Final Results

RNS Number : 5179G

Oxford Catalysts Group PLC

13 May 2011

 



13^th May 2011

OXFORD CATALYSTS GROUP PLC

("Oxford Catalysts" or "the Group" or "the Company")

Final Results for the Year Ended 31 December 2010

Oxford Catalysts Group PLC, the leading technology innovator for synthetic oil production, is pleased to announce its final audited results for the year ended 31 December 2010.

Highlights

·    Raised £21m before expenses through an oversubscribed equity placing in March 2011

·    First order received from SGCE for commercial scale FT unit and fulfilled in March 2011

·    Second order for commercial scale FT unit received post period end

·    GTL demonstration plant fully constructed and arrived in Brazil in April 2011

·    Significant industry recognition with receipt of five international awards

·    Revenue of £7.7 million (2009: £8.7 million), reflecting transition to commercial income

·    Cash* at period end of £5.7m (2009: £12.0m) before fundraising

Pierre Jungels, CBE, Chairman of Oxford Catalysts, said:

"2010 has been another successful year in the Group's transition from a development company to a commercial product provider. Following the recent fundraising, Oxford Catalysts is well capitalised to continue pressing forward with commercial roll-out.

"We are receiving unprecedented levels of interest in our technology as the market environment for synthetic fuels continues improving. The Board looks forward to a period of considerable progress with growing anticipation for the future"

* Defined as cash, cash equivalents, short term investments and other financial assets.

There will be a conference call for analysts at 3:00 pm today; dial-in details can be obtained from Financial Dynamics (see below).

For further information, please contact:

Oxford Catalysts Roy Lipski, CEO Susan Robertson, CFO	[phone] [phone]
Cenkos Securities (Nomad and Broker) Ken Fleming / Beth McKiernan	[phone] [phone]
Financial Dynamics Billy Clegg / Alex Beagley	[phone]

Notes to Editors

Oxford Catalysts designs and develops technology for the production of synthetic oil from both conventional fossil fuels and renewable sources such as bio-waste. The Group is focused on the emerging market for distributed smaller scale production of synthetic oil via Fischer-Tropsch ("FT") synthesis − a market that has the potential of producing as much as 25 million barrels of fuel a day.

The FT reaction is used when converting natural gas, coal or bio-mass into clean high-performance synthetic oil, processes known as GTL, CTL and BTL respectively. The Group is the recognised world leader in the design and development of high-activity catalysts and associated novel chemical reactors for the smaller scale production of synthetic oil. (The Group's reactor technology − known as microchannel process technology − is marketed under the brand name of Velocys).

Oxford Catalysts Group PLC is listed on the AIM market of the London Stock Exchange (LSE: OCG). The Group has some 80 employees with facilities near Oxford, UK and Columbus, Ohio, USA.

www.oxfordcatalysts.com

www.velocys.com

CHAIRMAN'S STATEMENT

Pierre Jungels, CBE

2010 was another successful year for Oxford Catalysts, continuing our transformation from a development organisation to a commercial product provider. Market conditions for synthetic fuels production, especially through smaller scale GTL, have improved considerably over the past year and the Group is enjoying high levels of interest in its technology.

The Group's existing commercial relationships remain strong; at the same time we are actively exploring additional opportunities with a number of major corporations. Our partner, SGC Energia, SGPS, S.A. ("SGCE") placed two orders with the Group for commercial scale Fischer-Tropsch (''FT'') reactors, and is completing its plans for a major commercial synthetic fuels plant. The Group's FT demonstration in Güssing, Austria, was a success, validating many of the Group's technology advantages. At SGCE's request, we agreed to extend the demonstration (fully funded by SGCE) to host potential customers and to provide a location for SGCE to train its operators on the Group's technology ahead of deployment in commercial plants.

The Group announced the delivery of Steam Methane Reforming ("SMR") and FT reactors for its Gas-to-Liquids ("GTL") demonstration which is funded and managed by Toyo Engineering Corporation and MODEC, Inc., in collaboration with Petróleo Brasileiro S.A. ("Petrobras") which is hosting the demonstration at one of its refineries in Brazil. The demonstration plant was fully constructed on schedule and arrived in Brazil in April 2011.

During the year, the Group also announced the signing of a $5 million agreement with the Thai state-owned energy company, PTT Public Company Limited ("PTT"), to support the Group's smaller scale GTL technology for land based facilities.

The Group's cash position was strengthened after an oversubscribed placing that raised £21 million before expenses in March 2011. This strong backing provides further validation of the Group's business model, its technical and commercial progress, and the significant market opportunity. I would like to take this opportunity to thank our existing shareholders for their continued support and to warmly welcome our new shareholders.

As previously announced, Group revenues for the year were £7.7 million (2009: £8.7 million), reflecting the start of a shift from development funding to commercial income streams. Year end cash* reserves at period end stood at £5.7 million (2009: £12.0 million), prior to the fundraising.

I would like to thank the team, which consists of some 80 employees, for their tireless work throughout 2010 and their considerable achievements, which were also recognised by industry on five separate occasions during the year through significant awards.

Outlook

The Group is well capitalised to continue its progress towards commercial roll-out. 2011 looks set to be another busy and exciting year, with the Group's GTL demonstration due to start up in Brazil, and with the prospect of further commercial orders and new customers and partnerships.

In 2011, the Group will focus on its existing partnerships while strengthening its commercial, manufacturing and supply chain capabilities, as well as capitalising on the advancing status and market relevance of its technology.

The Board looks forward to a period of considerable progress with growing anticipation for the future.

Chief Executive's RePORT

Roy Lipski

Introduction

Solid progress was made by the Group in 2010 and this has continued into 2011. Our first commercial order was received in December and successfully completed in March 2011, followed by a second order in May 2011. The Group has enjoyed unprecedented interest in its technology over the past year and we look forward to this trend being maintained during 2011.

Market Conditions

The increasing demand for oil and its sustained production constraints have helped drive crude prices again over $100 a barrel. This, coupled with the discovery and development of the vast shale gas reserves in North America, has created an increasingly attractive environment for synthetic oil production through GTL, especially at smaller scales, thereby bringing the opportunity for the Group's technology sharply into focus.

Market conditions for Biomass-to-Liquids and Waste-to-Liquids ("BTL" and "WTL") are also very favourable as governments and industry have come to recognise the important role synthetic fuels derived from biomass and waste could play in seamlessly supplementing oil-based transportation fuels, whilst alleviating environmental pressures.

Successful Equity Placing

In March 2011, the Group successfully raised £21 million before expenses, at the same time enhancing its already solid shareholder base with the addition of seven new blue chip institutional investors. It is the intention of the Board to use these proceeds to accelerate the Group's transition to a commercial product company and in particular to:

(a)   enable the Group to hire new staff to support its growing commercial operations;

(b)   extend its supply chain capabilities, for both reactors and catalyst; and

(c)   upgrade its technology infrastructure to better support its commercial interactions and to enhance its standing with customers.

The new funds will also bolster the Company's balance sheet which will give it added credibility and strengthen its negotiation position with respect to prospective new partners.

Commercialisation

Demonstration

The Group previously announced the delivery of SMR and FT reactors for its GTL demonstration, funded and managed by Toyo Engineering Corporation and MODEC, Inc., in collaboration with Petrobras which is hosting the demonstration at its Lubnor refinery in Fortaleza, Brazil. We are pleased to announce that the demonstration plant is now fully constructed on schedule, and has arrived in Brazil. Currently, the Group understands that Petrobras will be ready to start the demonstration around September 2011.

In August 2010, Oxford Catalysts announced that its FT pilot unit was achieving good performance in phase one of the demonstration at Güssing, Austria. Its partner SGCE was 'very pleased' with the results obtained, and on this basis placed an order for one of the Group's FT units. This represented the Group's first order for a full scale commercial reactor and catalyst, and an important opportunity to validate manufacturing and supply-chain readiness ahead of larger commercial orders. Following successful delivery of the first FT unit, SGCE placed a second order for an FT unit in May 2011, whilst confirming that they are completing plans for a major commercial synthetic fuels facility and expect to be in a position to proceed with the project in the second half of 2011.

A decision was also made during the year not to relocate the Group's FT demonstration unit to the Wright-Patterson Air Force base near Dayton, Ohio, thus paving the way for extended operation of the Güssing pilot plant to provide ongoing support for the design and deployment of future commercial facilities.

Manufacturing

Oxford Catalysts is currently collaborating with a number of manufacturers to secure reliable commercial supply of its reactors and catalysts. In February 2010, the Group announced that it is working with Kobe Steel, Ltd. (one of Japan's leading steel makers, operating worldwide under the brand name of KOBELCO), to supply reactors for its forthcoming GTL demonstration in Brazil. During the period, the Group also qualified a large US-based catalyst company for the commercial production of its FT catalyst.

In March 2011, Oxford Catalysts successfully completed the fabrication of a commercial FT unit in fulfilment of the first SGCE order placed in December, thus attaining a key technical milestone needed before SGCE progress with more aggressive commercialisation and implementation of the Group's technology. The completed full scale FT reactor was code stamped to ASME standards, thereby providing the necessary certification for commercial use. It was fully loaded with the Group's FT catalyst, produced by its US manufacturing partner, and is ready for commercial deployment.

With a nameplate capacity of some 25 bpd and core reactor dimensions of only 2ft x 2ft x 2ft, the commercial scale FT reactor exemplifies the process intensification potential of the Group's technology. Its 40,000+ microchannels also illustrate the technology's "numbering up" approach that provides both operational robustness and ease of scaling.

Other Agreements

In January 2010, Oxford Catalysts announced the signing of an agreement with PTT that provides $5 million of funding for the development and commercialisation of the Group's GTL technology for smaller scale land based facilities. The Group's relationship with PTTcontinues to be very positive and the collaboration remains on track.

Industry Recognition

In 2010, the Group won five prestigious industry awards:

1.   The Award for Excellence in the Field of Environmental Technology Commercialisation at the CleanEquity Monaco 2010 Awards;

2.   The 2010 World XTL Award, widely regarded as the most important award in the synthetic fuels industry. Runners up were ENI / IFP / Axens, Oryx GTL, Shell and Technip. Past winners are Shell, Sasol, and Statoil;

3.   The Chemical Industries Association's Innovation Award. Runners up included Johnson Matthey, Eli Lilly and Huntsman. Past winners include Dow, Solvay and Lucite;

4.   A 2010 ChemInnovations Award, sponsored by Chemical Engineering;

5.   The Institution of Chemical Engineers' 2010 Innovative Product Award. The IChemE Awards are widely recognised and attract entries from all over the world.

Intellectual Property

The Group's current intellectual property ("IP") portfolio includes over 750 active patent cases and an even larger number of invention records. During the period, the Group filed 4 new patent applications, whilst 84 existing applications were granted in jurisdictions including the US, Canada, China, Australia, Japan, Russia, South Africa, South Korea, and various European countries.

Resources

With some 80 employees, Oxford Catalysts Group has a solid foundation to maintain its leading position in the fast emerging technology market for smaller scale synthetic oil production. The funds recently raised will be used to accelerate the Group's transition to a commercial product company, including the hiring of additional staff to support its growing commercial operations.

Financial Review

Revenues during the year were £7.7 million (2009: £8.7 million), reflecting the start of a shift from development funding to commercial income streams. Revenues were also impacted by a decision to slow down activities on a government funded programme in the last quarter in order to concentrate on preparations for some expected near term sales of FT units. The funding for this programme remains available and the work is expected to resume at planned levels in 2011 and 2012.

Losses for the period were £5.5 million (2009: £3.8 million), excluding the impact of currency movements (£0.1 million gain; 2009: £0.1 million loss) and non-cash items (depreciation, amortisation and share-based payments: £1.7 million; 2009: £1.5 million). Cash* outflow in the year was £6.3 million (2009: £4.3 million). Including the impact of currency movements and non-cash items, losses for the period were £7.2 million (2009: £5.5 million)

At period end, the Group had £5.7 million of cash* (2009: £12.0 million). Post period end, the Group raised £21 million before expenses through a share placing. Management believes that this level of funds is sufficient for now, although it remains mindful of the uncertain nature of technology development and the need to preserve cash where possible without adversely impacting time to market or the long term value of the business.

* Defined as cash, cash equivalents, short term investments and other financial assets.

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2010

	Note		2010 £'000		Restated* 2009 £'000
Revenue		2		7,652	8,655
Cost of sales				(4,649)	(3,643)
Gross profit				3,003	5,012
Unfunded research and development costs				(4,568)	(4,459)
Share-based payments				(410)	(675)
Other administrative expenses				(6,235)	(6,106)
Total administrative expenses				(11,213)	(11,240)
Operating loss				(8,210)	(6,228)
Finance income		3		195	290
Finance costs		4		(55)	(142)
Loss before income tax				(8,070)	(6,080)
Income tax credit		5		858	616
Loss for the financial year attributable to the equity holders of the Company				(7,212)	(5,464)
Loss per share attributable to the equity holders of the Company
Basic and diluted (pence)		6		(11.45)	(9.07)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2010

			2010 £'000		2009 £'000
Loss for the year				(7,212)	(5,464)
Other comprehensive income (expense)
Foreign currency translation differences				1,035	(3,019)
Total comprehensive expense for the year				(6,177)	(8,483)

*2009 figures for cost of sales and unfunded research and development costs have been restated following a review of the allocation of costs. Cost of sales consists of the direct costs attributable to the revenue earned and certain costs which had previously been allocated to cost of sales were considered by Management to be related to unfunded research and development and so have been reclassified accordingly. There was no impact to loss for the financial year attributable to the equity holders of the Company.

CONSOLIDATED BALANCE SHEET 

AS AT 31 DECEMBER 2010

	Note	2010 £'000	2009 £'000
Non-current assets
Intangible assets		25,535	23,876
Property, plant and equipment		2,590	3,189
		28,125	27,065
Current assets
Trade and other receivables		1,106	1,740
Current income tax asset		347	300
Financial assets - restricted access escrow account	7	320	308
Short term investments - cash held on long-term deposit	7	1,000	4,000
Cash and cash equivalents	7	4,406	7,686
		7,179	14,034
Total assets		35,304	41,099
Current liabilities
Trade and other payables		(2,740)	(3,544)
Borrowings		(91)	(73)
		(2,831)	(3,617)
Non-current liabilities
Trade and other payables		(371)	(765)
Borrowings		(959)	(227)
		(1,330)	(992)
Total liabilities		(4,161)	(4,609)
Net assets		31,143	36,490
Capital and reserves attributable to equity holders of the Company
Called up share capital		638	613
Share premium account		45,469	45,074
Merger reserve		369	369
Share-based payment reserve		4,849	4,439
Accumulated losses		(20,182)	(14,005)
Total equity		31,143	36,490

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2010

	Called up share capital £'000	Share premium £'000	Share-based payments £'000	Merger reserve £'000	Accumulated losses £'000	Total £'000
Balance at 1 January 2009	596	45,047	3,764	369	(5,522)	44,254
Comprehensive income
Loss for the year	-	-	-	-	(5,464)	(5,464)
Other comprehensive income	-	-	-	-	-	-
Foreign currency translation differences	-	-	-	-	(3,019)	(3,019)
Total comprehensive expense	-	-	-	-	(8,483)	(8,483)
Transactions with owners
Share-based payments - value of employee services	-	-	675	-	-	675
Proceeds from share issues	17	27	-	-	-	44
Total transactions with owners	17	27	675	-	-	719
Balance at 1 January 2010	613	45,074	4,439	369	(14,005)	36,490
Comprehensive income
Loss for the year	-	-	-	-	(7,212)	(7,212)
Other comprehensive income	-	-	-	-	-	-
Foreign currency translation differences	-	-	-	-	1,035	1,035
Total comprehensive expense	-	-	-	-	(6,177)	(6,177)
Transactions with owners
Share-based payments - value of employee services	-	-	410	-	-	410
Proceeds from share issues	25	395	-	-	-	420
Total transactions with owners	25	395	410	-	-	830
Balance at 31 December 2010	638	45,469	4,849	369	(20,182)	31,143

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2010

	Note	2010 £'000	2009 £'000
Cash flows from operating activities
Cash consumed by operations	8	(7,170)	(3,527)
Tax credit received		858	488
Net cash used in operating activities		(6,312)	(3,039)
Cash flows from investing activities
Purchases of property, plant and equipment		(618)	(1,602)
Purchase of intangible fixed assets		(772)	(188)
Interest received		195	697
Interest paid		(55)	-
Decrease in cash placed on deposit and restricted access escrow account		3,000	4,337
Net cash from investing activities		1,750	3,244
Cash flows from financing activities
Proceeds of issuance of ordinary shares		420	44
Increase in borrowing		746	271
Net cash from financing activities		1,166	315
Net (decrease) / increase in cash and cash equivalents		(3,396)	520
Cash and cash equivalents at beginning of year		7,686	7,667
Exchange gains / (losses) on cash and cash equivalents		116	(501)
Cash and cash equivalents at end of year		4,406	7,686

NOTES TO THE ACCOUNTS

FOR THE YEAR ENDED 31 DECEMER 2010

1.   PRINCIPAL ACCOUNTING Policies

Basis of Preparation

The financial information presented by the Directors in this statement is derived from the Group financial statements for the year ended 31 December 2010 that have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention.

The accounting policies adopted are consistent with those disclosed in the Group's statutory accounts for the year ended 31 December 2010.

These accounts have been audited and the audit report is unqualified and does not contain a statement under section 237 of the Companies Act. The accounts will be delivered to the Registrar of Companies following the Company's Annual General Meeting on 22^nd June 2011.

Functional Currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in UK sterling (£), which is the Company's functional and the Group's presentation currency.

2.   SEGMENTAL REPORTING

IFRS 8 'Operating Segments' has been adopted by the Group for the financial year ending 31 December 2010.

The chief operating decision-maker has been identified as the Senior Management Team ("SMT"). This team reviews the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

The SMT considers that the business comprises a single activity which is the design and development of technology for synthetic fuels. The SMT reviews the Group's profit or loss and its cash flows, assets and liabilities on a whole-company basis. In carrying out these reviews, the SMT considers all material items of income and expenditure that are directly attributable to individual development programmes. The internal management reports do not allocate assets and liabilities or shared overheads to individual products or projects.

Based on the above considerations, there is considered to be one reportable segment, synthetic fuels. In the prior year, the SMT identified two operating segments, Catalysts and Equipment. This position has been revised in the current year on the basis that the market is more meaningfully defined by end use rather than specific product and at this point in the Group's development; the key end use market is that of synthetic fuels. For this reason, the management of the catalysts and equipment activities have now been integrated and for management purposes, the business is segmented according to market. At this stage, the synthetics fuels segment represents over 90% of the business and therefore represents the only material segment.

Internal and external reporting is on a consolidated basis, with purchases and sales between subsidiaries eliminated on consolidation. Therefore the segment and financial information is the same as that set out in the consolidated income statement, consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of cash flows and the statement of changes in equity.

The SMT assesses the performance of the operating segments based on a measure of operating loss.

The Group's operating segment operates in three main geographical areas. Revenue is allocated based on the country in which the customer is located.

	2010			2009
	Europe £'000	USA £'000	Asia £'000	Europe £'000	USA £'000	Asia £'000
Total revenue	2,193	923	4,536	2,068	445	6,142

Non-current assets, consisting primarily of goodwill, other intangible assets and property, plant and equipment, totalling £26,702,000 and £25,247,000 in 2010 and 2009 respectively, were located in the United States of America. All other non-current assets are held in the United Kingdom.

3.   FINANCE INCOME

	2010 £'000	2009 £'000
Interest income on bank deposits	129	290
Foreign exchange gains	66	-
	195	290

4.   FINANCE COSTS

	2010 £'000	2009 £'000
Unwinding of discount on deferred licence payments creditor	16	13
Interest on finance leases	9	2
Interest on borrowings	30	-
Foreign exchange losses	-	127
	55	142

5.   INCOME TAX

Current Tax

Due to the availability of losses incurred in the year, there is no charge to corporation tax. The Group has recovered or expects to recover £858,000 through R&D tax credit claims for the years ending 31 December 2010 (2009: £616,000 in respect of claim for years ending 31 December 2008 and 2009).

Deferred Tax

At 31 December 2010 the Group has a net unrecognised deferred tax asset of £7,064,000 (2009: £5,651,000) arising from trading losses from incorporation. No recognition (2009: nil) of the net deferred tax asset has been made at 31 December 2010 on the grounds of uncertainty over its recoverability in light of the Group's nascent revenue streams and commitment to continued investment in research and development, and therefore there is no impact on the current or prior year income statement.

Reconciliation to Current Tax Credit

The actual tax charge for the current and previous year is higher (2009: higher) than the theoretical amount that would arise using the weighted average tax rate applicable to the results of the consolidated entities, for the reasons set out in the following reconciliation.

	2010 £'000	2009 £'000
Loss on ordinary activities before tax	(8,070)	(6,080)
Tax calculated at domestic tax rates applicable to losses in the respective countries	(2,324)	(1,718)
Tax effects of:
− Expenses not deductible for tax purposes	23	36
− Unutilised tax losses	2,301	1,682
− R&D tax credit relating to prior years	(558)	(316)
− R&D tax credit	(300)	(300)
Current tax credit for year (see above)	(858)	(616)

The weighted average applicable tax rate was 28.8% (2008: 28.3%).

6.   LOSS PER SHARE

The basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

	2010 £'000	2009 £'000
Loss attributable to equity holders of the Company (£'000s)	(7,212)	(5,464)
Weighted average number of ordinary shares in issue	63,008,632	60,211,508
Basic and diluted loss per share (pence)	(11.45)	(9.07)

7.   SHORT TERM INVESTMENTS, CASH EQUIVALENTS AND RESTRICTED ASSETS

	2010 £'000	2009 £'000
Financial assets - restricted access escrow account	320	308
Short term investments - cash held on long-term deposit	1,000	4,000
Cash and cash equivalents	4,406	7,686
Total	5,726	11,994

Under IFRS 7, cash held on long-term deposit has been classified as a short term investment since it is on term deposits of greater than three months.

The financial assets - restricted cash is the balance held in an escrow account which relates to the State of Ohio loan. Generally, assets acquired under the State of Ohio's R&D Loan program must remain in the State of Ohio. The Company's wholly owned subsidiary, Velocys, Inc., and the State of Ohio agreed as part of the loan terms and conditions that Velocys could use a portion of the proceeds to fund the purchase of certain assets to be located outside of the United States for approximately one year if Velocys agreed to place $500,000 in an escrow account. The Company is currently in talks with the State of Ohio regarding options available should those assets not return to Ohio by June 30, 2011.

All short term investments are in UK sterling denominated accounts. The restricted access escrow account is denominated in US dollars. Cash is held in both US dollars and UK sterling denominated accounts as follows.

	2010 £'000	2009 £'000
UK sterling accounts	3,531	5,187
US dollar accounts	875	2,499
Total	4,406	7,686

8.   CASH OUTFLOWS FROM OPERATING ACTIVITIES

	2010 £'000	2009 £'000
Operating loss	(8,210)	(6,228)
Depreciation and amortisation	1,315	844
Changes in working capital (excluding the effects of exchange differences on consolidation)
- Trade and other receivables	666	279
- Trade and other payables	(1,353)	884
- Share-based payments	410	675
- Other	2	19
Net cash consumed by operations	(7,170)	(3,527)

9.   CONTINGENT LIABILITIES

Velocys received notification in 2010 of the results of an audit of contract billings from the US Defence Contract Audit Agency. The audit relates to an examination of amounts billed to the US government for a period ending 30 September 2005. This report details amounts of $1,267,000 which are stated as not being compliant with the terms of the contract. The Directors strongly refute the audit findings and believe they have evidence to support the claims Velocys made. Based on this, the Directors have not recognised any liability relating to this audit report.

Furthermore, the contract relates to the period prior to acquisition of Velocys. Under the terms and conditions of the sale and purchase agreement for Velocys, there are warranty provisions which trigger a payment from the former owner of Velocys, the Battelle Memorial Institute, for claims in excess of $250,000.

In April 2010, Velocys filed a lawsuit in the US against Catacel Corp. ("Catacel"), a supplier of catalysts to CompactGTL plc ("CompactGTL"), claiming infringement of several of the Group's microchannel related patents. In response, CompactGTL has challenged the validity of a small number of the Group's patents, including certain patents covering the UK.

Whilst the outcome of these cases is not certain, the Directors are confident of the Group's infringement case against Catacel, as well as the validity of those of its patents which are being challenged. Furthermore, the Directors consider that even in the unlikely event of a successful challenge to the few patents in question, this would have no material detrimental impact on the Group's business or the overall strength of its patent portfolio. As at the date of these financial statements, of the patents challenged by CompactGTL, 3 patents have already successfully passed re-examination and none of the patents have been revoked or have required alteration. 

Costs incurred to date responding to this challenge have been expensed. However, given the nature of defending UK patent challenges, should its defence be unsuccessful, the Group may be liable for some of CompactGTL's UK legal costs (and vice versa). The Directors intend to vigorously defend the UK action should CompactGTL elect to continue this case. On this basis, no provision has been recognised in respect of this action.

The Group's policy is to always explore licensing opportunities for its IP where possible. Management will continue to seek business solutions that forward the Group's interests, in preference to resolution through legal means.

10.  SUBSEQUENT EVENT - FUND RAISING

On 25th February 2011, the Company announced the conditional placing of shares to raise £21 million (before expenses). This placing was approved at a General Meeting of its shareholders on 17th March 2011 and the shares were admitted to trading on AIM on 18th March 2011. The net cash of £20 million was received on the 18th March 2011.

11.  STATUTORY INFORMATION

Copies of the 2011 Annual Report will be posted to shareholders in May 2011 and may be obtained from the date of posting for one month free of charge from the registered office of the Company, 115e Milton Park, Oxford, OX14 4RZ, as well as from the Company's web site www.oxfordcatalysts.com

12.  ANNUAL GENERAL MEETING

The annual general meeting ("AGM") is to be held on 22^nd June 2011. Notice of the AGM will be dispatched to shareholders with the Group's report and accounts.

 

END

 

 

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