RNS Number:6883E
XL TechGroup, Inc.
28 September 2007
Press Release 28 September 2007
XL TechGroup, Inc.
("XL TechGroup", the "Company" or the "Group")
Interim results for the six months ended 30 June 2007
XL TechGroup Inc. (AIM: XLT), the systematic architect and builder of an ongoing
stream of high value new companies, today announces its interim results for the
six months ended 30 June 2007.
Highlights
* TyraTech listed on AIM in June 2007, raising gross proceeds of #25 million,
with US$11.9 million used to repay debt owed to XL TechGroup
* XL TechGroup agrees additional US$20 million borrowing facility with Laurus
in January 2007
* GenXL makes first investment in EnGen which is exploiting a unique platform
technology that has a range of potential supercapacitor battery applications
* AgCert announces improved business strategy, raises additional #20.5 million
and capitalises Euro14.6 million in debt
* Four acre process optimisation facility constructed and operational for
PetroAlgae research and development
* Presidential Strategic Advisory acquires 2 million new XL TechGroup shares
and is appointed strategic advisor to enhance and accelerate portfolio
liquidity
* Strong total cash and quoted securities at market of approximately US$158.5
million as at 30 June 2007 (1H 2006: US$186.8 million)
Dr. John Scott, Chief Executive of XL TechGroup, said: "The Group has achieved
significant commercial momentum over the past six months, capitalising on the
development of an exciting series of world-changing technologies. Given the
further progress that we anticipate across our companies during the next 12
months, we are confident that XL TechGroup is approaching a clear inflexion
point in its valuation profile. Our continuing strategy is to create an ongoing
series of significant cash distributions from the value created for our
shareholders, and we are still anticipating that the first of these should occur
in 2008."
- Ends -
For further information:
XL TechGroup Inc.
John Scott / Harold Gubnitsky Tel: +1 321 409 7403
hgubnitsky@xltg.com
Chris Munden, Director of Investor Relations Tel: +44 (0) 20 7398 7720
cmunden@xltg.com www.xltechgroup.com
Nomura Code Securities
Richard Potts, Corporate Finance Tel: +44 (0) 20 7776 1200
www.nomuracode.com
XL TechGroup media enquiries:
Abchurch Communications
Heather Salmond / Gareth Mead Tel: +44 (0) 20 7398 7700
heather.salmond@abchurch-group.com www.abchurch-group.com
CHAIRMAN'S STATEMENT
The first half of 2007 has seen further strong progress across our portfolio of
companies and I am pleased to confirm that this has continued during the last
three months.
AgCert completed a review of its longer-term business plan, resulting in an
improved strategy that was supported by existing and new investors in a
successful #20.5 million secondary fundraising. The announcement made yesterday
by AgCert of a proposed deal with a major European trading company would enable
AgCert to secure the majority of its credit delivery obligations going forward.
This would be an important step in validating the improved AgCert business plan
and would substantially mitigate a key element of risk which has been depressing
AgCert's share price. If the proposed deal is completed, along with the other
strategic initiative developments already happening, this would be a sizeable
step towards AgCert being able to achieve the level of financial success
originally anticipated.
TyraTech completed an exciting first half of 2007 with a successful IPO on AIM
in June 2007 that raised #25 million from a group of quality institutional
investors, and it has also received the first exclusivity and milestone payments
under its agreement with Syngenta. TyraTech is moving towards the market launch
of its first insecticide products in the coming months and it is also looking to
generate the first revenues from its new Natures Natural product.
DxTech has produced high quality assay performance that is at least on a par
with reference laboratory gold standards for TSH and FT4, the primary blood
based diagnostics for evaluating thyroid function. The platform breadth of the
technology (i.e. more assays at gold standard performance levels) continues to
be demonstrated. Discussions are continuing with a number of potential
strategic partners, and DxTech also anticipates agreeing the first of a number
of non-US regional joint ventures in the coming months.
PetroAlgae continues to make significant progress towards the delivery of a
commercial system for extracting oil from algae. Extensive work is underway to
optimise both the growth parameters and the process to deliver efficient oil
production systems that can be applied to differing conditions in a range of
global geographies. PetroAlgae has seen firm interest from potential customers
and licensees around the world (in more than a dozen countries to date) whose
combined needs will exceed 2 billion gallons by 2010, and anticipates signing
the first of a number of agreements during 2008.
Our newest company, QuoNova, was only started in late December 2006 but has been
very busy on a number of R&D related fronts, including collaborations with a
number of potential partners. QuoNova anticipates that the first licensing
deals will occur during 2008.
I mentioned in our 2006 annual report that XL TechGroup has reached an inflexion
point in its development and I anticipate a strong flow of news over the coming
months that should underpin this view by providing greater visibility to the
significant value that I believe lies in our companies.
Dr. Geoffrey Vernon
Non-Executive Chairman
27 September 2007
OPERATIONAL & FINANCIAL REVIEW
AgCert International plc (LSE: AGC, "AgCert") - 18.8% owned by XL TechGroup
AgCert, which was established by XL TechGroup in May 2002, is a leader in the
production and sale of agriculturally derived greenhouse gas emission
reductions. As anticipated, a very large worldwide market has developed for
carbon credits as a result of the Kyoto Accord and other mandates which are, of
course, intended to deal with the growing problem of global warming. While the
carbon credit market has developed apace and although AgCert has faced a number
of execution related challenges to its original business model over the last 18
months, it still made considerable progress in 2006 and this has accelerated
into 2007.
Following a comprehensive review of its business, conducted by new management,
AgCert announced in April 2007 an improved strategy that is intended to achieve
at least the same emission reduction delivery programme as previously
anticipated but with a significantly reduced capital funding requirement. To
fund this strategy, AgCert successfully raised #20.5 million before expenses
from both existing and new investors, and also capitalised approximately Euro14.6
million of debt owed to three major shareholders, including #2.73 million owed
to XL TechGroup. To underpin our commitment and support for AgCert, we have
also agreed to provide AgCert with a convertible credit facility of up to Euro5
million, to be available if needed in the second quarter of 2008 for certain
defined working capital needs.
AgCert's good progress so far in 2007 has been across the whole range of its
operations. Not only has it significantly cut its headcount, but AgCert's
existing and previously underperforming biodigesters are now meeting
expectations, with a 40% increase in production since January 2007 alone.
AgCert has also been taking steps to strengthen its market changing IP position
and, in this regard, the company will be notifying potential infringers in
relation to a review by the US Patent Examiner of AgCert's application in
relation to the creation of greenhouse gas offsets by no later than 1Q 2008.
Even more importantly, assuming the proposed deal with a major European trading
company is signed, AgCert's forward credit delivery risk would be substantially
mitigated. Together with the results of other strategic initiatives, AgCert
would be able to re-balance its delivery commitments so that 100% of original
contracted deliveries in 2007 would be covered, 86% of original 2008 deliveries
would be covered with existing production and contracts (compared to 32% in May
2007), and 90% of 2009 would be covered. Combining its own biodigester output
with LOIs already signed and deals currently in negotiation, AgCert anticipates
building up a portfolio of 46 million tonnes through 2012, and we would expect
this total to steadily increase.
AgCert has also been making great strides in securing future credit production
from other initiatives which were outlined in their improved strategy. For
example, since May 2007, AgCert has built a pipeline of over 100 potential
projects, representing several million annual credits from TurboGreen, their
strategic account business focusing on large industrial projects. AgCert's new
forestry products business has signed a joint venture agreement with Forest
Systems, an established forest investment management firm. Agency, which is
AgCert's credit acquisition programme, has completed three agency contracts for
2.4 million tonnes since May 2007 for delivery through 2012.
TyraTech, Inc. (AIM: TYR, "TyraTech") - 47.9% owned by XL TechGroup
TyraTech, which was created by XL TechGroup in May 2004, develops and
commercialises efficacious, proprietary insecticide and parasiticide products
which incorporate unique blends of safer, natural, plant oil derived active
ingredients. TyraTech's product pipeline addresses a diversity of pesticide
market opportunities in human and animal treatments; domestic, commercial and
hospitality facilities, as well as farms and fields. Due to growing
international restrictions on the use of toxic synthetic chemical pesticides, a
large unmet need exists in the market for safe effective natural products. In
many cases, the need for safe pesticides can significantly and positively effect
health and well being worldwide in such significant areas as mosquito-borne
diseases and intestinal parasites.
TyraTech completed a successful IPO on AIM in June 2007, raising #25 million
before expenses. This included #2.5 million from XL TechGroup as part of our
stated goal of maintaining a controlling interest or significant influence in
all our companies after AgCert, and to also affirm our commitment to TyraTech.
US$11.9 million of the funds raised were used to repay debt obligations owed to
XL TechGroup. TyraTech is now well funded and accelerating its operations to
bring its first products to market in the coming months, and to build the
infrastructure to address the diverse market opportunities for the control of
insects and parasites.
Since its IPO, TyraTech has made good progress in turning its market changing,
proprietary technology into commercial products. This progress has been made in
both the development of TyraTech's own products, as well as those being
developed by its strategic partners - Syngenta, Scott's Miracle-Gro, Arysta and
Kraft Foods. TyraTech has successfully met the agreed development progress
requirements for a paid milestone in its partnership with Syngenta for the
development of the lead all-natural active ingredient product for professional
pest control operators. TyraTech also expects to announce its meeting of
additional key partner milestones later in the year. In addition, after
completing the first year of interaction and evaluation of TyraTech's product
pipeline, Scott's Miracle-Gro has made an option payment to negotiate an
expanded relationship with TyraTech.
TyraTech's technology and product development has made progress on all fronts.
A new product area is "Natures Natural", a fully sustainable horticultural and
garden product that is intended to replace peat in growth or potting soil
mixtures. In addition to fulfilling TyraTech's objective for safe and natural
products, the company believes that Natures Natural will offer a unique delivery
of TyraTech natural pesticides for these markets. TyraTech now believes that
this business could move into revenue generation in the next few months.
DxTech LLC ("DxTech") - 82.5% owned by XL TechGroup
In a world where over 60% of all clinical decisions are made using diagnostic
information, there is a clear unmet need for doctors to have high quality
diagnostic information at the time of the doctor-patient interaction. In
response to this need, DxTech is developing revolutionary, market changing,
point-of-care ("POC") technology that is intended to provide reference
laboratory quality results in real time, resulting in meaningful doctor-patient
interactions, increased healthcare efficiencies, and improved patient outcomes.
DxTech, which was created by XL TechGroup in July 2005, is developing a
fully-integrated POC diagnostics platform based on proprietary, electrochemical
sensor technology that has unparalleled sensitivity and dynamic range. This
platform is designed to meet or exceed the performance levels established by US
reference laboratories, provide a complete solution from sample collection
through claims processing, be CLIA ("Clinical Laboratory Improvement Amendments
") waivable, and hit a price point that is expected to provide a strong gross
margin in the US market and at the same time be economically viable in
developing countries. The DxTech reader and disposable tests are intended for
use primarily at the physician's office. The total US diagnostic testing market
was worth approximately US$48 billion in 2006, while sales of tests in the
DxTech routine testing segment eligible for distributed diagnostics approached
US$30 billion. (Source: Washington G2 Report, Laboratory Industry 2006)
DxTech has continued to make further, good progress in 2007, following the
exciting developments last year. Its strong R&D backbone has delivered high
quality assay performance for TSH and FT4, the primary blood-based diagnostics
for evaluating thyroid function, and they have also finalised reader development
agreements and the related supply strategy.
In the coming months, it is anticipated that additional general chemistry and
haematology feasibility will be completed by the R&D team, demonstrating the
breadth of the technology platform. The quality team will be implementing
design control procedures to be compliant with the US FDA development process.
The sales and marketing team continues to work towards an anticipated US product
launch in 2009, and is assembling scientific advisory boards, completing the US
Physician's Office launch plan, and progressing early stage discussions with a
number of potential strategic partners. As DxTech moves into 2008 the first
functional "Alpha" system is expected to be delivered, a key milestone in the
development of the DxTech platform, and it is also anticipated that the first of
a number of non-US regional joint ventures will be put in place.
PetroAlgae LLC ("PetroAlgae") - 94.1% owned by XL TechGroup
Global consumption of petroleum diesel fuel exceeds 200 billion gallons annually
and continues to grow at a rate that exceeds improvements in production, while
the gap between supply and demand is widening and has driven prices to
historically high levels. Between the growing demand in developed countries,
the expansion of emerging economies and the increasing political instability in
oil producing regions, it is unlikely that prices will fall substantially in the
near term. Beyond the economic issues associated with petroleum, there are also
significant environmental challenges - petroleum fuels are non-renewable,
produce many pollutants, and release large quantities of carbon dioxide into the
atmosphere when burned. The need for an alternative to petroleum oil is both
large and immediate. PetroAlgae specifically addresses this need through the
commercial-scale production of feedstock oil used to produce biodiesel, an
entirely renewable biofuel.
To meet this need, XL TechGroup created PetroAlgae in September 2006 to
commercialise a proprietary library of algae that combine the unique
characteristics of rapid growth rate and high lipid content. The algae are
cultivated in modular bioreactors that can be operated cost-effectively at
commercial scale. Harvest occurs on a daily basis, producing 200 times more
feedstock oil per acre than traditional crops like soybeans. This is the
equivalent of being able to grow enough feedstock oil to meet the entire US and
EU needs for biodiesel fuel on less than 2% of the arable land in those regions.
Moreover, algae farms do not need to be sited on agricultural land, so there
is no competition with food crops like soybean or corn that are used today as
biofuel feedstock, and no impact on rainforests in the way that palm and
jatropha oil plantations do. Another benefit of algae is that the production
facilities can be constructed and operating at full capacity in a matter of
months. By contrast, palm and jatropha plantations take many years to reach
full production.
In the first half of 2007, PetroAlgae made significant progress towards the goal
of developing and deploying a market changing commercial system for extracting
oil from algae. A four acre process optimisation facility has been constructed
and began operations in the first quarter of 2007. This facility is being used
to characterise and optimise growing parameters and processes, to develop
harvest and extraction processes, and to optimise the overall system.
From this work, PetroAlgae is building a strong base of intellectual property.
Two patents have been filed around specific organisms, with another five
expected over the next 12 months. In addition, the company has filed two
patents related to the process of growing, harvesting, and extracting oil, with
several others to follow. Each strain has been genetically fingerprinted so
that it can be uniquely identified.
Demand for affordable biodiesel feedstock is overwhelming and cannot be met
through more traditional oils like rapeseed or soya. These oils are currently
priced at between US$0.35-0.42 per pound whereas, for biodiesel refineries to be
profitable, feedstock oil needs to be significantly cheaper, at around US$0.30
per pound. The economics of the PetroAlgae business model are designed so that
both PetroAlgae and biodiesel refiners are profitable. Uniquely, therefore,
PetroAlgae has had positive meetings with many potential customers and licensees
around the world (in more than a dozen countries to date) whose combined needs
will exceed 2 billion gallons by 2010. Interested parties include biodiesel
refiners, petroleum companies, petrochemical manufacturers, large plantation
operators, energy providers, commodity traders, and government / military
organisations. PetroAlgae anticipates signing the first of a number of
agreements within the next 12 months.
The remaining major milestones on PetroAlgae's path towards commercialisation
include completion of an optimisation process to ensure that the growth rate is
maintained at scale. To accomplish this, the company expects the completion of
a process prototype within the next six months, followed after that by the
design of a commercially viable facility. Construction of a demonstration farm
of approximately 30-50 acres is then expected to commence. At the same time, as
yields and economics are confirmed and demonstrated to potential partners, along
with the delivery of oil samples, PetroAlgae anticipates that it will begin
deployment in various locations before the end of 2008.
Detailed discussions with potential licensees who are well acquainted with large
scale process and/or agri-business have confirmed that a smaller than previously
anticipated facility will suffice for proof of yield and commercial scalability,
hence the 30-50 acre demonstration farm rather than the previously planned 400
acres. Furthermore, to confirm that the economics of the PetroAlgae business
model are attractive for all potential partners, the company is extensively
characterising growth parameters so that its processes can be efficient in a
range of global geographies with differing conditions and utilising a variety of
algae species from our technology partner. Although this additional work has
delayed the original deployment timetable by a few months, it will improve
overall cost structures and noticeably reduce the time necessary to reach
optimised production for new large scale facilities.
QuoNova LLC ("QuoNova") - 90.0% owned by XL TechGroup
QuoNova was established by XL TechGroup in December 2006 and is commercialising
a novel, market changing Quorum Sensing Blocker ("QSB") technology which affects
signalling between bacteria and thereby prevents the growth of bacterial
biofilms. These are produced by bacterial colonies to protect themselves
against efforts to remove or eradicate them, and are the cause of significant
unmet needs in disease, in the home, and in multiple industrial environments.
In addition, QuoNova's technology accelerates the degradation of existing
biofilms, and inhibits the release of virulence factors or toxins. QuoNova's
breakthrough technology offers a non-toxic and non-biocidal approach to
bacterial control which is also expected to avoid the development of dangerous
resistant strains, since QSB technology does not exert the selection pressures
that antibiotics exert on bacteria.
QSBs hold significant promise in high value therapeutic markets with large unmet
needs, such as in respiratory disease, as well as potentially in chronic
systemic infections, such as chronic urinary infections. Shorter term high
value opportunities also lie in the medical devices and wound care fields as
well as in consumer markets (e.g. oral care for dental plaque or eye care for
contact lenses), industrial applications (e.g. cleaning and HVAC (heating,
ventilation and air conditioning) systems), and potentially for agricultural use
against problematic bacterial infections. Estimates of market sizes are
currently at least US$16.5 billion for therapeutic and medical device
applications, and about US$11 billion for consumer and industrial applications.
The first six months of 2007 at QuoNova have been characterised by a strategic
focus on consolidating the technology platform, strengthening the patent
position and tailoring several hundred actives which form the basis for
selection for specific applications. This work is being accompanied by
progression of the initial patent portfolio, with the first patents expected to
be issued within the next 12 months. QuoNova has also initiated or progressed
multiple research and development collaborations with academic and industrial
partners. These are aimed at evaluating effects across a broad spectrum of
bacterial species (clinically and industrially relevant), at conducting further
proof of concept studies in animal models of disease (e.g. cystic fibrosis and
wound healing) and at developing specific formulations for a number of separate
consumer healthcare and industrial products. Successful collaborations will
form the basis for future product development and licensing agreements, and it
is anticipated that initial deals will be signed during 2008.
GenXL LLC ("GenXL") - 42.7% owned by XL TechGroup
GenXL was established in June 2006 as a joint venture between XL TechGroup and
GEN3 Partners Inc. to generate new companies, standalone product lines or
technology licensing opportunities from the twin pipelines of both its founders.
In particular, over and above XL TechGroup's core business model, GenXL was
created to capture the value of those prospects that do not fully meet XL
TechGroup's company-building criteria but still demonstrate considerable
potential worth.
In March 2007, GenXL announced its first company development agreement, with
EnGen LLC, which is now 45% owned by GenXL. EnGen is exploiting a unique
platform technology that has a range of potential supercapacitor battery
applications across various sectors where there are clear unmet market needs.
These include transportation, consumer electronics and industrial applications.
In the last six months, EnGen has successfully completed a working dry prototype
with results that have exceeded expectations. This means that there are
potentially more opportunities within the wider energy storage sector to license
the technology than originally anticipated and EnGen is now in discussions with
a range of potential partners. EnGen is also preparing to bring in next-stage
funding from external sources to enable it to take the technology on to the next
phase now that proof of concept has been confirmed beyond original expectations.
GenXL has a number of opportunities going through its review process which may
or may not lead to selection for investment. Outlines of some of the potential
opportunities or technologies in the current pipeline are as follows:
* use of a slow release implant for the kinetic re-profiling of
pharmaceuticals providing patentable new drug combinations;
* opportunities in advancing the technology for dealing with large scale
forest fires;
* a medical products technology to improve the detection of patients at
high risk for coronary heart disease (CHD) events (heart attacks and
CHD-related cardiac deaths) basing on monitoring of endothelial function;
* a large molecule technology that allows for smaller molecules to be
injected into it for non-medical applications;
* a technology for use in foods to accommodate specific dietary needs
like those with diabetes and other diseases;
* a non-toxic eco-friendly paint that will stick to plastics and other
hard-to-adhere-to composites without a primer; and
* a formulation for a topical cream for warts that has been already used
to treat thousands of patents to date.
It is anticipated that the next GenXL deal will be announced within the next two
months, and it is possible although not certain that the third GenXL deal could
reach the agreement stage before the end of 2007. In this regard, it is now
expected that GenXL will conclude in the order of three to six deals each year
going forward, lower than originally anticipated but more in keeping with the
detailed evaluation process that the GenXL team has now established.
Pipeline of Possible Opportunities
XL TechGroup's pipeline includes unmet market needs that have been matched with
technologies to create potential opportunities, from which our next new
companies might be selected. It is however very important to note that, while
XL TechGroup has exclusive rights to most of the technologies described, the
nature of our rigorous selection process means that only a few of these
opportunities will ever be chosen for development and scaling as new companies
by XL TechGroup. Some of the opportunities which do not fully meet XL
TechGroup's selection criteria may be transferred to GenXL for further review
and potential commercialisation. Furthermore, the pipeline is continuously
evolving as new opportunities are added, and as existing opportunities are
eliminated. The following list represents a snapshot of current possibilities:
* a uniquely established technology for transgenic mass production of
spider silk proteins for use in novel composites in transportation, building
construction and a variety of other applications;
* an economical catalytic process to split low-cost methane into
high-value, high-purity graphitised carbon and pure hydrogen;
* a designer micro-organism that efficiently produces isoprene, a direct
replacement for gasoline and propane;
* a group of antiviral compounds active against viral diseases such as
HIV, bird flu, and SARS that are derived from natural sources (fungus,
seaweed, animal mucus);
* a water-based, non-toxic "green" paint base that contains no organic
solvents, and yet adheres strongly to plastics, metals, etc.;
* a novel technology for non-invasively imaging, for the first time, of
unstable vulnerable plaque in the coronary arteries;
* a new approach to causing existing cancer therapeutics to "stick"
highly preferentially to certain tumour types, thereby enhancing the
specificity of the relevant drugs;
* an offshoot of a novel cancer vaccine technology which is adapted as a
peripheral blood diagnostic to screen for early cancer detection;
* a moisture barrier technology which provides controlled separation of
wet and dry food products; and
* a unique proprietary platform which enables rapid screening of
molecules which target AMP kinase for treatment of metabolic diseases such
as obesity and type 2 diabetes
Financial Review
Materiality of Revenues
By design, XL TechGroup does not directly produce and sell products, but rather
creates companies that do. Therefore, except for the sale of shares in its
companies, it is likely that the only turnover that will be reported by XL
TechGroup will be the result of consolidation of our early stage new companies
and their resulting turnover, which may not be material, consistent or a
meaningful measurement of success for the Company.
Summary
The Company continues to manage its operations, principally the creation of new
opportunities and the provision of support to the existing portfolio companies.
For the first time, the Company is reporting significant revenues of US$5.2
million. As at 30 June 2007, the Company's ending cash was US$18.5 million. To
finance future operational needs, the Company liquidates equities in our
previously created affiliates, or temporarily leverages these same equities
(prior to a sale or listing) through debt.
On 29 May 2007, XL TechGroup's portfolio company TyraTech completed its IPO,
raising #25.0 million (US$49.7 million) gross proceeds into the company and
repaid US$11.9 million owed to XL TechGroup. As at 30 June 2007, the value of
our combined holdings in AgCert and TyraTech was approximately #70.1 million
(US$140.2 million).
As a result of TyraTech's successful IPO, as at 29 May 2007 XL TechGroup no
longer consolidates TyraTech within its financial reports, but accounts for it
under the equity method. The result will be the relatively material movement of
revenues, costs, assets and liabilities out of the Group's accounts.
Results of operations
The Group reported a net loss of US$32.6 million in the period. This loss
includes operating expenses of consolidated companies (DxTech, PetroAlgae,
QuoNova and TyraTech (from 1 January 2007 through 29 May 2007)) of US$18.8
million, when taking into account minority interest, and recorded losses on
investments in non-consolidated companies (AgCert, AgCert related entities,
GenXL and TyraTech after its IPO) of US$2.9 million. The Group incurred US$5.0
million in interest expense, offset by interest income of US$1.3 million
Revenues
The Group reported total revenues in the period of US$5.2 million, including
US$4.5 million in gains on the sale of Company owned affiliate securities,
US$0.3 million from subsidiary revenue and US$0.3 million from fees for support
services performed for unconsolidated companies. The US$4.5 million of gains on
the sale of Company owned affiliate securities resulted from the Company's
utilisation of Company-owned shares of AgCert as an interest payment for long
term debt.
As XL TechGroup's ownership levels in its various companies change, the amounts
of consolidated revenue reported will be varying.
Operating expenses
For the six months ended 30 June 2007, operating expenses for the Group were
US$28.6 million (1H2006: US$15.0 million and 1H2005: US$8.2 million): US$8.0
million for general and administration and US$20.6 million for business and
technical development, including a US$1.0 million non-cash in-process research
and development charge related to PetroAlgae.
Of the US$28.6 million total in the first six months, US$19.0 million were costs
related to XL TechGroup portfolio companies (TyraTech: US$6.7 million, DxTech:
US$6.4 million, PetroAlgae: US$4.4 million and QuoNova: US$1.5 million). XL
TechGroup allocates a portion of its operating expenses to its group companies
for individuals servicing the growth and development of these companies. The
net operating expenses of the Company, after allocations of services, were
US$9.6 million (1H2006: US$9.8 million and 1H2005: US$6.1 million). The future
growth of the Company's operating expenses is expected to be governed by the
number of group companies managed at any time and, as such, are expected to
increase marginally.
Funding of XL TechGroup companies
In the period, XL TechGroup advanced US$20.5 million (exclusive of US$11.9
million repayment to the Company by TyraTech), (1H2006: US$4.5 million and
1H2005: US$7.8 million, exclusive of repayment of US$7.2 million from AgCert) to
its portfolio companies. Funding the operations of our pipeline opportunities
and new companies is a planned aspect of our business and is expected to
continue in the future, however at varying rates. These fundings will take the
form of either equity contributions or debt, with the latter expected to be
repaid upon certain events, including in relation to exits. As at 30 June 2007,
XL TechGroup had outstanding receivables with its portfolio companies of US$12.3
million (1H2006: US$3.0 million and 1H2005: nil).
XL TechGroup's accumulated cash investments in its portfolio of companies as at
21 September 2007 consisted of:
Cash Investment* Market Value
(US$m) (US$m)
AgCert International plc (listed) 8.0 35.1
TyraTech Inc. (listed) 7.0 105.2
DxTech LLC 18.4 n/a
PetroAlgae LLC 6.9 n/a
QuoNova LLC 3.5 n/a
GenXL LLC 1.0 n/a
* Represents cash equity contributions and debt (net of any repayments).
Debt Financing
In 2006, XL TechGroup met terms under the 2005 US$35 million debt financing with
Laurus Master Fund Ltd ("Laurus"), providing access to US$10 million that was
previously restricted. In January 2007, the Company entered into a US$20
million note agreement with Laurus due 30 December 2009, with interest
determined and payable under terms including a "cash" interest portion (payable
at the US prime rate) and an "advanced" interest portion (payable in XL
TechGroup or XL TechGroup company equities at 13%). In the current period, 1.5
million Company owned shares of AgCert were transferred to Laurus, representing
the advanced interest portion due for the annual 2007 period. Additional
details to the debt terms can be found in the Company's 2006 Annual Report.
The Company is in advanced negotiations for an additional debt facility that is
expected to close within the next few weeks.
Liquidity and cash
As at 30 June 2007, XL TechGroup had cash balances (including short and long
term investments) of US$18.5 million (1H2006: US$37.9 million and 1H2005:
US$23.8 million).
The net outflow of cash from operating activities is principally due to the
Group's operating loss generated from its continuing development activities and
the outflow from investment activities is due to early funding of companies in
the Group. Providing adequate funding of the Group's operations is important,
and this is accomplished through a variety of sources that include its own cash,
receivables and tradable securities, and by leveraging the value of its new
companies through debt funding partners. Additionally, DxTech, PetroAlgae and
QuoNova have now reached a stage where outside funding sources (from revenues,
license fees or strategic partner debt for example) are expected to become
available in 2008, thereby potentially reducing their cash demands on XL
TechGroup. The Company expects its available cash to be sufficient to finance
the Group's activities into second quarter of 2008, while the available
additional sources of funds are expected to be able to satisfy both operating
expenses and the funding of XL TechGroup companies into the foreseeable future.
At appropriate times, any borrowing will be more than offset via the proceeds of
cash inflows from final exits, out of which distributions will be made to
shareholders.
Summary & Outlook
Our stated strategy continues to be to create new companies which we believe in
each case will achieve realisable valuations of at least US$400 million within
four years of being started. We may decide to realise a proportion of this
value sooner in the process, as we have with TyraTech, but we will always seek
to retain a controlling stake in all our companies subsequent to AgCert until
such time as we feel it is appropriate to exit. At such a time, we will retain
some of the proceeds to continue funding our growing portfolio of companies and
will distribute the remainder to our shareholders.
We look forward with enthusiasm and optimism. AgCert is already demonstrating
that it has not only dealt with its operational challenges but has also begun to
execute on its improved strategy. TyraTech is moving towards the commercial
launch of its first insecticide products and is also working hard towards
achieving additional key partner milestones. DxTech is progressing very well on
the technical side and is moving closer to its first non-US joint venture deal.
PetroAlgae is continuing its optimisation work and is attracting significant
real interest from potential partners around the world. QuoNova has been fully
engaged in R&D work but has already starting meaningful discussions with a
number of serious potential partners.
DR JOHN SCOTT DAVID SZOSTAK
Chief Executive Officer Chief Financial Officer
27 September 2007
XL TechGroup, Inc and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30
US$ 2007 2006
(as restated)
Cash 18,318,221 27,677,182
Cash (restricted) 200,316 10,240,322
Receivables 183,476 437,608
Marketable securities - AgCert International plc 35,067,897 -
Prepaid expenses 366,136 295,250
Prepaid interest 2,346,400 1,038,333
Due from affiliate 248,847 20,952
Total current assets 56,731,293 39,709,647
Investment In TyraTech, Inc. (FMV of $105,169,345 at 30 June 13,323,849 -
2007)
Investment in AgCert International plc - 28,992,237
Investment in ANX, LLC 2,289,110 3,191,165
Investment in GenXL, LLC 851,921 -
Property and equipment, net 1,887,114 625,504
Deferred loan costs, net 3,954,841 5,496,522
Warrants to purchase affiliate stock 1,891,888 -
Other assets 684,744 202,706
Total assets 81,614,760 78,217,781
Total liabilities and stockholders' equity
Accounts payable 745,632 363,016
Accrued liabilities 3,696,718 3,763,116
Liability for warrants and purchase options 6,328,700 8,166,617
Total current liabilities 10,771,050 12,292,749
Notes payable 54,880,000 34,880,000
Other liabilities 1,185,184 95,833
Total liabilities 66,836,234 47,268,582
Minority interest - 520,453
Common Stock, par value $0.001, Authorised 100,000,000 49,629 49,351
shares, issued and outstanding 49,629,415 shares in 2007 and
49,351,025,in 2006
Additional paid-in capital 134,504,423 86,319,924
Accumulated deficit (138,378,807) (79,814,180)
Currency reserve 23,327 -
Accumulated other comprehensive income 18,579,954 23,873,651
Stockholders' equity 14,778,526 30,428,746
Total liabilities and stockholders' equity 81,614,760 78,217,781
XL TechGroup, Inc and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
6 months ended June 30
US$ 2007 2006
(as restated)
Revenues:
Product and services revenue
Revenues of subsidiary 318,549 104,167
Support service fees from affiliates 322,982 169,599
Total product and services revenue 641,531 273,766
Investment revenue from sales of company owned subsidiary 4,526,362 -
or affiliate stock
Total revenue 5,167,893 273,766
Operating expenses:
General and administrative 8,045,285 5,232,001
Business and technical development 20,597,598 9,749,908
Total operating expenses 28,642,883 14,981,909
Other income / (expenses):
Interest income 1,301,604 1,009,951
Interest expense (5,047,490) (2,841,402)
Equity in income / (loss) of affiliates (2,859,056) 2,080,857
Change in fair value of warrants and purchase options (2,733,318) 193,441
Total other income / (expense) (9,338,260) 442,847
Loss before income taxes and minority interest (32,813,250) (14,265,296)
Income taxes - -
Loss before minority interest (32,813,250) (14,265,296)
Minority interest 212,014 304,023
Net loss (32,601,236) (13,961,273)
Loss per share (0.66) (0.28)
Weighted average number of common shares 49,515,000 49,351,025
XL TechGroup, Inc and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
6 months ended June 30
US$ 2007 2006
(as restated)
Cash flows from operating activities
Net loss (32,601,236) $ (13,961,273)
Adjustments to reconcile net income to net cash provided by /
(used in) operating activities:
Depreciation and amortisation 3,851,604 1,144,437
Reserve on bad debts of note receivables 965,571 2,359,261
Gain on sale of affiliate stock (4,526,362) -
Interest income (562,657) -
Equity in (income) / loss of affiliates 2,859,057 (2,080,857)
Change in fair value of warrant and purchase option 2,733,279 106,559
liabilities
In-process research and development 990,528 -
Compensation costs related to stock awards and unit grants 3,418,284 988,508
Minority interest contribution to losses (212,014) (304,023)
Change in operating assets and liabilities:
Accounts receivable (98,241) (268,209)
Prepaid expenses and other assets (653,611) 552,356
Due from affiliates (30,495) 153,768
Accounts payable and other liabilities (475,393) 937,862
Deferred liabilities (217,338) -
Net cash used in operating activities (24,559,024) (10,371,611)
Cash flows from investing activities
Payments of notes receivable (854,180) -
Proceeds from notes receivable 11,856,631 -
Investments in and advances with affiliates (5,851,461) (838,274)
Purchases of property and equipment (570,564) (404,323)
Net cash provided by / (used in) investing activities 4,580,426 (1,242,597)
Cash flows from financing activities
Payments under capital leases (8,758) -
Borrowings under notes payable 20,000,000 (120,000)
Payments of loan costs (794,000) (268)
Proceeds from the exercise of warrants 146,620 -
Net cash provided by / (used in) financing activities 19,343,862 (120,268)
Net decrease in cash and cash equivalents (634,736) (11,734,476)
Cash and cash equivalents at the beginning of the year 18,952,957 39,411,658
Cash and cash equivalents at the end of the year 18,318,221 27,677,182
Cash paid for interest 2,587,716 1,071,874
Notes to the Accounts:
1) Basis of Presentation
The consolidated financial statements of XL TechGroup, Inc. (the Company) have
been prepared in accordance with accounting principles generally accepted in the
United States of America (US GAAP). The consolidated financial statements for
the six months ended 30 June 2007 and 30 June 2006 include the accounts of XL
TechGroup, Inc., and its subsidiaries DxTech, LLC (DxTech), QuoNova, LLC
(QuoNova), and PetroAlgae, LLC (PetroAlgae) each a Delaware limited liability
company. The consolidated financial statements for the period also include the
accounts of TyraTech, LLC (TyraTech) through May 2007, at which time TyraTech
was deconsolidated from the consolidated group. All inter company balances and
transactions have been eliminated.
The Company restated its financials statements as of 30 June 2006 due to a
change in accounting policy and corrections to its accounting for investments in
affiliates. For the period ending 30 June 2006, the restatement resulted in a
US$3.4 million increase to its equity in income from affiliates. Further
details regarding the restatement can be found in the Company's 2006 Annual
Report.
The format of the financial statements has changed since the prior period. The
company has reformatted the prior period to reflect such changes.
The financial information for the six months ended 30 June 2007 and 30 June 2006
is unaudited. In the opinion of the Company directors, the financial
information for these periods present fairly the financial position, results of
operations and cash flows for the periods in conformity with generally accepted
accounting principles under US GAAP.
2) Revenue
Product and Services Revenue:
The Company recognises product and services revenues when products or services
are delivered, the customer takes ownership and assumes risk of loss, collection
of the receivable is reasonably assured, persuasive evidence of an arrangement
exists and the sales price is fixed or determinable.
The Company has agreements for development activities with multiple deliverables
or elements under a bundled agreement which the subsidiaries account for in
accordance with Emerging Issues Task Force Issue 00-21, "Multiple-Deliverable
Revenue Arrangements" ("EITF 00-21"). If the separate deliverables or elements
meet the requirements of EITF 00-21, the Company recognises the revenue
associated with each deliverable or element separately. If the deliverable or
elements within a bundled agreement are not considered separate units of
accounting, the delivery of an individual deliverable or element is not
considered to have occurred if there are undelivered elements that are essential
to the functionality. Also, if the development agreement has provisions related
to customer acceptance under a milestone, revenue is not recognised unless this
obligation is satisfied. Sales incentives, including sales incentives in
warrants issued for which the consideration received does not have an
identifiable benefit (i.e. does not constitute the provision of goods or
services) are recognised as a reduction to revenue within the year of issue.
Such arrangements may give rise to negative revenue.
Investment Revenue From Sales of Company-owned Subsidiary or Affiliate Stock:
Business, technical and operational development of newly created entities
(subsidiaries) initially occurs under the strategic guidance and direct
involvement of Company management. The Company directly funds initial operating
activity of subsidiaries with its own operational cash in the form of capital
contributions and debt financing to the subsidiary. The early equity structure
of the subsidiaries generally consists of a voting majority ownership by the
Company. The Company prepares the subsidiary's business for its scaling phase,
where it evolves from a proven concept to validation of its product opportunity
and scale up of production and revenues. It is at this stage that the Company's
ownership position in the subsidiary moves from a majority to a less than
majority owner, often through the dilutive effects of an IPO or other
transaction. Also at this stage, Company management provided to the subsidiary
is replaced with separate stand-alone subsidiary management. When the Company
no longer has a majority ownership position but continues to have the ability to
exercise significant influence over the affiliate, the Company accounts for its
investment under the equity method of accounting and ceases to consolidate the
affiliate. When the Company's investment is reduced to a level in which the
Company no longer has the ability to exercise significant influence, the Company
accounts for its investment under the cost method or as a marketable equity
security under FAS 115, as applicable.
Any indirect gains in the Company's investment resulting from the subsidiary or
affiliate issuing its stock to unrelated investors are recorded as a capital
transaction by the Company. This occurs when the per-share proceeds received by
the subsidiary or affiliate from the issuance of its stock are in excess of the
per-share carrying amount of the Company's investment.
Any realised gains from the Company selling a portion of its cost method
investment or its marketable equity securities are recorded as investment
revenue. The Company classifies marketable equity securities in affiliates as
available for sale securities and any unrealised gains and loss are recorded in
other comprehensive income except for unrealised losses determined to be other
than temporary which are recorded as a reduction to investment revenue.
3) Debt Financing
In January 2007, the Company entered into a US$20 million fully secured note
agreement with Laurus Master Fund Ltd. (Laurus) due 30 December 2009. The note
is primarily secured with all of the company's assets. Interest is determined
and payable under terms including a "cash" interest portion and an "advanced"
interest portion. The cash interest portion is payable monthly at prime (8.25%
as of 30 June 2007), not to exceed 12%. The advanced interest portion is
payable at 13% annually in advance of 29 December 2007 and 2008, and can be paid
in cash, Company equities or Company-owned equities of affiliates, at the option
of the Company. Related to this note the Company paid US$794K in loan costs.
4) Investment in AgCert International plc
In April 2007, the Company entered into agreements with AgCert whereby the
Company agreed to convert outstanding principal and accrued interest balance
under a note receivable with AgCert of US$5.4 million into 6,822,429 newly
issued common shares of AgCert. The Company also agreed to extend an additional
Euro5 million credit facility to AgCert, available for drawdown in the second
quarter of 2008, and convertible into newly issued AgCert shares at the option
of the Company.
The Company owns 46,043,394 and 41,712,000 shares of AgCert as of 30 June 2007
and 2006 (18.79% and 24.72% ownership, respectively). Effective May 2007, the
Company's ownership interest decreased below 20% and the Company converted from
the equity method to the cost method of accounting for its investment in AgCert.
The Company recorded unrealised gains of US$17.7 million in other
comprehensive income to report the investment balance at fair market value in
accordance with classification of the securities as available for sale under FAS
115, Accounting for Certain Investments in Debt and Equity Securities.
In January 2007, the Company paid 1,517,979 Company-owned commons shares of
AgCert for interest on notes payable to Laurus, realizing a gain on disposition
of the shares of US$4.5 million, which is included in revenue in the current
period.
As of 30 June 2007 and 2006, the fair market value of the Company's investment
in AgCert totaled US$35 million and US$149 million, respectively.
5) Investment In TyraTech
In May 2007, TyraTech completed an IPO on the London Stock Exhange's Alternative
Investment Market (AIM). The Company purchased 500,000 new TyraTech shares at
the placing price of #5.00 per share. Post IPO the Company owned 47.92% of
TyraTech, at which time the Company deconsolidated TyraTech's accounts from the
consolidated financial statements and reported its investment in TyraTech under
the equity method. With IPO proceeds, TyraTech repaid loans to the Company
totaling US$11.9 million.
6) Presidential Strategic Advisory Service, LLC
The Company entered into a consulting agreement with Presidential Strategic
Advisory Service, LLC PSAS; which provided for advisory services for strategies
on divesting the Company's holdings. As part of this arrangement, the company
allowed PSAS to purchase 2,000,000 shares at the average market value, based on
the last thirty day average price through June 26, 2006. In exchange for the
shares, which are being held in escrow, PSAS issued a non recourse note to the
Company. The note receivable is payable to the Company at June 26, 2011 and
requires quarterly interest payments of 4% per annum. The note is secured by
the shares and 20% of the note is guaranteed by the members of PSAS.
The security agreement that pledges the shares of the Company provides for a
default remedy that requires the Company to pay PSAS any excess value of the
shares over the value of the note should it be in default. The embedded
interest in the stocks' appreciation has been considered an option under FAS
123R. The value of the option is determined by the excess of the stocks market
price at the reporting date over the present value of the notes receivable. At
June 30, 2007, the value of the option is US$330,158 and is recognised in the
Company's additional paid in capital with a corresponding charge to its
operating expenses.
As a result of the above mentioned option treatment, the note receivable, the
Company has not recognised the note or the issuance of stock, until such time
that the note is paid off.
7) Loss per Share
The loss per share was calculated based on a weighted average number of shares
outstanding during the six months ended 30 June 2007 and 2006, which was
49,515,000 and 49,351,025 and a loss of US$32,601,236 and US$13,961,273
respectively.
8) During 2007 a minority shareholder of PetroAlgae, LLC contributed
licensed intellectual property to PetroAlgae. In exchange for the licensed
intellectual property; the shareholder accepted a minority ownership interest,
US$1.5 million in cash and a future stream of minimum royalty payments. As a
result of this transaction, the company realised US$2.3 million of in-process
research and development expense and included a long term liability of US$0.75
million in the consolidated balance sheet as of 30 June 2007.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR SEDFUWSWSEFU
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