financial statements for the year ended 31 December 2004. The financial information does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. 2. Turnover The Group's activities consist solely of the manufacture and marketing of medical devices. By origin, all sales are United Kingdom sales. Unaudited Half year to 30 June 2005 Probes Monitors Other Total £'000 £'000 £'000 £'000 Analysis of turnover by destination Direct Markets United Kingdom 737 115 42 894 United States of America 139 13 1 153 Distributor Markets Rest of Europe 193 68 1 262 Far East and Latin America 96 4 1 101 ---- ----- ---- ---- 1,165 200 45 1,410 ======= ======== ======= ======= Unaudited Half year to 30 June 2004 Probes Monitors Other Total £'000 £'000 £'000 £'000 Analysis of turnover by destination Direct Markets United Kingdom 567 127 24 718 United States of America 133 - - 133 Distributor Markets Rest of Europe 172 75 2 249 Far East and Latin America 22 11 - 33 ---- ----- ---- ---- 894 213 26 1,133 ======= ======== ======= ====== Audited Full Year to 31 December 2004 Probes Monitors Other Total £'000 £'000 £'000 £'000 Analysis of turnover by destination Direct Markets United Kingdom 1,254 169 53 1,476 United States of America 273 10 1 284 Distributor Markets Rest of Europe 390 277 2 669 Far East and Latin America 32 32 1 65 ----- --- ---- -- 1,949 488 57 2,494 ======== ======= ======= ====== 3. Loss per share The loss per share calculation for the six months to 30 June 2005 is based on the loss for the period of £1,095,000 and weighted number of shares in issue of 69,522,388 million. The loss per share calculation for the year to 31 December 2004 is based on the loss for the financial year of £2,754,000 and weighted average number of shares in issue of 63.4 million. The loss per share calculation for the six month period ended 30 June 2004 was based upon the loss for the period of £2,100,000 and weighted average number of shares in issue of 61.7 million. The Group had no dilutive potential ordinary shares in either period, 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. 4. Reconciliation of movements in shareholders' funds Unaudited Unaudited Audited Half year to Half year to Full year to 30 June 30 June 31 December 2004 2005 2004 £'000 £'000 £'000 Opening shareholders' funds 1,994 2,750 2,750 Increase in share capital during the period 2 - 78 Premium on shares issued, net of costs 19 - 1,801 Loss for the financial period (1,095) (2,100) (2,754) UITF 17 charge associated with share options - - 124 Exchange difference taken to reserves 6 2 (5) --- --- --- Closing shareholders' funds 926 652 1,994 ======== ======== ======== 5. Called-up share capital 1 pence ordinary shares £'000 69,702,922 1p ordinary shares 697 ======= During the period the Company issued 126,811 1p ordinary shares pursuant to the exercise of options. The Company also issued a further 98,518 1p ordinary shares to non-executive directors in respect of fees due to them. 6. Reconciliation of operating loss to net cash outflow from operating activities Unaudited Unaudited Audited Half year to Half year to Full year to 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Operating loss (1,114) (2,106) (2,787) Depreciation on tangible fixed assets 36 41 79 (Increase)/decrease in stocks 199 (29) (186) Decrease/(increase) in debtors 32 1,049 1,015 Increase/(decrease) in creditors 28 262 (242) Costs associated with share option scheme - - 124 Foreign exchange differences (4) 3 (26) Increase in provisions 2 - 35 --- --- --- Net cash outflow from operating activities (821) (780) (1,988) ======= ======= ======= 7. Reconciliation of movement in net cash 1 January Cash flow Exchange movement 30 June 2005 2005 £'000 £'000 £'000 £'000 Net cash Cash at bank and in hand 1,207 (742) 3 468 Other borrowings (105) (78) - (183) Finance leases (14) 3 - (11) --- --- --- --- 1,088 (817) 3 274 ======= ======= ======= ======= 8. 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. This information is provided by RNS The company news service from the London Stock Exchange

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