Deepverge PLC (AIM:DVRG) Update; Manuf’g Service Agreement with Microsaic

Trading Update – Q1 2022 Sales up 84% to £2.38m (Q1 2021: £1.29m)

DeepVerge signs manufacturing services framework with Microsaic Systems plc

Post covid market and sales activity intensifies across all international markets

DeepVerge plc (AIM: DVRG), is pleased to announce increased sales (unaudited) across all divisions delivering £2.38m (Q1 2021: £1.29m unaudited) in the best first quarter in the history of the Company. Post-covid marketing and sales activity has been intensified across all international markets with existing solutions as well as high profile R&D projects progressing on all fronts, generating enquiries and deep engagement from large corporate entities that are both potential partners and customers.

Manufacturing Services Framework Agreement :

In addition, DeepVerge’s subsidiary Innovenn UK Limited has signed a Manufacturing Service Framework Agreement (“MSFA”) with Microsaic Systems plc (“Microsaic”) to further develop Modern Water’s scientific instruments range. These include the optofluidic based Microtox®PD for wastewater and Microtox®BT Breath Test solutions., the Microtox ®LX and ®FX photosensitivity range for toxicity detection and the voltammetry based Microtrace range for heavy metals detection.

Fin Murray, DeepVerge COO, commented:

“The combined skillset of chemists, physicists and engineers within Microsaic that has delivered a complex and world beating mass spectroscopy range of equipment will advance the ambitious Modern Water development programme to create a last mile solution of interconnected sensors to detect a comprehensive range of bad actors in water from toxins to pathogens to PFAS in real time and to take detection to population centres with miniaturised and ruggedised mobile units. This agreement also progresses our supply chain strategy of working with local trusted partners to create certainty over developments and deliveries in an uncertain world”

Gerard Brandon CEO DeepVerge plc, commented:

“This quarter has been the best first quarter in the history of the DeepVerge Group with new products and services delivering increased sales across every division. Growth remains on track to achieve triple digit percentage revenue growth year-on-year, similar to the last 3 and a half years.”

The MSFA sets out the terms and conditions for Microsaic to improve and manufacture these complex instruments and to provide the design, assembly, quality, and project management functions necessary to produce and ship equipment based on DeepVerge approved specifications, design, and quality requirements.

The MSFA extends the parties’ existing relationship which was formalised in the 3-year framework agreement announced on 24 March 2021[i], under which Microsaic supplies its own miniaturised mass spectrometry equipment and services on a non-exclusive basis across DeepVerge’s global sales, marketing and distribution channels, for healthcare diagnostic and environmental health applications.

Further manufacturing services contracts with Microsaic may follow under the new MSFA, subject to satisfactory execution of the initial contract and mutual agreement.

The mutual goals under the MSFA include ensuring the timely availability of quality products, in the desired quantities, as well as meeting high workmanship and quality standards and ensuring delivery needs are met. Furthermore, DeepVerge and Microsaic will jointly strive to achieve value pricing consistent with prudent practices to balance costs and the availability of services materials.

The MSFA has a one year term, and shall automatically renew for successive one year increments, unless either party requests within 90 days prior to the anniversary its intention not to renew.

An initial order of £400,000 has been placed for multi-sensor upgrades of the Microtox PD and Microtox BT ranges which are Modern Water’s optofluidic based sensors designed to identify pathogens in realtime.

Additional disclosure is made below in relation to AIM Rule 13.

Other Partner Project Development:

A recent framework agreement with Abingdon Health plc adds further scientific knowledge especially in the area of Lateral Flow Tests (“LFT”) specifically involving the integration of the use of LFTs into the Modern Water optofluidic units to increase the volume of recurring consumable tests each piece of equipment can do.

Commercial Update:

On the marketing front, two years of being unable to demonstrate divisional capabilities and engage face to face with stakeholders is now being made up with attendances at multiple international cosmetic, beauty and environmental events with shows on the west coast of America, in particular San Diego and San Francisco.

Skin Trust Club sparks interest of Silicon Valley:

Skin Trust Club with its mix of microbiology, microbiome data and AI delivered via the Skin Trust Club app with the capability of addressing a mass worldwide skincare market has resonated in Silicon Valley. Large US cosmetics retailers consider Skin Trust Club as the next level of science based skin product recommendations and have expressed interest in a minimum test order of 5,000 units to be trialled online and through retail outlets across the USA and Europe. Multiple global skin care organisations have invited Skin Trust Club to engage with their innovation teams both in the US and Europe. Discussions with Tier 1 cosmetic brands to add their product lines to the Skin Trust Club App product recommendations are underway. Collaboration discussions are also underway with multiple Silicon Valley VC backed skin care organisations. Health executives from top 3 Nasdaq internet corporations who attended Skin Trust Club presentations on AI have indicated a desire for follow up meetings. Multiple high tech and high end beauty journalists that cover ‘next wave’ technologies have expressed interest and have interviewed senior DeepVerge scientists, AI and technology specialists.

Labskin expansion in US

Labskin has successfully demonstrated its sales growth capabilities as well as exhibiting new products and service developments at conferences in San Diego, San Francisco, London and Paris. Major existing and a number of Tier 1 customers are urging the Labskin division to expand laboratories in the USA for skin testing services. As part of the expansion plans, the life science division is discussing order guarantees for new business in the US market. While discussions are underway on a framework agreement outlining terms for R&D, exclusivities and revenues, no guarantees are given as to the outcome of these negotiations. Labskin also unveiled new products and services including a new scalp model and has received demand for a very strong pipeline of new business across the hair care and shampoo sector.

Engagement with US cities for pathogen detection

Modern Water is at the forefront of the British Government’s Sentinel wastewater project and is now engaging at US local and national government programme levels after showcasing the Microtox®PD optofluidics offering at the Cincinnati, Ohio, USA, Wastewater Conference. A number of US cities including existing Modern Water customers are engaging for first trials of the solution.

Medium Ticket (£1m+) installations bids:

On the sales front Modern Water is bidding for multiple medium ticket (potential order size of £1m plus) deals for site installations in the Middle East and South Asia. These are consortium projects where local companies lead and Modern Water provides equipment and support as part of bigger solutions. Should any of these bids be successful, the main obstacle to these deals completing is supply chain issues, primarily with China, where other consortium members are experiencing delay roll-outs due to a shortfall of key components for their parts of the projects.

Supply Chain Management:

To the extent Modern Water can control its own supply chain in this environment, it is working closely with partners and recent acquisitions to internalise as much as its supply chain as it can. The agreement announced with Microsaic is part of this. In addition, the Glanaco site in Ireland is up and running and producing equipment including the fitting out of the first mobile laboratories to showcase the extent of the real time water tests the Group can offer. The recent Glanaco acquisition has also increased capacity as a logistics hub with both equipment and reagents for Europe and the Rest of the World now being carried out from this site.

Related Party Transaction:

As set out above, Innovenn UK Limited, a wholly-owned subsidiary of DeepVerge, has entered into the MSFA, and an initial work order for £ 400,000 has been placed in accordance with the terms of the MSFA under an agreed statement of work covering the specified supply of services and product.

The MSFA and associated work order constitute a related party transaction for the Company under AIM Rule 13, as DeepVerge directors Gerard Brandon (CEO) and Nigel Burton (Non-executive Director) are also Acting Executive Chairman and non-executive director, respectively, of Microsaic. The directors of DeepVerge who have considered the related party transaction are Ross Andrews, Camillus Glover and Fionan Murray (“Independent Directors”).

The MSFA includes provisions requiring each party to comply with their respective obligations under AIM Rule 13 and 16 which includes future work orders under the MSFA.

The Independent Directors of DeepVerge consider, having consulted with SPARK Advisory Partners Limited, the Company’s nominated adviser, that the terms of the MSFA and associated work order are fair and reasonable insofar as shareholders are concerned.

DeepVerge plc

Gerard Brandon, CEO

+44 (0) 7340 055 648

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