INTERIM REPORT
For the six months ended 30 June 1998
Chief Executive??™s Review
Unaudited Consolidated Balance Sheet At 30 June 1998
Unaudited Consolidated Cash Flow Statement
Unaudited Consolidated Profit & Loss Account
Principal Accounting Policies
Reconciliation Of Operating Loss To Net Cash Inflow
Loss Per Ordinary Share
Intangible Fixed Assets
Tangible Fixed Assets
Debtors
Creditors: Amounts Falling Due Within One Year
Creditors: Amounts Falling Due After More Than One Year
Share Capital
Reconciliation Of Shareholders??™ Funds And Movements On Reserves
Share Options
Expenses Of Aim Listing
Reconciliation Of Net Cash Flow To Movement In Net Debt
Analysis Of Net Debt (Cash At Bank And In Hand)
CHIEF EXECUTIVE??™S REVIEW
Highlights of the year to date
Hospital evaluations underway
Successful clinical evaluation completed
Market access channels being established
US office established and management team appointed
CE mark obtained
US patent granted and European patent to be granted
Product Development
Today, at the 4th International Conference of the Hospital Infection Society, in Edinburgh, we announce the commencement of hospital evaluations on our first product, the 3ml Zero-Stik?® safety syringe. This is a major milestone in our company??™s development, which has been achieved ahead of schedule thanks to tremendous efforts by our own staff and our key suppliers. Along the way there have been a number of other significant achievements, including a successful clinical evaluation on 50 volunteers, conducted by Inveresk Research in July of this year.
Regulatory and Intellectual Property
In June we were authorised to affix the CE mark, clearing the way for us to market and sell our products across the EU. Following this, in August, the Canadian authorities granted us a licence to market and sell there. Canada is the seventh largest medical device market in the world.
We have now been granted a US patent for our needle retraction technology, and a European patent is to be issued on 30 September 1998. Patents have been granted in five other jurisdictions, and applications are being progressed elsewhere. We have also been granted a US trademark in respect of the Zero-Stik?® name.
Facilities and Personnel
Our headquarters and factory premises at New Medical House, Oakbank Park, Livingston were officially opened by Scottish Office Under Secretary, Godfrey Robson, on 11 June. It is here that our UK management and staff are based, and where components are assembled and packaged into finished product, ready for sterilisation. The assembly process is being handled on our first syringe assembly machine, built by Kahle Europea SpA which is now producing commercial quantities of product on an ongoing basis.
Following the establishment of our US subsidiary, New Medical Technology, Inc., in Indianapolis last year, we have made two key appointments in the USA. Rick Field joined New Medical Technology, Inc. as Vice President, Sales & Marketing from Dow Chemical, where he had filled a number of director level positions. His breadth of experience in sales and marketing greatly enhances our ability to establish our presence in the North American Market (USA, Canada and Mexico). Mike Malandrakis joined New Medical Technology, Inc. as Vice President, Operations. Previously Mike has been Chief Financial Officer and Operations Manager for several organisations, including a division of Boehringer Mannheim Corporation. His financial and manufacturing experience will assist greatly in supporting the company??™s products in the North American market.
In Germany we have appointed Peter Zimmerman as Key Account Manager. Peter joins us from Becton Dickinson and will lead our sales and marketing drive in Germany and neighbouring markets. We have also appointed Key Account Managers in France and Italy.
Together with the appointments detailed above, staff were appointed in all functions of the business, including the first shift of assembly machine operators, bringing our current total staff to over 50.
Commercialisation
We are in detailed negotiations with potential distributors in several European countries. We have also begun negotiations with potential distributors in Canada, and in the USA pending regulatory approval there, having concluded that it was not in the best interests of our shareholders to continue discussions with Solar Pharmaceuticals Limited. In Japan we continue to liaise with potential partners introduced to us by Bank of Tokyo-Mitsubishi.
Financial Summary
Operating expenditure for the period was ??1.6 million (30 June 1997: ??0.8 million) and cash outflow was ??2.1 million (30 June 1997: ??1.3 million), both of which were well within our budget projections. Cash in hand at the end of the period was ??4.2 million (30 June 1997: ??7.9 million).
Outlook
We have passed a number of key milestones in the last six months period, culminating in hospital evaluations. Having achieved this critical target, our financial, personnel and development plans are all on schedule, and your Board continues to be very excited about the future potential of your company as it enters the commercialisation phase of its development.
Dr John Campbell
Chief Executive Officer
14 September 1998
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UNAUDITED CONSOLIDATED BALANCE SHEET AT 30 JUNE 1998
30 June
1998
????™000 30 June
1997
????™000 31December
1997
????™000
Intangible assets (note 4) 1,950 1,950 1,950
Tangible assets (note 5) 2,219 22 1,256
4,169 1,972 3,206
CURRENT ASSETS
Debtors (note 6) 274 740 242
Cash at bank and in hand 4,161 7,952 6,355
4,435 8,692 6,597
CREDITORS: Amounts falling due within one year (note 7) (445) (245) (295)
Net current assets 3,990 8,447 6,302
Total assets less current liabilities 8,159 10,419 9,508
CREDITORS: amounts falling due after more than one year (note 8) (72) - -
NET ASSETS 8,087 10,419 9,508
CAPITAL AND RESERVES
Called up share capital (note 9) 1,964 1,964 1,964
Share premium account (note 10) 9,589 9,505 9,561
Profit and loss account (3,466) (1,050) (2,017)
8,087 10,419 9,508
The unaudited interim financial statements were approved by the Board of Directors on 14 September 1998.
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UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 1998
Six months ended
30 June 1998
????™000 Six months ended
30 June 1997
????™000 Year ending
31 December 1997
????™000
Net cash outflow from operating activities (note 2) (1,299) (1,511) (2,045)
Returns on investments & servicing of finance
Interest received 94 96 276
Capital expenditure & financial investment
Purchase of intangible fixed assets - (50) (50)
Purchase of tangible fixed assets (989) (13) (1,208)
Acquisitions & disposals
Net cash acquired with the purchase of the net assets of New Medical Technology Limited - 135 135
Cash outflow before management of liquid resources and financing (2,194) (1,343) (2,892)
Management of liquid resources
Cash placed on term deposit (2,400) (4,600) (3,750)
Financing
Issue of shares - 10,025 10,025
Expenses of AIM listing (note 12) - (730) (778)
(Decrease) increase in cash in the period (4,594) 3,352 2,605
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UNAUDITED CONSOLIDATED PROFIT & LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 JUNE 1998
Six months
ended
30 June 1998
????™000 Six months
ended
30 June 1997
????™000 Year ending
31 December
1997
????™000
Administration expenses (1,596) (769) (1,889)
Exceptional administration expense (note 12) - (377) (427)
Operating loss (1,596) (1,146) (2,316)
Interest receivable 147 96 299
Loss on ordinary activities and retained loss (1,449) (1,050) (2,017)
Loss per share (note 3) (3.7)p (4.2)p (6.4)p
The company has no recognised gains and losses other than the losses above and therefore no separate statement of total recognised gains and losses has been presented.
There is no difference between loss on ordinary activities before taxation and the retained loss for the year stated above and their historical cost equivalents.
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NMT Group PLC
Notes to the financial statements for the period ended 30 June 1998
1 Principal Accounting Policies
The financial statements have been prepared in accordance with applicable Accounting Standards in the United Kingdom. A summary of the more important accounting policies, which have been applied consistently, is set out below.
The financial information in this report is unaudited and does not comprise statutory accounts for the purposes of Section 240 of the Companies Act 1985. The auditors have carried out a review and their report is set out on page 15.
Basis of accounting
The financial information has been prepared on the going concern basis of accounting, in accordance with the historical cost convention.
Basis of consolidation
The consolidated balance sheet includes the financial statements of the company and its subsidiary undertakings made up to 30 June 1998. The results of subsidiaries acquired are included in the consolidated profit and loss account from the date control passes. Intra-group sales and profits are eliminated fully on consolidation.
On acquisition of a subsidiary, all of the subsidiary’s assets and liabilities that exist at the date of acquisition are recorded at their fair values reflecting their condition at that date. All changes to those assets and liabilities and the resulting gains and losses that arise after the group has gained control of the subsidiary are charged to the post-acquisition profit and loss account.
The subsidiaries of the company at 30 June 1998 were as follows:
Name of undertaking Country of incorporation Description of shares held % interest Purpose of company
New Medical Technology Ltd Scotland Ordinary ??1 shares 100% Dormant
Zero Stik Limited Scotland Ordinary ??1 shares 100% Dormant
New Medical Technology Inc USA Common stock 100% US marketing
Tangible fixed assets
All fixed assets are initially recorded at purchase cost, together with any incidental costs of acquisition.
Depreciation
Depreciation is calculated so as to write off the cost of tangible fixed assets less their estimated residual values, on a straight line basis over the expected useful economic lives of the assets concerned. The principal annual rates used for this purpose are:
Plant and machinery 10%
Tenants??™ improvements 10%
Fixtures and fittings 33.3%
Computer and office equipment 33.3%
Research & development equipment over 1-2 years
No depreciation is provided on assets under construction.
Intangible assets
Intangible assets are recorded at cost and are reviewed annually for permanent diminution in value. NMT Group PLC has not yet exploited commercially the underlying technology represented by the intangible assets therefore no amortisation has yet been charged to profit and loss account. Amortisation will be provided once production based on the underlying technology commences. This is anticipated in the second half of 1998. Amortisation will be calculated on a straight line basis over the shorter of the life of patents granted in respect of the underlying technology in the key countries and the useful life of the underlying technology.
Investments
Investments are recorded at cost. Provision is made for any permanent diminution in value.
Investment income
Investment income consists of interest receivable and is included in the consolidated profit and loss account on an accruals basis.
Deferred taxation
Provision is made for deferred taxation, using the liability method, on all material timing differences to the extent that it is probable that a liability or asset will crystallise.
Deferred tax assets are only recognised if recovery without replacement by equivalent debit balances is reasonably certain.
Research and development
Research and development expenditure is written off as incurred.
Patent and trademark costs
Patent and trademark expenditure is written off as incurred.
Finance and operating leases
Costs in respect of operating leases are charged on a straight line basis over the lease term. Leasing agreements, which transfer to the Group substantially all the benefits and risks of ownership of an asset are treated as if the asset had been purchased outright. The assets are included in fixed assets and the capital element of the leasing commitments is shown as obligations under finance leases. The lease rentals are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is charged against profit so as to give a constant periodic rate of charge on the remaining balance outstanding at each accounting period. Assets held under finance leases are depreciated over the shorter of the lease terms and the useful lives of equivalent owned assets.
Government Grants
Grants that relate to specific capital expenditure are treated as deferred income, which is then credited to the profit and loss account over the related asset??™s useful life. Other grants are credited to the profit and loss account when received.
Foreign Currencies
Assets and liabilities of subsidiaries in foreign currencies are translated into sterling at rates of exchange ruling at the end of the financial year and the results of foreign subsidiaries are translated at the average rate of exchange for the year. Differences on exchange arising from the retranslation of the opening net investment in subsidiary companies and from the translation of the results of those companies at an average rate, are taken to reserves and are reported in the statement of total recognised gains and losses. All other foreign exchange differences are taken to the profit and loss account in the year in which they arise.
Share capital
Shares issued have been recorded at their nominal value. Any excess of consideration received above the nominal value of the shares issued has been credited to the share premium account.
Directors??™ share option plans
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2 Reconciliation of operating loss to net cash inflow
30 June
1998 30 June
1997 31 December 1997
????™000 ????™000 ????™000
Operating loss (1,596) (1,146) (2,316)
Depreciation of tangible fixed assets 60 2 17
Exceptional administration expense (note 12) - 377 427
Movement in:
Debtors (increase)decrease 79 (525) 64
Creditors increase(decrease) 158 (219) (237)
Net cash outflow from operating activities (1,299) (1,511) (2,045)
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3 Loss per ordinary share
30 June
1998 30 June
1997 31 December
1997
????™000 ????™000 ????™000
Loss per ordinary share is calculated as follows:
Loss attributable to members of NMT Group PLC ??1,449 ??1,050 ??2,017
Weighted average number of ordinary shares in issue 39,276 24,668 31,742
Loss per ordinary share (3.7)p (4.2)p (6.4)p
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4 Intangible fixed assets
30 June
1998 30 June
1997 31 December
1997
????™000 ????™000 ????™000
Cost
At 1 January 1998 1,950 - -
Acquisition of intellectual property rights - 1,900 1,900
Additions - 50 50
Cost and net book value at 30 June 1998 1,950 1,950 1,950
The additions of ??50,000 in 1997 related to the exercise of an option to acquire the rights to the Safe Drug Delivery Technology (SDDT). The other intangible fixed assets consist of the intellectual property rights associated with the Zero-Stik technology and are stated at cost. In considering the carrying value of intangible fixed assets at 30 June 1998, the directors have taken account of an independent professional valuation performed by KPMG as at 17 December 1996 which stated that in their opinion the Zero-Stik intellectual property had a value in excess of the ??1,900,000 stated above. The directors are of the opinion that there have been no material adverse changes since 17 December 1996 which would result in a permanent diminution in the value of this asset.
No provision has been made for the corporation tax that could arise if the intellectual property rights were to be disposed of at their book amount because it is not the directors’ intention to dispose of the rights.
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5 Tangible fixed assets
Plant &
machinery Tenants??™
improvements Fixtures
&
fittings Computer
& office
equipment Total
????™000 ????™000 ????™000 ????™000 ????™000
Cost
At 1 January 1998 1,149 27 27 70 1,273
Additions 736 12 12 263 1,023
At 30 June 1998 1,885 39 39 333 2,296
Depreciation
At 1 January 1998 3 2 3 9 17
Charge for period 26 1 5 28 60
At 30 June 1998 29 3 8 37 77
Net book value
At 30 June 1998 1,856 36 31 296 2,219
At 30 June 1997 - - 2 20 22
At 31 December 1997 1,146 25 24 61 1,256
The net book value of tangible fixed assets includes an amount of ??184,000 (1997: ?? nil) in respect of assets held under finance leases.
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6 Debtors
30 June
1998 30 June
1997 31 December
1997
????™000 ????™000 ????™000
Other debtors 124 591 102
Prepayments 150 149 140
274 740 242
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7 Creditors: amounts falling due within one year
30 June
1998 30 June
1997 31 December
1997
????™000 ????™000 ????™000
Trade creditors 216 142 119
Obligations under finance leases 48 - -
Other taxes and social security costs 35 16 34
Other creditors 67 67
Accruals 78 87 75
445 245 295
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8 Creditors: amounts falling due after more than one year
30 June
1998 30 June
1997 31 December
1997
????™000 ????™000 ????™000
Obligations under finance leases 72 - -
72 - -
Finance leases
The net finance lease obligations to which the group is committed are:
30 June
1998 30 June
1997 31 December
1997
????™000 ????™000 ????™000
In one year or less 48 - -
Between one and two years 56 - -
Between two and five years 16 - -
120 - -
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9 Share capital
Authorised ????™000
55,000,000 ordinary shares of ??0.05 each 2,750
Allotted, called up and fully paid ????™000
39,276,335 ordinary shares of ??0.05 each 1,964
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10 Reconciliation of shareholders??™ funds and movements on reserves
Share capital Share premium account Profit & loss Total
????™000 ????™000 ????™000 ????™000
At 1 January 1998 1,964 9,561 (2,017) 9,508
Retained loss for six months ended 30 June 1998 - - (1,449) (1,449)
Share options ??“ application of UITF 17 - 28 - 28
At 30 June 1998 1,964 9,589 (3,466) 8,087
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11 Share options
Options have been granted over ordinary shares of 5p each under the executive share option schemes as follows:
Number of shares Subscription price per share Period of option
410,850 50p From 15/9/2000 to 15/9/2007
250,000 50p From 19/8/2000 to 19/8/2007
611,250 65p From 26/3/2001 to 26/3/2008
200,000 65p From 1/6/2001 to 1/6/2008
200,000 65p From 12/6/2001 to 12/6/2008
In addition to the above, a total of 757,200 ordinary shares of 5p each have been reserved to satisfy options which have been granted to each of A M Brander, J Campbell and G W McGrotty to subscribe for 252,400 ordinary shares at a price of 9.9p per share exercisable during the period commencing 3 March 1997 and ending 7 July 2002.
An option has been granted to Panmure Gordon & Co Ltd to subscribe for 981,908 ordinary shares of 5p each at a subscription price of 60p. The option is exercisable between 17 October 1997 and 17 April 2000.
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12 Expenses of AIM listing
The total expenses relating to the listing of the company??™s shares on the Alternative Investment Market amounted to ??778,136. Of this, ??351,352 were directly attributable to the issue of shares and were charged against the share premium account of the Company. The balance of ??426,784 was charged to profit and loss account as an exceptional item in the year ended 31 December 1997.
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13 Reconciliation of net cash flow to movement in net debt
30 June
1998 30 June
1997 31 December 1997
????™000 ????™000 ????™000
(Decrease) increase in cash in the period (4,594) 3,352 2,605
Cash placed on deposit 2,400 4,600 3,750
Change in net debt resulting from cash flows and movement in net debt in the period (2,194) 7,952 6,355
Net debt at 1 January 1998 6,355 - -
Net debt at 30 June 1998 4,161 7,952 6,355
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14 Analysis of net debt (cash at bank and in hand)
30 June
1998 30 June
1997 31 December 1997
????™000 ????™000 ????™000
At 1 January 1998 6,355 - -
Cash flow (2,194) 7,952 6,355
At 30 June 1998 4,161 7,952 6,355
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Review report by the auditors to NMT Group PLC
We have reviewed the interim financial information for the six months ended 30 June 1998 set out on pages 4 to 14 which is the responsibility of, and has been approved by, the Directors. Our responsibility is to report on the results of our review.
Our review was carried out having regard to the Bulletin, “Review of Interim Financial Information”, issued by the Auditing Practices Board. This review consisted principally of applying analytical procedures to the underlying financial data, assessing whether accounting policies have been consistently applied, and making enquiries of the Group??™s management responsible for financial and accounting matters. The review excluded audit procedures such as tests of controls and verification of assets and liabilities and was therefore substantially less in scope than an audit performed in accordance with Auditing Standards. Accordingly we do not express an audit opinion on the interim financial information.
On the basis of our review:
in our opinion the interim financial information has been prepared using accounting policies consistent with those adopted by NMT Group PLC in its financial statements for the year ended 31 December 1997; and
we are not aware of any material modifications that should be made to the interim financial information as presented.
PricewaterhouseCoopers
Chartered Accountants
Glasgow