ARC International plc Announces Results For the Six Months Ended 30 June 2005; 17 New Processor Contracts Signed; 25 Percent Increase in Processor and Embedded Systems License Income.

ELSTREE, England -- ARC International (LSE:ARK), the world leader in configurable CPU/DSP processor cores and application subsystems, today announced its unaudited financial results for the six months ended 30 June 2005.

Highlights:

--Revenue for the underlying business(1): GBP 5.4 million: up 10% year over year (1H 2004: GBP 4.9 million) and down 13% including revenue from the Peripherals business that was sold (1H 2004: GBP 6.2 million)

--License and engineering income for the underlying business GBP 3.4 million: up 25% year over year (1H 2004: GBP 2.7 million)

--Operating costs before share based award expense, goodwill impairment, amortisation and depreciation GBP 7.6 million: reduced by 25% over 1H 2004 (1H 2004: GBP 10.2 million)

--Net operating expenses GBP 8.7 million: reduced by 18% over 1H 2004 (1H 2004: GBP 10.7 million)

--Net loss for the period of GBP 1.4 million, improved 52% over 1H 2004 (1H 2004: GBP 2.9 million)

--Operating cash outflow of GBP 2.6 million: reduced 48% year over year (1H 2004: GBP 5.1 million); year end cash and short-term investments at GBP 33.0 million (2H 2004: GBP 33.5 million)

--17 new processor licenses signed; 10 from the ARC(TM) 600 and 700 core families and ARCsound(TM) subsystem

--Four patent awards, including the grant of a fundamental patent relating to configurability by the United States Patent and Trademark Office (USPTO)

(1) Underlying business excludes Peripherals business sold in June 2004.

Commenting on operations for the first six months, Carl Schlachte, president and CEO, said:

"In the first half of 2005, ARC passed the 100 customer milestone with 17 new processor contracts, a 55 percent year-on-year gain from the 11 licenses signed in the first half 2004. Many of these companies are driving high-growth embedded markets, including smart cards and biometrics applications. Seven of these customers were new licensees.

"Management continues to be confident in the strategy and optimistic about the future of the company. Although the financial results were below our expectations, achievements over the past six months, such as our growing patent portfolio and the launch of our Early Adopter Program for ARC's multimedia subsystem, underscore ARC's increasing strength in the embedded IP market."

Commenting on the financial results, Monica Johnson, CFO, added:

"Strong demand for our SoC products grew license and engineering income by 25 percent compared with the same period and underlying business in 2004. Despite a slow first quarter, business strengthened considerably in the last few months, and we remain optimistic for the second half of 2005. Revenue growth, cash usage and expenses for the second half of 2005 remain inline with projected levels. Our newer products continue to be broadly adopted and are helping increase overall average selling prices."

Statement from the President and Chief Executive Officer:

Overview

Both license revenue and signed contracts for our patented configurable processors were up significantly year-on-year. ARC passed the 100 customer milestone and continued to deepen its penetration of key high-volume embedded applications.

Net operating expenses declined further by 18% as our net loss narrowed to GBP 1.4 million. Cash usage in the first half of 2005 decreased to GBP 0.5 million resulting in a strong cash and short-term investments position at GBP 33.0 million.

Patent Awards

During the first half of 2005, ARC International received four additional patent grants covering broad aspects of the company's products. Chief among the recent awards was the grant by the United States Patent and Trademark Office (USPTO) of patent number 6,862,563, which ARC believes is fundamental to the design of a System-on-Chip (SoC) using configurable CPU technology. ARC's growing portfolio of patents underscores our position as the leading provider of configurability to the embedded market.

SoC Solutions

In January, ARC announced a new roadmap of configurable CPU and DSP cores. Now licensees have access to 11 state-of-the-art processors that meet the disparate market requirements of applications ranging from deeply embedded microcontrollers to high-end, OS-aware devices such as advanced digital televisions. Today the ARC 600 and 700 families are the foundation of ARC's CPU and DSP offerings. Generally, ARC's CPUs are smaller, consume less power and offer the ability to develop highly differentiated end products -- key elements to designing successful devices for high-volume applications.

To enhance the attractiveness of our configurable CPUs for applications that require high-end math functionality, ARC introduced "FPX" floating point extensions. By using up to 90 percent less silicon area than floating point coprocessors with comparable performance, ARC's FPX solution sets a new industry standard for die size efficiency and low power consumption.

Furthering ARC's strategy of offering complete solutions for the high-growth digital consumer market, ARC announced the Early Adopter Program for its new multimedia subsystem. The program gives participants the ability to be the first to market with a highly optimized technology designed to offer the lowest power consumption and smallest silicon footprint of any in the industry. The EA Program announcement has received a tremendous response from OEM and semiconductor companies in ARC's target sales regions, and we look forward to offering the new subsystem for general availability in the latter half of 2005.

Asia

Asia is a key driver of the consumer electronics industry, and one of the most active regions for SoC design. In Japan, ARC added new strategic business personnel who have extensive experience in the IP licensing business. They complement our existing resources and significantly increase our opportunities with Japan's leading system and semiconductor companies.

To further the appeal of ARC's configurable products to Japanese developers, ARC and MiSPO announced optimized uITRON support for the ARC 600 core family. The availability of the uITRON real-time operating system (RTOS) for ARC's processors enhances the already strong value proposition our cores offer designers of embedded applications in Japan.

During the first half, ARC also added a senior sales director and a sales support manager to its Taiwan operations with responsibility for the Greater China region. Combined with Maojet, ARC's regional sales agent, our growing capabilities in this area support our goal of bringing the benefits of configurable CPU technology and multimedia subsystems to Greater China's system and fabless companies.

Customers

--Unnamed -- In July, ARC International announced that it has reached a license agreement with a leading smart card technology provider. Valued at GBP 900,000, the deal gives the undisclosed customer wide-ranging access to ARC's patented configurable technology. The agreement underscores the growing adoption of ARC's configurable CPU products in high-volume markets where data protection is critical to the market success of ARC-Based(TM) devices.

--Aarohi Communications -- a leading provider of intelligent SAN components that are enabling a new generation of storage networking platforms, announced that they have extended their existing license for an ARC configurable processor. Aarohi, an ARC licensee since 2002, will use the core in its next-generation Intelligent SAN Component. Aarohi's current ARC-Based AV150 Intelligent Storage Processor recently won the Network Storage Conference "Interconnect Product of the Year" award and incorporates 11 configurable ARC cores.

--Altek International Investment Co., Ltd. -- an ARC licensee since 2003, announced an extension of their license for a configurable ARC core for use in the design of their next-generation digital still camera chip. Their previous ARC-Based design is now shipping to market with multiple ARC cores.

--Chips & Media, Inc. -- a Korean-based audio/video solutions provider, has taken a license for the configurable ARC 605 core to power a new MPEG-2 design for set-top box applications. The 605 is the world's smallest, lowest power 32-bit processor and provides up to twice the MHz of competitive cores.

--IPWireless -- a leader in the development of very high performance packet-based wireless networks, announced they have standardized on ARC's patented configurable CPU technology for the company's next generation 3G TD-CDMA broadband wireless devices. This will be the third in a series of successful ARC-Based designs from IPWireless.

--Skymedi -- a Taiwan-based provider of multimedia flash memory controllers, has taken a license for the ARCsound audio subsystem for their next-generation controllers. After a thorough search of available audio solutions, Skymedi found the ARCsound subsystem and ARC's comprehensive subsystem roadmap to be the industry's superior multimedia solution.

--UPEK, Inc. -- provides biometric fingerprint solutions for a broad range of commercial and consumer applications. The company is incorporating a configurable ARC processor in its line of TouchStrip(TM) fingerprint authentication solutions, which are shipping in notebook PCs, mobile phones and flash drives from leading OEMs and ODMs.

Embedded Systems Software

During the first half of 2005, the Embedded Systems software contributed 22% of total revenue. To more clearly differentiate itself within the marketplace, ARC established the identity of MQX Embedded(TM). Under the new name, MQX Embedded will continue to license optimized software tools, operating systems and software platforms to ARC and non-ARC customers within the embedded industry.

Partnerships with Best-in-Class Companies

--Express Logic -- a worldwide leader in royalty-free RTOS, has ported their ThreadX(R) technology to the ARC 700 family of configurable processors. The ThreadX RTOS is a small-footprint, fast, royalty-free, uITRON 4.0-compatible real-time kernel, complemented by Express Logic's NetX(TM) TCP/IP stack and its FileX(TM) MS-DOS compatible FAT file system. All Express Logic products now support the ARC 700 family of configurable processors.

--Fraunhofer -- one of the leading organizations of applied research in Europe, will develop an ARC-Based companion chip for processors in mobile multimedia terminals for using the emerging DVB-H standard. The companion chip will be an accelerator for H.264 and will be based on an ARC 610DX core. Both ARC and Fraunhofer will have the opportunity to license the developed technology for applications in the burgeoning DVB-H market.

--Green Hills Software -- announced an enhanced MULTI(R) Integrated Development Environment for ARC's configurable processors. As the latest deliverable from the growing partnership between ARC and Green Hills, the optimized compiler and debug software lowers development times and speeds ARC customers' time-to-market parameters.

--MiSPO -- a leading supplier of uITRON-based technology, ported their NORTi(R) RTOS to ARC's architecture. MiSPO demonstrated the new product running on a configurable ARC 605 processor at the eighth annual Embedded Systems Expo and Conference (ESEC) in Tokyo.

--Sonic Network, Inc. -- provides embedded audio technology and content that enable high quality, engaging audio and multi-media playback. Its Embedded Audio Synthesis (EAS(TM)) technology is now available for the ARCsound audio subsystem. Sonic's EAS technology is ideal for designers of high volume mobile devices where low power consumption and a small memory footprint are critical to developing cost-effective applications.

--Tao Group -- a fully Sun-certified supplier of Java(TM) technology, is renowned for delivering the fastest Java solution in the market and is fully compliant to Java Community Process standards. ARC announced that using Tao's intent platform, an ARC 625D core achieved an out-of-the-box score of 104 CaffeineMarks/mW. This gives ARC licensees designing SoCs for portable consumer devices the ability to maximize Java efficiency while achieving the best performance-to-power ratio of any 32-bit processor core.

Outlook

Despite a slow first quarter, business strengthened considerably the last few months, and we remain optimistic for the second half of 2005. Revenue growth, cash usage and expenses remain inline with projected levels. Our newer products continue to be broadly adopted and are helping increase overall average selling prices. In the second half, our focus will be on top line growth as we continue to enhance our compelling product line to grow our share of high-volume embedded markets globally.

Financial Review

Six months ended 30 June 2005

International Financial Reporting Standards (IFRS)

The Company is required to report its consolidated financial statements under International Financial Reporting Standards (IFRS), as adopted by the European Union, for all accounting periods beginning on or after 1 January 2005. Previously, the group has applied United Kingdom generally accepted accounting principles (UK GAAP).

Revenue

Total revenue in 1H 2005 was GBP 5.4 million, down 13% over the same period last year (1H 2004: GBP 6.2 million) including revenue from the disposed peripherals business. Prior to currency translation, with virtually all sales in US dollars, revenue was down 11%. License and engineering income was down 10% at GBP 3.4 million (1H 2004: GBP 3.8 million). Maintenance and service income was down 3% at GBP 0.8 million (1H 2004: GBP 0.9 million). Royalty income declined by 25% to GBP 1.2 million (1H 2004: GBP 1.5 million). Royalty income in 1H 2005 includes an advance non-refundable payment which represented 46% of the total royalties for the period.

Revenue for underlying business: Total revenue excluding income from the disposal of the peripherals business (1H 2004: GBP 1.3 million) was up 10% at GBP 5.4 million (1H 2004: GBP 4.9 million). License and engineering income was up 25% at GBP 3.4 million (1H 2004: GBP 2.7 million). Maintenance and service income was up 19% at GBP 0.8 million (1H 2004: GBP 0.7 million). Royalty income declined by 21% to GBP 1.2 million (1H 2004: GBP 1.5 million).

Sales in Europe were 34% of total sales, North America 63% and Asia 3%. From a product line perspective, 78% of revenue was from the SoC business with the remaining 22% delivered by the embedded software products.

Costs

Cost of sales of GBP 0.7 million was down 25% year over year (1H 2004: GBP 0.9 million). Gross margin in increased to 87% (1H 2004: 85%). Total operating expenses (excluding share based award expense, goodwill impairment, amortisation and depreciation) decreased by 25% year-over-year to GBP 7.6 million (1H 2004: GBP 10.2 million). Net operating expenses declined by 18% to GBP 8.7 million (1H 2004: GBP 10.7 million).

The Company had 129 employees at 30 June 2005 compared with 131 at 31 December 2004. Research and development costs decreased 29% to GBP 3.2 million (1H 2004: GBP 4.6 million). Sales and marketing costs decreased 19% to GBP 2.1 million (1H 2004: GBP 2.6 million). General and administration costs were down 24% year over year to GBP 1.6 million (1H 2004: GBP 2.1 million). Total share based award expense was comprised of deferred compensation charges of GBP 0.1 million and an additional GBP 0.1 million related to share based award expenses under IFRS.

Interest

Interest income was up 14% year over year at GBP 0.8 million due to an increase in the average interest rate on investments.

Net loss

Net loss was GBP 1.4 million (1H 2004: GBP 2.9 million). Loss per share improved to GBP 0.97p (1H 2004: GBP 2.08p).

Net loss of GBP 1.4 million includes goodwill impairment of GBP 0.2 million, R&D tax credit received from the UK tax authority of GBP 1.2 million, and gain on business disposal of GBP 0.1 million. The gain represents the net cash proceeds received in 1H 2005 for a partial payment of the note due from TransDimension, Inc.

Cash flow and balance sheet

The net cash outflow from operations was GBP 2.6 million (1H 2004: GBP 5.1 million). Capital expenditure was GBP 0.4 million. The movement in cash and short-term investments during the six months was an outflow of GBP 0.5 million. Total assets at 30 June 2005 were GBP 39.2 million, including cash and short-term investments of GBP 33.0 million.

Dividend

No interim dividend payment will be made for the six months ended 30 June 2005.

Impact from IFRS

The current period interim results and the restated comparative results have been prepared on a basis consistent with the IFRS accounting policies as set out in the press release titled "Restatement of financial information under International Financial Reporting Standards" containing the impact of the adoption of IFRS on the group's financial statements for the six and twelve months ended December 2004. Whilst the introduction of IFRS has no impact on the underlying cash flows of the business, the areas of accounting that will have the most significant impact on the group's financial statements are as follows:

--employee share-based payment arrangements;

--development expenditure;

--the treatment of goodwill; and

--lease reclassification.

See Note 2 for overview of impact.

Consolidated Profit and Loss Account
For the six months ended 30 June 2005

                                    6 months     6 months    12 months
                                       ended        ended        ended
                                     30 June      30 June  31 December
                                        2005         2004         2004
                                 (unaudited)  (unaudited)  (unaudited)
                                    GBP '000     GBP '000     GBP '000
----------------------------------------------------------------------

Revenue                               5,418        6,210       12,162
Net operating expenses (note 3)      (8,723)     (10,654)     (19,448)
----------------------------------------------------------------------
Operating loss                       (3,305)      (4,444)      (7,286)
----------------------------------------------------------------------
Interest receivable                     780          684        1,445
Interest payable and similar
 charges                                  -           (2)          (5)
----------------------------------------------------------------------
Loss before income tax               (2,525)      (3,762)      (5,846)
----------------------------------------------------------------------
Tax credit                            1,152          885          790
----------------------------------------------------------------------
Loss for the period                  (1,373)      (2,877)      (5,056)
----------------------------------------------------------------------

Basic and diluted loss per share     (0.97)P      (2.08)P      (3.65)P


Consolidated Balance Sheet
As at 30 June 2005

                                    30 June      30 June   31 December
                                       2005         2004         2004
                                 (unaudited)  (unaudited)  (unaudited)
                                   GBP '000     GBP '000     GBP '000
----------------------------------------------------------------------
Property, plant and equipment           345          598          423
Goodwill                                  -          996          195
Intangible assets                     1,397        2,236        1,688
----------------------------------------------------------------------
Total non current assets              1,742        3,830        2,306
----------------------------------------------------------------------

Trade and other receivables           4,393        3,623        3,491
Short term investments               13,798       24,382        8,700
Cash and cash equivalents            19,245       11,379       24,832
----------------------------------------------------------------------
Total current assets                 37,436       39,384       37,023
----------------------------------------------------------------------

Total assets                         39,178       43,214       39,329

Current liabilities
Obligations under finance
 leases                                   3            3            4
Trade and other payables              3,086        3,643        2,540
Other liabilities                       218          325          325
Provisions (note 6)                     154          677          237
----------------------------------------------------------------------
Total current liabilities             3,461        4,648        3,106
----------------------------------------------------------------------
Net current assets                   33,975       34,736       33,917
Total assets less current
 liabilities                         35,717       38,566       36,223

Obligations under finance
 leases                                   -            3            -
Provisions (note 6)                     248          635          287
----------------------------------------------------------------------
Total long term liabilities             248          638          287
----------------------------------------------------------------------
Total assets less total
 liabilities                         35,469       37,928       35,936
----------------------------------------------------------------------

Called-up share capital                 148          144          145
Share premium account                 2,810        1,456        1,674
Exchangeable shares                      40          673          643
Capital redemption reserve              162          162          162
Merger reserve                          107          107          107
Other reserves                       60,014       59,413       59,767
Retained earnings                   (27,812)     (24,027)     (26,562)
----------------------------------------------------------------------
Total Equity (note 5)                35,469       37,928       35,936
----------------------------------------------------------------------

Consolidated Cash Flow Statement
For the six months ended 30 June 2005

                                      6 months    6 months   12 months
                                         ended       ended       ended
                                       30 June     30 June 31 December
                                          2005        2004        2004
                                   (unaudited) (unaudited) (unaudited)
                                      GBP '000    GBP '000    GBP '000
----------------------------------------------------------------------
Cash flows from operating
 activities
Cash used in operations (note 4)       (2,616)     (5,067)     (8,298)
Interest received                         699         590       1,414
Bank interest paid                          -          (3)         (5)
Taxes paid                                (13)        (54)       (117)
Tax refund                              1,059       1,275       1,228
----------------------------------------------------------------------
Net cash used in operating
 activities                              (871)     (3,259)     (5,778)
----------------------------------------------------------------------

Cash flows from investing
 activities
Purchase of property, plant and
 equipment                               (103)        (24)        (85)
Disposal of property, plant and
 equipment                                  -           -           8
Purchase of intangible assets            (224)       (338)       (347)
Capitalisation of R&D assets              (62)       (113)       (245)
Movements on short term
 investments                           (5,098)      5,296      20,978
Proceeds from sale of business            108       2,539       3,058
----------------------------------------------------------------------
Net cash generated (used) in
 investing activities                  (5,379)      7,360      23,367
----------------------------------------------------------------------

Cash flows from financing
 activities
Net proceeds from issue of
 ordinary share capital                   630           6         197
Finance lease principal payments           (1)        (51)        (54)
----------------------------------------------------------------------
Net cash generated (used) in
 financing activities                     629         (45)        143
----------------------------------------------------------------------

Effects of exchange rate changes           34         247          24
----------------------------------------------------------------------
Net increase/(decrease) in cash
 and cash equivalents                  (5,587)      4,303      17,756
----------------------------------------------------------------------
Cash and cash equivalents at
 beginning of period                   24,832       7,076       7,076
----------------------------------------------------------------------
Cash and cash equivalents at end
 of period                             19,245      11,379      24,832
----------------------------------------------------------------------

NOTES TO THE ACCOUNTS

1. Basis of Preparation

These interim financial statements have been prepared in accordance
with the accounting policies the Company expected to be applicable as
at 31 December 2005 and the interpretation of those standards. The
IFRSs and IFRIC interpretations that will be applicable at 31 December
2005, including those that will be applicable on an optional basis,
are not known with certainty at the time of preparing these interim
financial statements. These figures may therefore require amendment,
to change of basis of accounting/or presentation of certain financial
information, before their inclusion in the IFRS financial statements
for the year ended 31 December 2005, when the Group prepares its first
complete set of IFRS statements. These interim financial statements
have been prepared under the historical cost convention, except in
respect to certain financial instruments. In addition, these interim
financial statements do not comply with all the disclosures in IAS34
on interim financial reporting and are therefore not in full
compliance with IFRS.

The consolidated accounts incorporate the account of the Company and
of each of its subsidiaries for the period to 30 June 2005. The
results of the disposed business are included in the Group profit and
loss account up to the date of disposal.

2. Overview of IFRS Impact in 2004

The following table summarises the impact of the adoption of IFRS on
the group's operating loss for the six months ended 30 June 2004 and
the year ended 31 December 2004.

Reconciliation of Operating Loss

                                               Six months
                                                    ended   Year ended
                                                  30 June  31 December
                                                     2004         2004
                                              (unaudited)  (unaudited)
                                                 GBP '000     GBP '000

UK GAAP operating loss                            (4,852)      (7,315)

Share based payment expense                          (65)         (98)
Development cost (net)                                58          114
Lease re-classification                               17           18
Goodwill adjustment                                  398           (5)
                                            --------------------------
                                                     408           29
                                            --------------------------

IFRS operating loss                               (4,444)      (7,286)

3. Summary of Net Operating Expenses

                       6 months ended  6 months ended  12 months ended
                         30 June 2005    30 June 2004 31 December 2004
                          (unaudited)     (unaudited)      (unaudited)
                             GBP '000        GBP '000        GBP '000
----------------------------------------------------------------------
Cost of sales                    (690)           (925)         (1,661)
Research and
 development                   (3,246)         (4,559)         (7,961)
Sales and marketing            (2,067)         (2,556)         (4,744)
General and
 administrative                (1,608)         (2,114)         (3,697)
Share based award
 expense                         (247)            (65)           (419)
Depreciation of fixed
 assets                          (175)           (353)           (563)
Impairment of goodwill           (195)              -            (803)
Amortisation of
 capitalised R&D                  (93)            (55)           (131)
Amortisation of
 software and other
 intangibles                     (485)           (824)         (1,421)
Provision release                   -               -             441
Restructuring
 provision                          -          (1,058)         (1,067)
Gain on business
 disposal (note 7)                 83           1,855           2,578
----------------------------------------------------------------------
Net operating expenses         (8,723)        (10,654)        (19,448)
----------------------------------------------------------------------

4. Cash Used in Operations

                        6 months ended 6 months ended  12 months ended
                          30 June 2005   30 June 2004 31 December 2004
                           (unaudited)    (unaudited)      (unaudited)
                              GBP '000       GBP '000         GBP '000
----------------------------------------------------------------------

Net loss                       (1,373)         (2,877)         (5,056)
Adjustments for:
Gain on business
 disposal                         (83)         (1,855)         (2,578)
Interest receivable              (780)           (684)         (1,443)
Interest payable                    -               2               3
Tax credit                     (1,152)           (885)           (790)
Amortisation                      578             879           1,552
Depreciation                      175             353             564
Goodwill impairment               195               -             803
Loss on disposal of
 property, plant and
 equipment                          -             206             206
Share based award
 expense                          247              65             419
(Increase) in
 inventories                        -             (16)            (17)
(Increase)/decrease in
 trade and other
 receivables                     (821)             (2)            177
Increase/(decrease) in
 trade and other
 payables                         520            (647)         (1,744)
Increase/(decrease) in
 provisions                      (122)            394            (394)
----------------------------------------------------------------------
 Cash used in
  operations                   (2,616)         (5,067)         (8,298)
----------------------------------------------------------------------

5. Statement of Changes in Equity

                                                               Capital
                       Share    Share Exchangeable   Merger redemption
 Group               capital  premium       shares  reserve    reserve
 (unaudited)        GBP '000 GBP '000     GBP '000 GBP '000   GBP '000
----------------------------------------------------------------------

1 January 2005 as
 previously
 reported               145    1,674          643      107        162
IFRS adjustments
----------------------------------------------------------------------
1 January 2005 as
 restated               145    1,674          643      107        162

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

                              Cumulative  Profit &
                       Other translation      loss
 Group              reserves  adjustment   account    Total
 (unaudited)        GBP '000    GBP '000  GBP '000 GBP '000
-----------------------------------------------------------

1 January 2005 as
 previously
 reported            59,551               (26,675)  35,607
IFRS adjustments        216        (217)      330      329
-----------------------------------------------------------
1 January 2005 as
 restated            59,767        (217)  (26,345)  35,936

Shares issued                                          536
Exchangeable shares
 exercised                                               -
Change in value of
 ESOP reserve                                  94       94
Share based award
 reserve                247                            247
Exchange gain                        29                 29
Profit (loss) for
 the period                                (1,373)  (1,373)
-----------------------------------------------------------
At 30 June 2005      60,014        (188)  (27,624)  35,469
-----------------------------------------------------------

6. Provisions

                           Short term       Long term  Total provision
 (unaudited)                GBP '000s       GBP '000s        GBP '000s
----------------------------------------------------------------------

 At 1 January 2005               237              287             524
 Utilised                       (122)               -            (122)
 Reclassified from
  long term to short
  term                            39              (39)              -
----------------------------------------------------------------------
 At 30 June 2005                 154              248             402
----------------------------------------------------------------------

The provision for restructuring costs represents onerous lease
commitment for the Elstree, UK and Santa Cruz, USA facilities.
Management anticipates utilisation of these provisions over the next
three years.

7. Gain on Business Disposal                               (unaudited)
                                                             GBP '000s

 Cash consideration received                                      108
 Less costs of disposal                                           (25)
                                                           -----------
 Gain on sale of business                                          83
                                                           -----------

On 30 June 2004, the Company completed an agreement to sell the
peripherals business and certain associated assets and liabilities to
TransDimension, Inc ("TDI") for a purchase price of GBP 3.6 million
($6.65 million). Net cash consideration of GBP 3.1 million ($5.6
million) was received in 2004. In addition, GBP 184,000 of deferred
profit in respect of deferred revenue was recognised in the second
half of 2004. The remainder of the consideration is in the form of a
promissory note for $650,000 payable on 15 June 2005. On 16 June 2005,
the Company received a payment in the amount of GBP 108,000 ($195,000)
from TDI. TDI has made claims against the remaining balance due. The
Company disputes those claims and will pursue the dispute resolution
procedures established by its agreement with TDI to recover the
balance due from TDI.

About ARC International plc

ARC International is the world leader in low-power, high-performance 32-bit configurable CPU/DSP processor cores, subsystems, real-time operating systems and development tools for embedded system design. ARC's configurable and extendible cores assist customers in the development of next generation digital media, consumer and communications devices, resulting in lower cost, higher performance SoC products.

ARC International maintains a worldwide presence with corporate offices in San Jose, California, USA and Elstree, UK. The company has research and development offices located in England and the United States. For more information please visit the ARC website at: www.ARC.com. ARC International is listed on the London Stock Exchange as ARC International plc (LSE:ARK).

ARC, ARC-Based, ARCsound, MQX Embedded and the ARC logo are trademarks or registered trademarks of ARC International. All other brands or product names contained herein are the property of their respective owners. This press release may contain certain "forward-looking statements" that involve risks and uncertainties. For factors that could cause actual results to differ, visit the company's Website as well as the listing particulars filed with the United Kingdom Listing Authority and the Registrar of Companies in England and Wales.