Cost of sales of GBP 0.9 million increased 26% year over year (1H 2005: GBP 0.7 million). Gross margin decreased slightly to 85% (1H 2005: 87%). Net operating expenses including cost of sales increased by 5% to GBP 9.1 million (1H 2005: GBP 8.7 million).
The company had 123 employees at 30 June 2006 compared with 129 at 30 June 2005. Research and development costs were flat year-over-year at GBP 3.2 million (1H 2005: GBP 3.2 million). Sales and marketing costs increased 30% to GBP 2.7 million (1H 2005: GBP 2.1 million). General and administration costs were flat year-over-year at GBP 1.6 million (1H 2005: GBP 1.6 million).
Interest
Interest income was down 8% year over year at GBP 0.7 million (1H 2005: GBP 0.8 million) due to a lower cash balance, and a decrease in the average interest rate on investments.
Net loss
Net loss was GBP 1.7 million (1H 2005: GBP 1.4 million). Loss per share increased to 1.17p (1H 2005: 0.97p).
Cash flow and balance sheet
The net cash outflow from operations was GBP 1.0 million (1H 2005: GBP 2.6 million). Capital expenditure was GBP 0.4 million (1H 2005: GBP 0.4 million). The movement in cash and short-term investments during the six months was an inflow of GBP 0.2 million (1H 2005: outflow of GBP 0.5 million). Total assets at 30 June 2006 were GBP 36.3 million (1H 2005: GBP 39.2 million), including cash and short-term investments of GBP 32.2 million (1H 2005: GBP 33.0 million).
Dividend
No interim dividend payment will be made for the six months ended 30 June 2006 (1H 2005: GBP Nil).
Consolidated Income statement
For the six months ended 30 June 2006
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2006 2005 2005
(unaudited) (unaudited) (audited)
Notes GBP '000 GBP '000 GBP '000
----------------------------------------------------------------------
Revenue 5,973 5,418 10,494
Net operating
expenses 2 (9,141) (8,723) (17,442)
----------------------------------------------------------------------
Operating loss (3,168) (3,305) (6,948)
Interest receivable 717 780 1,530
----------------------------------------------------------------------
Loss before tax (2,451) (2,525) (5,418)
Tax credit 763 1,152 1,077
----------------------------------------------------------------------
Loss for the period (1,688) (1,373) (4,341)
----------------------------------------------------------------------
Basic and diluted
loss per share -
pence (1.17) (0.97) (3.05)
Consolidated Statement of recognised income and expense
For the six months ended 30 June 2006
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2006 2005 2005
(unaudited) (unaudited) (audited)
Notes GBP '000 GBP '000 GBP '000
----------------------------------------------------------------------
Loss for the period (1,688) (1,373) (4,341)
Currency translation
difference 4 (56) 29 36
Change in value of
ESOP reserve 4 27 94 117
----------------------------------------------------------------------
Total recognised
expense for the
period (1,717) (1,250) (4,188)
----------------------------------------------------------------------
Consolidated Balance sheets
As at 30 June 2006
30 June 30 June 31 December
2006 2005 2005
(unaudited) (unaudited) (audited)
Notes GBP '000 GBP '000 GBP '000
----------------------------------------------------------------------
Non-current assets
Intangible assets 992 1,397 1,284
Property, plant and
equipment 394 345 329
----------------------------------------------------------------------
1,386 1,742 1,613
Current assets
Inventory 110 - -
Trade and other
receivables 2,573 4,393 3,679
Short term
investments 19,539 13,798 10,534
Cash and cash
equivalents 12,665 19,245 21,476
----------------------------------------------------------------------
34,887 37,436 35,689
Total assets 36,273 39,178 37,302
Current liabilities
Obligations under
finance leases - 3 -
Trade and other
payables 4,438 3,086 4,009
Other liabilities 151 218 218
Provisions 5 77 154 77
----------------------------------------------------------------------
4,666 3,461 4,304
Net current assets 30,221 33,975 31,385
Non-current
liabilities
Other payables 35 - -
Provisions 5 170 248 209
----------------------------------------------------------------------
205 248 209
Net assets 31,402 35,469 32,789
Shareholders' equity
Ordinary shares 150 148 149
Share premium 3,081 2,810 2,923
Exchangeable shares - 40 -
Capital redemption
reserve 162 162 162
Merger reserve 107 107 107
Other reserves 60,369 60,014 60,205
Cumulative
translation
adjustment (239) (190) (190)
Retained earnings (32,228) (27,622) (30,567)
----------------------------------------------------------------------
Total Equity 4 31,402 35,469 32,789
----------------------------------------------------------------------
Consolidated Cash flow statements
For the six months ended 30 June 2006
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2006 2005 2005
(unaudited) (unaudited) (audited)
Notes GBP '000 GBP '000 GBP '000
----------------------------------------------------------------------
Cash flows from
operating
activities
Cash used in
operations 3 (1,024) (2,616) (4,330)
Interest received 851 699 1,535
Taxes paid (59) (13) (83)
Tax refund 755 1,059 1,059
----------------------------------------------------------------------
Net cash generated
(used) in operating
activities 523 (871) (1,819)
Cash flows from
investing
activities
Purchase of
property, plant and
equipment (162) (103) (220)
Purchase of
intangible assets (264) (224) (466)
Capitalisation of
R&D assets (21) (62) (96)
Movements on short
term investments (9,005) (5,098) (1,834)
Proceeds from sale
of business - 108 327
----------------------------------------------------------------------
Net cash (used) in
investing
activities (9,452) (5,379) (2,289)
Cash flows from
financing
activities
Net proceeds from
issue of ordinary
shares and ESOP
reserve 186 630 727
Finance lease
principal payments - (1) (4)
----------------------------------------------------------------------
Net cash generated
in financing
activities 186 629 723
Effects of exchange
rate changes (68) 34 29
----------------------------------------------------------------------
Net (decrease) in
cash and cash
equivalents (8,811) (5,587) (3,356)
Cash and cash
equivalents at 1
January 21,476 24,832 24,832
----------------------------------------------------------------------
Cash and cash
equivalents at end
of period 12,665 19,245 21,476
----------------------------------------------------------------------
NOTES TO THE ACCOUNTS
1. Basis of preparation
These consolidated interim financial statements have been prepared in
accordance with the accounting policies set out in the Annual Report
of ARC International plc for the year ended 31 December 2005. The
prior year comparatives are derived from audited financial information
for ARC International plc as set out in the Annual Report for the year
ended 31 December 2005 and the unaudited financial information in the
interim financial statements for the six months ended 30 June 2005.
These consolidated interim financial statements have been prepared
under the historical cost convention, except in respect to certain
financial instruments. In addition, these consolidated interim
financial statements do not comply with all the disclosures in IAS 34
on interim financial reporting and are therefore not in full
compliance with International Financial Reporting Standards.
The consolidated accounts incorporate the accounts of the company and
of each of its subsidiaries for the period to 30 June 2006.
The consolidated interim financial statements for the six months ended
30 June 2006 are unaudited but have been reviewed by the auditors. The
consolidated interim financial statements for the six months ended 30
June 2006 were approved by the directors on 1 August 2006.
The financial information contained in this interim statement does not
constitute accounts as defined by Section 240 of the Companies Act
1985. The statutory accounts for 2005 have been delivered to the
Registrar of Companies. The auditors' opinion on those accounts was
unqualified and did not contain a statement under 237 of the Companies
Act 1985.
2. Summary of net operating expenses
6 months ended 6 months ended 12 months ended
30 June 2006 30 June 2005 31 December 2005
(unaudited) (unaudited) (audited)
GBP '000 GBP '000 GBP '000
----------------------------------------------------------------------
Cost of sales (870) (690) (1,638)
Research and
development (3,240) (3,246) (6,432)
Sales and marketing (2,684) (2,067) (4,523)
General and
administrative (1,599) (1,608) (3,033)
Other expenses (748) (1,112) (1,816)
----------------------------------------------------------------------
Net operating
expenses (9,141) (8,723) (17,442)
----------------------------------------------------------------------
3. Reconciliation of net loss for the period to net cash outflow from
operating activities
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2006 2005 2005
(unaudited) (unaudited) (audited)
GBP '000 GBP '000 GBP '000
----------------------------------------------------------------------
Net loss (1,688) (1,373) (4,341)
Adjustments for:
Gain on business
disposal - (83) (327)
Interest receivable (717) (780) (1,530)
Tax credit (763) (1,152) (1,077)
Amortisation 471 578 1,199
Depreciation 107 175 318
Goodwill impairment - 195 195
Share based award
expense 171 247 431
(Increase) in
inventories (110) - -
(Increase) decrease
in trade and other
receivables 974 (821) (56)
Increase in trade
and other payables 570 520 1,096
(Decrease) in
provisions (39) (122) (238)
----------------------------------------------------------------------
Cash used in
operations (1,024) (2,616) (4,330)
----------------------------------------------------------------------
4. Statement of changes in shareholders' equity
Exchange- Capital
Share Share able Merger redemption
capital premium shares reserve reserve
GBP '000 GBP '000 GBP '000 BP '000 GBP '000
----------------------------------------------------------------------
At 1 January 2005 145 1,674 643 107 162
----------------------------------------------------------------------
Shares issued 2 534
Exchangeable shares
exercised 1 602 (603)
Change in value of ESOP
reserve
Share based award
reserve
Exchange gain
(Loss) for the
period
----------------------------------------------------------------------
At 30 June 2005 148 2,810 40 107 162
----------------------------------------------------------------------
Shares issued 1 73
Exchangeable shares
exercised 40 (40)
Change in value of ESOP
reserve
Share based award
reserve
Exchange gain
(Loss) for the
period
----------------------------------------------------------------------
At 31 December 2005 149 2,923 0 107 162
----------------------------------------------------------------------
Shares issued 1 158
Change in value of ESOP
reserve
Share based award
reserve
Exchange (loss)
(Loss) for the
period
----------------------------------------------------------------------
At 30 June 2006 150 3,081 0 107 162
----------------------------------------------------------------------
Cumulative Retained
Other translation Profit/
reserves adjustment (loss) Total
GBP '000 GBP '000 GBP '000 GBP '000
----------------------------------------------------------------------
At 1 January 2005 59,767 (219) (26,343) 35,936
----------------------------------------------------------------------
Shares issued 536
Exchangeable shares
exercised 0
Change in value of ESOP reserve 94 94
Share based award
reserve 247 247
Exchange gain 29 29
(Loss) for the period (1,373) (1,373)
----------------------------------------------------------------------
At 30 June 2005 60,014 (190) (27,622) 35,469
----------------------------------------------------------------------
Shares issued 74
Exchangeable shares
exercised 0
Change in value of ESOP reserve 23 23
Share based award
reserve 184 184
Exchange gain 7 7
(Loss) for the period (2,968) (2,968)
----------------------------------------------------------------------
At 31 December 2005 60,198 (183) (30,567) 32,789
----------------------------------------------------------------------
Shares issued 159
Change in value of ESOP reserve 27 27
Share based award
reserve 171 171
Exchange (loss) (56) (56)
(Loss) for the period (1,688) (1,688)
----------------------------------------------------------------------
At 30 June 2006 60,369 (239) (32,228) 31,402
----------------------------------------------------------------------
5. Provisions
Total
Short term Long term provision
GBP '000s GBP '000s GBP '000s
----------------------------------------------------------------------
At 1 January 2005 237 287 524
Utilised (122) - (122)
Reclassified from long term to
short term 39 (39) -
----------------------------------------------------------------------
At 30 June 2005 154 248 402
----------------------------------------------------------------------
Utilised (116) - (116)
Reclassified from long term to
short term 39 (39) -
----------------------------------------------------------------------
At 31 December 2005 77 209 286
----------------------------------------------------------------------
Utilised (39) - (39)
Reclassified from long term to
short term 39 (39) -
----------------------------------------------------------------------
At 30 June 2006 77 170 247
----------------------------------------------------------------------
The provision for restructuring costs represents onerous lease
commitment for the Elstree, UK facility. Management anticipates
utilisation of these provisions in 2007.
