Interim Results

RNS Number : 1670C

Stem Cell Sciences plc

28 August 2008

 

Press Release

Stem Cell Sciences plc announces half-yearly results 
for the six months ended 30 June 2008

Cambridge, UK, 28th August 2008…Stem Cell Sciences (AIM: STEM, ASX: STC), a company focused on the commercialisation of stem cells and stem cell technologies, announces its half-yearly report for the six months ended 30th June 2008.

Corporate Highlights

• Business reorganised and refocused in order to increase volume and quality of revenue, and to improve operational efficiencies and reduce costs

• • New business plan & commercial strategy adopted - three key commercial objectives:

  • • To secure at least one major pharmaceutical research collaboration this year
    • To pursue the value existing in our extensive and fundamental intellectual property in the stem cell field through licensing agreements
    • To realise the strategic value of our specialist stem cell media business by an asset sale

  • Management and organisational restructuring completed in February 

  • Focus of research moved to new laboratories in Cambridge as Edinburgh facility closed in May

  • Expected cost savings (including restructuring costs) of more than £1m over two years

• Collaboration with The Myelin Repair Foundation, USA, for the development of techniques that will lead to scalable and sustainable sources of uniform human brain cells for research, CNS drug target validation and drug discovery assays.

• Core intellectual property portfolio enhanced with three new patents granted:

• • Two new patents granted by the US patent Office and the European Patent Office (EPO) in May and June, respectively, provide additional protection for serum-free cell culture media that improves the stable growth and derivation of embryonic stem cells (mouse and human), which leads to an increased purity of the cells.

  • A patent for mouse 'Nanog' was granted in June by the EPO complementing the Company's existing patent for human Nanog. Nanog is a key factor used to convert adult cells back into a pluripotent state. With this technology, adult cells can be reprogrammed to behave like embryonic stem cells.

• New media product launch in May of Culticell-iSTEM, a novel, serum-free, feeder-free embryonic stem (ES) cell research media product, that maintains cells in a pluripotent state. 

• In-license of GFP (green fluorescent protein) technology in June, which will be incorporated into research reagents as well as certain stem cell technologies used in services assays for high-throughput drug screening and toxicity testing. This product enhancement will enable the more-efficient selection of specific stem cell populations and to follow cellular responses seen as a result of external influences (e.g. toxicity).

Financial Highlights

• Commercial Revenue £275k, AU$594k (2007: £460k, AU$993k)

• Research Consortia income £212k, AU$458k (2007: £159k, AU$343k)

• Loss before tax £1.832m, AU$3.96m (2007: £1.718m, AU$3.71m)

• Loss per share 6.0p (2007: 5.7p)

• Cash balance 30 June 2008 £1.7m, AU$3.5m (2007: £5.3m, AU$10.8m) is after allowing for expenditure of £1.012m/AU$2.18m on R&D activities.

Alastair Riddell, CEO of Stem Cell Sciences, said:

"The first half of 2008 has been a time of great change within the company. A comprehensive restructuring of the organisation and operational base of the company necessitated extra costs in the second quarter and impacted ongoing business activities. This has now been resolved and we are seeing significant growth in our media sales, research collaboration revenue from pharmaceutical companies and research consortia grant income. Despite the reported fall in revenue in H1 2008 compared to H1 2007, which was related to a one-off licensing deal signed in 2006, this is a significant growth compared to H2 2007 and we are confident in growth continuing for H2 2008 to give a much improved full year compared to 2007."

There will be a conference call to discuss these results on 28th August, 2008 at 11.00am BST.

Dial-In Numbers

UK - Toll Free

0808 109 0700

International

[phone]

Conference Call Title: Stem Cell Sciences

7-Day Replay   

UK / International: [phone]

Passcode: 2436807

A sound file of the call will also be available at www.stemcellsciences.com 

For further information, please contact:

Stem Cell Sciences plc (United Kingdom)
Alastair Riddell, CEO

Giorgio Reggiani, Finance Director
[phone]

Citigate Dewe Rogerson (United Kingdom)
Emma Palmer / Mark Swallow
[phone]

Talk Biotech (Australia)
Fay Weston

[phone]

About Stem Cell Sciences plc

Stem Cell Sciences (SCS) is an international research and development company focusing on the commercial application of stem cell biology technologies for drug discovery and regenerative medicine research. Stem Cell Sciences is now focussing on building revenues through the sale of products, collaborative research and licensing deals with international biotechnology and pharmaceutical companies.

Stem Cell Sciences has a substantial portfolio of patents and patent applications in both adult and embryonic stem cell fields. The Company has been active in the stem cell research field since 1994, principally focused on technologies to grow, differentiate, and purify adult and embryonic stem cells. These include technologies to permit the generation of highly purified stem cells and their differentiated progeny (specialised tissue cell types) for use in genetic, pharmacological and toxicological screens. Moreover, these technologies may be able to provide pure populations of appropriate cell types for transplantation therapies in the future.

The Company has its main research base and headquarters in Cambridge, UK with a second research base in Monash near Melbourne, Australia and a business development office in San Francisco, USA.

-ends-  Chief Executive's Statement

A key activity that was completed in the first half of 2008 was the implementation of a comprehensive restructuring programme for Stem Cell Sciences. This restructuring was designed to improve the Company's financial, operational and growth performance, as well as to provide a greater focus on its commercialisation efforts in the application of stem cell technologies. These initiatives were the result of a strategic review that I, in conjunction with the Board, commenced in 2007. The key elements of the new business plan adopted by the Board in February 2008 were:

• Drive revenue growth by accelerating commercialisation activities and leveraging the Company's intellectual property position - as I outlined in our Preliminary results in February, the new commercial and research plans for the Company have three key objectives (detailed below)

• Consolidate commercial operations and all senior management into existing and expanded facilities in Cambridge, UK

• Closing of facilities in Edinburgh, UK 

• Streamlining of operations in Melbourne, Australia to become a centre for research excellence

Driving Revenue Growth

With historical leadership in stem cell technology, SCS is in a prime position to take advantage of the growing need by the pharmaceutical industry for an automated, scalable supply of high quality cell lines for drug research. SCS intends to increase its business development efforts in this potentially lucrative market opportunity and our first commercial objective is to secure at least one major pharmaceutical research collaboration this year. This is likely to be in assisting the partner in its search for small molecules that may play a role in assisting cell regeneration and in developing cell based therapies for the future. I can now report that we are in substantive discussions with several major pharmaceutical companies for such collaborations. 

Our second commercial objective is to initiate a programme to realise full commercial value of our extensive and fundamental intellectual property in the stem cell field through the signing of a series of non-exclusive licences. Furthermore, we have evidence identifying more than 20 companies and institutions believed to be using our technology without the freedom to operate under a licence. As such, we are now aggressively seeking licences from a number of companies. 

Our third major commercial objective is to realise the strategic value of our specialist stem cell media business by an asset sale. This will most probably be with a company specialising in the manufacture, distribution and sales of such material. Again I can report that we are in serious discussion with several major companies. Negotiating with large companies for significant deals takes many months but we expect to be able to make a positive announcement on at least one of these objectives this year.

Streamlining of Operations 

As part of the restructuring process undertaken during the first half of the year, we have established a new headquarters and UK research base in purpose-built facilities at Babraham Research Campus near Cambridge, UK. The Cambridge site is already home to SCS' pharmaceutical services division, which we believe will be a key driver of future growth for the company.

We have also closed our Edinburgh facility and our operation near Melbourne, Australia, will now fully concentrate on advancing pioneering stem cell research, such as the advances being made with rat embryonic stem (ES) cells.

Managerial Changes

As well as consolidating our operations into fewer sites, we have also restructured the senior management to create a simplified team focused on commercial delivery. Unfortunately this has meant that several members of the previous management team have been made redundant. These include Executive Directors Dr Peter Mountford, Chief Technology Officer (Australia) and Hugh Ilyine, Vice President and Chief Operations Officer (Edinburgh). Dr Mountford will remain with the Company as a Non-Executive Director and consultant specifically to evaluate new strategic growth opportunities.

In addition, the Finance Director and Company Secretary, Sue Furber, elected not to relocate from Edinburgh to Cambridge and has been replaced by Mr Giorgio Reggiani. Mr Reggiani is a Chartered Management Accountant with extensive senior financial managerial experience.

The restructuring incurred extra costs of £400k during the period and impacted ongoing business operations but these are now resolved and the Company is functioning much more effectively. Over the next two years, we expect this activity to reduce costs by approximately £1m.

Progress since the Restructuring

The new business plan is now beginning to bear fruit in progress with commercial discussions outlined above. Our research plans are also making excellent progress and I expect significant newsflow from both areas in the second half of the year.

Notable events reported in the first half 2008 include a collaboration agreement with The Myelin Repair Foundation of the USA announced in January. This collaboration is aimed at developing techniques that will lead to scalable and sustainable sources of uniform human brain cells for research, CNS drug target validation and drug discovery assays. Specifically, we are working with the Case Western University of Cleveland, Ohio in the validation and scale up of human nerve cells for therapeutic research for multiple sclerosis. 

We also announced the granting of three separate patents in the USA and Europe, covering our specialist growth media in May and June. These new patents provide additional protection for our serum-free cell culture media and research reagents that improve the stable growth and derivation of embryonic stem cells (mouse and human), and lead to an increased purity of cells.

Importantly, one of these patents, for mouse 'Nanog', which was granted in June by the EPO, complements the Company's existing patent for human Nanog. Nanog is a key factor used to convert adult cells back into a pluripotent state. With this technology, adult cells can be reprogrammed to behave like embryonic stem cells and this process is believed to be crucial to the further use of stem cells in drug research and for regenerative medicine by avoiding the controversy associated with using embryos.

The Company also launched a new medium, Culticell-iSTEM, in May linked to one of the above patents and a publication1 in Nature by a research team at Cambridge University led by Professor Austin Smith, the head of our Scientific Advisory Board. Culticell-iSTEM is a novel, serum-free, feeder-free ES cell research media product, which maintains cells in their basal, pluripotent state and provides researchers with a purer starting point for investigating the biological potential of ES cells.

In June, we in-licensed GFP (green fluorescent protein) technology, which will be incorporated into research reagents as well as certain stem cell technologies used in services assays for high-throughput drug screening and toxicity testing. This planned product enhancement will enable the more-efficient selection of specific stem cell populations and to follow cellular responses seen as a result of external influences (e.g. toxicity).

Our existing collaborations with Merck & Co. for neural stem cells and another large pharmaceutical company in the area of diabetes research, announced in 2007, are progressing well.

Financial Review

For the six months ended 30 June 2008, the Company received revenues of £275k, AU$594k (2007: £460k, AU$993k), which comprised of £95k SC Proven; £122k SC Services and £58k SC Licensing. Other operating income of £212k, AU$458k (2007: £159k, AU$343k) represented grant income. Loss before tax for the six months was £1.832m, AU$3.956m (2007: £1.75m, AU$3.8m) and the loss per share was 6.0p (2007: 5.7p).

The reorganisation announced in February 2008, which included the closure of operations in Edinburgh, resulted in £0.4m of reorganisation costs being incurred. 

Cash balances at 30 June 2008 were £1.7m, AU$3.5m (2007: £5.3m, AU$10.8). As detailed in note 1 to the half yearly report, should revenues remain consistent with prior periods, these cash resources are forecast to be exhausted by December 2008. Consequently the Group's ability to continue as a going concern is dependent on the successful attainment of the commercial objectives detailed above.

Post-Period Events 

The UK Patent Office granted SCS a patent in July covering our new range of stem cell culture media, Culticell-iSTEM, for embryonic stem cells and further capitalises on our valuable relationship with Prof. Austin Smith.  The culture media covered by this patent contain a combination of two or three types of enzyme inhibitors enable pluripotent (or embryonic) mouse stem cells to be grown reliably without feeder cells, growth factors, leukaemia inhibitory factor or serum. This gives the Company the exclusive right to market cell culture media containing these inhibitor combinations.

Outlook

This strategic restructuring we have undertaken during the first half of 2008 has provided a strong basis for a new, more commercially-orientated Stem Cell Sciences. We believe we have the people, the products and technological understanding to play a key role in the growing stem cell research market. These changes provide increased operational efficiency and place us in a better position to deliver shareholder value.

Furthermore, the Company expects to announce significant progress in its commercial and research activities during the second half of the year linked to the publicly stated focus of several major pharmaceutical companies, life science companies and research institutions on stem cells and their role in drug discovery and regenerative medicine.

Alastair Riddell

Chief Executive Officer

27 August 2008

  Consolidated Income Statement 

for the six months ended 30 June 2008 

		6 months to 30 June 2008	6 months to 30 June 2007	Year to 31 December 2007
		Unaudited	Unaudited Restated	Audited
	Notes	£'000	£'000	£'000
Revenue	4	275	460	593
Cost of Sales		(63)	(45)	(108)
Gross Profit		212	415	485
Other operating income		212	159	258
Administrative expenses		(1,332)	(1,474)	(2,980)
Research and development costs		(1,012)	(669)	(1,335)
Loss from operations		(1,920)	(1,569)	(3,572)
Finance income		89	66	230
Finance expenses		(1)	(4)	(4)
Share of results of associates		-	(211)	(294)
Loss before Taxation		(1,832)	(1,718)	(3,640)
Income Tax Credit	5	-	-	133
Loss For The Period		(1,832)	(1,718)	(3,507)
Loss per share
Basic	7	(6.0)p	(5.7)p	(11.6)p
Diluted	7	(6.0)p	(5.7)p	(11.6)p

Revenue and loss before income tax for the current and previous period relate wholly to continuing activities.

  Consolidated Balance Sheet 

as at 30 June 2008 

		As at 30 June 2008 Unaudited	As at 30 June 2007 Unaudited Restated	As at 31 December 2007 Audited
	Notes	£'000	£'000	£'000
ASSETS
Non-current Assets
Property, plant and equipment		413	568	516
Intangible assets		311	256	290
Investments accounted for using the equity method		-	67	-
Total non-current assets		724	891	806
Current assets
Trade and other receivables		172	244	333
Current tax assets		149	-	133
Cash and cash equivalents		1,725	5,305	3,607
Total current assets		2,046	5,549	4,073
Total assets		2,770	6,440	4,879
LIABILITIES
Non-current assets
Deferred income		(53)	(100)	(77)
Current Liabilities
Trade and other payables		(414)	(620)	(669)
Deferred income		(87)	(47)	(148)
Total current liabilities		(501)	(667)	(817)
Total liabilities		(554)	(767)	(894)
Net assets		2,216	5,673	3,985
EQUITY
Share capital	7	335	335	335
Share premium account		6,536	6,536	6,536
Capital redemption reserve		10,928	10,928	10,928
Foreign exchange reserve		(101)	(126)	(110)
Merger reserve		(1,248)	(1,248)	(1,248)
Retained deficit		(14,234)	(10,752)	(12,456)
Total equity attributable to equity holders of the Company		2,216	5,673	3,985

  Consolidated Statement of Changes in Equity

 for the six months ended 30 June 2008 

Attributable to equity holders of the company	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Foreign exchange reserve £'000	Merger reserve £'000	Retained deficit £'000	Total equity £'000
Balance at 1 January 2007	223	2,297	10,928	(119)	(1,248)	(9,064)	3,017
Exchange differences arising on translation of overseas operations	-	-	-	(7)	-	-	(7)
Retained loss for the period	-	-	-	-	-	(1,718)	(1,718)
Share based payments	-	-	-	-	-	30	30
Issue of share capital	112	4,239	-	-	-	-	4,351
Balance at 30 Jun 2007	335	6,536	10,928	(126)	(1,248)	(10,752)	5,673
Exchange differences arising on translation of overseas operations	-	-	-	16	-	-	16
Retained loss for the period	-	-	-	-	-	(1,789)	(1,789)
Share based payments	-	-	-	-	-	85	85
Balance at 31 December 2007	335	6,536	10,928	(110)	(1,248)	(12,456)	3,985
Exchange differences arising on translation of overseas operations	-	-	-	9	-	-	9
Retained loss for the period	-	-	-	-	-	(1,832)	(1,832)
Share based payments	-	-	-	-	-	54	54
Balance at 30 June 2008	335	6,536	10,928	(101)	(1,248)	(14,234)	2,216

Consolidated Cash Flow Statement 

for the six months ended 30 June 2008 

	6 Months to 30 June 2008 Unaudited £'000	6 Months to 30 June 2007 Unaudited £'000	Year to 31 December 2007 Audited £'000
Cash flows from operating activities
Loss after income tax	(1,832)	(1,718)	(3,507)
Adjustments for:
Depreciation	132	98	178
Amortisation	27	19	39
Capitalised development costs	(48)	(54)	(108)
Deferred income	(85)	(72)	(123)
Finance Income	(89)	(66)	(230)
Finance Expense	1	4	4
Share of loss of equity accounted investee	-	211	294
Effect of changes in foreign exchange rates	(22)	-	(10)
Equity settled share based payment transactions	54	30	115
Income tax income	-	-	(133)
Decrease in debtors	161	474	277
Decrease in creditors	(255)	(487)	(430)
	(1,956)	(1,561)	(3,634)
Interest payable	(1)	(4)	(4)
Income taxes received	-	-	62
Net cash used in operating activities	(1,957)	(1,565)	(3,576)
Cash Flows from investing activities
Interest received	89	66	204
Acquisition of Plant & Equipment	(23)	(8)	(34)
Grant income received	-	-	194
Net cash from investing activities	66	58	364
Cash flows from financing activities
Proceeds from issue of share capital	-	4,351	4,351
Net cash from financing activities	-	4,351	4,351
Net (decrease)/increase in cash and cash equivalents	(1,891)	2,844	1,139
Effect of foreign exchange rate changes	9	(2)	5
Cash and cash equivalents at beginning of period	3,607	2,463	2,463
Cash and cash equivalents at endof period	1,725	5,305	3,607

  Notes to the Half-yearly report

1 Financial information

The financial information set out in this announcement has been prepared on the historical cost basis and in accordance with the recognition and measurement requirements of International Financial Reporting Standards and the interpretations as adopted by the European Union ("adopted IFRS").  

The comparative figures for the financial year ended 31 December 2007 are not the company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) included references to matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. In the 2007 financial statements the auditors' report contains an emphasis of matter paragraph concerning going concern and capitalised development expenditure.

This consolidated interim financial report does not include all of the information required for a full annual financial

report, and should be read in conjunction with the consolidated annual financial report as at and for the year ended 31 December 2007. The consolidated annual financial report as at and for the year ended 31 December 2007 is available at stemcellsciences.com.

The consolidated interim financial report was approved by the Board of Directors on 27 August 2008.

2 Restatement of comparative information

The information relating to June 2007 has been restated to reflect the capitalisation and amortisation of development costs adopted in the comparative figures for the financial year ended 31 December 2007. This restatement has the effect of decreasing loss before tax by £35,000 for the six month period ended 30 June 2007. In the balance sheet as at 30 June 2007 intangible assets have increased by £256,000 and the retained deficit has decreased by £256,000.

Certain items within the segmental analysis have been reclassified to enhance understanding of prior period results and to aid comparability with current period presentation. This has no impact on the group loss for the period or any prior period.

3 Basis of preparation

The Group is involved in the research, development and commercialisation of stem cell and stem cell technology. At this stage of its development it has limited revenues arising from licensing arrangements, contract research and product sales and its costs exceed its revenue. The Group will continue to absorb cash until its products are commercialised.

The half-yearly report is prepared on a going concern basis which the directors believe to be appropriate for the following reasons.

The directors have prepared detailed cash flow projections for the period to 31 December 2009 which demonstrate that the Group's cash resources are expected to be sufficient to enable it to continue to trade and meet its liabilities as they fall due for at least twelve months from the date of approval of the half-yearly report.

The key elements underpinning the cash flow forecasts are:

• Revenues from corporate transactions which the directors are confident will complete within the short term.

• Income from research collaborations involving both consultancy and cell production services. The directors are at an advanced stage of negotiations with a number of major pharmaceutical companies in this respect.

These revenues are not certain and significantly exceed the amounts received in previous years. If the revenue remains consistent with previous years the directors forecast that the Group's cash resources will be used by December 2008. If the revenue generation is later than anticipated the directors would take appropriate steps to reduce the level of cash outflow and to raise additional funds through other sources.

The uncertainty in relation to these matters may cast significant doubt on the Group's ability to continue as a going concern and doubt over the recoverability of capitalised development expenditure. The Group may therefore, be unable to continue realising its assets and discharging its liabilities in the normal course of business but the half-yearly report does not include any adjustments that would result from the going concern basis of preparation being inappropriate.

4 Segment Information

Six months ended 30 June 2008	External Revenue £'000	Segment Result £'000
SC Proven	75	(92)
SC Services	121	(2)
SC Licensing	79	79
Consolidated	275	(15)
Unallocated corporate items		(2,477)
Net finance income		88
Taxation		-
Loss for Period		(1,832)
Six months ended 30 June 2007	External Revenue £'000	Segment Result £'000
SC Proven	142	5
SC Services	32	(206)
SC Licensing	286	286
Consolidated	460	85
Unallocated corporate items		(1,865)
Net finance income		62
Taxation		-
Loss for Period		(1,718)
Year ended 31 December 2007	Revenue Restated £'000	Segment Result Restated £'000
SC Proven	203	(89)
SC Services	75	(508)
SC Licensing	315	302
Consolidated	593	(295)
Unallocated corporate items		(3,277)
Net finance income		226
Share of loss of equity accounted investee		(294)
Income tax credit		133
Loss for year		(3,507)

	Six Months Ended 30 June 2008 £'000 Total Assets	Six Months Ended  30 June 2008 £'000 Total Assets	Year Ended  31 Dec 2007 £'000 Total Assets
SC Proven	371	18	357
SC Services	325	490	325
SC Licensing	191	-	-
Unallocated corporate items	1,329	5,676	4,196
Total Assets	2,216	6,184	4,878

Unallocated corporate items include those certain assets and liabilities that are not specifically allocated to business segments as the assets and liabilities are utilised, managed and reported centrally across all business segments. Consequently it is not possible to provide a meaningful allocation of these unallocated corporate items for each business segment as this cannot be done on a reasonable basis.

5 Taxation

At 30 June 2008, the Group has significant tax losses that are not recognised in the financial information and will be carried forward for utilisation against future taxable profits.

6 Fixed Asset Investment

The investment in associate at 30 June 2007 related to an interest in Stem Cell Sciences KK, a company incorporated in Japan. The investment was sold during October 2007.

7 Loss per share

Basic and diluted loss per share    

The calculation of basic loss per share at 30 June 2008 was based on the loss attributable to shareholders of £1,832,000 (2007: £1,718,000) and a weighted average number of ordinary shares outstanding during the period ended 30 June 2008 of 30,351,000 (2007: 30,351,000), calculated as follows:

	Six Months Ended 30 June 2008 £'000	Six Months Ended  30 June 2008 £'000	Year Ended  31 Dec 2007 £'000
Issued ordinary shares at 1 January 2007	30,351	22,301	22,301
Effect of shares issued in April 2007	-	8,050	8,050
Unallocated corporate items	30,351	30,351	30,351

The loss attributable to ordinary shares and the number of ordinary shares for the purpose of calculating the diluted earnings per share are identical to those used for basic earnings per share. The exercise of share options would have the effect of reducing the loss per share and consequently is not taken into account in the calculation for diluted loss per share.

  Independent review report to Stem Cell Sciences plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly report for the six months ended 30 June 2008 which comprises the Consolidated Income Statement, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity and the Consolidated Cash Flow Statement and the related explanatory notes. We have read the other information contained the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

The report is made solely to the company in accordance with the terms of engagement. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Director's responsibilities

The half-yearly report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly report in accordance with the AIM Rules.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly report has been prepared in accordance with the recognition and measurement requirements of IFRSs as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with the recognition and measurement requirements of IFRSs as adopted by the EU and the AIM Rules.

Emphasis of matter - going concern and capitalised development expenditure

In forming our conclusion on the condensed set o financial statements in the half-yearly report, which is not qualified, we have considered the adequacy of the disclosures made in note 1 to the condensed set of financial statements concerning the group's ability to continue as a going concern. The group incurred a loss of £1,832,000 during the six months period ended 30 June 2008. At that date, the group had a cash balance of £1,725,000. The directors are aware that should revenues generated by the group remain consistent with prior periods and/or the group is unable to access additional funds as anticipated by the latest business plan its cash resources with be exhausted by December 2008. These conditions, along with other matters explained in note 1 to the condensed set of financial statements, indicated the existence of a material uncertainty which may cast significant doubt on the group's ability to continue as a going concern and recover capitalised development expenditure. The financial statements do not include the adjustments that would result if the group were unable to continue as a going concern and recover its assets.

KPMG Audit Plc

Chartered Accountants

Edinburgh

27 August 2008

SCS plc (UK)

Alastair Riddell, CEO 

([e-mail])

Phone: [phone] 

Fax: [phone]

SCS LLC (USA)

George Murphy Jr., VP Sales

([e-mail])

Phone: [phone] 

Fax: [phone]

SCS (Australia) Pty Ltd

David Newton, General Manager 

([e-mail])

Phone: [phone] 

Fax: [phone]

---

1 Ying, Q-L et al. (2008) Nature 453, 519-523

 

END

 

 

IR SELFUWSASEFA