CRX.L Regulatory News (CRX)

30 Aug 2007 07:00

Cyprotex PLC30 August 2007 30 August 2007 Cyprotex PLC ("Cyprotex" or "the Company" or "the Group") Interim results for the six months to 30 June 2007 Cyprotex PLC (LSE:CRX), the drug discovery technology and information company,today reports its Interim results for the half year ended 30 June 2007. HIGHLIGHTS • Despite experiencing the disruptive effects of two major and exceptional events during the first six months of 2007, the Group reports a year-on-year revenue improvement whilst its customer base expanded at a record level; • Revenues for the period increased approximately 4% to £1.69m (1H 2006: £1.62m); • Gross Profits rose by 1.6% to £1.44m (1H 2006: £1.41m); • A Requisition to unseat present management and, for unconnected reasons, internal reorganisation of the Group's single largest customer, hindered progress during the second quarter. Lost momentum is now being recaptured; and • Management reiterates its confidence in Cyprotex' business activity, its global market opportunity and the real value of its unique technologies, whilst retaining adequate cash resources and facilities. Commenting on the results, Robert Morrisson Atwater, Chairman and ChiefExecutive Officer of Cyprotex PLC, said: "The market opportunity for Cyprotex'sunique technologies is clear. We are confident of growing the Company's revenuein the second half of 2007, regaining some of the momentum lost in the firsthalf of the year" For further information: Cyprotex PLC Robert Morrisson Atwater, Tel: +44 (0) 1625 505 100Chief Executive OfficerRussell GibbsChief Financial Officerir@cyprotex.com www.cyprotex.com Nomura Code Securities LimitedCharles Walker Tel: +44 (0) 20 7024 2000cew@nomuracode.com www.nomuracode.com Media enquiries: WMC Communications LimitedAlex Glover Tel: +44 (0) 20 7930 9030alex.glover@wmccommunications.com www.wmccommunications.com CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S STATEMENT Confidence in the Business Plan I open my half-year review by stating that management have never been moreconfident of Cyprotex's business activity, its global market opportunity and thereal value of its unique technologies. Though being somewhat setback by theexperiences of the first half of 2007, the overwhelming endorsement provided byshareholders to the Board of Directors during June's Extraordinary GeneralMeeting provided great encouragement. Cyprotex is in the process of rebuilding the confidence that it enjoyed in theclosing months of last year. By the end of 2007, I expect management to havescaled those heights again. Indeed, Cyprotex's reputation within an industry of'exceptionally hard taskmasters' has never slipped. The expansion of itscustomer-base continued at a dramatic pace during the first half, whilst furtherrefinement of the Group's in-vitro facilities continued to justify its claim ofsetting the international standard in high-throughput ADMET screening. Cyprotex lost an important client during the first quarter of 2007. Thishappened to be the Group's largest single revenue generator during thecomparable period and was solely the result of its surprise withdrawal fromsmall molecule research, in itself a highly unusual event. Cyprotex does notexpect to be affected by similar occurrence in the future and notes that, butfor loss of this business, its first half revenue performance would still havebeen in line with management expectations. Moreover, it has since beencompletely replaced by the addition of a major new customer whose association isa further strong endorsement of Cyprotex's technologies. As I mentioned at the Annual General Meeting (AGM), the efforts by a group of 'Requisitionists' intent on unseating the present management resulted in ahighly unnecessary and costly diversion for your Company. Total direct costsincurred by the Group amounted to some £80,000. Indirect costs were higher. Recognising that Cyprotex's relationship with international clients isnecessarily based on high levels of trust between the two parties, it came as nosurprise that important contract work was either lost or deferred while the'take-over' attempt was being dismissed. In that respect, the actions of theRequisitionists can only be considered to have been a genuine disservice toshareholders. The second half has started on a positive note. The level of new businessenquiries has been buoyant and momentum lost from core customers during thesecond quarter is now being recaptured. Within a generally fixed cost base,significant capacity remains available while requirements for capitalexpenditure are presently at historically low levels. In particular, theGroup's ability to impress the pharmaceutical industry giants has becomeapparent. The scale and visibility that strong working relationships with suchpartners are capable of providing is key to Cyprotex's business plan.Management expects confidence within its core operations to continue to buildfor the remainder of this year. Shareholders should be aware that the legal and advisory fees involved indefending your Company against the 'Requisitionists' were significant.Nevertheless, given its policy of extremely tight cash management, and based onanticipated workload, Cyprotex retains sufficient cash resources to service itsobligations, whilst continuing to expand its marketing reach and researchcapabilities. It also has arranged a new banking facility and retains otheropportunities for collateralised fund raising. Financial Highlights • Despite experiencing the disruptive effects of two major and exceptional events during the first six months of 2007, the Group reports a year-on-year revenue improvement whilst its customer base expanded at a record level; • Revenues for the period increased approximately 4% to £1.69m (1H 2006: £1.62m); • Gross Profits rose by 1.6% to £1.44m (1H 2006: £1.41m); and • A Requisition to unseat present management and, for unconnected reasons, internal reorganisation of the Group's single largest customer, hindered progress during the second quarter. Lost momentum is now being recaptured. A Major Market Opportunity for Cyprotex's Unique Technologies Cyprotex has invested heavily in unique and proprietary technologies. TheGroup's outsourced laboratory testing services to the global drug developmentindustry provide an independent and high-value in-vitro screening service.From this key 'go' or 'no go' decisions, that may commit the developer to sevenor more years of major investment, are made. By eliminating unsuitablecompounds on the grounds of safety, stability or toxicity, remaining candidatesthen become available for further preclinical and clinical trials, after theirInvestigational New Drug Application (IND) becomes effective. The trend bypharmaceutical companies to outsource their analytical testing, especially inthe US, has accelerated in recent years to an estimated market size of over $2billion and continues to grow at approximately 10% per year. In-vitro screening is, of course, a generic process that, until recently,pharmaceutical majors and drug development companies chose to carry outthemselves. Even now, it is estimated that over 90% of the world's in-vitroscreening is completed internally. Yet the need to outsource such services hasnever been more evident. The pharmaceutical industry is under extreme pressureto improve productivity within its research and development. As such, thenumber of drug compounds entering preclinical trials has recently expandedsignificantly, as pressure heightens to progress new compounds into viablecandidates as rapidly as possible. Cyprotex's operations were specificallydesigned to provide an industry solution to such an anticipated 'bottleneck'. As a contract research organisation (CRO), Cyprotex distinguishes itself bytreating in-vitro ADMET (Absorption, Distribution, Metabolism, Excretion andToxicity) screening as a core competency. It has uniquely created a whollyautomated screening facility, using state-of-the-art laboratory equipmentcontrolled by its own proprietary operating system and algorithms. As a result,Cyprotex claims to have the single largest screening capacity of any suchlaboratory worldwide; perhaps even more importantly, by eliminating thelabour-intensive elements of a manual facility, it can offer unprecedentedpricing, turnaround and robustness. The advantages of outsourcing in-vitroscreening to Cyprotex's are easily demonstrated. Although notoriously slow to change attitude and working process, thepharmaceutical world is now recognising the need to identify suitable externalcontractors. Indeed, early in the second half of 2007, Cyprotex won its biggestsingle order ever from one of the global 'Top Ten' pharmaceutical majors, whoseofficers recognised the strategic advantages of such sub-contracting. Quiteclearly the potential scale of work from this client alone is huge, whilst alsoproviding a major endorsement of Cyprotex's technologies. Cyprotex expectsworkload from the industry's 'global giants' to grow significantly over the nexttwelve months. This should provide improved visibility for investors, as theGroup capitalises on its exceptional operational gearing and drives towardprofitability. Customer Development It is estimated that, globally, there are over 20,000 entities involved in drugdiscovery to which Cyprotex could potentially provide valued-added ADMETservices. Moreover, as market research firm, Business Insights, notes in arecent publication, 'the reliance on service providers and in particular CRO'shas rocketed in the past few years...and expected to grow at an annual rate of14 to 16 per cent'. Thus the market being addressed and the opportunityinvolved are huge. In that respect, the 150 or so customers that Cyprotex hasestablished 'Master Services Agreements' with can be expected to continue togrow significantly. Indeed, during the first six months of 2007, the Group'scustomer base expanded by some 20%. Cyprotex's business plan anticipates both the need and desire of drug developersto increasingly 'externalise' their generic screening. In the first instance,by having a large number of individual customers, the Group attempts to insulateitself from cyclical demand swings. Beyond this, it also recognises that theglobal pharmaceutical giants have both huge and continuous screening needs butthat, historically, outsourcing agents capable of providing an adequate qualityof service have not been found. After being pushed through extensive phases oftesting by these particular 'taskmasters', however, Cyprotex management nowbelieve that these companies will in the future be an increasingly largeproportion of Group turnover. It is anticipated that this will ensure heavierworkload and improved visibility. North America is expected to continue toexpand as a total proportion of total sales. Product Development During the first six months of 2007, in response to customer and regulatorydemands, Cyprotex extended its range of metabolic assays to include additionalprobe substrate in its cytochrome P450 isoform identification screens. This nowcompletes the Group's range of isoforms recommended in the current draft FDAguidelines. In addition, a panel of screens for investigating mechanism-basedinhibition was finalised. Understanding the metabolic profile and inhibitorypotential of a compound is a key element in drug interaction studies. More recently, a microsomal in-vitro assay has been added in order to assess acompound's scope for liver binding. When used in conjunction with stabilitydata, prediction of in vivo clearance and potential for drug-drug interactionsare improved. An additional cell line has also been introduced to the existingoffering of permeability screens that is complemented by an extension of drugefflux products. Cyprotex is providing in silico support to an EU-funded project (EUMAPP), whichis designed to investigate how to accelerate from 'lab to clinic' using acombination of human microdosing, improved analytical capabilities and in silicoapproaches. This is a long-term project that will continue into 2008. It isalso providing in silico Pharmacokinetic prediction for an EU-funded project(OSIRIS) to address REACH (Registration Evaluation and Authorisation ofChemicals) legislation. This work was initiated in April 2007. The overall goalof the consortium is to develop software that identifies whether traditionalcompound testing methods should be triggered or waived, based on its predictedtoxicity. Amongst the research projects the Group is presently involved in is a novelapproach to auto QSAR (automated Quantitative Structure-Activity Relationships)technology, which uses competitive workflow for predicting properties fromchemical structure. Potentially the applications of this technology are wideranging within the drug development industry. The 'Requisition' On 12 February 2007, Cyprotex received a requisition from founder, Dr. DavidLeahy, and Robert Long ('the Requisitionists'). Being shareholders of yourCompany holding of at least 10% of its paid up share capital they possess theright, pursuant to section 368 of the Companies Act 1985, the right to call anExtraordinary General Meeting. The purpose of this meeting being to propose theremoval of each of Cyprotex's existing executive and non-executive directors andthen, by separate resolution to appoint themselves along with a Michael McGounand Dr. David Cavella as directors with immediate effect. In the event, on 6 March 2007, 76.48% of votes cast voted against theResolutions. Accordingly, a large majority rejected the Resolutions and nochanges to the Board were made. Robert Morrisson Atwater Chairman and Chief Executive Officer 30 August 2007 Restated Restated Unaudited Unaudited Audited 6 months 6 months year ended ended ended 30 June 30 June 31 December Note 2007 2006 2006 £ £ £Continuing operationsRevenue 5 1,685,358 1,623,944 3,504,830Cost of sales (247,944) (209,707) (533,171)Gross profit 1,437,414 1,414,237 2,971,659 Investment revenue 10,639 15,413 27,573Administrative costs (1,865,189) (1,771,068) (3,712,413)Finance cost (34,602) (25,819) (47,630)Loss before tax (451,738) (367,237) (760,811) Income tax 34,210 48,187 100,641Loss for the period (417,528) (319,050) (660,170) Loss per share Basic and diluted loss per share 6 (0.31)p (0.23)p (0.48)p Restated Restated Unaudited Unaudited Audited 6 months 6 months year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £ £ £ ASSETS NoteNon current assets Property, plant and equipment 8 1,472,532 1,520,211 1,422,026 1,472,532 1,520,211 1,422,026 Current assets Inventories 101,729 80,387 85,636Trade receivables 405,511 301,414 561,879Other receivables 202,152 216,159 196,545Current tax assets 134,277 47,633 100,067 Cash and cash equivalents 267,468 854,793 455,279 1,111,137 1,500,386 1,399,406 Total assets 2,583,669 3,020,597 2,821,432 LIABILITIES Non current liabilities Long term borrowings 623,500 649,500 635,800 Obligations under finance leases 107,435 65,305 35,807 730,935 714,805 671,607 Current liabilities Trade payables 236,157 140,784 128,969 Current portion of long term borrowings 22,500 22,500 22,500 Other payables 162,491 135,895 258,926 Obligations under finance leases 113,500 54,575 56,877 534,648 353,754 467,272 Total liabilities 1,265,583 1,068,559 1,138,879 EQUITY Share capital 7 138,619 138,423 138,573 Share premium account 9,663,385 9,661,368 9,662,913 Other reserve 128,070 128,070 128,070 Share based payment reserve 352,527 230,044 299,984 Retained losses (8,964,515) (8,205,867) (8,546,987) 1,318,086 1,952,038 1,682,553 Total equity and liabilities 2,583,669 3,020,597 2,821,432 Share Share Share Other based Retained Total capital premium reserve payment losses equity account reserve £ £ £ £ £ £Balance at 31 December 2005 138,325 9,660,362 128,070 163,318 (7,886,817) 2,203,258 Changes in equity for thefirst half of 2006Loss for the period - - - - (319,050) (319,050)Total recognised income and - - - - (319,050) (319,050)expense for the periodIssue of share capital 98 1,006 - - - 1,104Share based payment charge - - - 66,726 - 66,726Balance at 30 June 2006 138,423 9,661,368 128,070 230,044 (8,205,867) 1,952,038 Balance at 31 December 2005 138,325 9,660,362 128,070 163,318 (7,886,817) 2,203,258 Changes in equity for 2006 Loss for the period - - - - (660,170) (660,170)Total recognised income and - - - - (660,170) (660,170)expense for the periodIssue of share capital 248 2,551 - - - 2,799Share based payment charge - - - 136,666 - 136,666Balance at 31 December 2006 138,573 9,662,913 128,070 299,984 (8,546,987) 1,682,553 Balance at 31 December 2006 138,573 9,662,913 128,070 299,984 (8,546,987) 1,682,553 Changes in equity for thefirst half of 2007Loss for the period - - - - (417,528) (417,528)Total recognised income and - - - - (417,528) (417,528)expense for the periodIssue of share capital 46 472 - - - 518Share based payment charge - - - 52,543 - 52,543Balance at 30 June 2007 138,619 9,663,385 128,070 352,527 (8,964,515) 1,318,086 Restated Restated Unaudited Unaudited Audited 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006Cash flows from operating activities £ £ £Loss after taxation (417,528) (319,050) (660,170) Adjustments for:Depreciation 141,230 182,177 351,528Share based payment charge 52,543 66,726 136,666Investment income (10,639) (15,413) (27,573)Interest expense 34,602 25,819 47,630Taxation income recognised in income (34,210) (48,187) (100,641)statementDecrease/(increase) in trade and other 150,761 194,015 (46,836)receivables(Increase)/decrease in inventories (16,093) 10,840 5,591Increase/(decrease) in trade and other 10,753 (25,730) 85,486payablesCash (consumed)/generated from operations (88,581) 71,197 (208,319)Interest paid (34,602) (25,819) (47,630)Income tax received - 146,792 146,812Net cash from operating activities (123,183) 192,170 (109,137) Cash flows from investing activities Purchase of property, plant and equipment (17,214) (6,436) (77,602)Interest received 10,639 15,413 27,573Net cash (used)/generated in investing (6,575) 8,977 (50,029)activities Cash flows from financing activitiesProceeds from issue of share capital 518 1,104 2,799Repayment of long-term borrowings (12,300) (12,000) (25,700)Payment of finance lease liabilities (46,271) (25,560) (52,756)Net cash used in financing activities (58,053) (36,456) (75,657) Net (decrease)/ increase in cash and cash (187,811) 164,691 (234,823)equivalents Cash and cash equivalents at beginning of 455,279 690,102 690,102periodCash and cash equivalents at end of period 267,468 854,793 455,279 1. Nature of operations and general information Cyprotex PLC and its subsidiaries' ('the Group') principal activity is theprovision of in vitro and in silico ADMET/PK (Absorption, Distribution,Metabolism, Excretion, Toxicity/Pharmacokinetic) information to thepharmaceutical industry. Cyprotex PLC is the Group's ultimate parent company. It is incorporated anddomiciled in England and Wales. The address of the registered office of CyprotexPLC is 100 Barbirolli Square, Manchester, M2 3AB. It trades through a whollyowned subsidiary, Cyprotex Discovery Limited whose place of business is 15 BeechLane, Macclesfield, Cheshire, SK10 2DR. Cyprotex PLC's shares are listed on theAlternative Investment Market of the London Stock Exchange. The consolidated interim statements of Cyprotex PLC are presented in PoundsSterling (£), which is also functional currency of the parent. These consolidated interim financial statements have been approved for issue bythe Board of Directors on 30 August 2007. The financial information set out in the interim report does not constitutestatutory accounts as defined in Section 240 of the Companies Act 1985. TheGroup's statutory financial statements for the year ended 31 December 2006,prepared under UK GAAP, have been filed with the Registrar of Companies. Theauditor's report on those financial statements was unqualified and did notcontain a statement under Section 237(2) of the Companies Act 1985. 2. Basis of preparation These interim consolidated financial statements are for the six-month periodended 30 June 2007. They have been prepared in accordance with IAS 34 "InterimFinancial Reporting" and the requirements of IFRS 1 "First-time Adoption ofInternational Financial Reporting Standards" relevant to interim reports,because they are part of the period covered by the Group's first IFRS financialstatements, and should be read in conjunction with the consolidated financialstatements of the Group for the year ended 31 December 2006. These financial statements have been prepared under the historical costconvention. These consolidated interim financial statements have been prepared in accordancewith the accounting policies set out below which are based on the recognitionand measurement principles of IFRS in issue as adopted by the European union(EU) and are effective at 31 December 2007 or are expected to be adopted andeffective at 31 December 2007, our first annual reporting date at which we arerequired to uses IFRS Accounting Standards adopted by the EU. Cyprotex PLC's consolidated financial statements were prepared in accordancewith United Kingdom Accounting Standards (United Kingdom Generally AcceptedAccounting Practice) until 31 December 2006. The date of transition to IFRS was1 January 2006. The comparative figures in respect of 2006 have been restated toreflect changes in accounting policies as a result of adoption of IFRS. TheGroup has taken advantage of exemptions under IFRS and no restatement has beenmade to the accounting treatment of previous business combinations, includingthe acquisition of Cyprotex Discovery Limited by Cyprotex PLC on 4 January 2002. The accounting policies have been applied consistently throughout the Group forthe purposes of preparation of these consolidated interim financial statements. The Group recorded a loss after taxation of £417,528 in the six months ended 30June 2007 and cash and deposits fell by £187,811 to £267,468. However, theDirectors have reviewed the budget, financial forecast including cash flowforecasts and other relevant information and believe that the Group has adequateresources to continue in operation for the foreseeable future. Accordingly, theaccounts are prepared on a going concern basis. This assumption is underpinnedby the readiness of key shareholders to support the Group. The Directors, havingreviewed operational requirements and forecasts for this year and beyond,consider that Cyprotex PLC will have sufficient cash resources to continue tooperate. In the event of unforeseen circumstances, including any failure by theGroup to meet performance expectations, management understands that suchresources could rapidly deplete, thereby requiring some external means offund-raising in order to remain a going concern. Being a publicly quotedcompany, Cyprotex has the option of appealing to shareholders with a view tooffering a pre-emptive rights issue, by an open offer or a restricted offer ofnew shares. Other options for short-term fund-raising include asale-and-leaseback of its Macclesfield head office. The interim financialstatements do not include any adjustments that would result if the group wasunable to continue as a going concern. 3. Summary of significant accounting policies Property, plant and equipment Property (including property subject to lease terms in excess of 800 years),plant and equipment is stated at cost, net of depreciation and any provision forimpairment. No depreciation is charged during the period of construction orcommissioning. Depreciation Depreciation is calculated to write down the cost, less any estimated residualvalue, of all property plant and equipment by equal annual instalments over theestimated useful economic lives as follows: Long leasehold land and buildings Over 50 yearsOffice equipment Over 10 yearsComputer equipment Over 3 yearsLaboratory equipment Over 5 years Material residual value estimates are updated at least annually. Impairment testing of property, plant and equipment The carrying values of property, plant and equipment are reviewed annually. Investments Investments are held at cost less provision for impairment. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for any rebates and other similar allowances. Revenue on the outright sale of services and software, where no supplierobligations remain, is recognised on delivery to the customer. Revenue from a contract to provide services is recognised by reference to thestage of completion of the contract. Interest income is accrued on a time basis by reference to the principaloutstanding and at the effective interest rates applicable. Inventories Inventories are stated at the lower of cost and net realisable value on afirst-in-first out basis. Research and development Expenditure on research (or the research phase of an internal project) isrecognised as an expense in the period in which it is incurred. Development costs incurred are capitalised when all the following conditions aresatisfied; • completion of the intangible asset is technically feasible so that it will be available for use or sale: • the group intends to complete the intangible asset and use or sell it; • the group has the ability to use or sell the intangible asset; • the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits; • there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • the expenditure attributable to the intangible asset during its development can be measured reliably. Development costs not meeting this criteria for capitalisation are expensed asincurred. Amortisation commences upon completion of the asset and is in line with expectedfuture related sales. Careful judgement by the directors is applied when deciding whether therecognition requirements for development costs have been met. This is necessaryas the economic success of any product development is uncertain and may besubject to future technical problems at the time of recognition Judgements arebased on the information available at each balance sheet date. In addition, allinternal activities related to the research and development of new softwareproducts are continuously monitored by the directors. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposit, togetherwith other short-term highly liquid investments that are readily convertibleinto known amounts of cash and which are subject to an insignificant risk ofchanges in value. Leased assets In accordance with IAS 17, the economic ownership of a leased asset istransferred to the lessee if the lessee bears substantially all the risks andrewards related to the ownership of the leased asset. The related asset isrecognised at the time of inception of the lease at the fair value of the leasedasset or, if lower, the present value of the minimum lease payments plusincidental payments, if any, to be borne by the lessee. A corresponding amountis recognised as a finance leasing liability. All other leases are regarded as operating leases and the payments made underthem are charged to the income statement on a straight-line basis over the leaseterm. Lease incentives are spread over the term of the lease. Pensions The Group operates a defined contribution scheme. Pension costs charged againstprofits are the contributions payable to the scheme in respect of the accountingperiod. Foreign currencies Transactions in foreign currencies are translated at the exchange rate ruling atthe date of the transaction. Monetary assets and liabilities in foreigncurrencies are translated at the rates of exchange ruling at the balance sheetdate. Non-monetary items that are measured at historical cost in a foreigncurrency are translated at the exchange rate at the date of the transaction.Non-monetary items that are measured at fair value in a foreign currency aretranslated using the exchange rates at the date when the fair value wasdetermined. Any exchange differences arising on the settlement of monetary items or ontranslating monetary items at rates different from those at which they wereinitially recorded are recognised in the profit of loss in the period in whichthey arise. Exchange differences on non-monetary items are recognised in thestatement of recognised income and expenses to the extent that they relate to again or loss on that non-monetary item taken to the statement of recognisedincome and expenses, otherwise such gains and losses are recognised in theincome statement. The assets and liabilities in the financial statements of foreign subsidiariesand related goodwill are translated at the rate of exchange ruling at thebalance sheet date. Income and expenses are translated at the actual rate. Theexchange differences arising from the retranslation of the opening netinvestment in subsidiaries are taken directly to the "Foreign currency reserve"in equity. On disposal of a foreign operation the cumulative translationdifferences (including, if applicable, gains and losses on related hedges) aretransferred to the income statement as part of the gain or loss on disposal. The Group has taken advantage of the exemption in IFRS 1 and has deemedcumulative translation differences for all foreign operations to be nil at thedate of transition to IFRS. The gain or loss on disposal of these operationsexcludes translation differences that arose before the date of transition toIFRS and includes later translation differences. Taxation and deferred tax Current tax is the tax currently payable or receivable based on taxable profitor loss for the period. Deferred income taxes are calculated using the liability method on temporarydifferences. Deferred tax is generally provided on the difference between thecarrying amounts of assets and liabilities and their tax bases. However,deferred tax is not provided on the initial recognition of goodwill, nor on theinitial recognition of an asset or liability unless the related transaction is abusiness combination or affects tax or accounting profit. In addition, taxlosses available to be carried forward as well as other income tax credits tothe Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred taxassets are recognised to the extent that it is probable that the underlyingdeductible temporary differences will be able to be offset against futuretaxable income. Current and deferred tax assets and liabilities are calculatedat tax rates that are expected to apply to their respective period ofrealisation, provided they are enacted or substantively enacted at the balancesheet date. Changes in deferred tax assets or liabilities are recognised as a component oftax expense in the income statement, except where they relate to items that arecharged or credited directly to equity (such as the revaluation of land) inwhich case the related deferred tax is also charged or credited directly toequity. Government and other grants Government grants in respect of capital expenditure are credited to a deferredincome account and are released to the income statement by equal annualinstalments over the expected useful lives of the relevant assets. Government grants of a revenue nature are credited to the income statement inthe same period as the related expenditure. Share based payments In accordance with IFRS 2 the fair value of equity-settled share based paymentsto employees is determined at the date of grant and is expensed on astraight-line basis over the vesting period based on the Group's estimate ofwhen share options will eventually vest. In the case of options granted, fairvalue is measured by a Black-Scholes pricing model. All share based payment arrangements granted after 7 November 2002 that had notvested prior to 1 January 2006 are recognised in the financial statements inaccordance with IFRS1. All goods and services received in exchange for the grant of any share basedpayment are measured at their fair value. Where employees are rewarded usingshare based payments, the fair values of employees' services are determinedindirectly by reference to the fair value of the instrument granted to theemployee. This fair value is appraised at the grant date and excludes the impactof non-market vesting conditions (for example, profitability and sales growthtargets). All equity-settled share based payments are ultimately recognised as an expensein the profit and loss account with a corresponding credit to the share basedpayment reserve. If vesting periods or other non-market vesting conditions apply, the expense isallocated over the vesting period, based on the best available estimate or thenumber of share options expected to vest. Estimates are revised subsequently ifthere is any indication that the number of share options expected to vestdiffers from previous estimates. Any cumulative adjustment prior to vesting isrecognised in the current period. No adjustment is made to any expenserecognised in prior periods if share options that have vested are not exercised. Upon exercise of share options, the proceeds received net of attributabletransaction cost are credited to share capital, and where appropriate sharepremium. Financial assets All financial assets are recognised when the group becomes a party to thecontractual provisions of the instrument. Financial assets other than thosecategorised as at fair value through profit or loss are recognised at fair valueplus transaction costs. Financial assets categorised as at fair value throughprofit or loss are recognised initially at fair value with transaction costsexpensed through the income statement. Held-to-maturity investments are non-derivative financial assets with fixed ordeterminable payments and a fixed date of maturity where it is the intention ofthe directors to hold them until maturity. Held-to-maturity investments aremeasured subsequent to initial recognition at amortised cost using the effectiveinterest method. If there is objective evidence that the investment has beenimpaired, the financial asset is measured at the present value of estimated cashflows. Any changes to the carrying amount of the investment are recognised inthe income statement. Financial assets at fair value through profit or loss include financial assetsthat are either classified as held for trading or are designated by the entityas at fair value through profit or loss upon initial recognition. Subsequent toinitial recognition, the financial assets included in this category are measuredat fair value with changes in fair value recognised in the income statement.Financial assets originally designated, as financial assets at fair valuethrough profit or loss may not be reclassified subsequently. Financial assets are designated as at fair value through profit or loss wherethey eliminate or significantly reduce a measurement (or recognition) mismatch. Loans receivable are measured subsequent to initial recognition at amortisedcost using the effective interest method, less provision for impairment. Anychange in their value through impairment or reversal of impairment is recognisedin the income statement. Provision against trade receivables is made when there is objective evidencethat the Group will not be able to collect all amounts due to it in accordancewith the original terms of those receivables. The amount of the write-down isdetermined as the difference between the asset's carrying amount and the presentvalue of estimated future cash flows. An assessment for impairment is undertaken on each financial asset at least ateach balance sheet date Regular purchases and sales are accounted for on trade date. Where an entityuses settlement date accounting for an asset that is subsequently measured atcost or amortised cost, the asset is recognised initially at its fair value onthe trade date. A financial asset is derecognised only where the contractual rights to the cashflows from the asset expire or the financial asset is transferred and thattransfer qualifies for derecognition. A financial asset is transferred if thecontractual rights to receive the cash flows of the asset have been transferredor the group retains the contractual rights to receive the cash flows of theasset but assumes a contractual obligation to pay the cash flows to one or morerecipients. A financial asset that is transferred qualifies for derecognition ifthe Group transfers substantially all the risks and rewards of ownership of theasset, or if the Group neither retains nor transfers substantially all the risksand rewards of ownership but does transfer control of that asset. Financial liabilities Financial liabilities categorised as at fair value through profit or loss areremeasured at each reporting date at fair value, with changes in fair valuebeing recognised in the income statement. All other financial liabilities arerecorded at amortised cost using the effective interest method, withinterest-related charges recognised as an expense in finance cost in the incomestatement. Finance charges, including premiums payable on settlement orredemption and direct issue costs, are charged to the income statement on anaccruals basis using the effective interest method and are added to the carryingamount of the instrument to the extent that they are not settled in the periodin which they arise. Financial liabilities are categorised as at fair value through profit or losswhere they are classified as held-for-trading or designated as at fair valuethrough profit or loss on initial recognition. A financial liability is derecognised only when the obligation is extinguished,that is, when the obligation is discharged or cancelled or expires. Equity Equity comprises the following: • "Share Capital" represents the nominal value of equity shares • "Share Premium" represents the excess over nominal value of the fair value of consideration received for equity shares net of expenses of the share issue • "Other Reserve" represents the balance arising on merger when Cyprotex Discovery Limited was acquired by the Company on 4 January 2002, as previously reported under UK GAAP • "Share based payment reserve" represents equity settled share-based employee remuneration until such share options are exercised • "Retained earnings/ (losses)" represents retained profits and losses. 4. Seasonal fluctuations Variations during the calendar year are impacted by the budgetary position andvacation trends of the Group's customer base. The strongest period ishistorically seen during the final quarter as annual projects move towardscompletion; the weaker period coincide with summer holidays in the third quarterand to a lesser extent, immediately after the New Year celebrations. Duringthese times the Group allocates surplus resources to internal research andproduct development. For the six months ended 30 June 2007, revenue represented 48.1% of the annualtotal achieved for the year ended 31 December 2006. For the six months ended 30 June 2006, revenue represented 46.3% of the annualtotal achieved for the year ended 31 December 2006. 5. Segmental information The Group's principal activity (and its primary business segment) is theprovision of in vitro and in silico ADMET/PK (Absorption, Distribution,Metabolism, Excretion, Toxicity/ Pharmacokinetic) information to thepharmaceutical industry. As such its primary segmental information is the incomestatement. Whilst the Directors recognise there is no requirement to disclose withininterim financial statements any further secondary segmental analysis the Groupgives an additional geographic analysis of revenue by destination. Key marketsfor the Group are identified as North America, Mainland Europe and the UnitedKingdom. Restated Restated Unaudited Unaudited Audited 6 months 6 months year ended ended ended 30 June 30 June 31 December 2007 2006 2006Geographical analysis of revenue by £ £ £destinationUnited Kingdom 366,759 162,305 481,656Rest of Europe 541,812 745,006 1,642,940USA and Canada 743,005 695,580 1,354,998Rest of the World 33,782 21,053 25,236 1,685,358 1,623,944 3,504,830 6. Loss per share The calculation of the basic loss per share is based on the loss attributable toordinary shareholders divided by the weighted average number of shares in issueduring the year. The share options in issue are anti-dilutive in respect of the basic loss pershare calculation and have therefore not been included. Restated Restated Unaudited Unaudited Audited 6 months 6 months year ended ended ended 30 June 30 June 31 December 2007 2006 2006Attributable loss (£) (417,528) (319,050) (660,170)Average number of ordinary shares in issue for basic 136,603,599 138,367,404 138,420,822 and diluted earnings per shareBasic and diluted loss per share (pence) (0.31)p (0.23)p (0.48)p 7. Share issues During the period to 30 June 2007, 45,828 shares were issued to satisfy shareoptions previously granted under Cyprotex PLC's employee share option scheme.Shares issued and authorised for the period to 30 June 2007 may be summarised asfollows: Number £6 months to 30 June 2007 At 1 January 2007 138,573,016 138,573Issue of shares 45,828 46At 30 June 2007 138,618,844 138,6196 months to 30 June 2006 At 1 January 2006 138,325,315 138,325Issue of shares 97,669 98At 30 June 2006 138,422,984 138,423Year to 31 December 2006 At 1 January 2006 138,325,315 138,325Issue of shares 247,701 248At 31 December 2006 138,573,016 138,573 The shares issued in the six months ended 30 June 2007 yielded £518 in cash andincreased equity also by £518. The weighted average share price at the date of exercise in the six months ended30 June 2007 was 5.45 pence. 8. Additions and disposals of property, plant and equipment Long leasehold Office Computer Laboratory Total and buildings equipment equipment equipment £ £ £ £ £Carrying amount at 1 January 2007 834,991 24,028 67,219 495,788 1,422,026 Additions - 1,650 5,047 185,039 191,736Depreciation (8,692) (2,305) (17,901) (112,332) (141,230)Carrying amount at 30 June 2007 826,299 23,373 54,365 568,495 1,472,532 Long leasehold Office Computer Laboratory Total and buildings equipment equipment equipment £ £ £ £ £ Carrying amount at 1 January 2006 844,754 26,685 35,514 788,999 1,695,952 Additions 7,498 1,717 59,206 9,182 77,603Depreciation (17,261) (4,374) (27,501) (302,393) (351,529)Carrying amount at 31 December 2006 834,991 24,028 67,219 495,788 1,422,026 Long leasehold Office Computer Laboratory Total and buildings equipment equipment equipment £ £ £ £ £ Carrying amount at 1 January 2006 844,754 26,685 35,514 788,999 1,695,952 Additions - 313 2,656 3,467 6,436Depreciation (8,617) (2,159) (10,057) (161,344) (182,177)Carrying amount at 30 June 2006 836,137 24,839 28,113 631,122 1,520,211 9. Taxation Income tax represents amounts recoverable in respect of Research and Developmenttax credits. At 30 June 2007, the group has tax losses of approximately £6.4 million that areavailable for offset against future profits arising from the same trade. Noprovision has been made for deferred tax on losses carried forward in the Group.These losses will only be available for offset when the Group makes taxableprofits. As the timing of these profits is not certain it has been assumed thelosses will not be recoverable in the foreseeable future 10. Explanation of transition to IFRS As stated in the Basis of Preparation, these are the Group's first consolidatedinterim financial statements for part of the period covered by the first IFRSannual consolidated financial statements prepared in accordance with IFRS. An explanation of how the transition from UK GAAP to IFRS has effected theGroup's financial position, financial performance and cash flows is set outbelow. IFRS 1 permits companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. Theseinterim financial statements have been prepared on the basis of taking thefollowing exemptions: - cumulative translation differences on foreign operations are deemed to be nilat 1 January 2006. Any gains or losses recognised in the consolidated incomestatement on subsequent disposal of foreign operations will exclude translationdifferences arising prior to the transition date. - only share based payment arrangements granted after 7 November 2002 that hadnot vested prior to 1 January 2006 are recognised in the financial statements. - Business combinations prior to 1 January 2006, the Group's date of transitionto IFRS have not been restated to comply with IFRS 3 "Business Combinations".Accordingly there has been no adjustment to the accounting treatment adopted bythe Group on the acquisition of Cyprotex Discovery Limited by Cyprotex PLC on 4January 2002 which was accounted for at that date as a merger under UK GAAP. Explanation of material adjustments to the cash flow statement Application of IFRS has resulted in reclassification of certain items in the cash flow statement as follows: 1) Under UK GAAP, payments to acquire property, plant and equipment were classified as part of 'Capital expenditure and financial investment'. Under IFRS, payments to acquire property, plant and equipment have been classified as part of 'Investing activities' 2) Income taxes received by the Group in respect of Research and Development tax credits are now classified as an operating cash flow under IFRS, however these were included in a separate category of tax cash flows under UK GAAP. 3) There are no other material differences between the cash flow statement presented under IFRS and the cash flow statement presented under UK GAAP. 4) The definition of cash is narrower under UK GAAP than under IAS 7 "Cash Flow Statements". Under IFRS highly liquid investments, readily convertible to a known amount of cash with an insignificant risk of changes in value are regarded as cash equivalents. The Group has a number of short-term deposits; however by arrangement with its bank these were available on demand and thus satisfied the narrower definition of cash under UK GAAP and accordingly the definition of cash and cash equivalents under IFRS. Explanation of reconciliation from UK GAAP to IFRS for the balance sheet andincome statement The adoption of IFRS by the Group has resulted in some reordering of thepresentation of certain balances within both the income statement and balancesheet. However there has been no impact on previously reported equity,liabilities or assets at 31 December 2006 or 30 June 2006, or comparativeamounts disclosed in the income statement for the year ended 31 December 2006 orthe six months This information is provided by RNS The company news service from the London Stock Exchange