Latest Results
Interim results for the six months ended 30 June 2007
28 September 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.
- 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 €14.6 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.
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 €14.6 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 €5 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
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$3.0 million and 1H2005: nil).
As at 21 September 2007, XL TechGroup's accumulated cash investments in its portfolio of companies and the related market values consisted of:
| Cash Investment (1) (2) (US$m) |
Market Value (2) (US$m) |
|
| AgCert International plc (listed) | 8.0 | 18.5 |
| TyraTech Inc. (listed) | 7.0 | 95.1 |
| DxTech LLC | 18.4 | n/a |
| PetroAlgae LLC | 6.9 | n/a |
| QuoNova LLC | 3.5 | n/a |
| GenXL LLC | 1.0 | n/a |
(1) Represents cash equity contributions and debt (net of any repayments)
(2) As at 21 September 2007
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$400 million within four years of being started. We may decide to realise a proportion of this value sooner in the process, as we have with TyraTech, but we will always seek to retain a controlling stake in all our companies subsequent to AgCert until such time as we feel it is appropriate to exit. At such a time, we will retain some of the proceeds to continue funding our growing portfolio of companies and will distribute the remainder to our shareholders.
We look forward with enthusiasm and optimism. AgCert is already demonstrating that it has not only dealt with its operational challenges but has also begun to execute on its improved strategy. TyraTech is moving towards the commercial launch of its first insecticide products and is also working hard towards achieving additional key partner milestones. DxTech is progressing very well on the technical side and is moving closer to its first non-US joint venture deal. PetroAlgae is continuing its optimisation work and is attracting significant real interest from potential partners around the world. QuoNova has been fully engaged in R&D work but has already starting meaningful discussions with a number of serious potential partners.
| DR JOHN SCOTT Chief Executive Officer |
DAVID SZOSTAK Chief Financial Officer |
| 27 September 2007 |
XL TechGroup, Inc and Subsidiaries
Consolidated balance sheets
(unaudited)
| June 30 | ||||||
| US$ | 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 2007) | 13,323,849 | - | ||||
| 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 $0.001, Authorised 100,000,000 shares, issued and outstanding 49,629,415 shares in 2007 and 49,351,025,in 2006 | 49,629 | 49,351 | ||||
| Additional paid-in capital | 134,504,423 | 86,319,924 | ||||
| Accumulated deficit | (138,378,807) | (79,814,180) | ||||
| Currency reserve | 23,327 | - | ||||
| Accumulated other comprehensive income | 18,579,954 | 23,873,651 | ||||
| Stockholders' equity | 14,778,526 | 30,428,746 | ||||
| Total liabilities and stockholders' equity | 81,614,760 | 78,217,781 | ||||
XL TechGroup, Inc and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| 6 months ended June 30 | ||||||
| US$ | 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 or affiliate stock | 4,526,362 | - | ||||
| 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 liabilities | 2,733,279 | 106,559 | |||
| 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 financial statement are available in the pdf download
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