ARC International plc Announces Unaudited Preliminary Results for the Six Months Ended 30 June 2006; ARC Gaining Market Share over Competition Driven by Increases in Revenue, Royalties, Bookings, and License Agreements


Cost of sales of GBP 0.9 million increased 26% year over year (1H 2005: GBP 0.7 million). Gross margin decreased slightly to 85% (1H 2005: 87%). Net operating expenses including cost of sales increased by 5% to GBP 9.1 million (1H 2005: GBP 8.7 million).

The company had 123 employees at 30 June 2006 compared with 129 at 30 June 2005. Research and development costs were flat year-over-year at GBP 3.2 million (1H 2005: GBP 3.2 million). Sales and marketing costs increased 30% to GBP 2.7 million (1H 2005: GBP 2.1 million). General and administration costs were flat year-over-year at GBP 1.6 million (1H 2005: GBP 1.6 million).

Interest

Interest income was down 8% year over year at GBP 0.7 million (1H 2005: GBP 0.8 million) due to a lower cash balance, and a decrease in the average interest rate on investments.

Net loss

Net loss was GBP 1.7 million (1H 2005: GBP 1.4 million). Loss per share increased to 1.17p (1H 2005: 0.97p).

Cash flow and balance sheet

The net cash outflow from operations was GBP 1.0 million (1H 2005: GBP 2.6 million). Capital expenditure was GBP 0.4 million (1H 2005: GBP 0.4 million). The movement in cash and short-term investments during the six months was an inflow of GBP 0.2 million (1H 2005: outflow of GBP 0.5 million). Total assets at 30 June 2006 were GBP 36.3 million (1H 2005: GBP 39.2 million), including cash and short-term investments of GBP 32.2 million (1H 2005: GBP 33.0 million).

Dividend

No interim dividend payment will be made for the six months ended 30 June 2006 (1H 2005: GBP Nil).
Consolidated Income statement
For the six months ended 30 June 2006

                                  6 months      6 months     12 months
                                     ended         ended         ended
                                   30 June       30 June   31 December
                                      2006          2005          2005
                               (unaudited)   (unaudited)     (audited)
                      Notes       GBP '000      GBP '000      GBP '000
----------------------------------------------------------------------

Revenue                             5,973         5,418        10,494
Net operating
 expenses                 2        (9,141)       (8,723)      (17,442)
----------------------------------------------------------------------
Operating loss                     (3,168)       (3,305)       (6,948)
Interest receivable                   717           780         1,530
----------------------------------------------------------------------
Loss before tax                    (2,451)       (2,525)       (5,418)
Tax credit                            763         1,152         1,077
----------------------------------------------------------------------
Loss for the period                (1,688)       (1,373)       (4,341)
----------------------------------------------------------------------

 Basic and diluted
  loss per share -
  pence                             (1.17)        (0.97)        (3.05)


Consolidated Statement of recognised income and expense
For the six months ended 30 June 2006

                                  6 months      6 months     12 months
                                     ended         ended         ended
                                   30 June       30 June   31 December
                                      2006          2005          2005
                               (unaudited)   (unaudited)     (audited)
                      Notes       GBP '000      GBP '000      GBP '000
----------------------------------------------------------------------
Loss for the period                (1,688)       (1,373)       (4,341)
Currency translation
 difference               4           (56)           29            36
Change in value of
 ESOP reserve             4            27            94           117
----------------------------------------------------------------------
Total recognised
 expense for the
 period                            (1,717)       (1,250)       (4,188)
----------------------------------------------------------------------


Consolidated Balance sheets
As at 30 June 2006

                                   30 June       30 June   31 December
                                                                  2006                    2005                    2005
                                                              (unaudited)      (unaudited)          (audited)
                                            Notes              GBP  '000            GBP  '000            GBP  '000
----------------------------------------------------------------------
Non-current  assets
Intangible  assets                                          992                  1,397                  1,284
Property,  plant  and
  equipment                                                        394                      345                      329
----------------------------------------------------------------------
                                                                        1,386                  1,742                  1,613
Current  assets

Inventory                                                          110                          -                          -
Trade  and  other
  receivables                                                2,573                  4,393                  3,679
Short  term
  investments                                              19,539                13,798                10,534
Cash  and  cash
  equivalents                                              12,665                19,245                21,476
----------------------------------------------------------------------
                                                                      34,887                37,436                35,689

Total  assets                                              36,273                39,178                37,302

Current  liabilities

Obligations  under
  finance  leases                                                  -                          3                          -
Trade  and  other
  payables                                                      4,438                  3,086                  4,009
Other  liabilities                                          151                      218                      218
Provisions                                5                        77                      154                        77
----------------------------------------------------------------------
                                                                        4,666                  3,461                  4,304

Net  current  assets                                  30,221                33,975                31,385

Non-current
  liabilities

Other  payables                                                  35                          -                          -
Provisions                                5                      170                      248                      209
----------------------------------------------------------------------
                                                                            205                      248                      209

Net  assets                                                  31,402                35,469                32,789

Shareholders'  equity

Ordinary  shares                                              150                      148                      149
Share  premium                                              3,081                  2,810                  2,923
Exchangeable  shares                                          -                        40                          -
Capital  redemption
  reserve                                                            162                      162                      162
Merger  reserve                                                107                      107                      107
Other  reserves                                          60,369                60,014                60,205
Cumulative
  translation
  adjustment                                                    (239)                  (190)                  (190)
Retained  earnings                                  (32,228)            (27,622)            (30,567)
----------------------------------------------------------------------
Total  Equity                            4                31,402                35,469                32,789
----------------------------------------------------------------------


Consolidated  Cash  flow  statements
For  the  six  months  ended  30  June  2006

                                                                    6  months            6  months          12  months
                                                                          ended                  ended                  ended
                                                                      30  June              30  June      31  December
                                                                            2006                    2005                    2005
                                                              (unaudited)      (unaudited)          (audited)
                                            Notes              GBP  '000            GBP  '000            GBP  '000
----------------------------------------------------------------------
Cash  flows  from
  operating
  activities

Cash  used  in
  operations                              3                (1,024)              (2,616)              (4,330)
Interest  received                                          851                      699                  1,535
Taxes  paid                                                        (59)                    (13)                    (83)
Tax  refund                                                        755                  1,059                  1,059
----------------------------------------------------------------------
Net  cash  generated
  (used)  in  operating
  activities                                                      523                    (871)              (1,819)

Cash  flows  from
  investing
  activities

Purchase  of
  property,  plant  and
  equipment                                                      (162)                  (103)                  (220)
Purchase  of
  intangible  assets                                      (264)                  (224)                  (466)
Capitalisation  of
  R&D  assets                                                      (21)                    (62)                    (96)
Movements  on  short
  term  investments                                    (9,005)              (5,098)              (1,834)
Proceeds  from  sale
  of  business                                                        -                      108                      327
----------------------------------------------------------------------
Net  cash  (used)  in
  investing
  activities                                                (9,452)              (5,379)              (2,289)

Cash  flows  from
  financing
  activities

Net  proceeds  from
  issue  of  ordinary
  shares  and  ESOP
  reserve                                                            186                      630                      727
Finance  lease
  principal  payments                                          -                        (1)                      (4)
----------------------------------------------------------------------
Net  cash  generated
  in  financing
  activities                                                      186                      629                      723

Effects  of  exchange
  rate  changes                                                  (68)                      34                        29
----------------------------------------------------------------------
Net  (decrease)  in
  cash  and  cash
  equivalents                                              (8,811)              (5,587)              (3,356)
Cash  and  cash
  equivalents  at  1
  January                                                      21,476                24,832                24,832
----------------------------------------------------------------------
Cash  and  cash
  equivalents  at  end
  of  period                                                  12,665                19,245                21,476
----------------------------------------------------------------------


NOTES  TO  THE  ACCOUNTS

1.  Basis  of  preparation

These  consolidated  interim  financial  statements  have  been  prepared  in  
accordance  with  the  accounting  policies  set  out  in  the  Annual  Report  
of  ARC  International  plc  for  the  year  ended  31  December  2005.  The  
prior  year  comparatives  are  derived  from  audited  financial  information
for  ARC  International  plc  as  set  out  in  the  Annual  Report  for  the  year
ended  31  December  2005  and  the  unaudited  financial  information  in  the  
interim  financial  statements  for  the  six  months  ended  30  June  2005.  
These  consolidated  interim  financial  statements  have  been  prepared  
under  the  historical  cost  convention,  except  in  respect  to  certain  
financial  instruments.  In  addition,  these  consolidated  interim  
financial  statements  do  not  comply  with  all  the  disclosures  in  IAS  34  
on  interim  financial  reporting  and  are  therefore  not  in  full  
compliance  with  International  Financial  Reporting  Standards.

The  consolidated  accounts  incorporate  the  accounts  of  the  company  and  
of  each  of  its  subsidiaries  for  the  period  to  30  June  2006.

The  consolidated  interim  financial  statements  for  the  six  months  ended
30  June  2006  are  unaudited  but  have  been  reviewed  by  the  auditors.  The
consolidated  interim  financial  statements  for  the  six  months  ended  30  
June  2006  were  approved  by  the  directors  on  1  August  2006.

The  financial  information  contained  in  this  interim  statement  does  not
constitute  accounts  as  defined  by  Section  240  of  the  Companies  Act  
1985.  The  statutory  accounts  for  2005  have  been  delivered  to  the
Registrar  of  Companies.  The  auditors'  opinion  on  those  accounts  was
unqualified  and  did  not  contain  a  statement  under  237  of  the  Companies
Act  1985.

2.  Summary  of  net  operating  expenses

                                                6  months  ended  6  months  ended    12  months  ended
                                                    30  June  2006      30  June  2005  31  December  2005
                                                      (unaudited)        (unaudited)                (audited)
                                                            GBP  '000              GBP  '000                  GBP  '000
----------------------------------------------------------------------
Cost  of  sales                                        (870)                    (690)                    (1,638)
Research  and
  development                                      (3,240)                (3,246)                    (6,432)
Sales  and  marketing                        (2,684)                (2,067)                    (4,523)
General  and
  administrative                                (1,599)                (1,608)                    (3,033)
Other  expenses                                      (748)                (1,112)                    (1,816)
----------------------------------------------------------------------
Net  operating
  expenses                                            (9,141)                (8,723)                  (17,442)
----------------------------------------------------------------------


3.  Reconciliation  of  net  loss  for  the  period  to  net  cash  outflow  from
      operating  activities

                                                            6  months              6  months                12  months
                                                                  ended                    ended                        ended
                                                              30  June                30  June            31  December
                                                                    2006                      2005                          2005
                                                      (unaudited)        (unaudited)                (audited)
                                                            GBP  '000              GBP  '000                  GBP  '000
----------------------------------------------------------------------

Net  loss                                              (1,688)                (1,373)                    (4,341)
Adjustments  for:
Gain  on  business
  disposal                                                      -                        (83)                        (327)
Interest  receivable                            (717)                    (780)                    (1,530)
Tax  credit                                              (763)                (1,152)                    (1,077)
Amortisation                                            471                        578                        1,199
Depreciation                                            107                        175                            318
Goodwill  impairment                                  -                        195                            195
Share  based  award
  expense                                                    171                        247                            431
(Increase)  in
  inventories                                          (110)                          -                                -
(Increase)  decrease
  in  trade  and  other
  receivables                                            974                      (821)                          (56)
Increase  in  trade
  and  other  payables                              570                        520                        1,096
(Decrease)  in
  provisions                                              (39)                    (122)                        (238)
----------------------------------------------------------------------
Cash  used  in
  operations                                        (1,024)                (2,616)                    (4,330)
----------------------------------------------------------------------


4.  Statement  of  changes  in  shareholders'  equity

                                                                                                                              
                                                                                  Exchange-                          Capital
                                                  Share          Share            able      Merger  redemption
                                              capital      premium        shares    reserve        reserve
                                            GBP  '000    GBP  '000    GBP  '000    BP  '000      GBP  '000
----------------------------------------------------------------------
At  1  January  2005                  145          1,674              643              107              162
----------------------------------------------------------------------

Shares  issued                              2              534
Exchangeable  shares
  exercised                                    1              602            (603)
Change  in  value  of  ESOP
  reserve
Share  based  award
  reserve
Exchange  gain
(Loss)  for  the
  period
----------------------------------------------------------------------
At  30  June  2005                      148          2,810                40              107              162
----------------------------------------------------------------------

Shares  issued                              1                73
Exchangeable  shares
  exercised                                                      40              (40)
Change  in  value  of  ESOP
  reserve
Share  based  award
  reserve
Exchange  gain
(Loss)  for  the
  period

----------------------------------------------------------------------
At  31  December  2005              149          2,923                  0              107              162
----------------------------------------------------------------------
Shares  issued                              1              158
Change  in  value  of  ESOP
  reserve
Share  based  award
  reserve
Exchange  (loss)
(Loss)  for  the
  period

----------------------------------------------------------------------
At  30  June  2006                      150          3,081                  0              107              162
----------------------------------------------------------------------


                                                                        Cumulative        Retained
                                                          Other  translation          Profit/
                                                    reserves    adjustment            (loss)              Total
                                                    GBP  '000        GBP  '000        GBP  '000        GBP  '000
----------------------------------------------------------------------
At  1  January  2005                    59,767                (219)        (26,343)          35,936
----------------------------------------------------------------------

Shares  issued                                                                                                          536
Exchangeable  shares
  exercised                                                                                                                    0
Change  in  value  of  ESOP  reserve                                                94                    94
Share  based  award
  reserve                                            247                                                                  247
Exchange  gain                                                            29                                            29
(Loss)  for  the  period                                                            (1,373)          (1,373)
----------------------------------------------------------------------
At  30  June  2005                        60,014                (190)        (27,622)          35,469
----------------------------------------------------------------------

Shares  issued                                                                                                            74
Exchangeable  shares
  exercised                                                                                                                    0
Change  in  value  of  ESOP  reserve                                                23                    23
Share  based  award
  reserve                                            184                                                                  184
Exchange  gain                                                              7                                              7
(Loss)  for  the  period                                                            (2,968)          (2,968)

----------------------------------------------------------------------
At  31  December  2005                60,198                (183)        (30,567)          32,789
----------------------------------------------------------------------
Shares  issued                                                                                                          159
Change  in  value  of  ESOP  reserve                                                27                    27
Share  based  award
  reserve                                            171                                                                  171
Exchange  (loss)                                                      (56)                                        (56)
(Loss)  for  the  period                                                            (1,688)          (1,688)

----------------------------------------------------------------------
At  30  June  2006                        60,369                (239)        (32,228)          31,402
----------------------------------------------------------------------


5.  Provisions
                                                                                                                                  Total
                                                                    Short  term        Long  term        provision
                                                                      GBP  '000s        GBP  '000s        GBP  '000s
----------------------------------------------------------------------
  At  1  January  2005                                            237                    287                    524
  Utilised                                                            (122)                      -                  (122)
  Reclassified  from  long  term  to
    short  term                                                          39                    (39)                      -
----------------------------------------------------------------------
  At  30  June  2005                                                154                    248                    402
----------------------------------------------------------------------
  Utilised                                                            (116)                      -                  (116)
  Reclassified  from  long  term  to
    short  term                                                          39                    (39)                      -
----------------------------------------------------------------------
  At  31  December  2005                                          77                    209                    286
----------------------------------------------------------------------
  Utilised                                                              (39)                      -                    (39)
  Reclassified  from  long  term  to
    short  term                                                          39                    (39)                      -
----------------------------------------------------------------------
  At  30  June  2006                                                  77                    170                    247
----------------------------------------------------------------------

The  provision  for  restructuring  costs  represents  onerous  lease
commitment  for  the  Elstree,  UK  facility.    Management  anticipates  
utilisation  of  these  provisions  in  2007.
 


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