Final Results

Phytopharm PLC 29 November 2007 Company Contact: U.K. Investor Relations Contact: FD Phytopharm plc David Yates Dr Daryl Rees CEO Ben Atwell Piers Morgan CFO +44 207 831 3113 +44 1480 437 697 www.phytopharm.com 29 November 2007 Phytopharm plc Preliminary Results for the period ended 30 September 2007 Phytopharm plc (PYM: London Stock Exchange) ('Phytopharm' or the 'Company') announces today its preliminary results for the thirteen months ended 30 September 2007. Phytopharm changed its financial year during the period from 31 August to 30 September for administrative reasons. Portfolio Highlights Hoodia extract • Hoodia extract, our weight management product partnered with Unilever, enters final development stage prior to registration and commercial launch • Good progress in clinical trials with healthy overweight subjects Phytopica(R) • Sales of canine skin health product, Phytopica(R), by our partner Schering-Plough exceed expectations (103% growth on an annualised basis) • Schering-Plough launches Phytopica(R) in Italy in March and in France in April 2007 MyoganeTM • Successful completion of a Phase Ib healthy volunteer clinical trial for our amyotrophic lateral sclerosis (ALS) product in July 2007 CoganeTM • Data on pre-clinical models of Parkinson's disease presented at 'The Movement Disorder Society's 11th international congress' in Istanbul, Turkey, June 2007, supporting a novel mode of action for treating the underlying disease PYM60086 • In-licence of a novel functional food for memory and concentration from the Beijing Institute, China in June 2007 Key Financials • Revenue of £3.12 million (2006 £1.88 million) • Operating loss of £6.55 million (2006 £6.62 million) • Loss after tax of £5.81 million (2006 £5.64 million) • Cash balance of £2.24 million (2006 £6.00 million) • £1.68 million (£1.53 million net of expenses) raised through placing of new Ordinary Shares in March 2007 Board changes • Appointment of Dr Daryl Rees as CEO and Piers Morgan as CFO in January 2007 • Appointment of Alistair Taylor as Non-Executive Chairman in June 2007 Dr Daryl Rees, Chief Executive, commented: 'Phytopharm's new management team has delivered fully on its strategic objectives over the year. Hoodia extract, our weight management product partnered with Unilever, has entered the final stage of development prior to registration and commercial launch. We have seen good sales growth from our canine skin health product, Phytopica(R), partnered with Schering-Plough. Our pharmaceutical products CoganeTM and MyoganeTM continued to make good progress during the year and we are now finalising strategic financial support from charitable organisations for the further development of these products, which will reduce our net development costs while increasing long term shareholder value. We look forward with confidence to building on our achievements and reporting on our progress during the coming year.' Chief Executive's statement I am pleased to report that Phytopharm is making good progress in developing a broad, balanced portfolio of products with diversified risk and substantial potential value. Upon my appointment to Chief Executive in January 2007, I implemented a series of strategic objectives that included rationalising our development pipeline while improving our ability to partner our products. With the appointment of Piers Morgan as Chief Financial Officer in January 2007, the management team is strengthened, bringing significant benefits to the Board and the Company. Over the period we have continued to make good progress in clinical trials with our weight management product, Hoodia extract, and advanced successfully into stage 3 of our Joint Development Agreement with our partner Unilever, in September 2007. Stage 3 is the final development stage prior to registration and launch which includes supply chain expansion and consumer studies that will evaluate reductions in calorie intake as part of a weight management programme in the general population. It is encouraging that UK sales of our canine skin health product, Phytopica(R), by our partner Schering-Plough have exceeded expectations (103% growth on an annualised basis) and that their European rollout has begun with launches in Italy in March 2007 and France in April 2007. Schering-Plough will continue to explore the marketing and distribution of Phytopica(R) in further countries worldwide. One of our strategic objectives is to partner our pharmaceutical products to share the cost and risk of product development while increasing long term shareholder value. Over the period we have made steady progress with our pharmaceutical products in clinical development. We have successfully advanced MyoganeTM for amyotrophic lateral sclerosis (ALS) through a Phase Ib healthy volunteer clinical trial in July 2007 and anticipate requesting EU orphan medicinal product status for MyoganeTM in December 2007. We have also demonstrated that in pre-clinical models of Parkinson's disease, CoganeTM reverses the neuronal damage and elevates glial-derived neurotrophic factor (GDNF) in the area of the brain involved in Parkinson's disease. Elevation of GDNF has been shown to improve symptoms in Parkinson's disease patients. Our data has generated considerable interest from charitable organisations and we are now finalising the strategic financial support from these organisations for further development activities. With these partners in place, Phytopharm is well positioned to continue the development of these products during the coming year. In July 2007, we licensed a novel functional food from the Beijing Institute, China. This in-licence fulfils one of our strategic objectives of expanding our product portfolio with a functional food candidate for memory and concentration, an area in which we have established expertise. Importantly, this product in-licence supplements the existing portfolio, while limiting development costs for these activities. In March 2007, we raised approximately £1.68 million before expenses (£1.53 million after expenses) by way of a placing of new Ordinary Shares in the Company, the proceeds of which were used to strengthen the Company's balance sheet and continue the development of its products effectively. In June 2007, we announced that Alistair Taylor was appointed as Non-Executive Chairman of the Board following the retirement of Dr Paul Whitney. His appointment brings significant benefits to the Company, in particular his experience running major healthcare companies and the insights gained from building these organisations into highly successful businesses. Outlook Phytopharm has developed a broad portfolio of products with diversified risk and substantial value. Our functional food products are now generating revenue. Our partner Schering-Plough continues its European rollout of Phytopica(R) with revenues exceeding expectations and with their global presence we look forward to continued growth. Meanwhile, Unilever is fully funding our programme for Hoodia extract, and we look forward to generating royalty income in the near future on product launch. We operate with a low cash burn and with strategic financial support being finalised from charitable organisations to develop further our pharmaceutical products CoganeTM and MyoganeTM, we will continue to reduce our net development costs while increasing long term shareholder value. By delivering on our strategic objectives, we look forward with confidence to building on our achievements and reporting on the continued development of our pipeline over the coming year. Business Review Phytopharm is a pharmaceutical development and functional food company whose products are generated from medicinal plants. The Company's strategy is to develop these products through 'proof of principle' clinical testing, and then secure partners for late stage development, sales and marketing. Laboratory, manufacturing and clinical work is outsourced to selected specialists, operating under expert in-house management. This operational structure allows access to the best external research facilities whilst maintaining low fixed overheads and a lower development cost structure. Pharmaceutical Products The progress of our pharmaceutical products in clinical development is described below. Parkinson's and Alzheimer's disease and neuropsychiatric disorders CoganeTM (PYM50028) is an orally active, neurotrophic factor inducer being developed as a disease modifying agent for Parkinson's and Alzheimer's disease and has the potential as a treatment for neuropsychiatric disorders. A consistent feature of Parkinson's disease is the loss of dopamine-containing neurones in the substantia nigra area of the brain. Current drugs can mitigate many of the symptoms for a while but do not alter the prognosis of steady decline. Over the period we have made significant progress demonstrating that in pre-clinical models of Parkinson's disease, CoganeTM reverses the damage to dopamine-containing neurones and the decrease of dopamine receptors in the brain and elevates GDNF in the area of the brain involved in Parkinson's disease. These studies were partly funded by The Cure Parkinson's Trust. Elevation of GDNF has been shown to improve symptoms in Parkinson's disease patients and our data has generated considerable interest from charitable organisations. We are now finalising strategic financial support from these organisations for further development activities for Parkinson's disease. CoganeTM restores the learning and memory ability in Alzheimer's disease pre-clinical models and thereby offers the potential to arrest or reverse the progression of Alzheimer's disease. In late November 2005, we announced the results of our Phase IIa clinical study of CoganeTM in mild and moderate Alzheimer's disease patients. The majority of patients enrolled had mild disease and as such the study period was too short to detect a decline in these mild patients. In the more moderate Alzheimer's patients studied, a decline in cognition was observed, together with an encouraging trend for slower disease progression in the CoganeTM treated group. This data, coupled with its excellent safety profile and tolerability, provides positive data for longer term studies for efficacy determination in both Parkinson's and Alzheimer's disease. The estimated market size for Parkinson's disease in 2010 is approximately $5bn, and for Alzheimer's disease is approximately $8bn. The neuroprotective, neurorestorative and neurotrophic actions of CoganeTM suggest potential beneficial effects in other neurodegenerative diseases including diabetic neuropathy and neuropsychiatric disorders such as schizophrenia, depression and anxiety, which have an estimated aggregate market size by 2010 of $13bn. Motor neurone disease MyoganeTM (PYM50018) is being developed for ALS (also known as Lou Gehrig's disease). ALS is the most common motor neurone disease and results from progressive degeneration of motor neurones. This condition has a high unmet medical need. In pre-clinical studies, MyoganeTM protects against neuronal damage and when administered orally to pre-clinical models of ALS, delays the loss of muscle strength and extends survival time. Phytopharm has successfully completed a Phase Ia clinical study that evaluated the safety, tolerability and pharmacokinetic profile of MyoganeTM. This residential clinical study was conducted under an investigational new drug (IND) filed with the United States Food and Drug Administration (FDA) and confirmed that the product was well absorbed with an excellent safety profile. The FDA has also granted Orphan Drug and Fast Track designation to MyoganeTM for the treatment of ALS. Building on this success we have further developed a new liquid formulation suitable for ALS patients and in July 2007 successfully progressed through a Phase Ib healthy volunteer clinical trial conducted under a clinical trial authorisation (CTA) filed with the Medicines and Healthcare products Regulatory Agency (MHRA). Our data has generated considerable interest from charitable organisations and we are progressing discussions for further pre-clinical and clinical development activities with these organisations. The neuroprotective, neurorestorative and neurotrophic actions of MyoganeTM suggest potential beneficial effects in other orphan motor neurodegenerative diseases including Huntington's disease, Friedrich's ataxia, progressive supranuclear palsy and multiple system atrophy. The aggregate market size for these orphan diseases is estimated at in excess of $1bn. In addition there are very substantial healthcare costs associated with these diseases. Functional Foods Our functional food products continue to make strong progress. Dietary weight management Our weight management functional food product is based on an extract of the succulent plant, Hoodia, which contains a novel satiety stimulator that reduces calorie intake in overweight subjects, as demonstrated in our double-blind, placebo-controlled clinical study. Extracts of Hoodia and the active molecules therein are the subject of a global patenting programme, with major patents granted in the US, UK, Europe and Japan and pending in all other major territories. In December 2004, we announced that we had granted an exclusive global licence for the Hoodia extract to Unilever plc. Under the terms of the agreement, Phytopharm and Unilever are collaborating on a five-stage research, development and launch programme of safety and efficacy studies with a view to bringing new weight management products to market. Over the period we have continued to advance successfully through clinical trials in healthy overweight subjects as well as all other aspects of our Joint Development Agreement. In September 2007, we announced that we had successfully progressed into stage 3 of our Joint Development Agreement. Stage 3 activities include supply chain expansion and consumer studies that will evaluate reductions in calorie intake as part of a weight management programme in the general population, and is the final stage prior to submission for regulatory approval. Stage 4 and 5 activities comprise registration and launch respectively. As part of the agreement, Unilever is committed to fully funding the development programme. In addition, Phytopharm will receive an undisclosed royalty on sales of all products containing the extract. Separately, Unilever is also managing the agronomy programme, including scale up for launch, undertaking manufacturing and market research activities, and supporting the international patent programme for the products. Phytopharm and Unilever have also become aware of many companies that are selling products over the Internet and in some stores claiming to contain Hoodia and causing weight loss. Analysis of these products has demonstrated that the great majority of them contain little or no Hoodia. Phytopharm and Unilever have made contact with the relevant authorities concerning this development and are satisfied with the progress being made to limit this activity. Canine skin health Phytopica(R) is a natural, three plant product for canine skin health that provides a novel 3 in 1 approach to help maintain a normal healthy immune system, support normal white cell function and provide anti-oxidant benefits. The beneficial effects and excellent safety profile of Phytopica(R) have been proven extensively in clinical trials and the product has been found to be suitable for all dogs whatever size or breed. Canine dermatological disorders are well recognised by veterinarians to be a major problem, with an estimated 15% of the UK dog population (around 900,000 dogs) affected by skin conditions (source: Animal Pharm). Maintenance of a healthy skin and coat and alleviation of itching are of major importance to canine general health and quality of life. In January 2006, Phytopharm entered into an exclusive global agreement with Schering-Plough Animal Health ('Schering-Plough') for Phytopica(R). Under the terms of the agreement, Phytopharm is responsible for manufacturing Phytopica(R) whilst Schering-Plough is responsible for the global sales, marketing and distribution. In April 2006, Schering-Plough launched Phytopica(R) in the UK and the product has enjoyed firm support from veterinary dermatologists, with sales exceeding expectations. Schering-Plough launched Phytopica(R) in Italy and France in March and April 2007, respectively. France is one of the largest companion animal markets in Europe with more than 8.5 million dogs and, of these, some 15% referred to veterinarians may be affected by skin conditions. Schering-Plough will continue to seek to market and distribute Phytopica(R) in further countries worldwide. With Schering-Plough's global presence we look forward to strong growth from this product. Pre-clinical product development The progress of our products in preclinical development over the period is described below. Asthma and COPD Asthma is a chronic inflammatory disorder of the airways that causes recurrent episodes of wheezing, breathlessness, chest tightness and coughing. In addition, asthma is usually associated with widespread but variable airflow obstruction. Inhibition of inflammation and opening of the airways are therefore key components of asthma treatment. Steady progress has been made in identifying novel synthetic molecules from the PYM60001 series that can be developed as a pharmaceutical medicine for the treatment of asthma and chronic obstructive pulmonary disease (COPD). Pre-clinical comparative, 'proof of concept', studies with marketed products have demonstrated encouraging results showing improved beneficial effects in several models of asthma including opening of the airways and reduction in airway inflammation. Prader-Willi syndrome Prader-Willi syndrome is an orphan disease characterised by clearly definable features including obesity due to hyperphagia and a decreased calorific requirement owing to low energy expenditure. The mechanism of action of the chemical series based on the active components of our Hoodia extract (see above) is under investigation. Proteomic research is helping to define novel targets and the design of new molecules from the PYM60004 series as pharmaceutical candidates for Prader-Willi syndrome. Memory and concentration In July 2007, we licensed a novel functional food candidate for memory and concentration from the Beijing Institute (Institute of Radiation Medicine, the Academy of Military Medical Sciences, Beijing). Under the terms of the Collaboration and Licence Agreement, Phytopharm and the Beijing Institute will collaborate to progress the Beijing Institute's lead product for memory and concentration (PYM60086) selected from its library of patented compounds derived from Traditional Chinese Medicine (TCM). The Collaboration and Licence Agreement also extends to certain other patented compounds that may have utility in other disease areas including vascular disorders and stroke. Phytopharm has been granted an exclusive licence from the Beijing Institute to develop and commercialize these products globally in return for royalty and milestone payments to the Beijing Institute upon the achievement of certain pre-defined goals. The Beijing Institute's scientists bring significant knowledge on TCM and we look forward to working with them to advance the lead product through clinical development. Financial information The financial performance for the thirteen month period ended 30 September 2007 reflects the Group's ongoing pharmaceutical development and functional food activities. Period end During the period the Group changed its financial year end to 30 September 2007 for administrative reasons. The financial results for the period therefore comprise 13 months of trading for the period ended 30 September 2007; results for the comparative period comprise trading for the twelve months ended 31 August 2006. Income statement The increased revenue of £3.12 million for the 13 month period (12 months 2006: £1.88 million) was generated from our two collaboration agreements: firstly with Unilever for the development of Hoodia extract for dietary weight management; and secondly with Schering-Plough for the global sales, marketing and distribution of Phytopica(R) for canine skin health. Revenue from Unilever represents reimbursement to the Group of development expenditure relating to the Hoodia extract programme, together with funding of certain Phytopharm staff, and therefore the level of revenue in each period depends on the nature of the ongoing activities and level of related expenditure at that particular time. Revenue from Schering Plough comprises the sale of Phytopica(R) by Phytopharm to Schering-Plough for onward distribution and eventual sale to end users. Of the revenue in the period to 30 September 2007, £2.64 million represents revenue from Unilever, and £0.48 million represents product sales to Schering-Plough (103% growth on an annualised basis); for the corresponding 12 month period to 31 August 2006 revenue amounted to £1.66 million and product sales amounted to £0.22 million. Expenditure on development has continued as planned for the thirteen months ended 30 September 2007. A total of £7.50 million was spent during the 13 month period, compared to £6.54 million for the twelve months ended 31 August 2006. The Hoodia extract programme for dietary weight management continues to make encouraging progress, with the initiation of Stage 3 activities of the five Stage Unilever Development and Launch Agreement. Stage 3 is the final stage prior to registration and commercial launch of the product. Unilever continues to make substantial further investment in this project, independently of the funding it pays to Phytopharm. Expenditure on selling, general and administrative expenses for the thirteen months ended 30 September 2007 rose slightly to £1.92 million from £1.63 million for the twelve months ended 31 August 2006. Interest receivable for the thirteen months ended 30 September 2007 amounted to £0.22 million, compared to £0.38 million for the year to 31 August 2006, reflecting the lower average cash balance during the period. The reduced overall operating loss for the thirteen month period to 30 September 2007 was £6.55 million compared to £6.62 million for the twelve month period to 31 August 2006. The loss after tax for the thirteen month period to 30 September 2007 was slightly higher at £5.81 million from £5.64 million for the twelve months ended 31 August 2006, although on a pro rata basis, the overall loss ran at a lower level than in the previous financial period. Balance sheet Non-current assets comprise property, plant and equipment. At 30 September 2007 these amounted to £0.20 million compared to £0.20 million at 31 August 2006. Current assets amounted to £3.95 million at 30 September 2007 and comprised inventories of £0.68 million, amounts receivable of £1.03 million (of which £0.52 million related to R&D tax credits), and cash resources of £2.24 million. Inventories fell slightly in the thirteen months ended 30 September 2007 as the Group manufactured and sold through further finished stocks of Phytopica(R) to support the launches in Italy and France in March and April 2007 respectively. Amounts receivable excluding R&D tax credits at £0.51 million at 30 September 2007 are broadly in line with previous levels of £0.57 million at 31 August 2006. The level of R&D tax credit receivable by the Group, at £0.52 million, is slightly lower than the previous period of £0.60 million at 31 August 2006, reflecting the fact that during the period a higher proportion of the Group's R& D activities have been related to the Hoodia extract programme which, because it is fully reimbursed by Unilever, does not qualify for R&D tax credits. Cash resources, described as cash and cash equivalents, are invested for periods of 90 days or less. The decrease in cash resources during the period to £2.24 million reflects the cash utilised in the business during the period. Current liabilities at 30 September 2007 have reduced to £1.35 million from £1.74 million at 31 August 2006 reflecting a reduction in trade payables and accruals for clinical trial expenditure relating to the Group's development activities. The increase on Share Capital and Share Premium accounts for the period ended 30 September 2007 reflects the issue of new shares for cash on 1 March 2007, to raise £1.68 million (£1.53 million net of expenses) and the recovery of VAT of £0.04m previously written off against that reserve following a change in HMRC policy with respect to the Group's May 2005 fund raising. Cash flow The net cash used in operating activities for the thirteen months ended 30 September 2007 was £5.46 million, a reduction from £5.85 million in the twelve month period ended 31 August 2006. Our goal is to increase shareholder value by progressing our products through development, subject to available resources. Taking into account the future revenues from Phytopica(R) and the funding by Unilever of the Hoodia programme, Phytopharm expects its 2008 net cash outflow, funded from available resources, to be lower than in previous years. Cash outflows in respect of CoganeTM, and the rate of its development, may be favourably impacted through the funding by charitable organisations, as discussed above, and likewise any future partnering arrangements in respect of MyoganeTM would bring similar benefits. By delivering on our strategic objectives, we look forward with confidence to building on our achievements and reporting on the continued development of our pipeline over the coming year. Forward looking statements In order to utilise the 'Safe Harbour' provisions of the United States Private Securities Litigation Reform Act of 1995, Phytopharm is providing the following cautionary statement. This preliminary announcement contains forward-looking statements with respect to the financial condition, results of operations and businesses of Phytopharm as well as assumptions relating to the extent of possible future markets. These statements may generally, but not always, be identified by the use of words such as 'should', 'expects', 'estimates', ' believes' or similar expressions. By their nature, forward-looking statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. In the event such risks or uncertainties materialise, Phytopharm's results could be materially affected. There are a number of factors that could cause actual results and developments to differ materially from that expressed or implied by these forward-looking statements. These factors include, among other things, the inherent uncertainty of pharmaceutical research; product development; manufacturing and commercialisation; continued marketing, sales and distrubution by Schering-Plough; the loss or expiration of patents; marketing exclusivity or trade marks; exchange rate fluctuations; continued funding by Unilever and support of several charitable organisations; the risk that R&D will not yield new products that achieve commercial success; the impact of competition, price controls and price reductions; taxation risks; the risk of substantial product liability claims; the impact of any failure by third parties to supply materials or services; the risk of delay to new product launches; the difficulties of obtaining and maintaining governmental approvals for products; and the risk of environmental liabilities. Unaudited consolidated income statement For the thirteen month period ended 30 September 2007 13 months to 12 months to 30 September 31 August 2007 2006 note £ £ Revenue 3,121,018 1,882,501 Cost of sales (250,057) (341,067) _____ _____ Gross profit 2,870,961 1,541,434 Research and development expenses (7,500,404) (6,540,173) Selling, general and administrative expenses (1,922,340) (1,624,779) _____ _____ Operating loss (6,551,783) (6,623,518) Interest receivable and similar income 217,396 380,484 Interest payable and similar charges (30) - _____ _____ Loss on ordinary activities before taxation (6,334,417) (6,243,034) UK tax credit on loss on ordinary activities 2 521,168 604,421 _____ _____ Loss for the period (5,813,249) (5,638,613) _____ _____ Basic and diluted loss per ordinary share (pence) 3 (10.9) (11.0) All revenue and expenses shown above were generated from continuing operations. Unaudited consolidated statement of changes in shareholders' equity For the thirteen month period ended 30 September 2007 Share Share Other Profit and loss Total capital premium reserves account (deficit) £ £ £ £ £ Balance at 1 September 2005 511,809 47,156,708 (204,211) (35,650,581) 11,813,725 Loss for the period - - - (5,638,613) (5,638,613) Equity share options charge - - - 302,492 302,492 _____ _____ _____ _____ _____ Balance at 31 August 2006 511,80 47,156,708 (204,211) (40,986,702) 6,477,604 _____ _____ _____ _____ _____ Loss for the period - - - (5,813,249) (5,813,249) Issue of equity share capital 44,254 1,489,287 - - 1,533,541 Share issue costs recovered - 39,564 - - 39,564 Equity share options charge - - - 563,202 563,202 _____ _____ _____ _____ _____ Balance at 30 September 2007 556,063 48,685,559 (204,211) (46,236,749) 2,800,662 _____ _____ _____ _____ _____ Unaudited consolidated balance sheet As at 30 September 2007 13 months to 12 months to 30 September 31 August 2007 2006 note £ £ Non-current assets Property, plant and equipment 199,832 201,521 _____ _____ Non-current assets 199,832 201,521 Current assets Inventories 4 683,483 842,899 Trade and other receivables 5 508,613 568,882 Current tax receivable 521,168 604,421 Cash and cash equivalents 2,240,947 5,997,428 _____ _____ Current assets 3,954,211 8,013,630 _____ _____ Current liabilities Trade and other payables 6 (1,353,381) (1,737,547) _____ _____ Net current assets 2,600,830 6,276,083 _____ _____ Net assets 2,800,662 6,477,604 _____ _____ Share capital 556,063 511,809 Share premium 48,685,559 47,156,708 Other reserves (204,211) (204,211) Profit and loss account (deficit) (46,236,749) (40,986,702) _____ _____ Shareholders' funds 2,800,662 6,477,604 _____ _____ Unaudited consolidated cash flow statement For the thirteen month period ended 30 September 2007 30 September 31 August 2007 2006 £ £ Cash flow from operating activities Operating loss (6,551,783) (6,623,518) Depreciation 97,164 108,259 (Gain)/loss on disposal of property, plant and equipment (4,576) 10,068 Share option charge 563,202 302,492 _____ _____ (5,895,993) (6,202,699) Changes in working capital Decrease in trade and other receivables 60,269 96,207 Decrease in trade and other payables (384,166) (520,725) Decrease in inventories 159,416 104,325 _____ _____ Cash used in operations (6,060,474) (6,522,892) Taxation received 604,421 674,341 Interest paid (30) - _____ _____ Net cash used in operating activities (5,456,083) (5,848,551) Cash flows from investing activities Purchase of tangible fixed assets (127,760) (234,596) Sale of tangible fixed assets 36,861 60,750 Interest received 217,395 380,484 _____ _____ Net cash generated from investing activities 126,497 206,638 Cash flows from financing activities Issue of shares 1,681,659 - Share issue costs (148,118) - Share issue costs recovered 39,564 Capital element of finance leases - (1,398) _____ _____ Net cash generated from/(used in) financing activities 1,573,105 (1,398) _____ _____ Movements in cash and cash equivalents in the period (3,756,481) (5,643,311) Cash and cash equivalents at the beginning of the period 5,997,428 11,640,739 _____ _____ Cash and cash equivalents at end of period 2,240,947 5,997,428 _____ _____ Notes to the unaudited financial statements For the thirteen month period ended 30 September 2007 1 Basis of preparation The preliminary announcement for the period ended 30 September 2007 is unaudited and has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union as at 30 September 2007. During the period the Group changed its financial year end to 30 September 2007. The financial results for the period therefore comprise thirteen months of trading for the period ended 30 September 2007; results for the comparative period comprise trading for the twelve months ended 31 August 2006. The financial information in this preliminary announcement does not constitute the Group's statutory accounts for the period ended 30 September 2007 or the year ended 31 August 2006, but the comparative information is derived from the Group's statutory accounts for the year ended 31 August 2006. The Group's statutory accounts for the year ended 31 August 2006 have been delivered to the Registrar of Companies; the report of the auditors on these accounts was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 2 Tax on loss on ordinary activities 13 months to 12 months to 30 September 31 August 2007 2006 £ £ Current tax: Current UK corporation tax credit on loss for the period 521,168 604,421 _____ _____ There is no corporation tax charge because of the incidence of tax losses. The Company has taken advantage of the Research and Development corporation tax credits introduced in the Finance Act 2000 whereby a company may surrender corporation tax losses incurred on research and development expenditure for a corporation tax refund at the rate of 24 pence on the pound of actual expenditure. 3 Loss per ordinary share The calculation of basic and diluted loss per share on the net basis is based on the loss on ordinary activities after taxation, namely £5,813,249 (2006: £5,638,613 and on 53,567,257 (2006: 51,180,893) ordinary shares, being the weighted average number of ordinary shares in issue and ranking for dividend during the period. As the Group was loss-making in the period ended 30 September 2007 and the year ended 31 August 2006, there were no dilutive potential ordinary shares. 4 Inventories 30 September 31 August 2007 2006 £ £ Raw materials and consumables 433,595 482,056 Work in progress 249,888 360,843 _____ _____ 683,483 842,899 _____ _____ 5 Trade and other receivables 30 September 31 August 2007 2006 £ £ Trade receivables 227,568 324,396 Other receivables 96,477 34,740 Prepayments and accrued income 184,568 209,746 _____ _____ 508,613 568,882 _____ _____ 6 Trade and other payables 30 September 31 August 2007 2006 £ £ Trade payables 242,839 522,222 Other payables 15,064 73 Other taxation and social security 48,165 61,598 Accruals and deferred income 1,047,313 1,153,654 _____ _____ 1,353,381 1,737,547 _____ _____ This information is provided by RNS The company news service from the London Stock Exchange

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