Half year report for six months ended 30 June 2007

Categorised Under:
 

The Board of Medical Solutions plc (LSE: MLS), the provider of expert, quality services and products to the healthcare, pharma biotech and life sciences research sectors announces its interim results for the six months ended 30 June 2007.

 

The Board of Medical Solutions plc (LSE: MLS), the provider of expert, quality
services and products to the healthcare, pharma biotech and life sciences
research sectors announces its interim results for the six months ended 30 June
2007.

Financial highlights - continuing operations

  * 16% improvement in normal administrative expenses, reduced to £1,735,000
(2006: £2,065,000)

  * 31% improvement in operating loss (before exceptional credit) to £880,000
(2006: £1,270,000 loss)

  * Exceptional credit of £206,000 achieved

  * 77% improvement in loss before tax to £304,000 (2006: £1,310,000 loss)

  * Net cash of £14.1 million (30 June 2006: £2.7 million)

Key events

  * Post period end acquisition of Geneservice Limited ('Geneservice'),
enhancing the Group's service offering by including genomic technologies,
creating a 'one-stop shop' for diagnostic and drug development support
services. Geneservice traded profitably prior to acquisition, producing a
profit before tax of £216,000 for the eleven months to February 2007

  * Appointment as exclusive UK distributor for Oncotype DX(tm), a cutting edge
breast cancer diagnostic assay, by Genomic Health, Inc.

  * Geneservice chosen by Applied Biosystems, Inc. to be the UK service
provider of its SNPlex(tm) Genotyping System

  * Acquisition of a 40% equity stake in Number One Health Group Limited
('Number One Health'), providing access to the private healthcare market

  * Laboratory licensed by the Human Tissue Authority maintained GLP compliance
and CPA accreditation

Laurie Turnbull, Chairman of Medical Solutions said:

'The first half of 2007 has been a period of evolution for Medical Solutions,
with necessary change creating a stable platform from which to move the
business forward. There have been changes to, and strengthening of, the Board
and senior management teams and the development, communication and
implementation of a clear growth strategy for the Group. In parallel with this,
we have continued to focus on the effective management of costs within the
business.

'We have made steady progress towards our stated aims of enhancing our
portfolio of healthcare services through our investment in Number One Health
and our partnership with Genomic Health, Inc. as the exclusive UK distributor
for the Oncotype DX(tm) breast cancer diagnostic assay.

'The acquisition of Geneservice was a very important step for us. It was clear
to the Board that in order to enhance our service offering, we needed to extend
our portfolio to include DNA and RNA based analyses. The acquisition
revolutionises our capability in diagnostic and clinical research services and
modernises the whole business, bringing in cutting edge technologies and
creating a 'one-stop shop' for diagnostic services.

'The strategic relationships announced with Genomic Health, Inc., and more
recently with Applied Biosystems, Inc., demonstrate that Medical Solutions has
the profile, credibility and expertise to be a partner of choice for leading
life science companies.

'There remains much to do during the second half of 2007, including the
effective integration of Geneservice to fully realise the potential of this
acquisition. With the addition of the genomic technologies that the acquisition
of Geneservice brings to the Group, we are well placed to continue to develop
our business and look forward to further opportunities for growth in the period
ahead. I would like to extend a warm welcome to everyone from Geneservice and
Number One Health to Medical Solutions as we enter an important phase of growth
for the Group.'

Chairman's Statement

Introduction

The first half of 2007 has seen Medical Solutions take the first steps in
realigning the activities of the business and enhancing our service offering in
both our core pathology expertise and our drug development support services.

At the same time as looking to grow the business we have continued to review
the cost base of the Group to ensure it is appropriate. We have made further
savings in operating expenses and have reduced operating costs (before an
exceptional credit) by £0.4 million compared with the same period last year.

The acquisition of Geneservice, which was completed in July, has revolutionised
our diagnostic services which now include the latest DNA and RNA based
techniques. This represents a significant enhancement of our service offering
to both the healthcare and the pharmaceutical and biotechnology sectors and
opens up new markets for the Group in the life sciences research sector.

The rapid and effective integration of the Geneservice business, including
consolidation onto the Nottingham site, is a key priority for management for
the second half of this year and significant progress has already been made.

Financial review

Turnover for the six months ended 30 June 2007 was consistent with that
achieved in the first half of 2006 at £3.1 million (2006: £3.2 million). The
main driver for this was the pressure on sales volumes in our Diagnostic
Pathology business as highlighted below.

Gross margins have also remained consistent although a slight improvement from
39% to 41% was evident in the first half of 2007 compared with the first half
of 2006. However it is likely that we could see pressure on gross margins
during the second half of 2007 as we seek to grow our sales volumes in
Diagnostic Pathology.

The Board has continued to focus on the control of costs in the business and
operating expenses have been reduced to £2.1 million (before an exceptional
credit of £0.2 million, note 6) for the six months ended 30 June 2007 from £2.5
million during the same period in 2006. These savings have been achieved
through a combination of further efforts to improve the efficiency of the
operations and the impact of the staff restructuring that was undertaken at the
start of the year.

We have utilised £0.6 million of cash in our trading activities in the first
half of 2007. In addition, we have invested £0.3 million in the acquisition of
a 40% equity stake in Number One Health and have paid £0.2 million of
transaction and restructuring expenses resulting from the Dubai disposal. The
Group also earned interest of £0.4 million, of which £0.2 million was not
received until the second half of the year. Net cash outflow in the six months
ended 30 June 2007, including the non-trading items, amounted to £1.1 million
(2006: cash outflow £0.7 million). The Group had a net cash balance of £14.1
million as at 30 June 2007 (30 June 2006: £2.7 million; 31 December 2006: £15.2
million).

Operational review

Diagnostic Pathology

The second half of 2006 and first half of 2007 have been challenging periods
for Diagnostic Pathology. Sales in the six months ended 30 June 2007 were £0.8
million compared with £1.3 million during the same period in 2006.

We have identified opportunities to grow this business by expanding the range
of diagnostic and theranostic testing services offered by the Group and by
entering strategic relationships with healthcare providers, increasing demand
for diagnostic testing and reducing volatility in that demand.

We have made significant progress in the first half of this year towards
realising these opportunities. We have launched the first of our tailored
packages of tests, targeted at breast cancer, aimed at supporting clinicians in
their clinical decision making and helping them achieve the best possible
outcome for the patient.

In April we announced the acquisition of a 40% stake in the private healthcare
provider Number One Health, based in Harley Street. This opens up a new channel
for Medical Solutions to market our portfolio of diagnostic tests directly to
the public.

In June we announced our exclusive distribution agreement with Genomic Health,
Inc. to distribute their Oncotype DX(tm) breast cancer test in the UK and this
represents a key strategic relationship for Medical Solutions. The addition of
Oncotype DX(tm) to our portfolio significantly strengthens our position as a
leading provider of cutting edge diagnostic and prognostic cancer testing in
the UK.

During the second half of the year, we are looking to develop this area of our
business through investment in new specialist testing services, enhancement of
our diagnostic portfolio and an increase in the size of our sales and business
development team.

Drug Development Support Services ('DDS')

The increased focus of our sales and marketing activity on the small to medium
sized pharmaceutical and biotechnology companies is starting to show some
reward and sales have increased 30% to £207,000 in the first half of the year
compared with the same period last year (2006: £156,000).

There has been increasing demand from the pharmaceutical and biotechnology
sectors for companies that could offer a portfolio of services from classical
tissue pathology through to the latest DNA and RNA based techniques including
mutation testing and gene expression profiling. In response to this demand, the
Board sought to identify and target appropriate investment and acquisition
opportunities to bring these genomic technologies in-house and on 3 July 2007
we completed the acquisition of Geneservice (note 7).

Medical Solutions now provides a 'one-stop shop' for diagnostic services from
tissue analysis to genomic services including gene expression profiling and
genotyping. This enables us to offer molecular diagnostic analysis for pre- and

early-stage clinical therapeutic development programmes as well as a full suite
of pharmacogenomic services.

Clearly there remains much to do, however the sales pipeline is encouraging as
is the increasing number of companies engaging Medical Solutions for regulatory
study work and the increase in repeat business. The expansion of our service
offering to include the genomic expertise and technology platforms acquired
with Geneservice, is crucial to the growth of this element of our business.

Cytology

Cytology continues to be a great success story for Medical Solutions. The
growth in the business has been strong and we have now completed the roll out
programme for the Surepath(tm) liquid based cytology ('LBC') systems,
consolidating our 47% share of the LBC market in England and Wales.

Sales in the first half of 2007 were £2.1 million compared with £1.7 million in
the first half of 2006 and the segment result improved to £0.5 million (2006: £
0.3 million) over the same period.

With the roll out programme for LBC systems now complete, sales in Cytology are
expected to plateau over the next year as we achieve the anticipated run rate
on the installed systems. However, there are exciting new opportunities for the
Cytology business.

The key opportunities for continued growth are provided by extending the use of
the LBC systems for non-gynaecological applications, the use of ProExC(tm) a
molecular diagnostic assay, to assist in the identification of pre-cancerous
cervical cells in borderline cases and, the opportunity with the greatest
potential, the introduction of automated screening for cervical cancer in the
UK.

Medical Solutions has continued to support the Health Technology Assessment
('HTA') trial on automated cervical cancer screening technologies being
conducted in Manchester, but because of the importance of automated screening
we have invested in co-sponsorship of further trials. During the period an
automated screening trial in Wales has been undertaken in conjunction with
Cervical Screening Wales. We expect the results of this trial to be published
during the second half of this year. The HTA trial is not expected to conclude
until late 2008 or early 2009.

Post period events

On 3 July 2007 we were delighted to announce the completion of the acquisition
of Geneservice Limited for consideration of £3.86 million. Geneservice is a
profitable, expanding company offering genomic products and technology services
for applications in life sciences and clinical research and development. The
acquisition was in line with the Group's strategy to grow our healthcare and
diagnostic business by enhancing our portfolio of products and services to
include DNA and RNA based techniques. It also benefits Medical Solutions by
providing an expanded service offering and enhanced customer base, higher value
quality assured service and a 'one-stop shop' for diagnostic services. The
integration will also bring cost benefits to the enlarged business including
consolidation of operations to Nottingham.

Board

At the start of the year it was essential to create a stable platform for the
growth of the business and establish a Board to deliver that growth. Dr Nick
Ash was appointed Managing Director on 1 February 2007, from his former
position of Chief Financial Officer. On the same date Sir Gareth Roberts
retired from the Board on the grounds of ill health.

On 3 July 2007, following the acquisition of Geneservice, the Board was further
strengthened by the appointment of Dr Tom Weaver, former Chief Executive
Officer of Geneservice, as Commercial Director. We are sure Tom will be a great
asset to the Group as we seek to expand our operations.

Prospects

The short term objective remains to return the Group to profitability and cash
generation. This will be achieved through a combination of organic growth and
prudent, appropriate investment in acquisition opportunities. With the
acquisition of Geneservice, investment in Number One Health and launch of our
first cancer diagnostic portfolio, we are already making progress towards our
stated aims of expanding our healthcare diagnostic portfolio and enhancing our
services to include DNA and RNA based technologies.

During the second half of this year we will focus on the speedy and effective
integration of the Geneservice business to accelerate the delivery of the
financial benefits of that acquisition. We will continue to enhance our
portfolio of healthcare testing and further develop our 'one-stop shop'
offering for diagnostic services to the pharma biotech sector.

The market place for our products and services is challenging, but we are
equipping the Group with the breadth and depth of service offering, technology
platforms and expertise to deliver controlled growth and value to shareholders.

Laurie Turnbull
Chairman
10 September 2007

                                                     Six  Six months       Year
                                                  months       ended      ended
                                                   ended     30 June         31
                                                 30 June        2006   December
                                                    2007         (as       2006
                                                          restated*)

Continuing operations                     Note     £'000       £'000      £'000

Revenue                                      2     3,120       3,157      6,025

Cost of sales                                    (1,851)     (1,921)    (3,640)

Gross profit                                       1,269       1,236      2,385

Selling and distribution expenses                  (353)       (341)      (609)


Administrative expenses:

- normal                                         (1,735)     (2,065)    (3,837)

- restructuring costs                                  -           -      (185)

- exceptional credit                         6       206           -          -

Administrative expenses                          (1,529)     (2,065)    (4,022)

Research and development                            (61)       (100)      (167)

Operating loss from continuing operations          (674)     (1,270)    (2,413)

Finance income                                       386          44        186

Finance costs                                       (12)        (84)      (105)

Share of results of associate                        (4)           -          -

Loss before tax from continuing                    (304)     (1,310)    (2,332)
operations

Taxation                                               -           -          -

Loss after tax but before profit from              (304)     (1,310)    (2,332)
discontinued operations

Discontinued operations

Profit from discontinued operations                    -       1,262        946

Loss for the period                                (304)        (48)    (1,386)

Attributable to:

Equity holders of the parent company               (304)        (69)    (1,386)

Minority interest                                      -          21          -

Loss for the period                                (304)        (48)    (1,386)

Loss per share attributable to the equity
holders of the company

Basic and diluted loss per ordinary share    3   (0.15)p     (0.64)p    (1.14)p
from continuing operations

Basic and diluted total loss per ordinary    3   (0.15)p     (0.03)p    (0.68)p
share

* For details of restatement see note 5.

Attributable to equity holders of the Company

                                    Merger               Profit

                    Share   Share      and Translation and loss Minority   Total
                                     other

                  capital premium reserves     reserve  reserve interest  Equity

                    £'000   £'000    £'000       £'000    £'000    £'000   £'000

Balance at 1        4,075  32,284    4,608         117 (24,201)       52  16,935
January 2006

Currency                -       -        -       (255)        -      (1)   (256)
translation
adjustments

Net income              -       -        -       (255)        -      (1)   (256)
recognised
directly to
equity

Loss for the            -       -        -           -     (69)       21    (48)
period (as
restated note 5)

Total recognised        -       -        -           -     (69)       21    (48)
(expense)/income
for the period

Employee share
option scheme:

- value of              -       -        -           -       83        -      83
services provided

Minority interest       -       -        -           -        -     (52)    (52)
settled in cash

Balance at 30       4,075  32,284    4,608       (138) (24,187)       20  16,662
June 2006

Balance at 1 July   4,075  32,284    4,608       (138) (24,187)       20  16,662
2006

Currency                -       -        -       (152)        -      (1)   (153)
translation
adjustments

Net income              -       -        -       (152)        -      (1)   (153)
recognised
directly to
equity

Realisation of          -       -  (2,200)           -    2,200        -       -
merger reserve

Loss for the            -       -        -           -  (1,317)        8 (1,309)
period

Total recognised        -       -  (2,200)       (152)      883        7 (1,462)
(expense)/income
for the period

Employee share
option scheme:

- value of              -       -        -           -     (36)        -    (36)
services provided

Disposal of             -       -        -         290        -     (27)     263
overseas
subsidiary

Balance at 31       4,075  32,284    2,408           - (23,340)        -  15,427
December 2006

Balance at 1        4,075  32,284    2,408           - (23,340)        -  15,427
January 2007

Loss for the            -       -        -           -    (304)        -   (304)
period

Total recognised        -       -        -           -    (304)        -   (304)
income for the
period

Employee share
option scheme:

- value of              -       -        -           -       15        -      15
services provided

Balance at 30       4,075  32,284    2,408           - (23,629)        -  15,138
June 2007

                                                     As at       As at    As at
                                                   30 June     30 June       31
                                                      2007        2006 December

                                                                   (as     2006
                                                             restated)

                                                     £'000       £'000    £'000

Non-current assets

Goodwill                                               583      14,641      583

Other intangible assets                                 80         154      117

Investment in associate                                144           -        -

Loan to associate                                      125           -        -

Property, plant and equipment                        1,411       1,983    1,634

                                                     2,343      16,778    2,334

Current assets

Inventories                                            455         726      533

Trade and other receivables                          1,608       3,287    1,172

Financial assets

- cash and cash equivalents                         14,083       2,688   15,229

                                                    16,146       6,701   16,934

Current liabilities

Trade and other payables                             3,064       3,801    3,473

Financial liabilities

- borrowings                                           166         240      162

Provisions                                               -       2,489        -

                                                     3,230       6,530    3,635

Net current assets                                  12,916         171   13,299

Total assets less current liabilities               15,259      16,949   15,633

Non-current liabilities

Financial liabilities

- borrowings                                           121         287      206

Net assets                                          15,138      16,662   15,427

Equity

Issued share capital                                 4,075       4,075    4,075

Share premium                                       32,284      32,284   32,284

Other reserves                                       2,408       4,470    2,408

Profit and loss reserve                           (23,629)    (24,187) (23,340)

Total equity attributable to equity                 15,138      16,642   15,427
holders of the parent company

Minority interest                                        -          20        -

Total equity                                        15,138      16,662   15,427

                                                        Six       Six      Year
                                                     months    months     ended
                                                      ended     ended        31
                                                    30 June   30 June  December
                                                       2007      2006      2006
                                                                  (as
                                                            restated)

                                               Note   £'000     £'000     £'000

Cash flows from operating activities
(continuing operations)

Cash used in operations                           4   (863)     (457)     (841)

Interest paid                                          (12)      (23)      (45)

Net cash used in operating activities                 (875)     (480)     (886)
(continuing operations)

Cash flows from investing activities
(continuing operations)

Investment in associate                               (148)         -         -

Loan to associate                                     (125)         -         -

Purchases of property, plant and equipment             (64)     (141)     (255)

Purchases of intangible assets                            -      (11)      (12)

Proceeds from sale of property, plant and                 -         2         2
equipment

Proceeds from sale of subsidiary                          -         -    13,963

Transaction costs arising from sale of                 (53)         -     (748)
subsidiary

Cash remaining in disposal group                          -         -   (1,623)

Interest received                                       200        44       180

Net cash (used in)/generated from investing           (190)     (106)    11,507
activities (continuing operations)

Cash flows from financing activities
(continuing operations)

Repayment of borrowings                                (53)     (143)     (277)

Finance lease principal repayments                     (28)      (12)      (37)

Net cash used in financing activities                  (81)     (155)     (314)
(continuing operations)

Net (decrease)/increase in cash and cash            (1,146)     (741)    10,307
equivalents (continuing operations)

Cash flows from operating activities
(discontinued operations)

Cash generated from operations                            -     1,233     2,744

Net cash generated from operating activities              -     1,233     2,744
(discontinued operations)

Cash flows from investing activities
(discontinued operations)

Purchases of property, plant and equipment                -      (54)      (83)

Net cash used in investing activities                     -      (54)      (83)
(discontinued operations)

Cash flows from financing activities
(discontinued operations)

Payment of accrued minority interest                      -      (52)      (52)

Net cash used in financing activities                     -      (52)      (52)
(discontinued operations)

Net increase in cash and cash equivalents                 -     1,127     2,609
(discontinued operations)


Net (decrease)/increase in cash and cash            (1,146)       386    12,916
equivalents

Cash and cash equivalents at beginning of            15,229     2,313     2,313
period

Exchange losses on cash and cash equivalents              -      (11)         -

Cash and cash equivalents at end of period           14,083     2,688    15,229

1. Basis of preparation

These 30 June 2007 consolidated interim financial statements do not constitute
statutory financial statements within the meaning of section 240 of the
Companies Act 1985. Our auditor, PricewaterhouseCoopers LLP, has issued an
unqualified opinion on the Group's IFRS financial statements for the year ended
31 December 2006 and has not included a statement under section 237(2) or (3)
of the Companies Act 1985.

These consolidated interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting. They have been prepared in
accordance with IFRS and the accounting policies applied are consistent with
those applied in the preparation of the Group's consolidated financial
statements for the year ended 31 December 2006, except for the adoption of the
following amendments which are mandatory for annual periods beginning on or
after 1 January 2007:

  * Amendment to IAS 1 Capital disclosures. The IASB has issued an amendment to
IAS1 requiring new disclosures about entities' management of their capital
resources;

  * IFRS7 Financial instruments: Disclosures. The IASB has issued a new
standard on disclosures in respect of financial instruments. This replaces
IAS 30 and the disclosure requirements in IAS 32 and locates in one place
all disclosures relating to financial instruments. The new requirements
incorporate many of the IAS 32's disclosures as well as additional
qualitative and quantitative disclosures on the risks arising.

The adoption of these amendments did not affect the Group results or financial
position.

2. Segmental analysis

Primary reporting format - operating divisions

At 30 June 2007, the Group is organised into two main operating divisions:

  * Pathology Services

  * Cytology

Pathology Services comprises the business units of Diagnostic Pathology and
Drug Development Support.

During the period there were immaterial sales between business segments (six
months ended 30 June 2006: immaterial; year ended 31 December 2006: immaterial)
and, where these do occur, are at arm's length pricing.

Unallocated costs represent corporate expenses and common operating costs
including property expenses. Segment assets include goodwill, plant and
equipment, stocks and debtors. Unallocated assets include leasehold
improvements, central debtors and prepayments and operating cash.

Segment liabilities comprise operating liabilities and exclude borrowings.

Capital expenditure represents additions to both tangible fixed assets,
comprising additions to plant and equipment, and intangible fixed assets,
comprising capitalised development expenditure.

2. Segmental analysis (continued)

Primary reporting format - operating divisions (continued)

Six months ended 30 June 2007

                                  Pathology Services

                                                  Drug

                                Diagnostic Development

                                 Pathology     Support Cytology Unallocated   Group

                                     £'000       £'000    £'000       £'000   £'000

Continuing operations

Revenue                                830         207    2,083               3,120

Segment result                          31       (195)      507     (1,021)   (678)

Finance costs                                                          (12)    (12)

Finance income                                                          386     386

Loss before tax                                                               (304)

Taxation                                                                          -

Loss for the period from                                                      (304)
continuing operations

Net loss attributable to equity                                               (304)
shareholders

Segment assets                       1,168         312    1,627           -   3,107

Unallocated assets

- property, plant and equipment                                         567     567

- debtors and prepayments                                               732     732

- cash and cash equivalents                                          14,083  14,083

Total assets                         1,168         312    1,627      15,382  18,489

Segment liabilities                    128         168      854               1,150

Unallocated liabilities

- corporate borrowings                                                  160     160

- creditors and accruals                                              2,041   2,041

Total liabilities                      128         168      854       2,201   3,351

Other segment items

Capital expenditure

- tangible fixed assets                  -           -       57           7      64

Investment in associate                273           -        -           -     273

Depreciation                            20          57      162          48     287

Amortisation of intangible              26          11        -           -      37
assets

Other non-cash expenses

- share option scheme                                                    15      15

2. Segmental analysis (continued)

Primary reporting format - operating divisions (continued)

Six months ended 30 June 2006

                                 Pathology Services

                                  UK      Dubai        Drug

                          Diagnostic Diagnostic Development

                           Pathology  Pathology     Support Cytology Unallocated   Group

                                                                             (as
                                                                       restated)

                               £'000      £'000       £'000    £'000       £'000   £'000

Continuing operations

Revenue                        1,289                    156    1,712           -   3,157

Segment result                   337                  (293)      262     (1,576) (1,270)

Finance costs                                                               (84)    (84)

Finance income                                                                44      44

Loss before tax                                                                  (1,310)

Taxation                                                                               -

Loss for the year from                                                           (1,310)
continuing operations

Discontinued operations

Revenue                                   3,604                                    3,604

Segment result                            1,262                                    1,262

Profit before tax                         1,262                                    1,262

Taxation                                      -                                        -

Profit for the year from                  1,262                                    1,262
discontinued operations

Profit attributable to                     (21)                                     (21)
minority interests

Net loss attributable to                                                            (69)
equity shareholders

Segment assets                 1,114                    475    1,750           -   3,339

Unallocated assets

- property, plant and                                                        658     658
equipment

- debtors and prepayments                                                    514     514

- cash and cash                                                            2,261   2,261
equivalents

- discontinued operations                                                 16,707  16,707

Total assets                   1,114                    475    1,750      20,140  23,479

Segment liabilities              155                    385      809           -   1,349

Unallocated liabilities

- corporate borrowings                                                       347     347

- creditors and accruals                                                   1,961   1,961

- discontinued operations                                                  3,160   3,160

Total liabilities                155                    385      809       5,468   6,817

Other segment items

Capital expenditure

- tangible fixed assets           38                     88       93          64     283

- intangible fixed assets          -                     11        -           -      11

Depreciation                      32                     48      142         110     332

Amortisation of                   26                     11        -           -      37
intangible assets

Other non-cash expenses

- share option scheme              -                      -        -          83      83

2. Segmental analysis (continued)

Primary reporting format - operating divisions (continued)

Year ended 31 December 2006

                                 Pathology Services

                                  UK      Dubai        Drug

                          Diagnostic Diagnostic Development

                           Pathology  Pathology     Support Cytology Unallocated   Group

                               £'000      £'000       £'000    £'000       £'000   £'000

Continuing operations

Revenue                        2,200                    299    3,526           -   6,025

Segment result                   529                  (516)      658     (3,084) (2,413)

Finance costs                                                              (105)   (105)

Finance income                                                               186     186

Loss before tax                                                          (3,003) (2,332)

Taxation                                                                       -       -

Loss for the year from                                                   (3,003) (2,332)
continuing operations

Discontinued operations

Revenue                                   6,004                                    6,004

Segment result                            2,064                                    2,064

Loss on disposal of                     (1,089)                                  (1,089)
operation

Profit before tax                           975                                      975

Taxation                                      -                                        -

Profit for the year from                    975                                      975
discontinued operations

Profit attributable to                     (29)                                     (29)
minority interests

Net loss attributable to                                                         (1,386)
equity shareholders

Segment assets                 1,021                    382    1,655           -   3,058

Unallocated assets

- property, plant and                                                        611     611
equipment

- debtors and prepayments                                                    370     370

- cash and cash                                                           15,229  15,229
equivalents

Total assets                   1,021                    382    1,655      16,210  19,268

Segment liabilities              139                    303      818           -   1,260

Unallocated liabilities

- corporate borrowings                                                       213     213

- creditors and accruals                                                   2,368   2,368

Total liabilities                139                    303      818       2,581   3,841

Other segment items

Capital expenditure

- tangible fixed assets           38                     88      185         115     426

- intangible fixed assets          -                     12        -           -      12

Depreciation                      54                     95      296         203     648

Profit on disposal of              -                      -        -           2       2
fixed assets

Amortisation of                   53                     23        -           -      76
intangible assets

Other non-cash expenses

- share option scheme              -                      -        -          47      47

2. Segmental analysis (continued)

Secondary reporting format - geographical segments

The continuing operations are based in the UK, which is the home country of the
Parent Company, from where the Group's operations are managed. During the prior
period the discontinued operations were based in Dubai, UAE.

The sales analysis in the table below is based on the location of the customer.
For the continuing operations, all of the orders are received in the UK and all
of the Group's assets are based in the UK.

Six months ended 30 June 2007 and 30 June 2006

                              Revenue            Segment            Capital
                                                 assets           expenditure

                              Six     Six        Six     Six        Six     Six
                           months  months     months  months     months  months
                            ended   ended      ended   ended      ended   ended
                          30 June 30 June    30 June 30 June    30 June 30 June
                             2007    2006       2007    2006       2007    2006

                            £'000   £'000      £'000   £'000      £'000   £'000

Continuing operations

UK                          3,077   3,133     18,489   6,772         64     240

Middle East & Asia             11       -          -       -          -       -

Europe (excluding UK)          32      22          -       -          -       -

North America                   -       2          -       -          -       -

                            3,120   3,157     18,489   6,772         64     240

Discontinued operations

Middle East & Asia              -   3,604          -  16,707          -      54

                                -   3,604          -  16,707          -      54

Total                       3,120   6,761     18,489  23,479         64     294

Year ended 31 December 2006

                                            Revenue      Segment       Capital
                                                         assets      expenditure

                                                Year         Year           Year
                                               ended        ended          ended
                                                  31           31    31 December
                                            December     December           2006
                                                2006         2006

                                               £'000        £'000          £'000

Continuing operations

UK                                             5,981       19,268            355

Middle East & Asia                                21            -              -

Europe (excluding UK)                             21            -              -

North America                                      2            -              -

Total                                          6,025       19,268            355

Discontinued operations

Middle East & Asia                             6,004            -             83

                                               6,004            -             83

Total                                         12,029       19,268            438

2. Segmental analysis (continued)

Analysis of revenue by category

The Group's revenue from continuing operations is analysed as follows:

                                                 Six          Six         Year
                                              months       months        ended
                                               ended        ended           31
                                             30 June      30 June     December
                                                2007         2006         2006

                                               £'000        £'000        £'000

Revenue from the provision of services           997        1,385        2,392

Revenue from the sales of goods                1,864        1,556        3,185

Revenue from operating lease rentals             259          216          448

Total                                          3,120        3,157        6,025

3. Loss per share

Basic loss per share amounts are calculated by dividing net loss for the period
attributable to ordinary equity shareholders of the Parent Company by the
weighted average number of shares outstanding during the period. Diluted loss
per share amounts are calculated by dividing the net loss attributable to
ordinary equity shareholders by the weighted average number of ordinary shares
outstanding during the period adjusted for the effects of dilutive options.

The calculation of basic and diluted earnings per share for the six months
ended 30 June 2007 is based on the loss attributable to ordinary shareholders
of £304,000 (six months ended 30 June 2006: loss of £69,000; year ended 31
December 2006: loss of £1,386,000) and on the weighted average number of
ordinary shares in issue in each respective period of 203,765,232.

IAS 33 Earnings Per Share requires presentation of diluted earnings per share
when a company could be called upon to issue shares that would decrease net
profit or increase net loss per share. Net loss per share in a loss-making
company would only be increased by the exercise of share options which were out
of the money. Assuming that option holders will not exercise out of the money
options, no adjustment has been made to the diluted loss per share for out of
the money share options.

4. Cash (used in)/generated from operations

                                                 Six months       Six      Year
                                                      ended    months     ended
                                                    30 June     ended        31
                                                       2007   30 June  December
                                                                 2006      2006
                                                                  (as
                                                            restated)

                                                      £'000     £'000     £'000

Loss for the period from operations                   (304)      (48)   (1,386)

Depreciation of tangible fixed assets                   287       307       600

Recognition of grant income                            (18)      (37)      (55)

Amortisation of capitalised development costs            37        37        76

Share of associate's loss                                 4         -         -

Profit on sale of property, plant and equipment           -       (2)       (2)

Interest payable                                         12        84       105

Interest receivable                                   (386)      (44)     (186)

Share-based payments - value of employee                 15        83        47
service

Decrease in inventories                                  78        57       146

(Increase)/decrease in trade and other                (250)       161       522
receivables

Profit from discontinued operations                       -   (1,262)     (946)

(Decrease)/increase in creditors                      (338)       207       238

Cash used in operations                               (863)     (457)     (841)

All of the cash used in the six months ended 30 June 2007 was from continuing
operations.

Cash used in the six months ended 30 June 2006 from continuing operations was £
457,000 (discontinued operations: cash generated £1,233,000)

5. Prior year comparatives

Potential over recovery of VAT

Further to the restatement in the 2006 Annual Report and Accounts, the income
statement comparatives for the six months ended 30 June 2006 have been restated
to incorporate an additional charge of £74,000 relating to a potential
liability to Her Majesty's Revenue and Customs ('HMRC') for irrecoverable input
VAT. This additional charge represents 50% of the total amount that was charged
to the income statement for the full year ended 31 December 2006. The profit
and loss reserve at 30 June 2006 has therefore been reduced by £74,000 and
creditors at that date have been increased by the same amount.

There is no impact on the cash flow statement, other than the reconciling
adjustment for the respective movement in creditors and the charge in the
profit and loss account falls under the Unallocated category within the
Segmental Analysis (note 2).

The previously reported earnings per share of 0.002p changes to a loss per
share of 0.03p as a consequence of the additional charges applied in this
restatement of the comparatives for the six months ended 30 June 2006.

6. Administrative expenses - exceptional credit

Further to note 5 above, the total accrual for the potential over-recovery of
VAT as at 31 December 2006 was £446,000. During the first half of 2007,
agreement was reached with HMRC to settle the liability. As a consequence, the
balance of the accrual of £206,000 has been released to the income statement as
an exceptional credit in the period.

7. Post period events

On 3 July 2007, Medical Solutions plc completed the acquisition of Geneservice
Limited for total consideration of £3.86 million (excluding transaction costs
and interest on the deferred consideration). Due to the recent completion of
the transaction, the fair values of the significant assets and liabilities
assumed are preliminary and pending finalisation of the valuations. At this
stage the fair values are as follows:

                                                                          £'000

Property, plant and equipment                                               206

Cash and cash equivalents                                                   269

Other current assets                                                        549

Borrowings                                                                 (14)

Other current liabilities                                                 (311)

Fair value of net tangible assets acquired                                  699

Distribution agreements and internally generated software                    47

Goodwill arising on acquisition                                           3,634

Fair value of net assets acquired                                         4,380

Initial cash consideration on completion                                  1,503

Deferred cash consideration and retention                                 2,352

Interest on deferred consideration                                           80

Costs of acquisition                                                        445

Total consideration                                                       4,380

8. Interim results

Copies of the interim results for the six months ended 30 June 2007 will be
sent to all shareholders and will be posted on the Company's website at
www.medical-solutions.co.uk. In addition, copies may be obtained from the
Company Secretary at Medical Solutions plc, 1 Orchard Place, Nottingham
Business Park, Nottingham NG8 6PX.

Introduction

We have been instructed by the Company to review the financial information for
the six months ended 30 June 2007 which comprises the consolidated income
statement, the consolidated statement of changes in shareholders' equity, the
consolidated balance sheet as at 30 June 2007 and the consolidated cash flow
statement for the six months then ended and related notes. We have read the
other information contained in the Interim Report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.

Directors' responsibilities

The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the Directors. The Listing
Rules of the Financial Services Authority require that the accounting policies
and presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes,
and the reasons for them, are disclosed.

This interim report has been prepared in accordance with IAS 34 Interim
financial reporting.

Review work performed

We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the UK. A review
consists principally of making enquiries of Group management and applying
analytical procedures to the financial information and underlying financial
data and, based thereon, assessing whether the disclosed accounting policies
have been applied. A review excludes audit procedures such as tests of controls
and verification of assets, liabilities and transactions. It is substantially
less in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
Company for the purpose of the Listing Rules of the Financial Services

Authority and for no other purpose. We do not, in producing this report, accept
or assume responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.

Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2007.

PricewaterhouseCoopers LLP
Chartered Accountants
East Midlands
10 September 2007

Notes:

(a) The maintenance and integrity of the Medical Solutions plc website is the
responsibility of the Directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the website.

(b) Legislation in the UK governing the preparation and dissemination of
financial information may differ from legislation in other jurisdictions.

5

Unaudited Consolidated Income Statement
For the six months ended 30 June 2007

Unaudited Consolidated Statement of Changes in Shareholders' Equity
As at 30 June 2007

Unaudited Consolidated Balance Sheet
As at 30 June 2007

Unaudited Consolidated Cashflow Statement
For the six months ended 30 June 2007

Notes to the Consolidated Interim Financial Statements
For the six months ended 30 June 2007

Notes to the Consolidated Interim Financial Statements cont*
For the six months ended 30 June 2007

Independent Review Report to Medical Solutions plc


END