MedaPhor Group plc

("MedaPhor" or the "Group" or the "Company")

Half yearly report

MedaPhor Group plc (AIM: MED), the global provider of advanced ultrasound training simulators for medical professionals, announces its unaudited half year results to 30 June 2017.

Financial highlights

·     Sales increased 63% on the comparative period to £2.1m (H1 2016: £1.3m)

·     Cash balance at 30 June 2017 of £0.6m (31 December 2016: £1.8m)

·     Positive progress made to raise funds to take the Group through its next stage of development

Operational update

·     ScanTrainer Professional 2017 Edition launched

·     New Emergency Medicine simulator under development

·     Chinese reseller network trained and selling systems in key growth market

·     First ScanTrainer sales in India

·     North American sales team strengthened

Commenting on the results, Riccardo Pigliucci, Chairman of MedaPhor, said:

"The Group is now recovering from the impact of the legal action that was settled in Q1 this year and I am encouraged that the US team is back on track, with ScanTrainer sales in North America up 38% on H2 2016 and in-line with H1 2016. The Rest of the World ScanTrainer market grew 18% in H1, but the UK medical market is in a challenging period of budget restraints. Despite this, I am pleased to report that Inventive Medical, which we acquired in August last year, made a significant contribution with £1.1m sales of the HeartWorks simulator in the period across all territories and we look forward to making further progress in the second half of the year."

This announcement contains inside information which, prior to its disclosure, was inside information for the purposes of the Market Abuse Regulation (Article 7 of Regulation (EU) No 596/2014.

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About MedaPhor (www.medaphor.com)

MedaPhor (AIM: MED) is a global developer of advanced ultrasound skills training simulators for medical professionals.  Founded in 2004, the Company is headquartered in Cardiff, UK and Atlanta, USA, with over 500 customers in 45 countries around the world.

The Company owns three of the world's leading ultrasound training and examination simulators - ScanTrainer, ScanTrainer Examine and HeartWorks:

ScanTrainer is an ultrasound simulator and CPD platform offering transvaginal & transabdominal ultrasound education. It offers trainees an immersive, 24/7 self-directed learning experience allowing faster knowledge and skills acquisition at any stage of an ultrasound trainee's learning pathway.

Features include real feel haptic feedback, real full-anatomy scans, real-time expert guidance via ScanTutor, structured curriculum learning, metric-based assessment and a range of cloud-based features, including the unique ability for a doctor to upload their own patient cases onto the simulator.

ScanTrainer Examine is a cloud-based ultrasound diagnostic skills training simulator. It offers a library of over 500 pathologies and normal patient scans to help medical practitioners learn key diagnostic skills.  ScanTrainer Examine also enables ultrasound educationalists to use the simulator as a virtual patient skills assessment tool for examination and certification.

HeartWorks is recognised globally as the leading simulation solution for education in echocardiography, cardiac anatomy and lung ultrasound.  Developed by consultant cardiac anaesthetists at University College London Hospital, it is unrivalled for quality, accuracy, and realism in the teaching of transthoracic and transoesophageal echocardiography.

From the development of the most anatomically correct and realistic 3D heart to a range of fully interactive manikin based simulators, HeartWorks remains at the cutting edge of simulation technology with a growing portfolio of simulation products for clinical skills acquisition and assessment that help prepare clinicians to deliver quality care to their patients.

CHAIRMAN'S STATEMENT

I am pleased to present MedaPhor's interim report for the six months ended 30 June 2017.

Review of the first six months of 2017

Trading results

The Group is now recovering from the impact of the legal action that was settled in Q1 this year. Turnover, at £2.1m for the first half of the year was up 63% on the comparative period (six months to 30 June 2016: £1.3m). 

Having reorganised and strengthened the US sales team, following the full and final settlement of the US patent infringement action in January 2017, I am encouraged that the US team is back on track, with ScanTrainer sales in North America of £324k which is in line with the comparative period and up 38% on sales achieved in H2 2016 (£234k). The H2 pipeline for both ScanTrainer and HeartWorks in North America is particularly encouraging.

Although the UK medical market is in a challenging period of budget restraints, which has seen ScanTrainer UK sales in H1 decline by 56% to £264k in the period (H1 2016: £605k), the pipeline of customers wishing to buy remains high and we believe this market will show signs of recovery in the second half of the year.

ScanTrainer sales in the Rest of the World for the first six months of this year at £369k are up 18% on the comparative period (H1 2016: £314k) with encouraging sales in China following the appointment of new resellers and the first ScanTrainer sales in India coming through. The launch of a French curriculum based version of ScanTrainer is expected to increase sales in the European region. 

HeartWorks sales in the period were £1.1m, with over half of these sales coming from the Rest of the World market.  Although HeartWorks revenues in the UK were affected by the same challenging budget restraints that have affected ScanTrainer, sales in North America of £323k for H1 and pipeline sales for H2, give the Directors optimism that the Group will see sales growth in North America in the second half of this year.

Administrative expenses for the six months to 30 June 2017 at £2.6m are up by £0.8m on the comparative period to 30 June 2016, but the total costs for H1 2017 include £0.5m of overheads in respect of Inventive Medical Limited ("IML") and £0.2m in respect of amortisation of intangibles acquired with IML in H2 last year.

The operating loss for the six months to 30 June was £1.3m (six months to 30 June 2016: £1.0m) and cash at bank at 30 June 2017 was £0.6m (31 December 2016: £1.8m). 

Patent infringement settlement

In January 2017, the Group announced that MedaPhor and SonoSim Inc. and The Regents of the University of California had formalized and executed their agreement on a patent license and patent infringement settlement. As a result, the lawsuit between the parties was dismissed with prejudice.

Product development

At the start of the year we launched our new ScanTrainer 2017 Edition version of our award-winning simulator and we are currently working on the development of a hybrid ScanTrainer/HeartWorks simulator for the Emergency Medicine market and a new augmented reality imaging device that guides the ultrasound operator during needling procedures.  This latter product is in the early stages of development and is targeted at clinical rather than teaching applications.

Current trading and outlook

The Group is currently trading in line with management's expectations.  The Board is making positive progress toward raising sufficient funds to take the Group through the next phase of its development and, subject to this, the Board expects that the Group will continue to be solvent for the foreseeable future.

Riccardo Pigliucci

Chairman

31 July 2017

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2017

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 June 2017

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 30 June 2017

CONSOLIDATED STATEMENT OF CASH FLOWS

for the six months ended 30 June 2017

NOTES TO THE CONSOLIDATED INTERIM REPORT

for the six months ended 30 June 2017

1.     BASIS OF PREPARATION AND ACCOUNTING POLICIES

The financial information contained in this interim report has not been audited by the Group's auditor and does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.  The Directors approved and authorised this interim report on 31 July 2017.  The financial information for the preceding full year is extracted from the statutory accounts for the financial year ended 31 December 2016.  Those accounts, upon which the auditor issued an unqualified opinion and did not include a statement under Section 498(2) or (3) of the Companies Act 2006, have been delivered to the Registrar of Companies.

The auditor's opinion on the Group's financial statements for the year ended 31 December 2016 included matters to which the auditor drew attention by way of emphasis without qualifying their report.  Those matters related to the Directors' disclosure of the Group's ability to continue as a going concern.  As stated in the Chairman's Statement the Board has a reasonable expectation that the Group will continue to be solvent for the foreseeable future.  The matters also included reference to the Directors' disclosures relating to the carrying value of goodwill and other intangible assets and the dependence of those values on the ability of the Group to achieve the cashflows set out in the Directors' forecasts.  As regards the carrying value of those intangible assets, the next impairment review is due as at 31 December 2017.

This interim report has been prepared in accordance with UK AIM Rules for Companies.  The Group has not applied IAS 34 "Interim Financial Reporting" (which is not mandatory for UK Groups) in the preparation of this interim report.  The interim report has been prepared in a manner consistent with the accounting policies set out in the statutory accounts for the financial year ended 31 December 2016.

The Company is a limited liability company incorporated and domiciled in England & Wales and whose shares are quoted on AIM, a market operated by The London Stock Exchange.  The Group financial statements are presented in pounds Sterling.

2.     BASIS OF CONSOLIDATION

The consolidated interim report incorporates the results of the Company and its subsidiary undertakings. On 8 August 2016 the Company acquired the entire share capital of Inventive Medical Limited ("IML") and its sister company, IML Finance Limited, for a total consideration of £3,000,000.  The results of the subsidiaries are included in the consolidated interim report using the acquisition method.  In the statement of financial position, the acquirees' identifiable assets and liabilities are initially recognised at their fair values at the acquisition date.  The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained.

3.     SEGMENTAL ANALYSIS

The following table provides an analysis of the Group's revenue by type (Distribution or Direct Sales) and geography based upon location of the Group's customers. 

4.     TAXATION ON ORDINARY ACTIVITIES

5.     LOSS PER SHARE

In the periods ended 30 June 2017, 30 June 2016 and 31 December 2016 there were share options in issue which could potentially have a dilutive impact, but as the Group was loss making they were anti-dilutive for each period and therefore the weighted average number of ordinary shares for the purpose of the basic and dilutive loss per share were the same.

6.         INTANGIBLE ASSETS

The net book value of intangible assets at 30 June 2017 includes goodwill, intellectual property and brands acquired with IML totalling £2,926,799 (31 December 2016: £3,075,382, 30 June 2016: £nil).

7.         CURRENT LIABILITIES - TRADE AND OTHER PAYABLES

8.  SHARE CAPITAL

On 31 March 2016 the Company placed 7,111,112 new Ordinary Shares of 1 pence each in the capital of the Company at a price of 45 pence per share.  Share issue costs of £183,817 were netted off against the share premium arising on the new share issue.

A further 4,651,164 shares were admitted to trading on 8 August 2016 upon completion of the acquisition of IML which represented two thirds of the total consideration payable at a fair value price of 43 pence per share.   The issue of the remaining 2,325,582 shares was deferred for 12 months from completion with the actual number of deferred shares to be issued dependent on any vendor warranty or indemnity breaches (as specified in the Sale and Purchase Agreement) arising during that 12 month period.  Currently, the Company is not aware of any such breaches and so the deferred consideration of £1.0m has been provided for in full.  Consequently, the value of these shares at their fair value is included under creditors due within 12 months (see note 7).

9.     INTERIM ANNOUNCEMENT

A copy of this report will be posted on the Company's website at www.medaphor.com