Final Results

Cyprotex PLC

("Cyprotex" or the "Company" or the "Group")

Final results for the year ended 31 December 2015

Record year of operational profitability

Cyprotex PLC (AIM: CRX), the preclinical ADME-Tox services company, today reports its final results for the year ended 31 December 2015.

Financial Highlights

· Strong revenue growth up 34.9% to £15.61 million (2014: £11.57 million)

· Gross margins increased to 77.3% (2014: 75.0%)

· Operating profit of £1.98 million, (2014: Operating loss, excluding goodwill impairment, of £0.71 million)

· Underlying EBITDA^ of £3.40 million (2014: £0.61 million)

· Cash generated from operations of £3.48 million (2014: used in operations £1.32 million)

· Exceptional non-cash finance charge in respect of Embedded Derivative associated with Loan Notes of £8.07 million (2014: finance income £0.24 million) yielding a basic loss per share at 28.99 pence (2014: loss per share 18.59 pence)

· Underlying basic earnings^^ per share of 6.94 pence (2014: loss 19.67 pence)

· Cash of £5.4 million as at 31 December 2015 (2014: £2.9 million)

^ excluding share-based payment charge and impairment of intangibles

^^ excluding movement in Embedded Derivative valuation associated with Redeemable and Convertible Loan Notes

 Operational Highlights

· New Bioscience division for phenotypic and target based drug discovery service

· Partnership in the EC-funded EU-ToxRisk Consortium with an estimated value of €1 million over 6 year period

· Expansion of 3D cellular model capabilities with introduction of beating cardiac microtissue

· Launched new software solutions, chemPKTM and chemTox as virtual screening approaches for predicting pharmacokinetics and toxicity

· New blog launched on Cyprotex website and increased social media presence

· 243 new customers in 2015 (2014: 171 customers)

· 488 total customers served in 2015 (2014: 407 customers)

· Largest customer contributed 9.6% of revenues in 2015 (2014: 8.1%)

Ian Johnson, Chairman of Cyprotex PLC, said:

"In our 2014 annual report, I noted that whilst we grew revenues we recorded our first operational loss in seven years, however, the investments we made during the period would drive a return to profitability in 2015. I am pleased to report that 2015 was indeed an outstanding and transformative year for the Company with revenue growth of 35% to £15.6 million. The acquisition of the business assets of CeeTox together with internal R & D investments paid off handsomely, as we expected. We also saw substantial organic growth from our core assays across the ADME and Toxicology areas and indeed from all of the industry sectors we serve. The revenue growth contributed to a welcome return to substantial operational profitability for the Group with the UK sites delivering significant increases and our US based Watertown site returning to operational profitability in H2. Our other US based Kalamazoo site is within sight of operating at breakeven level and our new investments in GLP toxicity assays should benefit operational profitability during 2016. Further investments in other sites in 2015, including the creation of a new Bioscience division and capital purchases to support our new and bespoke toxicology assays and higher value ADME assays, means that we can expect further solid performances from all our sites in 2016."

For further information:

Notes to Editors:

Cyprotex PLC

Cyprotex is quoted on the AIM market of the London Stock Exchange (CRX). It has sites in Macclesfield, near Manchester in the UK, Watertown, MA and Kalamazoo MI in the US. The Company was established in 1999 and works with more than 1,300 partners within the pharmaceutical and biotech industry, cosmetics and personal care industry and the chemical industry. Cyprotex acquired Apredica and the assets of Cellumen Inc. in August 2010 and the combined business provides support for a wide range of experimental and computational ADME-Tox and PK services, extending from early drug discovery through to IND submission. The acquisition of the assets and business of CeeTox in January 2014 has enabled Cyprotex to expand its range of services to target the personal care, cosmetics and chemical industries. The Company's core capabilities include high quality in vitro ADME screening services, mechanistic toxicology and high content toxicology screening services, including our proprietary CellCiphr® toxicity prediction technology, predictive modelling using PBPK and QSAR techniques, including Cloe® PK for in vivo PK prediction, and a range of skin, ocular and endocrine disruption services. For more information, see www.cyprotex.com

Chairman and Chief Executive Officer's Report

The investments made in 2014, including the acquisition of certain assets, trade and business of CeeTox (Kalamazoo, MI), the development of new services and capabilities such as the new high throughput platform in our Watertown MA site, transporter assays, enhanced metabolite ID and 3D toxicology models at our UK sites; have yielded excellent operational results and has led to an enhanced trading performance in 2015. Whilst revenues grew in 2014, the additional costs associated with the above resulted in the Company reporting an operating loss for the first time since 2007. The 2015 performance of 35% revenue growth over 2014 to £15.6 million, underlying EBITDA of £3.4 million and return to operational profitability was a great achievement. The growth in revenues was also supported by additional growth in our existing platform assays in particular through strategic contracts with several large pharma companies and an excellent performance in gaining new business from business development and marketing activities from all industry segments of our market.

The Macclesfield site and new facilities at the BioHub campus in nearby Alderley Park produced excellent results and the UK sites together showed revenue growth from £7.9 million in 2014 to £11.2 million in 2015 (a 41% increase) based on strategic contracts and new service offerings. The performance of the Watertown site was also laudable, achieving profitability at the EBITDA level. Revenue growth from this site increased to £3.0 million in 2015 (2014: £2.5 million) and was driven by a strong performance from all over the US for all services offered from that site. Our Kalamazoo site, which specialises in serving the cosmetic, chemical and personal care industry sector for toxicological assays, also increased sales to £1.4 million in 2015 (2014: £1.2 million). The site is within sight of being EBITDA break even and we have invested in new GLP compliant genotoxicity assays, which we aim to launch in H1 2016 to drive profitability at this site.

Much of the focus in 2015 was the marketing of our existing and newly developed (in 2013/4) assays in both ADME and toxicology area rather than significant investment focus in new services. We launched a new Bioscience Division, which strengthened our capabilities in ocular toxicity testing, developed new in silico solutions (chemPKTM and chemTox) and extended our range of 3D microtissues including a beating cardiac model. 

In terms of marketing, in April 2015 Cyprotex launched its new blog. Over the course of the year Cyprotex posted over 50 articles on the blog, focusing on trends in the industry, updates to legislation or regulatory guidance, or new research in the field. Not only does the blog provide a welcome source of key words for search engine optimisation it also enables marketing through social media channels such as Linkedin, Twitter and Facebook.

This approach is critical in extending our reach outside our current database of contacts and attracting new clients through enhanced brand awareness. By covering interesting and relevant topics on current issues, and by presenting our novel research, it helps to promote Cyprotex as scientific leaders who keep abreast of developments in the field. This new initiative has paid off. In 2015, traffic to the website from social media increased dramatically compared to 2014 (Linkedin up 235%, Twitter up 543%, Facebook up 77%). Our web-based enquiries also increased by 24% in 2015 compared with 2014 with the number of enquiries reaching a record high in November 2015, highlighting the fact that our website continues to be an important source of new business.

As a result of our enhanced sales and marketing efforts, new customer numbers grew in 2015 to 243 from 171 in 2014. We served a total of 488 customers in 2015 compared to 407 in 2014 with our single largest customer representing 9.6% of revenues (2014: 8.1%).

Financial Performance

Overall, Group revenues grew by 34.9% in the year to 31 December 2015 to £15.61 million (2014: £11.57 million) in line with updated market expectations. Our UK sites grew revenues by 41% over that reported for 2014 as a result of strengthened relationships with a number of key strategic ADME customers and growth from our earlier investments in new assays. In the USA, our Watertown site (MA) also experienced good revenue growth, with sales increasing by over 20% when compared to the prior year, as a result of general increase in interest in the assays offered by that site and returned to operational profitability. Our Kalamazoo site (MI), purchased in early 2014, also grew revenues by over 20%. We expect the Kalamazoo site to move towards profitability following investment in new GLP assays in late 2015 and launch in H1 2016. In summary, all four sites performed very well in revenue terms during 2015, growth was strongest during the second half of the year. This resulted in a final revenue split in 2015 H1: H2 of 44.4%: 55.6% (£6.93 million v £8.68 million). With the Company being highly operationally geared, having a predominantly fixed cost base, our reported operational profits for 2015 totalling £1.98 million, were split H1:H2 at 18.4%: 81.6% (£0.36 million v £1.62 million). We saw growth in each successive quarter throughout the year with the strongest performance in the last three months and this led to us making three trading upgrades in the year.

The investments made during 2013 and 2014 in equipment and expertise have been successfully commercialised and we have generated revenues for the first time from our high throughput platform in the US, the suite of new transporter assays, the enhanced QTof based metabolite identification offering, the new 3D spheroid tissue toxicology assays and Bioscience services. 

Principal cash inflows in 2015 were as a result of our return to record operational profitability at £1.98 million, working capital flows were also enhanced in the current year by £0.9 million following the successful completion of the EPA contract novation which had taken over 15 months to conclude, reversing the negative impact in the prior year reported results. So adjusting cash flows for the lengthy EPA delays, underlying inflow from operational activities for FY 2015 was a robust £2.56 million (2014: outflow £0.42 million). Capital expenditure was significantly lower this year at £0.83 million, with £3.1 million having been spent in the previous two years as the Group updated and broadened its analytical capacity.

Reported results

Movements in the share price of the Company can have a considerable effect on reported profit or loss before taxation, due to the value of the Embedded Derivatives associated with both the Company's issued Redeemable Loan Notes and Convertible Loan Notes being linked to the Company's share price. The Company's share price at 31 December 2014 was 46.5 pence, which is below the set floor price of 60 pence, and this share price contrasts sharply with 122.0 pence at 31 December 2015. So this year we record in the income statement an exceptional non-cash finance charge of £8.07 million. This results in part from the direct relationship of Loan Note debt to the movement in the Company's share price and the length of the remaining option to convert.

Awards

Finally, we are pleased to announce that the Company received the prestigious 'Company of the Year Award' in December 2015 at the 14th Bionow Annual Awards ceremony.

Outlook and Summary

2015 was a transformative year for the Cyprotex Group with our strategy of acquisition, R & D investment and organic growth paying off handsomely in revenue generation and operational profitability, as anticipated at the end of last year. Our current investments and marketing approaches are intended to build on this success for 2016 and we are grateful to all our staff who have contributed to the recent successes of the business.

1 April 2016

Consolidated income statement

year to 31 December 2015

Consolidated statement of comprehensive income

year to 31 December 2015

Consolidated statement of financial position

at 31 December 2015

Consolidated statement of changes in equity

year to 31 December 2015

The other reserve first arose on the acquisition of Cyprotex Discovery Limited by the Company in January 2002, which was accounted for as a merger. Additions in the year to 31 December 2013 of £164,496 relate to the equity component of Convertible Loan Notes issued in the year ended 31 December 2013 (see note12).

Consolidated statement of cash flows

year to 31 December 2015

Notes to the final results

year to 31 December 2015

1. Nature of operations and general information

Cyprotex PLC ('Cyprotex') and subsidiaries' (together 'the Group') principal activity is the provision of in vitro and in silico ADMET and PK (Absorption, Distribution, Metabolism, Excretion, Toxicity and Pharmacokinetics) information to a number of different industries including the Pharmaceutical, Biotechnology, Cosmetic, Personal Care, Agrochemical, Chemical Industries and Academia.

Cyprotex's vision is to accurately predict the human clinical outcome following exposure to a chemical or drug using high quality, robust in vitro methods combined with in silico technology. Rather than being a pure data provider, we add value and relevance to the ADME-Tox data supplied to our customers in the Pharmaceutical, Cosmetics, Personal Care, Chemical Industries and Academia.

Cyprotex PLC is the Group's ultimate parent company. It is incorporated and domiciled in England and Wales. The address of Cyprotex PLC's registered office is 100 Barbirolli Square, Manchester M2 3AB. The addresses of its principal places of business are 15 Beech Lane, Macclesfield, Cheshire, United Kingdom, SK10 2DR and 313 Pleasant Street, Watertown, Massachusetts MA 02472 USA and 4717 Campus Drive, Kalamazoo, Michigan MI49008 USA. It trades through its wholly owned subsidiaries: Cyprotex Discovery Limited based in Macclesfield in the UK and Cyprotex US, LLC in Watertown and Kalamazoo in the USA. Cyprotex PLC's shares are listed on the Alternative Investment Market of the London Stock Exchange.

The consolidated financial information set out in this announcement is presented in Pounds Sterling (£), which is also the functional currency of the parent. The consolidated financial information has been approved for issue by the Board of Directors on 1 April 2016.

The information in this preliminary announcement does not constitute statutory accounts within the meaning of sections 434 to 436 of the Companies Act 2006 and no statutory accounts have yet been filed with the Registrar of Companies for the year ended 31 December 2015. Statutory accounts for the year ended 31 December 2014 have been filed with the Registrar of Companies. The auditors report on these accounts was unqualified and did not contain an emphasis of matter, nor did it contain a statement under section 498 of the Companies Act 2006. The statutory accounts for the year ended 31 December 2015 will be delivered to the registrar of Companies following the Company's Annual General Meeting.

The Group's statutory financial statements for the year ended 31 December 2014 and 31 December 2013, prepared under International Financial Reporting Standards (IFRS) have been filed with the Registrar of Companies.

Whilst the financial information included in this final results announcement has been computed in accordance with IFRS, this announcement in itself does not contain sufficient information to comply with IFRS.

2. Basis of preparation

The consolidated final results are for the year ended 31 December 2015. They have been prepared in accordance with the requirements of International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), including International Accounting Standards (IAS) and interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC) and applied in accordance with the Companies Act 2006. Practice is continuing to evolve on the application and interpretation of IFRS. Further standards may be issued by the International Accounting Standards Board (IASB) and standards currently in issue and endorsed by the EU may be subject to interpretations issued by IFRIC.

The consolidated final results have been prepared in accordance with the accounting policies set out in the Group's statutory financial statements for the year ended 31 December 2015.The accounting policies have been applied consistently throughout the Group for the purposes of preparation of this consolidated financial information.

3. Going concern

The Group recorded a loss after taxation of £6,508,115 in the year ended 31 December 2015; however this included an exceptional non-cash finance charge of £8,066,000 based upon a revaluation of the embedded derivative associated with the Loan Notes issued by the Company in September 2013. The market value of the Company's Loan Notes is based upon the share price performance of the Company and only crystallises at the maturity date of 30 September 2018 or earlier on a change of control or scheme of arrangement. Trident Private Equity Fund III LP ('Trident'), which currently holds 3,318,718 Redeemable Loan Notes including associated PIK Notes and 2,434,238 Convertible Loan Notes including associated PIK Notes, (74.64% of all Loan Notes issued by the Company) has written to the Company on 21 March 2016 to confirm that in the ordinary course, it will not seek repayment, redemption or conversion of those aforementioned Loan Notes, nor seek transfer of its interest in those Loan Notes, whilst the net assets of the Cyprotex Group remain less than 50% of its issued share capital. Trident is managed by Harwood Capital LLP ('Harwood'). Harwood also manages Oryx International Growth Fund Limited ('Oryx') and other private client funds which together with Trident collectively own 29.8% of the issued ordinary share capital of the Company. Christopher Mills, a non-executive director of the Company, is the Chief Investment Officer of Harwood Capital LLP and is the 100% owner of Harwood Capital Management Limited, a designated member of Harwood Capital LLP. If all Convertible Loan Note holders were able to convert on 31 December 2015, then in theory Trident, Oryx and other private client funds managed by Harwood combined would have owned 36.12% of the issued share capital of the Company. If all Convertible Loan Note holders convert to equity on 30 September 2018, Trident, Oryx and other private client funds managed by Harwood combined at that date would own 36.84% of the issued share capital of the Company. If some or all of the Loan Note holders require redemption at 30 September 2018, and the holders of the Convertible Loan Notes do not opt to convert into equity, the Company would seek to refinance either by seeking an extension to the redemption date, issuing a replacement instrument, raising capital by way of a share issue, and /or repayment from funds generated from operations. Cash generated from operations in the year ended 31 December 2015 was strong at £3.55 million; boosted £0.9 million by settlement in the year of a US Government contract where we had experienced lengthy delays in contract novation which is now in place. Cash and Deposits at 31 December 2015 are £5.4 million, an increase of £2.5 million. The Directors have reviewed the budget, financial forecasts including cash flow forecasts and other relevant information. The general economic environment in its main European and US markets could adversely affect demand for the Group's services and there is the possibility that the Group's actual trading performance during the coming year may be different from management's expectation. Having considered all relevant factors, including suitable sensitivities, the Directors believe that the Group has adequate resources to continue in operation for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual financial statements.

4. Revenue and Segmental information

Revenue represents the amounts derived from the provision of goods and services which fall within the Group's ordinary activities and is stated net of value added tax and trade discounts.

The Group has a single operating and reportable segment, that of providing in vitro and in silico ADMET and PK (Absorption, Distribution, Metabolism, Excretion, Toxicity and Pharmacokinetics) information to a number of different industries including the Pharmaceutical, Biotechnology, Cosmetic, Personal Care, Agrochemical, Chemical Industries and Academia. The revenue and operating profit or loss for the year are derived from the Group's single operating and reportable segment. This segment has been determined by reference to the information that the Chief Operating Decision maker receives about the Group.

The Group gives a geographic analysis of revenue by destination. Key markets for the Group are identified as North America, Mainland Europe and the United Kingdom.

5. Finance income and finance cost

Finance income comprises the following:

Finance cost comprises the following:

6. Loss per share

The calculation of the basic loss per share is based on the loss attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the period.

The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of ordinary shares and the post tax effect of dividends and/or interest, on the assumed conversion of all dilutive options and other dilutive potential ordinary shares to the extent that the result is not anti-dilutive.

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

(a) On 24 July 2014, following approval by shareholders at a General Meeting the Company proceeded to effect a ten for one share consolidation. The effect of this share consolidation was to reduce the number of shares in issue by 90% from 224,340,569 to 22,434,056. Accordingly historic reported (loss)/earnings per share are rebased by multiplying by a factor of ten. Under the Share Consolidation every ten existing ordinary shares with nominal value £0.001 were consolidated into one new ordinary share with nominal value £0.01. The rights attaching to the New Ordinary Shares are identical in all respects to those of the Existing Ordinary Shares. Application was made for 22,434,056 New Ordinary Shares of £0.01 each to be admitted to trading on AIM with dealing commencing on 28 July 2014, with any fractional entitlements aggregated and sold in the market and the proceeds given to charity. Following the ten for one share consolidation the conversion or notional conversion price for Loan Notes issued by the Company, and the target and exercise price of any share option awards are all adjusted upwards by a factor of ten.

The calculation of the underlying basic earnings/(loss) per share is based on the profit/(loss) attributable to ordinary shareholders less the increase in value of the Embedded Derivative ('ED') associated with the Convertible and Redeemable Loan Notes issued by the Company divided by the weighted average number of ordinary shares in issue during the period.

Reconciliation of the underlying basic earnings/(loss) and weighted average number of shares used in the calculation is set out below.

7. Share issues

The Company has only one class of shares.

During the year to 31 December 2015, 25,641 ordinary shares were issued on conversion of Convertible Loan Notes on 30 September 2015.

During the year to 31 December 2014, 8,643 ordinary shares were issued on conversion of Convertible Loan Notes on 30 September 2014.

During the year to 31 December 2013, 653,084 ordinary shares were issued on exercise of employee share options.

Shares issued may be summarised as follows:

8. Taxation

At 31 December 2015, the Group has tax losses and deductibles totalling approximately £7.7 million that are available for offset against future profits arising from the same trade.

9. Additions and disposals of property, plant and equipment

The following tables show the significant additions and disposals of property, plant and equipment.

10. Finance lease and hire purchase arrangements

The Group entered into no new finance lease or hire purchase agreements in the year ended 31 December 2015, (2014: none; 2013: two). The cost of this equipment and amount of funding received are as follows:

These additions to property, plant and equipment can be reconciled to the amounts disclosed in the statement of cash flows and the statement of financial position as follows:

11. Intangible assets

The following tables show the significant movements in intangible fixed assets.

Additions to Goodwill in the year ended 31 December 2014 relate to the acquisition of trade and certain assets of Ceetox, Inc. (note 13).

Additions to Technology & Know-How (internally generated) in the year ended 31 December 2014 relate to development work carried out on Transporter services.

Goodwill is subject to a yearly impairment test. Goodwill and other intangible assets relate to the acquisition of Cyprotex US, LLC (formerly known as Apredica, LLC) in August 2010 supplemented by the acquisition of certain trade and assets on Ceetox, Inc on 1 January 2014, by Cyprotex US, LLC. Cyprotex US, LLC is defined as the cash-generating unit for impairment testing purposes.

Where Goodwill has been separately identified to a particular set of assets and liabilities, as in the case with Cyprotex US, LLC, a value-in-use calculation has been determined using detailed cash flow projections based upon those forecast to be generated by the Cyprotex US, LLC unit over the next five years. Beyond five years, a terminal growth rate is used with reference to previous growth achieved in the ADME-Tox market by the Group taking into consideration the forecast growth in the market or markets in which Cyprotex US, LLC currently operates. The results of last year's value-in-use calculation performed by the Board indicate a shortfall equivalent to the carrying value of goodwill and a provision for impairment of £3,040,047 was recognised.

All amortisation and impairment costs are included in administration costs.

,

During the year ended 31 December 2013 the Board decided to rebrand its US operations. The Apredica trade name which was acquired in August 2010 was superseded and the US now trades as Cyprotex, US. Accordingly the carrying amount associated with the Apredica trade name was subject to full impairment in the year to 31 December 2013 and the remaining balance of £135,801 was written off.

12. Other borrowings

In the year ended 31 December 2013, the Group entered into a Subscription Agreement on 21 August 2013 with Trident Private Equity Fund III LP, the ultimate outcome of which was the issue of £3 million of unsecured Redeemable Loan Notes ("Redeemables") and £4 million of unsecured Convertible Loan Notes ("Convertibles") in September 2013. By way of an Open Offer the Company issued £4 million nominal value of Convertible Loan Notes at par. Additionally it also, by way of subscription, issued £3 million nominal value of Redeemable Loan Notes at par. Details of this fundraising were sent to all shareholders by way of a circular. Both instruments pay interest in the form of 'payment in kind' ('PIK') Notes at the rate of 5% per annum on a compound basis, payable on each anniversary of issue for a period of five years. Under the Open Offer, Convertible Loan Notes were offered and issued such that each shareholder would be entitled to 0.01783003 of nominal value £1.00 Convertible Loan Notes. Convertible Loan Notes are convertible at 6 pence per ordinary share, now 60 pence following a ten for one share consolidation in July 2014. Redeemable Loan Notes were issued subject to a notional conversion price of 6 pence per ordinary share, now 60 pence following a ten for one share consolidation in July 2014. Issue costs associated with this fundraising amounted to £122,000. Net proceeds from the issue of Loan Notes amounted to £6,878,000.

The Convertible Loan Notes and associated PIK Notes can be converted at the election of the holders of Convertible Loan Notes into ordinary shares of the Company on 30 September 2014 and/or on each anniversary of that date.

Subject to conversion rights being exercised by the Noteholder, Loan Notes (both Redeemable and those Convertible Loan Notes not converted) are repayable by the Company on the earlier of:

· the Offer Date where there is a change in control of the Company or a scheme of arrangement put in place.

· the Maturity Date (30 September 2018). The Maturity Date in respect of the Convertible Loan Notes and Redeemable Loan Notes may also be extended by up to two years at the option of a 50% majority of the holders of Convertible Loan Notes and Redeemable Loan Notes respectively.

The amount to be paid by the Company in respect of the redemption of the Loan Notes will be the greater of:

i) the nominal amount of the Loan Notes and the PIK Notes: and

ii) where a change in control of the Company or a scheme of arrangement is put in place, the amount calculated by applying the Offer Price per ordinary share applicable to the Offer to the number of Ordinary Shares represented by the Notes on the assumption that the nominal value of the Loan Notes then in issue (including any PIK Notes issued or to be issued on or immediately prior to the Offer Date) had been converted in to Ordinary Shares at the Conversion Price (60 pence) or Notional Conversion Price (60 pence), as the case may be, on the Offer Date: and

iii) where the Loan Notes are redeemed on the Maturity Date the amount calculated by applying the average mid-market closing price of the Ordinary Shares in the 30 Business days prior to the Maturity Date to the number of Ordinary shares represented by the Loan Notes on the assumption that the nominal value of the Loan Notes then in issue (including any PIK notes issued or to be issued on or immediately prior to the Maturity Date) had been converted into Ordinary shares at the Conversion Price (60 pence) or the Notional Conversion price (60 pence) on the Maturity date (30 September 2018).

The Convertible Loan Notes and Redeemable Loan Notes are subject to a multiplier based upon the increase in share price from the Conversion or Nominal Conversion price of 60 pence. In both cases any increase in the average mid-market closing price of Cyprotex shares from a nominal base of 60 pence in the 30 prior market dealing days leads to a broadly proportionate increase in the amount of potential Loan Note related debt repayable on maturity. This increase in debt, relating to share price movements of the Company, is accounted for under International Financial Reporting Standards ("IFRS") as an additional finance cost in the income statement.

The Convertible Loan Notes have three separate economic components as follows:

· a liability component being a discounted fixed rate debt;

· an equity component due to the holders right to convert into Ordinary shares; and

· an embedded derivative due to conversion rights being linked to the Company's share price.

Each of these components was measured at fair value at the issue date.

In 2013, this resulted in recognition of £164,496 (net of associated issue costs) as an equity component and the initial recognition of the liability component.

The Redeemable Loan Notes have two separate economic components as follows:

· a liability component being a discounted fixed rate debt; and

· an embedded derivative due to conversion rights being linked to the Company's share price via a notional issue price

Each of these components was measured at fair value at the issue date and a gain of £122,734 was deferred in respect of differences in market and coupon rates at date of issue.

Subsequently, the liability components of both the Convertible and Redeemable Loan Notes are recorded at amortised cost using the effective interest method, with interest-related charges recognised as an expense in finance cost in the income statement.

The embedded derivatives associated with the Convertible and Redeemable Loan Notes are subsequently measured at fair value at each balance sheet date, and the gain or loss on re-measurement to fair value is recognised as a finance cost/income in the income statement.

For the year ended 31 December 2015, re-measurement of the embedded derivatives resulted in an additional charge for both the Redeemable and Convertible Loan Notes totalling £8,066,000 (2014: (£242,319) income; 2013: £1,592,319 charge).

The carrying values attributed to the Loan Notes and associated PIK Notes at 31 December 2015 are as follows:

A summary of the components of the finance costs/(income) associated with the Redeemable and Convertible Loan Notes is as follows:

The number of Redeemable Loan Notes in issue at 31 December is as follows:

The number of Convertible Loan Notes in issue at 31 December is as follows:

In the case of the embedded derivatives, in calculating their values, principal assumptions used were a share price volatility of 32.5% (2014: 38%; 2013: 38%), a credit spread of 15% (2014: 20%; 2013: 20%) and a risk-free rate of 0.88% (2014: 1.1%; 2013: 2.0%).

Set out below are the indicative (maximum) debt redemption values for Redeemable and Convertible Loan Notes, at illustrative share price levels, based upon current Loan Notes in issue and PIK Notes to be issued up to 30 September 2018 (the earliest redemption date).

At 31 December 2015 the accounts include the Loan Notes at a total carrying value of £17,090,418. Actual redemption values at the redemption date will differ from carrying values reported in the accounts at an earlier date as the ultimate share price at redemption is not known and can only be estimated using statistical models based on historic share price and share price volatility. Redemption dates for both classes of Loan Notes can be extended by up to a further two years (30 September 2020) by a simple majority vote of the relevant Loan Notes holder. At 21 March 2016, Trident Private Equity III LP hold 100% of the Redeemable Loan Notes in issue and 55.46% of the Convertible Loan Notes in issue. A Convertible Loan Note holder may choose to convert into equity of the Company at an issue price of 60 pence per share at redemption rather than seek repayment, accordingly any Conversion into equity by a Loan Note holder would result in no cash outflow.

13. Purchase of the trade and certain assets of CeeTox, Inc

On 1 January 2014 the group's US subsidiary, Cyprotex US, LLC, under an asset purchase agreement ('APA'), purchased certain assets and trade of Ceetox, Inc. (CeeTox) from North American Science Associates, Inc ('NAMSA'). CeeTox is based in Kalamazoo, Michigan, USA. The purchase price was £0.84 million. Under the APA the group acquired fixed assets and working capital balances and the balance of the purchase price and any additional consideration in excess of the fair value of assets acquired is allocated to goodwill. There is potentially further consideration payable to NAMSA at a rate of 5% of net sales until 31 December 2016 if sales of certain identified assays exceed the level achieved in the year to 30 September 2013 in subsequent 12 month periods post acquisition to a maximum of £3.1 million. In the year to 30 September 2013, CeeTox recorded total revenues of £2 million and reported an operating loss of £1 million.

In the year ended 31 December 2014, our Kalamazoo operations reported sales of £1.1 million and an operating loss of £0.6 million. This acquisition enabled the Group to widen its customer base into the Cosmetic, Personal Care and Household Chemicals market where we believe ADME-Tox screening requirements are growing and where we were under represented in the market. The base in Kalamazoo, MI, USA added to our geographical base in the US, the largest market for our services. Additionally the Kalamazoo facility can operate many of its assays to GLP (Good Laboratory Practice) an important consideration for screening data required for regulatory approval.

External acquisition related costs of £32,900 have been expensed in the prior year.

Movement on the contingent consideration provision in respect of the above CeeTox purchase is as follows: