Amphion Innovations (AMP)

 

LSE:AMP: Final Results

Amphion Innovations

23 Jun 2016 07:00:08

Amphion Innovations

RNS Number : 0200C
Amphion Innovations PLC
23 June 2016
 

23 June 2016

 

Amphion Innovations plc

Final Results for the year to 31 December 2015

 

 

London and New York, 23 June 2016 - Amphion Innovations plc (LSE: AMP) ("Amphion" or the "Company"), the developer of medical and technology businesses, today announces its audited final results for the year to 31 December 2015 (the "Period").

 

Financial Highlights:

·    Net Asset Value per ordinary share in the Company ("Ordinary Shares") was 3.8 pence (US $0.055)* at Period-end, an increase from 0.7 pence (US $0.01) per Ordinary Share at 31 December 2014;

·    Raised £2.1 million through the placing of new Ordinary Shares (June 2015) and the exercise of warrants throughout the Period;

·     Cash resources as at Period-end of approximately US $0.9 million; and

·     Reduced total liabilities by US $1.4 million during the Period.

 

Partner Companies' Highlights:

·     Successful IPO of Partner Company Motif Bio plc ("Motif") in April 2015, raising £2.8 million at 20 pence per Motif share;

·    Motif raised a further £22 million at 50 pence per share in July 2015 with a placing of new Motif shares with institutional investors;

·    Independent tests on Motif's lead antibiotic product iclaprim showed it to be effective in vitro against a range of Gram-positive bacteria, and was found to be 16 times more potent than trimethoprim, an existing synthetic antibiotic used to treat bacterial infections; and

·     Kromek Group plc ("Kromek") raised £11 million in August 2015 through a placing of new Kromek shares.

 

Post-Period Highlights:

·     Motif began dosing the first patient in the Phase III iclaprim trials (March 2016);

·     Loans in the amount of US $6,308,600 owing to the estate of former Chairmen restructured;

·     Convertible Promissory Notes in the amount of £5,707,738 amended and extended

 

* Exchange rate at 31 December 2015 - 1.4746.

Richard Morgan, CEO of Amphion Innovations plc commented:

"The rise in our Net Asset Value per Ordinary Share was mainly due to the increase in the value of our holdings in Motif Bio plc. Following its successful IPO in April 2015, Motif concluded a financing in July to raise £22 million (before expenses) in a placing with several leading institutional investors, at a price significantly higher than the IPO price.  We believe Motif has a very bright future and is now on its way to becoming a significant player in the antibiotic market, which has a growing need for novel therapies.

"We are committed to working closely with Motif to help it achieve its goals.  In addition, we now have the opportunity to move forward one or two other Partner Companies and, for the first time in many years, to begin to explore the possibility of adding to Amphion's portfolio.  We look forward to the future with renewed confidence and to being able to report further progress from our Partner Companies in due course."

 

 

Contacts:

 

Amphion Innovations
Charlie Morgan
+1 212 210 6224

Yellow Jersey PR

Charles Goodwin / Dominic Barretto
+44 (0)7747 788 221

Panmure Gordon Limited (Nominated Adviser and Corporate Broker)

Freddy Crossley / Duncan Monteith (Corporate Finance)
Charlie Leigh-Pemberton (Corporate Broking)
+44 (0)20 7886 2500

 

Northland Capital Partners Limited (Joint Corporate Broker) 
Patrick Claridge / David Hignell (Corporate Finance)
John Howes (Corporate Broking)
+44 (0)20 3861 6625

 

Plumtree Capital Limited (Financial Adviser)
Stephen Austin
+44 (0)20 7183 2493
+646 568 7502

Chief Executive Officer's Statement

Financial Results and Net Asset Value

 

Revenue in 2015 was US $519,855 (2014: US $484,700) while total administrative expenses were US $4,680,212 in 2015 (2014: US $3,494,351).  As a result, the operating loss for the year was US $4,160,357 (2014: US $3,009,651).  Revenue remained below that of prior years due partly to the absence of licensing income from DataTern and partly from the inability of our Partner Companies to contribute management fees. 

 

Total administrative expenses have at least two different components: the general overheads and operating costs of the parent company and the expenses incurred within and by DataTern, our wholly-owned subsidiary.  The latter are consolidated into the total but are dictated by the activity related to the IP licensing programme, which is discussed further below.  The former includes the write-down of fees and other income due from the Partner Companies, which are now judged to be uncollectable, and also includes certain expenses related to the fund-raising activities described further below.  General overhead and operating expenses excluding expenses related to DataTern, the write down of receivables and the fund-raising expenses, were again tightly controlled at US $1,769,809 (2014:  US $1.5 million).

 

During the year, the Company was able to raise capital from the equity capital markets for the first time in seven years.  In April, holders of warrants associated with an institutional lender elected to exercise all their warrants, generating approximately £581,000 in net proceeds to the Company. In June the Company raised additional capital through a placing of new Ordinary Shares, with net proceeds to the Company of circa £1.54 million before expenses.  In addition, in June and July the Company completed an exchange of Kromek shares for Convertible Notes to those note holders who had duly notified the Company in December 2014.  Partly as a result of these financing activities, the Company's total liabilities decreased by US $1.41 million over the year and, as at Period-end, the Company's cash balance was US $936,981.

 

Following the successful IPO of Motif on London's AIM market in early April 2015, Motif's share price rose from 20 pence at the IPO to a high of 70.75 pence at the end of June.  At the end of the year, the share price was 42.75 pence.  As a result, the value of Amphion's holdings in Motif rose from US $13.2 million at the end of December 2014 to US $27.0 million at the end of December 2015.  This increase was the main factor behind the improvement in Amphion's Net Asset Value per Ordinary Share to 3.8 pence at 31 December 2015.  At the same time the share price of Kromek finished the year at 35.5 pence, which was almost exactly where it started. Since the start of 2016, the Kromek share price has fallen to 29 pence, while Motif's share price has remained broadly unchanged and is currently 47.5 pence.  Motif and Kromek also completed substantial financings in July and August 2015 respectively and have sufficient financial resources relative to their current operating costs.

 

Amphion's holding of intellectual property assets is valued at amortised cost of US $275,016. In addition to the initial purchase of these IP assets from our Partner Company, FireStar Software, Amphion has made significant additional investment in these assets, which has been expensed as incurred and the value of those assets continues to be carried only at amortised historical cost.  The Directors believe that the realisable value of the intellectual property assets held by DataTern is substantially in excess of the carrying value. Further to this, the incremental investments being made in the pursuit of the parties infringing DataTern's IP will generate a significant profit. We believe that if we are successful in concluding licensing agreements with the various infringing parties at levels that meet our expectations, the Company's NAV per Ordinary Share could be significantly higher.

 

 

 

Motif Bio plc

 

On 2 April 2015, Motif successfully completed its IPO and admission to AIM, raising £2.8 million at 20 pence per ordinary share.  On 23 June 2015, Motif concluded a conditional placing of 44 million new ordinary shares at a placing price of 50 pence per ordinary share with institutional investors to raise £22 million. On 22 July 2015, the FDA designated iclaprim as a Qualified Infectious Diseases Product ("QIDP") for hospital acquired bacterial pneumonia ("HABP"). This satisfied the final condition of the placing, with admission of the 44 million new ordinary shares occurring on 27 July 2015. On 22 July 2015, the Company reported that the FDA had also designated iclaprim as QIDP for acute bacterial skin and skin structure infections ("ABSSSI"), the second of two serious and life threatening infections for which Motif applied for QIDP status.  With QIDP designation, iclaprim is now eligible for a total of 10 years of market exclusivity from the date of approval.

 

The decision by Motif to focus on its antibiotic programme has proven to be timely given the growing recognition of the worldwide problems caused by antibiotic resistance.  In July 2014, Prime Minister David Cameron announced the launch of a global taskforce, under the leadership of Jim O'Neill, former chairman of Goldman Sachs Asset Management, to coordinate an international effort to seek new therapies to combat antibiotic resistant superbugs.  Prime Minister Cameron commented: "If we fail to act, we are looking at an almost unthinkable scenario where antibiotics no longer work and we are cast back to the dark ages of medicine where treatable infections and injuries can kill once again".  Motif's mission is to address this global health crisis by developing new antibiotics that work in different ways to those commonly used today. 

 

Iclaprim has a novel mechanism of action and enjoys a number of important clinical and commercial attributes, such as a low propensity to develop resistance, which has been demonstrated in vitro.  Iclaprim was originally developed by Hoffman-La Roche Inc. and completed comprehensive development in 2008, including two Phase III trials with over 900 patients, half of whom were treated with this antibiotic.  Although the FDA declined to approve the drug at the time, despite having met the original goals agreed with the agency, the FDA confirmed that they were satisfied with the safety profile of iclaprim and this was confirmed in Motif's April 2015 meeting with the agency.  On 2 March 2016, Motif announced that the first person to enter the new Phase III trial had been screened and dosed.  The trial is expected to take about 18 months and, in light of the extensive development history and the improvements in the trial design, Motif believes the drug will meet the new endpoints.  Subject to the necessary regulatory approvals, Motif expects to begin marketing the drug in 2018.

 

DataTern and the Intellectual Property Licensing Programme

 

DataTern Inc. ("DataTern"), a wholly owned subsidiary of the Company, announced in September that it received a favourable ruling by the U.S. District Court in Massachusetts (the "Court"), which denied two motions for summary judgment filed by MicroStrategy Inc. ("MicroStrategy") seeking dismissal of DataTern's claims on the grounds of validity and infringement.  In May 2015, there was a hearing on the two motions: one motion argued that DataTern's '502 patent is invalid under section 101 of the United States Patent Act, and the second argued that MicroStrategy did not infringe the '502 patent. 

 

The Court found that the '502 patent solved a specific problem in computing using an inventive concept and concluded that the invention was eligible for patent protection under the U.S. Supreme Court's most recent precedent.  On the second motion, concerning the issue of infringement, the Court denied MicroStrategy's motion seeking a determination that it did not infringe because its Business Platform did not use an "object model", leaving the door open to revisit related issues in the future.

 

These were important and favourable rulings, taken together with the ruling from the Federal Circuit Court of Appeals received in late December 2014, in its appeal in the MicroStrategy case, which the Company's legal advisers also considered to be clearly favourable.  MicroStrategy sells business intelligence and analytics software platforms used by other defendants.  There are seven defendants in the MicroStrategy case, which remains the only active case at this time.  A preliminary schedule has been established which calls for the trial to begin in the third quarter of 2016. 

 

The '502 patent and the '402 patent are directed to how object-oriented software applications access data stored in relational databases.  Such applications are widely used and exist within most current databases are relational databases.  We continue to believe that companies that are using or want to use DataTern's patented technology should enter into equitable licensing agreements.

 

The Company's legal team, supported by the Company's extensive team of technical and patent experts, continues to believe in the strength of its intellectual property.  Both of DataTern's key patents have completed a comprehensive re-examination by the United States Patent and Trademark Office ("USPTO") and successfully emerged both fully validated and with additional claims added.  Our goal remains to generate a fair and reasonable return on the very substantial investment made by DataTern and FireStar over many years in the development of this innovative technology.  If we are successful, we believe that the value of the net income to DataTern should be substantially in excess of its carrying value. It remains the considered opinion of the Company's team that the two patents are both valid and being infringed by a wide range of companies that are practicing this critical art. The Board believes that a Claim Construction ruling, which is fully reflective of its interpretation of the claims of the patents, would establish significant infringement by a large number of companies and it believes that DataTern should be able to generate a significant amount of revenue from this asset over the next few years. 

 

Under the revenue sharing agreement with DataTern, Amphion's Partner Company, FireStar Software Inc. (where the technology and patents were originally developed), would share directly in the revenue stream.

 

Building Value in the Partner Companies

 

Since flotation, our basic business model has been to start and build companies with high value potential based on innovative and proprietary, but basically proven, technology. Our continued ability to select good IP and to develop the IP portfolios in each of our Partner Companies is a critical success factor and is getting steadily stronger as we deepen our knowledge and experience in this area. This knowledge underpins Amphion's investment in each Partner Company at the outset and as it develops. However, our primary goal in every company is the development of a successful business model and operating capabilities that can utilise the technology to develop and commercialise innovative products, generate revenue, and make profits.

 

Following the successful IPO for Motif on AIM in April 2015, we have the opportunity to advance other Partner Companies and to start to consider, for the first time in over five years, how best to grow the Company in the future.

 

m2m is poised to make good progress.  We anticipate being able to expand the core business and can identify a number of ways in which we can enlarge and improve the scope of the business by combining with other emerging companies. Magnetic Resonance Imaging ("MRI") is a medical imaging modality that is being increasingly used in pre-clinical investigations as well as for clinical diagnostics.  m2m has a number of patents on the technology which is aimed at improving the diagnostic quality of MRI images, and the company's leadership has identified a number of pathways to expand its footprint in the general area.

 

We continue to believe that Kromek's technology platform has great potential.  With the acquisition of eV Products in 2013, Kromek gained one of the leading cadmium zinc telluride ("CZT") production capabilities in the world.  As the cost of producing this material becomes competitive with scintillator technology, the opportunity exists for a lasting shift to CZT-based detector systems, bringing the benefits of multispectral imaging to CT systems and nuclear medicine, for example in SPECT systems.  In August 2015, Kromek completed a follow-on financing with institutional and other investors, raising approximately £11 million (before expenses) through a placing and open offer of new ordinary shares at 25 pence.  During its last fiscal year to April 2016, Kromek announced a number of orders from DARPA and from other existing customers, totaling approximately US $28 million to be recognised over the lifetime of the orders. As a result, Kromek is entering its new fiscal year with a substantial backlog and the recently announced orders support our view that, in time, the technology should be widely adopted for use across all of its target markets, including medical imaging systems. Following the placing last year, Amphion's shareholding in Kromek decreased to approximately 5.27%.

 

In April 2014, the case Axcess brought against Baker & Botts LLP, the law firm, went to the jury which returned a verdict in favour of Axcess of US $40.5 million. The judge then overruled this verdict. Axcess' appeal to the Texas Appeals Court for a new trial was denied and they are now in the process of pursuing an appeal to the Texas Supreme Court.  Axcess is also appealing the decision by the US Patent and Trademark Office to invalidate the patent that is the subject of a suit against Savi Technologies.  That appeal is being made to the Federal Circuit Court of Appeals and will be heard sometime in the third quarter of 2016.  In parallel, Amphion has worked closely with Axcess' legal advisers to evaluate the extent to which all 13 patents in its portfolio are being infringed. It is clear that many companies are now offering products or services that incorporate some of the basic wireless technology developed by Axcess over the last 15 years.  A number of companies in the transportation, security, and other sectors appear to be infringing one or more of these patents. 

 

FireStar has continued to work on the development of its patented technology, which was also the basis of the formation of PrivateMarkets and is incorporated in its EdgeNode™ product.  PrivateMarkets, an Amphion Partner Company, offers an internet-based marketplace that links together a network of potential buyers and sellers who trade specific physical commodities. EdgeNode enables companies to facilitate low-cost, secure, machine-to-machine messaging, in a novel architecture, which is well suited to the needs of the healthcare and financial industries. The current focus is moving increasingly towards healthcare and, in particular, the potential productivity gains that should be possible with use of the technology in managing data and images so vital to clinical trials.  With this change in focus we may consider the opportunity to reintegrate the trading applications licensed to PrivateMarkets back into FireStar so that all the technology rights reside in the same company.

 

WellGen continues to explore the opportunity to develop a novel functional beverage based on a patented anti-inflammatory ingredient. The market for such products has been expanding rapidly in recent years. The company signed a joint venture and supply agreement with a US-based sports drink company that has established distribution channels in the mid-west of the United States, with an opportunity to expand to other US markets and beyond.

 

Financing

 

Financial support for Amphion over the last few years has come, for the most part, from the Directors and the management team. Following the Kromek IPO in late 2013, Amphion was able, for the first time, to access a loan facility in 2014, granted by an institutional lender, using the value of the publicly traded assets as security for a loan to bridge the Company financially through to the IPO of Motif.  That approach served the Company well.  Since then, the Company has borrowed additional funds under this loan facility and, during 2015, Amphion was able, for the first time in many years, to access the equity capital markets again on two occasions in April and June 2015, raising a total of £2,119,683.  The support from the management team has continued but with reduced prominence. 

 

The liabilities on the balance sheet stood at a total of approximately US $29 million at the end of the year, about a reduction of approximately US $1.4 million from one year earlier.  Total assets at the end of 2015 stood at approximately US $40 million and the ratio of liabilities to total assets at the end of 2015 was therefore approximately 72%.  While this appears to be a high level of gearing, some of the liabilities are at the DataTern level, although consolidated into the Company's reporting accounts.  Adjusting for the settlement made with BRG (announced in April), the remainder of the third party payables at the DataTern level stood at about US $1 million.  Of the remainder of the liabilities, US $13,912,283 were amounts owing to current or former board members and US $6,845,347 were amounts due to the other holders of the Company's CPN, which was extended in February. The remainder of the Company's liabilities total approximately US $7.2 million representing 18% of total assets.  The management team has worked closely with the main holders of notes and other claims on the Company in order to extend the maturity of these obligations to the maximum extent possible.

 

On 5 January 2016 the Company announced that it agreed, in principle, to replace the US $3,308,600 of Notes payable to R. James Macaleer, the former Chairman of the Company, and the US $3,000,000 of Notes payable to the RJM Amphion Trust, a trust set up for the benefit of Mr. Macaleer's children, with the issue of new promissory notes that are now due to mature on 31 December 2016 ("New Promissory Notes"), if not extended further. The rate of interest on the new notes will remain unchanged at 7%.  The new notes also contain certain provisions for early repayment. However, in no case will any payment be made on the new notes until the amounts outstanding under the Company's existing loan facility are fully repaid.  The final payment under the existing facility has recently been extended to 1 February 2017, and therefore it is expected that the Company will attempt to extend the maturity date of the New Promissory Notes beyond 1 February 2017.

 

In addition, on 2 March 2016 the Company announced that at a meeting on 26 February 2016, the holders of £5,707,738 Convertible Promissory Notes previously due on 31 December 2015 (the "Notes", and the "Note Holders") unanimously agreed to amend the terms of the Notes, which will now be redeemed on 31 December 2017 (subject to certain early partial redemption options) unless previously converted.  The Notes will be convertible into fully paid Ordinary Shares at 8 pence per Ordinary Share and will pay interest at 7% if the respective Noteholder elects to be paid in Ordinary Shares, or will pay interest at 5% if the respective Noteholder elects to be paid in cash or additional Notes, until conversion or redemption.  In addition, for every £1 of Note held, the respective Noteholder will be issued two warrants.  Each warrant granted will entitle the holder to subscribe for Shares at 10 pence per Ordinary Share.

 

A Tribute to Jim Macaleer

 

We want to take this opportunity to express our lasting gratitude for the support and guidance given over many years by the Company's former Chairman, Mr. James Macaleer, who passed away in October 2015.  Not only did Jim have an illustrious career in starting and building Shared Medical Systems into a multi-billion dollar enterprise (acquired in 2000 by Siemens) but he was also an important contributor to the success of Vortech Inc, one of Amphion's earlier medical imaging companies (sold to Kodak in 1994 for about US $130 million).  Jim later became an investor in Amphion and then an active member of our Board.  We could not have survived the difficult period during and following the inertia of the capital markets in 2008 without his continued support.  We miss his wise counsel almost as much as his signature Hawaiian shirts.

 

Prospects for 2016 and Beyond

 

The success of the Motif IPO and the subsequent increase in the value of our shareholding has been the driver behind the increase in our Net Asset Value.  It has also demonstrated the value of our patient and persistent approach to the development of our Partner Companies.  Despite the sharp increase in Motif's share price since the IPO, we believe that it should be valued more in-line with comparable companies trading on NASDAQ and that our holding could be worth considerably more than the level shown on the balance sheet at the year end. We continue to work closely with Motif to develop the business and close the valuation gap.  We believe Motif has a very bright future and we are committed to helping the company to become a major player in the antibiotic biopharmaceutical world.

 

The Board and management have supported Amphion through several lean years but the fact that we have been able to raise fresh equity capital is an encouraging development.  While our stated goal is to reduce the level of gearing or leverage on our balance sheet, we are committed to doing so in ways that preserve the shareholder value we have managed to create through this support.  Between July 2015 and February 2016 the main biotech indexes (such as the NASDAQ Biotechnology Index) fell by about 40%.  Most publicly traded biopharma companies fell along with the sector as a whole and Motif was no exception.  The weighting of Amphion's shareholding in Motif relative to the total assets of the Company currently causes Amphion's share price to be correlated to the Motif share price.  As a result of the fall in the price of both Motif's and Amphion's shares in the second half of 2015 and in early 2016 as valuations in the sector were pressured, we decided the best course to raise more capital for Amphion in the short-term was to increase further the use of our loan facility, rather than attempt to approach the equity market on a further occasion.  The additional loans are quite small in relation to the total value of our marketable assets and we believe this form of financing makes the most sense for our shareholders for the time being.

 

The outlook for Amphion depends increasingly on the value we can capture from our holdings in Motif, Kromek and, if we can move it forward successfully, m2m.  We are very actively supporting the development of both Motif and m2m and view the future of all three companies with optimism.  In addition, we continue to support DataTern's IP licensing programme and the recent successes in court reinforce our belief that we should see a good outcome from this programme in the next year or two.  As we look to the future beyond the horizon for these particular programmes, we will begin to consider how best to build on the platform we have created and maintained, in order to capitalise on our experience and knowledge in supporting emerging life science companies.

 

 

 

Richard C.E. Morgan

Chief Executive Officer

 

Amphion Innovations plc

 

 

 

 

 

 

Consolidated statement of comprehensive income

 

 

 

 

 

For the year ended 31 December 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

 

 

 

 

 

 

 

 

Year ended

 

 

Year ended

 

 

 

31 December 2015

 

 

31 December 2014

Continuing operations

 

 

 US $

 

 

 US $

 

 

 

 

 

 

 

Revenue

4

 

                    519,855

 

 

                   484,700

Cost of sales

 

 

                                 -  

 

 

                                -  

Gross profit

 

 

                    519,855

 

 

                   484,700

 

 

 

 

 

 

 

Administrative expenses

 

 

               (4,680,212)

 

 

              (3,494,351)

 

 

 

 

 

 

 

Operating loss

 

 

               (4,160,357)

 

 

              (3,009,651)

 

 

 

 

 

 

 

Fair value gains/(losses) on investments

15

 

                8,512,215

 

 

              (9,927,978)

Realised gains on sale of investment

15

 

                1,595,429

 

 

                                -  

Interest income

8

 

                   678,824

 

 

                   849,384

Other gains and losses

 

 

                   505,015

 

 

                   675,265

Finance costs

9

 

               (1,187,427)

 

 

              (1,176,299)

 

 

 

 

 

 

 

Profit/(loss) before tax

6

 

                5,943,699

 

 

           (12,589,279)

 

 

 

 

 

 

 

Tax on profit/(loss)

10

 

                      (1,900)

 

 

                        (442)

 

 

 

 

 

 

 

Profit/(loss) for the year

 

 

                5,941,799

 

 

           (12,589,721)

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

Exchange differences arising on translation

 

 

 

 

 

 

   of foreign operations

 

 

                               -  

 

 

                            18

 

 

 

 

 

 

 

Other comprehensive income for the year

 

 

                               -  

 

 

                            18

 

 

 

 

 

 

 

Total comprehensive income/(loss) for the year

 

 

                5,941,799

 

 

           (12,589,703)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Directors consider that all results derive from continuing activities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss) per share

11

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

US

 $                       0.03

 

US

 $                     (0.09)

 

 

 

 

 

 

 

Diluted

 

US

 $                       0.02

 

US

 $                     (0.09)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The notes are an integral part of these financial statements.

 

 

 

 

 

               

 

Amphion Innovations plc

 

 

 

 

 

Company statement of comprehensive income

 

 

 

 

 

For the year ended 31 December 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended

 

Year ended

 

Notes

 

31 December 2015

 

31 December 2014

 

 

 

US $

 

US $

Continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Administrative expenses

 

 

                (2,068,530)

 

                  (1,121,478)

 

 

 

 

 

 

Operating loss

 

 

                (2,068,530)

 

                  (1,121,478)

 

 

 

 

 

 

Fair value gains/(losses) on investments

15

 

                 5,654,608

 

                  (9,951,615)

Realised gain on sale of investments

15

 

                 1,595,429

 

                                   -  

Impairment of subsidiary investment

 

 

                    114,540

 

                     (156,295)

Interest income

8

 

                    557,123

 

                      805,049

Other gains and losses

 

 

                    505,015

 

                      665,248

Finance costs

9

 

               (1,138,455)

 

                  (1,121,244)

 

 

 

 

 

 

Profit/(loss) before tax

6

 

                 5,219,730

 

                (10,880,335)

 

 

 

 

 

 

Tax on profit/(loss)

10

 

                              -

 

                                 -

 

 

 

 

 

 

Profit/(loss) for the year

 

 

                 5,219,730

 

                (10,880,335)

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income for the year

 

 

                             -

 

                                -

 

 

 

 

 

 

Total comprehensive income/(loss) for the year

 

 

                 5,219,730

 

                (10,880,335)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Directors consider that all results derive from continuing activities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The notes are an integral part of these financial statements.

 

 

 

 

               

 

Amphion Innovations plc

 

 

 

 

 

 

Consolidated statement of financial position

 

 

 

 

 

At 31 December 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

 

31 December 2015

 

31 December 2014

 

 

 

 

US $

 

US $

Non-current assets

 

 

 

 

 

 

Intangible assets

 

12

 

                      275,016

 

                    430,100

Property, plant, and equipment

 

13

 

                                   -  

 

                                -  

Security deposit

 

16

 

                        22,008

 

                      13,600

Investments

 

15

 

                37,444,316

 

              28,767,659

 

 

 

 

                37,741,340

 

              29,211,359

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Prepaid expenses and other receivables

 

16

 

                   1,206,843

 

                2,569,380

Cash and cash equivalents

 

16

 

                      936,981

 

                   212,816

 

 

 

 

                   2,143,824

 

                2,782,196

 

 

 

 

 

 

 

Total assets

 

 

 

                 39,885,164

 

              31,993,555

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

16, 17

 

                 10,346,011

 

              10,270,584

Notes payable

 

16, 18

 

                 10,334,901

 

                8,964,901

Convertible promissory notes

 

16, 18

 

                   8,312,180

 

              10,189,891

 

 

 

 

                 28,993,092

 

              29,425,376

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

Notes payable

 

16, 18

 

                                   -  

 

                   982,000

 

 

 

 

                                   -  

 

                   982,000

 

 

 

 

 

 

 

Total liabilities

 

 

 

                 28,993,092

 

             30,407,376

 

 

 

 

 

 

 

Net assets

 

 

 

                 10,892,072

 

               1,586,179

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Share capital

 

19

 

                   3,460,880

 

               2,716,656

Share premium account

 

 

 

                 38,667,074

 

             36,070,864

Translation reserve

 

 

 

                                   -  

 

                               -  

Retained earnings

 

 

 

                (31,235,882)

 

            (37,201,341)

 

 

 

 

 

 

 

Total equity

 

 

 

                 10,892,072

 

                1,586,179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The financial statements were approved by the Board of Directors and authorised for issue on

23 June 2016.  They were signed on its behalf by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Director

 

Director

 

 

 

 

Richard C.E. Morgan

 

Robert J. Bertoldi

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The notes are an integral part of these financial statements.

 

 

 

 

               

 

Amphion Innovations plc

 

 

 

 

 

Company statement of financial position

 

 

 

 

 

At 31 December 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

 

31 December 2015

 

31 December 2014

 

 

 

 US $

 

 US $

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

Security deposit

 

 

                               -  

 

                               -  

Investments

15

 

             31,839,324

 

             26,063,106

Investment in subsidiaries

14

 

                  641,984

 

                  527,444

 

 

 

             32,481,308

 

             26,590,550

 

 

 

 

 

 

Current assets

 

 

 

 

 

Prepaid expenses and other receivables

16

 

               6,099,021

 

                5,365,760

Cash and cash equivalents

16

 

                  883,074

 

                   192,807

 

 

 

               6,982,095

 

                5,558,567

 

 

 

 

 

 

Total assets

 

 

             39,463,403

 

             32,149,117

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

16, 17

 

               3,491,093

 

                3,307,920

Notes payable

16, 18

 

               9,389,901

 

                8,964,901

Convertible promissory notes

16, 18

 

               8,312,180

 

              10,189,891

 

 

 

             21,193,174

 

              22,462,712

 

 

 

 

 

 

Total liabilities

 

 

             21,193,174

 

              22,462,712

 

 

 

 

 

 

Net assets

 

 

             18,270,229

 

                9,686,405

 

 

 

 

 

 

Equity

 

 

 

 

 

Share capital

19

 

               3,460,880

 

                2,716,656

Share premium account

 

 

             38,667,074

 

              36,070,864

Retained earnings

 

 

            (23,857,725)

 

             (29,101,115)

 

 

 

 

 

 

Total equity

 

 

             18,270,229

 

                 9,686,405

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The financial statements were approved by the Board of Directors and authorised

 

 

for issue on 23 June 2016.  They were signed on its behalf by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Director

 

 

Director

 

 

Richard C.E. Morgan

 

 

Robert J. Bertoldi

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The notes are an integral part of these financial statements.

 

 

 

 

 

Amphion Innovations plc

 

 

 

 

 

 

 

 

 

 

 

Consolidated statement of changes in equity

 

 

 

 

 

 

 

 

For the year ended 31 December 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share

 

 

 

 

 

 

 

 

 

Share

 

premium

 

Translation

 

Retained

 

 

 

Notes

capital

 

account

 

reserve

 

earnings

 

Total

 

 

 

US $

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2013

 

 

 2,693,319

 

 36,042,868

 

       (13,396)

 

 (24,645,286)

 

  14,077,505

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the year

 

 

                - 

 

                   -

 

                -  

 

 (12,589,721)

 

 (12,589,721)

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income for the year

 

               -  

 

                   -

 

              18

 

                  -  

 

                  18

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss for the year

 

 

               -  

 

                 -  

 

              18

 

 (12,589,721)

 

 (12,589,703)

 

 

 

 

 

 

 

 

 

 

 

 

Issue of share capital

19

 

      23,337

 

        27,996

 

                -  

 

                   -  

 

          51,333

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of share-based payments

21

 

               -  

 

                   -

 

                -  

 

         47,044

 

          47,044

 

 

 

 

 

 

 

 

 

 

 

 

Dissolution of subsidiary

 

 

               -  

 

                   -

 

       13,378

 

        (13,378)

 

                     -

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2014

 

 

 2,716,656

 

 36,070,864

 

                 -

 

 (37,201,341)

 

     1,586,179

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

 

                -

 

                   -

 

                -  

 

    5,941,799

 

     5,941,799

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income for the year

 

               -  

 

                   -

 

                -  

 

                    -

 

                     -

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the year

 

               -  

 

                 -  

 

                -  

 

    5,941,799

 

    5,941,799

 

 

 

 

 

 

 

 

 

 

 

 

Issue of share capital

19

 

    744,224

 

   2,596,210

 

                -  

 

                   -  

 

     3,340,434

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of share-based payments

21

 

               -  

 

                   -

 

                -  

 

         23,660

 

          23,660

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2015

 

 

 3,460,880

 

 38,667,074

 

                 -

 

 (31,235,882)

 

  10,892,072

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amphion Innovations plc

 

 

 

 

 

 

 

 

 

Company statement of changes in equity

 

 

 

 

 

 

 

 

For the year ended 31 December 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share

 

 

 

 

 

 

 

Share

 

premium

 

Retained

 

 

 

Notes

 

capital

 

account

 

earnings

 

Total

 

 

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2013

 

 

 2,693,319

 

36,042,868

 

 (18,267,824)

 

  20,468,363

 

 

 

 

 

 

 

 

 

 

Loss for the year

 

 

                    -  

 

                  -  

 

 (10,880,335)

 

 (10,880,335)

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss for the year

 

 

                   -  

 

                 -  

 

 (10,880,335)

 

(10,880,335)

 

 

 

 

 

 

 

 

 

 

Issue of share capital

19

 

         23,337

 

        27,996

 

                  -  

 

          51,333

 

 

 

 

 

 

 

 

 

 

Recognition of share-based payments

21

 

                  -  

 

                  -  

 

        47,044

 

          47,044

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2014

 

 

   2,716,656

 

36,070,864

 

 (29,101,115)

 

     9,686,405

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

 

                   -  

 

                  -  

 

   5,219,730

 

     5,219,730

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the year

 

                 -  

 

                 -  

 

   5,219,730

 

   5,219,730

 

 

 

 

 

 

 

 

 

 

Issue of share capital

19

 

       744,224

 

  2,596,210

 

                  -  

 

     3,340,434

 

 

 

 

 

 

 

 

 

 

Recognition of share-based payments

21

 

                   -  

 

                  -  

 

        23,660

 

           23,660

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2015

 

 

   3,460,880

 

38,667,074

 

 (23,857,725)

 

   18,270,229

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amphion Innovations plc

 

 

 

 

 

Consolidated cash flow statement

 

 

 

 

 

For the year ended 31 December 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended

 

Year ended

 

Notes

 

31 December 2015

 

31 December 2014

 

 

 

US $

 

US $

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss)

 

 

               5,941,799

 

            (12,589,721)

 

 

 

 

 

 

Adjustments for:

 

 

 

 

 

   Depreciation of property, plant, and equipment

13

 

                               -  

 

                           308

   Amortisation of intangible assets

12

 

                  155,084

 

                   155,084

   Recognition of share-based payments

 

 

                    98,881

 

                     98,377

   Increase in security deposit

 

 

                     (8,408)

 

                               -  

   Decrease in prepaid and other receivables

 

 

               1,362,537

 

               1,084,816

   Increase in trade and other payables

 

 

                     75,427

 

                   859,021

   Receivables reclassified to investments

15

 

                 (432,420)

 

              (2,663,291)

   Change in fair value of investments

 

 

              (8,512,215)

 

               9,927,978

   Gain on sale of investments

 

 

              (1,595,429)

 

                               -  

   Transfer of assets to settle interest expense

 

 

                     89,480

 

                               -  

 

 

 

 

 

 

Net cash used in operating activities

 

 

              (2,825,264)

 

              (3,127,428)

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

Purchases of investments

15

 

                 (402,015)

 

                 (286,259)

 

 

 

 

 

 

Net cash used in investing activities

 

 

                 (402,015)

 

                 (286,259)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

 

 

 

Proceeds on issue of shares, net of costs

 

 

               3,265,213

 

                              -  

Proceeds on issue of promissory notes

18

 

               3,300,000

 

               3,081,301

Proceeds on issue of convertible promissory notes

18

 

                               -  

 

                  646,220

Repayments of promissory notes

18

 

              (2,609,167)

 

                 (455,000)

 

 

 

 

 

 

Net cash from financing activities

 

 

               3,956,046

 

               3,272,521

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

 

                  728,767

 

                 (141,166)

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

 

                  212,816

 

                   353,964

 

 

 

 

 

 

Effect of foreign exchange rate changes

 

 

                     (4,602)

 

                             18

 

 

 

 

 

 

Cash and cash equivalents at the end of the year

 

 

                  936,981

 

                   212,816

 

 

 

 

 

 

Interest received

 

 

                            43

 

                             42

Interest paid

 

 

                  245,079

 

                     15,521

 

Amphion Innovations plc

 

 

 

 

 

Company cash flow statement

 

 

 

 

 

For the year ended 31 December 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended

 

Year ended

 

Notes

 

31 December 2015

 

31 December 2014

Operating activities

 

 

 US $

 

 US $

 

 

 

 

 

 

Profit/(loss)

 

 

               5,219,730

 

              (10,880,335)

 

 

 

 

 

 

Adjustments for:

 

 

 

 

 

   Recognition of share-based payments

 

 

                     98,881

 

                       98,377

   Receivables reclassed to investments 

15

 

                 (389,587)

 

                (1,513,743)

   Increase in prepaid and other receivables

 

 

                 (733,261)

 

                   (549,828)

   Increase/(decrease) in trade and other payables

 

 

                  183,172

 

                   (418,967)

   Change in fair value of investments

 

 

              (5,654,608)

 

                 9,951,615

   Gain on sale of investments

 

 

              (1,595,429)

 

                                 -  

   (Reversal of) impairment of subsidiary investment

 

 

                 (114,540)

 

                    156,295

   Transfer of assets to settle interest expense

 

 

                    89,480

 

                                 -  

 

 

 

 

 

 

Net cash used in operating activities

 

 

             (2,896,162)

 

                (3,156,586)

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

Purchases of investments

15

 

                (402,015)

 

                   (286,259)

 

 

 

 

 

 

Net cash used in investing activities

 

 

                (402,015)

 

                   (286,259)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

 

 

 

Proceeds on issue of shares, net of costs

 

 

              3,265,213

 

                                -  

Proceeds on issue of promissory notes

18

 

              3,300,000

 

                 3,081,301

Proceeds on issue of convertible promissory notes

18

 

                              -  

 

                    646,220

Repayments of promissory notes

18

 

             (2,572,167)

 

                   (425,000)

 

 

 

 

 

 

Net cash from financing activities

 

 

              3,993,046

 

                 3,302,521

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

 

                 694,869

 

                   (140,324)

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

 

                 192,807

 

                     333,131

 

 

 

 

 

 

Effect of foreign exchange rate changes

 

 

                    (4,602)

 

                                 -  

 

 

 

 

 

 

Cash and cash equivalents at the end of the year

 

 

                 883,074

 

                     192,807

 

 

 

 

 

 

Interest received

 

 

                           43

 

                               42

Interest paid

 

 

                 244,414

 

                       15,521

 

Amphion Innovations plc
Notes to the consolidated financial statements
 
For the year ended 31 December 2015
 

 

    

1.  General information

 

Amphion Innovations plc (the "Company") is a public limited company incorporated in the Isle of Man under the Companies Act 2006 with registered number 011472V on 29 August 2014 (formerly registered under the Companies Acts 1931 to 2004 on 7 June 2005 with registered number 113646C).   The address of the registered office is Fort Anne, Douglas, Isle of Man, IM1 5PD.  The principal place of business is 125 Park Avenue, 25th Floor, New York, NY, 10017, USA.  The principal activity of the Company and its subsidiaries (the "Group") is to build shareholder value in high growth companies in the medical and technology sectors, by using a focused, hands-on company building approach, based on decades of experience in both the US and UK. 

 

The consolidated financial statements include the accounts of Amphion Innovations plc and its three wholly owned subsidiaries, Amphion Innovations US Inc. and DataTern, Inc., which are incorporated in the United States, and MSA Holding Company which is incorporated in the Kingdom of Bahrain.  Amphion Innovations UK Ltd. was dissolved on 8 July 2014.

 

These financial statements are presented in US dollars because that is the currency of the primary economic environment in which the Company operates.

 

Going concern

 

The Group's business activities, together with factors likely to affect its future development, performance, and financial position and commentary on the Group's financial results, its cash flows, and liquidity requirements are set out in the CEO's Statement on pages 2-7 and elsewhere within the financial statements.  In addition, note 16 to the financial statements includes the Group's objectives, policies, and processes for managing its capital, its financial risk management objectives, details of its financial instruments, and its exposures to liquidity risk and credit risk.

 

These financial statements have been prepared on the basis that the Group is a going concern.  Although the Group made an operating loss and is in a net current liability position, it is forecasting future positive cash flows.

 

The Directors have prepared cash flow forecasts extending at least 12 months from the date of approval of these financial statements, which include certain key assumptions about the ability of the Group to continue to generate revenue from the realisation of the Group's investment in Partner Companies and the ability to raise external debt and equity financing.

 

The Directors are also of the view that other viable options to allow the Group to continue as a going concern include the reduction in its financial support to Partner Companies in the short-term, although this may have an impact on the ability of the Partner Companies to develop their businesses and raise additional financing, the reduction in its working capital requirements, the more aggressive realisation of the Group's investments in Partner Companies, or from the licensing or sale of its intellectual property.

 

However, certain conditions exist which indicate the existence of a material uncertainty.  These conditions and the Directors' considerations in respect of these matters are discussed below:

 

• In prior years, the Group has been able to meet its obligations through fund raising (including the issue of shares and convertible promissory notes ("CPNs")), from revenue generated through the provision of advisory services to its Partner Companies, and from the revenue generated from the licensing of intellectual property.  During 2015 and 2014 as a result of a lack of cash being generated from these activities, the Group has had to reduce its financial support to its Partner Companies and extend the payment dates for its trade payables and its convertible promissory notes.  The Group has also reduced its operating costs where possible, including salary and fee reductions for employees and directors, and has obtained financial support from various related parties, through the issue of promissory notes and short-term loans (see note 23 for further detail).  The Group will continue to implement these measures and seek further financing as required.  In that regard in June 2014, the Group entered into a US loan facility which is secured by 7,774,678 ordinary shares of Kromek Group plc.  The securities will be released upon repayment of the loan (see note 18 for further details). This facility was further extended in April 2016 to include Motif Bio plc shares as security.  The progress of certain of the Partner Companies has, as a result of reduced financial support from the Group and current economic conditions, been adversely impacted, resulting in a reduction in their valuations for Level 3 investments (see note 15 for further detail).    Relations with significant trade suppliers have also been strained during the year.  Should the Group fail to generate sufficient cash to support its Partner Companies and to pay trade payables on a timely basis, the Group may see additional adverse effects on its Partner Companies and their valuations and in its relationship with its vendors. 

 

 

 

 

 

 

1.  General information, (continued)

 

• As at 31 December 2015 the Group has US $18,647,081 (2014: US $20,136,792) in notes payable including US $8,312,180 (2014: US $10,189,891) of convertible promissory notes ("CPNs") that are due to mature on 28 February 2016 (extended to 31 December 2017 in February 2016) and US $3,000,000 from a loan facility payable in monthly installments from 1 March 2016 to 1 November 2016.

 

• The timing and ability of the Group to realise its investments in Partner Companies is subject to inherent uncertainty due to numerous factors including, but not limited to: the liquidity of the investment; market conditions being favourable for realisation whether through a listing or otherwise; potential for restrictions being imposed that may limit full realisation of investments sold; such as lock-in periods; and other factors that are outside the control of the Group.  The Group will realise investments where the terms of any potential arrangement are favourable to the Group.  

 

• In December 2012, Berkeley Research Group, LLC ("BRG"), an expert consultant engaged by DataTern filed for arbitration claiming US $1,142,478 was owed to them.  DataTern opposed the arbitration and vigorously contested the amount owed.  In January 2015, the arbitrator found in favor of BRG and awarded them an amount totaling US $2,090,865 for the balance due and legal costs.  DataTern contested the award and filed a lawsuit seeking to overturn the award.  In March 2016, the Company reached a settlement with BRG for US $1,575,000.  The payment terms are US $100,000 paid upon signing the settlement agreement, and further payments of US $400,000 on 30 April 2016, US $500,000 on 30 June 2016 and US $575,000 on 31 December 2016.  Should Amphion fail to make a payment, the full amount of the judgement, US $2,236,286.49, will be due less any amounts paid.  As a consequence of this settlement, the liability has been transferred from DataTern Inc. to Amphion Innovations plc.

 

• One of the Group's wholly owned subsidiary companies, DataTern Inc., ("DataTern") was subject to lawsuits which were brought by Microsoft Corporation ("Microsoft") and SAP AG, and SAP America, Inc. ("SAP") in April 2011.  In December 2012, a summary judgment was entered in the lawsuits under which it was ruled that Microsoft and SAP do not infringe on the DataTern patents.  DataTern and its legal team, supported by their extensive team of technical and patent experts, strongly refuted the basis for the summary judgment and filed an appeal.  In April 2014, DataTern received a broadly favourable decision on the appeal ending the cases brought by Microsoft and SAP.  The Group believes that the appeal ruling will allow DataTern to continue to try to reach equitable licensing agreements with the many companies that are infringing its patents. The Group is looking for litigation financing to continue to pursue the cases.

 

These conditions indicate the existence of a material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business.  These financial statements do not include any adjustments that would result from the going concern basis of preparation being inappropriate.

 

However, after making enquiries, and considering the uncertainties described above, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For these reasons they continue to adopt the going concern basis in preparing the annual report and financial statements.

 

2.  Significant accounting policies

 

The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRSs") as issued by the International Accounting Standards Board ("IASB"), interpretations issued by the International Financial Reporting Committee of the IASB and applicable legal and regulating requirements of Isle of Man law and the AIM rules of the London Stock Exchange. 

 

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements.

 

Adoption of new and revised Standards

 

The Group has adopted the following new standards and amendments to standards with a date of initial application of 1 January 2015:

 

 

 

 

2.  Significant accounting policies, (continued)

 

·   Annual Improvements to IFRSs - 2010-2012 Cycle and 2011-2013 Cycle

 

The Group also elected to adopt the following two amendments early:

 

·   Annual Improvements to IFRSs 2012-2014 Cycle, and

·   Disclosure Initiative:  Amendments to IAS 1.

 

As these amendments merely clarify the existing requirements, they do not affect the Group's accounting policies or any of the disclosures.

 

Standards and interpretations issued but not yet effective

A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2015 and earlier application is permitted; however, the Group and Parent Company has not early applied the following new or amended standards in preparing these financial statements.  The new standards potentially relevant to the Group and Parent Company are discussed below.  The Group and Parent Company do not plan to adopt these standards early.

New or amended standards

Summary of the requirements

Possible impact on financial statements

IFRS 9 Financial Instruments

IFRS 9, published in July 2014 and expected to be adopted by the EU in H1 2016, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement.  IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements.  It also carries forward the guidance on recognition and recognition of financial instruments from IAS 39.

 

IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.

Based on the initial assessment, this standard is not expected to have a material impact on the Group or Parent Company.  This is because financial instruments currently measured at FVTPL will continue to be measured at FVTPL under IFRS 9 and those currently measure at amortised cost will continue to be measured at amortised cost under IFRS 9.

 

The financial statements have been prepared on the historical cost basis, except for financial instruments classified as fair value through profit and loss.  The principal accounting policies adopted are set out below.

 

Basis of consolidation

 

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries).  Control is achieved where the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

 

The results of subsidiaries acquired during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal. 

 

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

 

All intra-group transactions, balances, income, and expenses are eliminated on consolidation.

                        

Cash and cash equivalents

 

Cash and cash equivalents include balances with banks and demand deposits, which have maturities of less than three months.

 

 

 

 

 

2.  Significant accounting policies, (continued)

 

Investments in subsidiaries

 

Investments in subsidiaries are stated at cost less provisions for impairment where appropriate.

 

Financial instruments

 

The Group designates its assets and liabilities into the categories below.

 

(i)         Financial assets and liabilities designated at fair value through profit or loss at inception:  These include equity, warrants, options, and convertible promissory notes held in Partner Companies.  These are financial instruments that are not classified as held for trading but are managed, and their performance is evaluated on a fair value basis in accordance with the Group's documented investment strategy.  These investments have been designated at fair value through profit or loss and accounted for in accordance with IAS 39 Financial Instruments: Recognition and Measurement, therefore IAS 28, Investments in Associates and Joint Ventures, has not been applied by the Group to the investments that it holds in associates.

 

·      Recognition

 

All regular way purchases and sales of financial instruments are recognised on the trade date, which is the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial instruments that require delivery of assets within the period generally established by regulation or convention in the market place. Realised gains and losses on disposals of financial instruments are calculated using the first-in-first-out ("FIFO") method.

 

·      Initial measurement

 

Financial instruments categorised at fair value through profit or loss, are recognised initially at fair value, with transaction costs for such instruments being recognised directly in the Statement of Comprehensive Income.

 

·      Subsequent measurement

 

"Fair value" is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date.  The fair value of a liability reflects its non-performance risk.

 

When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument.  A market is regarded as "active" if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.  The Group measures instruments quoted in an active market at a mid-price.

 

If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs.  The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

 

The Group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which the change has occurred.

 

The fair value of unlisted securities is established using valuation techniques.  Whenever possible the Group uses valuation techniques which make maximum use of market-based inputs.  Accordingly, the valuation methodologies and principals used most commonly by the Group are those contained in the International Private Equity and Venture Capital Valuation Guidelines (the "IPEVCV Guidelines") endorsed by the British & European Venture Capital Associations. 

 

Assets and long positions are measured at a bid price; liabilities and securities sold short are measured at an asking price.

 

Given the nature of the Group's investments in seed, start-up, and early-stage companies where there are often no current and no short-term future earnings or positive cash flows it can be difficult to gauge the probability and financial impact of the success or failure of development or research activities and to make reliable cash flow forecasts.  Consequently, the most appropriate approach to determine fair value is a methodology that is based on market data, that being the price of a

 

 

 

2.  Significant accounting policies, (continued)

 

Financial instruments, (continued)

 

recent investment.  Where the Group considers that the price of recent investment, unadjusted, is no longer relevant, and there are limited or no comparable companies or transactions from which to infer value, the Group carries out an enhanced assessment taking into consideration the key market drivers of the investee company and the overall economic environment.

 

Where the Group considers that there is an indication that the fair value has changed, an estimation is made of the required amount of any adjustment from the last price of recent investment.  Wherever possible, this adjustment is based on objective data from the investee company and the experience and judgment of the Group; however, any adjustment is, by its very nature, subjective.  Where a deterioration in value has occurred, the Group reduces the carrying value of the investment; however, in the absence of additional financing rounds or profit generation it can be difficult to determine the value that a purchaser may place on positive developments given the potential outcome and the costs and risks to achieving that outcome and accordingly caution is applied.

 

Factors that the Group considers include, inter alia, technical measures such as product development phases and patent approvals, financial measures such as cash burn rate and profitability expectations, and market and sales measures such as testing phases, product launches and, market introduction.

 

·      De-recognition

 

The Group de-recognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for de-recognition in accordance with IAS 39.  The Group de-recognises a financial liability when the obligation specified in the contract is discharged, cancelled, or expired.

 

Impairment of financial assets

 

Financial assets, other than those classified as at fair value through profit and loss, are assessed for indicators of impairment at each balance sheet date.  Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

 

Financial liabilities and equity

 

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangement entered into.  An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.  Financial liabilities are derecognised when its contractual obligations are discharged or cancelled, or expire.  Non-derivative financial liabilities are initially recognised at fair value less any directly attributable transaction costs.  Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method.

 

Compound financial instruments are required by IAS 32 Financial Instruments: Presentation, to be separated into their liability and equity components upon initial recognition.   To meet the definition of equity, the contract must be settled by a fixed amount of cash in exchange for a fixed amount of equity instruments.  Where the Company issues convertible promissory notes ("CPNs") in a currency other than its functional currency, a fixed number of shares will be delivered in exchange for a variable amount of cash, therefore the definition of equity is not met.  Consequently, the CPNs are classified wholly as liabilities at fair value through the statement of comprehensive income.  Where warrants are  issued with CPNs, they are accounted for as part of the same financial instrument as the CPNs in accordance with IAS 39: Financial instruments - Recognition and Measurement, since they were entered into at the same time and in contemplation of each other, they have the same counterparty, they relate to the same risk and are non-transferable.

 

Prepaid expenses and other receivables

 

Prepaid expenses and other receivables are stated at their amortised cost which approximates their fair value.  Other receivables are reduced by appropriate allowances for estimated irrecoverable amounts and do not carry any interest.

 

Trade and other payables

 

Trade and other payables are not interest bearing and are stated at amortised cost which approximates their fair value.

 

 

 

2.  Significant accounting policies, (continued)

 

Equity instruments      

 

Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

 

Share-based payments

 

The Group has applied the requirements of IFRS 2 Share-based payments.

 

The Group issues equity-settled share-based payments to certain employees and consultants.  Equity-settled share-based payments are measured at fair value at the date of grant.  The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the shares that will eventually vest.  The fair value of equity-settled share-based payments attributable to the issue of equity instruments is charged against equity.

 

Fair value is measured using the Black-Scholes pricing model.  The expected life used in the model has been adjusted based on management's best estimate for effects of non-transferability, exercise restrictions, and behavioral considerations.

 

Capital risk management

 

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance.  The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves, and retained earnings.

 

Revenue recognition

 

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for, and services provided, in the normal course of business, net of VAT and other sales related taxes.

 

Revenue from license agreements is recognised in accordance with the substance of the agreement and when it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of the revenue can be measured reliably.

 

Where assignment of rights for a fixed fee under a non-cancellable contract permits the licensee to exploit those rights freely and the licensor has no remaining obligations to perform, the revenue is recognised at the time of sale.

 

Where a license fee is contingent on the occurrence of a future event, the revenue is only recognised when it is probable that the fee will be received.

 

Cost of sales

 

Revenue related costs only include the direct fees paid for strategic advisory services for licensing and enforcing various patents.

 

Interest income

 

Interest income is recognised on an accruals basis.

 

Dividend income

 

Dividend income from investments is recognised when the shareholders' right to receive payment has been established.

 

Leasing

 

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.  All other leases are classified as operating leases.

 

 

 

 

 

 

 

2.  Significant accounting policies, (continued)

 

Foreign currencies

 

The individual financial statements of each company in the Group are presented in the currency of the primary economic environment in which it operates (its functional currency).  For the purpose of the consolidated financial statements, the results and financial position of each company in the Group are expressed in US dollars, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

 

Transactions in currencies other than US dollars are recorded at the rates of exchange prevailing on the dates of the transactions.  At each statement of financial position date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date.  Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. 

 

Gains and losses arising on retranslation are included in net profit or loss for the year, except for exchange differences arising on non-monetary assets and liabilities where the changes in fair value are recognised directly in equity.

 

On consolidation, the assets and liabilities of the Group's overseas operations are translated at exchange rates prevailing on the statement of financial position date.  Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly in which case they are translated at the rate on the date of the transaction.  Exchange differences arising, if any, are recognised in the statement of comprehensive income and are transferred to the Group's translation reserve.

 

Retirement benefit costs

 

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

 

Taxation

 

Income tax expense represents the sum of the tax currently payable and deferred tax.

 

The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expenditure that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.  The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date.

 

Deferred taxation is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit.

 

Deferred tax is calculated at the tax rates that are expected to apply to the period when the liability is settled or the asset realised. 

 

Property, plant, and equipment

 

Property, plant, and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.

 

Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful lives of 3-5 years, using the straight-line method.

 

Intangible assets

 

Intangible assets comprise patents and other intellectual property with finite useful lives and are measured initially at purchase cost and are amortised on a straight-line basis over their estimated useful lives of 5-10 years.

 

Impairment of tangible and intangible assets

 

At each statement of financial position date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss.  If any such indication exists, the

 

 

 

2.  Significant accounting policies, (continued)

 

Impairment of tangible and intangible assets, (continued)

 

recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).  Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.  An intangible asset with an indefinite useful life is tested for impairment annually and an intangible asset which is amortised is tested for impairment only when there is an indication that the asset may be impaired.

 

3.  Key sources of estimation uncertainty

 

The preparation of the Group's financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and contingencies at the date of the Group's financial statements, and revenue and expenses during the reporting period.  Actual results could differ from those estimated.  Significant estimates in the Group's financial statements include the amounts recorded for the fair value of the financial instruments and other receivables.  By their nature, these estimates and assumptions are subject to an inherent measurement of uncertainty and the effect on the Group's financial statements of changes in estimates in future periods could be significant.

 

Investments that are fair valued through profit or loss, as detailed in note 15, are all considered to be 'Partner Companies'.  Those 'Partner Companies' categorised as Level 3 are defined as investments in 'Private Companies'.

 

Fair value of financial instruments

 

As described in note 2, the Directors use their judgment in selecting an appropriate valuation technique for financial instruments not quoted in an active market ("Private Investments").  The estimation of fair value of these Private Investments includes a number of assumptions which are not supported by observable market inputs.  The carrying amount of the Private Investments is US $5.8 million (2014: US $22.1 million) in the Group and US $5.8 million (2014: US $19.4 million) in the Company.

 

Fair value of other receivables

 

The valuation of the Private Investments and other receivables from Partner Companies at 31 December 2015 assumes that the Partner Companies continue to receive ongoing funding in accordance with their 2016/2017 forecasts.  If this funding is not received, this would have an adverse impact on the valuation of the investments and the ability of the Partner Companies to settle their debts, which in turn would impact the valuation of other receivables.

 

4.  Revenue

 

An analysis of the Group's and Company's revenue for the period is as follows:

 

 

 

Group

 

Company

 

Group

 

Company

 

 

Year ended

 

Year ended

 

Year ended

 

Year ended

 

 

31 December 2015

 

31 December 2015

 

31 December 2014

 

31 December 2014

 

 

US $

 

US $

 

US $

 

US $

Continuing operations

 

 

 

 

 

 

 

 

Advisory fees

 

459,904

 

-  

 

480,000

 

License fees

 

59,951

 

          -  

 

4,700

 

 - 

 

 

 

 

 

 

 

 

 

Fee income

 

519,855

 

     -  

 

484,700

 

 

A provision for doubtful accounts has been set up for US $840,000 for the advisory fees accrued from Partner Companies in prior years and US $840,000 of bad debt expense was recognised in the statement of comprehensive income.

 

In July 2011, DataTern, Inc. entered into a fee agreement with McCarter & English LLP ("ME").  Under this agreement, ME will represent DataTern in the assertion of all patent infringement claims, except for claims in Texas and conflicts with existing ME clients.  There were no license settlements in 2015 and 2014 relating to the ME fee agreement and as a result no fees were paid to ME. 

 

 

 

 

4.  Revenue, (continued)

 

In September 2012, Braden, Varner & Aldous, P.C., was engaged to represent DataTern, Inc. in the patent infringement cases in Texas.  In September 2013, Braden, Varner & Aldous, P.C. reduced their hourly rate in consideration for a partial contingency on the Texas cases and the Microsoft matters.  Under the contingent fee agreement, Braden, Varner & Aldous, P.C. will receive 15% of any individual settlement up to US $500,000 and 25% on settlements above US $500,000 on the Texas cases.  If the contingent fee from Texas does not equal 4x return on their total fee, Braden, Varner & Aldous, P.C. will make up the difference on a contingent fee with 5% from any settlements or recoveries on the Microsoft matters up to 4x return on their hourly fee.  Prior to the later of 31 December 2013, or 14 days after the ruling on the NY appeal, but no later than 30 June 2014, DataTern Inc. can cancel the contingent fee portion of this agreement if it pays all time accrued at the standard hourly rates and by paying a bonus of 20% of the total time billed.  The contingent fee agreement termination date of 30 June 2014 has been extended indefinitely by mutual agreement.  In February 2014, the engagement was moved to Forshey Prostok, LLP along with the move of one of the partners.  There has been no activity in the Texas cases in 2014 and 2015.

 

As part of the December 2007 agreement for DataTern, Inc. to purchase certain of the intangible assets from FireStar Software, Inc. ("FireStar"), a portion of future revenues from these patents will be retained by FireStar.  No amounts have become payable to FireStar to date.

 

 

 

 

5.  Business and geographical segments

 

Business segments

 

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. 

 

For management purposes for 2015, the Group is organised into three business segments - advisory services, investing activities, and intellectual property.  These business segments are the basis on which the Group reports its primary segment information.

 

Segment information about these businesses is presented below:

 

 

 

 

       Advisory

 

       Investing

 

   Intellectual

 

 

 

 

 

 

 

        services

 

       activities

 

    property

 

 Eliminations

 

 Consolidated

 

 

 

   Year ended

 

   Year ended

 

Year ended

 

  Year ended

 

  Year ended

 

 

 

31 December

 

31 December

 

31 December

 

31 December

 

 31 December

 

 

 

              2015

 

               2015

 

            2015

 

             2015

 

              2015

 

 

 

              US $

 

 US $

 

             US $

 

             US $

 

              US $

REVENUE

 

 

 

 

 

 

 

 

 

 

External advisory fees

 

           459,904

 

  -

 

     -  

 

 -

 

   459,904

External license fees

 

                        -

 

       -

 

 59,951

 

 -

 

       59,951

  Total revenue

 

           459,904

 

      -

 

 59,951

 

                      -

 

     519,855

Cost of sales

 

                        -

 

                       -

 

                       -

 

                      -

 

                        -

Gross profit/(loss)

 

           459,904

 

                       -

 

             59,951

 

                      -

 

            519,855

Administrative expenses

 

      (1,740,679)

 

      (2,068,530)

 

          (871,003)

 

                      -

 

       (4,680,212)

 

 

 

 

 

 

 

 

 

 

 

 

Segment result

 

      (1,280,775)

 

      (2,068,530)

 

          (811,052)

 

 -

 

       (4,160,357)

 

 

 

 

 

 

 

 

 

 

 

 

Fair value gains on investments

 

                       -

 

     10,222,184

 

                        -  

 

        (114,540)

 

      10,107,644

Interest income

 

                       -

 

           678,824

 

                        -  

 

 -

 

            678,824

Other gains and losses

 

                       -

 

           505,015

 

                        - 

 

-

 

            505,015

Finance costs

 

                 (342) 

 

      (1,138,455)

 

            (48,630)

 

                      -

 

       (1,187,427)

Gain/(loss) before tax

 

      (1,281,117)

 

       8,199,038

 

          (859,682)

 

        (114,540) 

 

        5,943,699

Income taxes

 

              (1,575)   

 

                       -

 

                  (325)

 

 -

 

               (1,900)

 

 

 

 

 

 

 

 

 

 

 

 

Gain/(loss) after tax

 

      (1,282,692)

 

       8,199,038

 

          (860,007)

 

        (114,540)

 

         5,941,799

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

Segment assets

 

       7,188,691

 

     39,694,435

 

           307,168

 

     (7,305,130)

 

       39,885,164

 

 

 

 

 

 

 

 

 

 

 

 

Segment liabilities

 

       7,488,470

 

     21,212,998

 

        6,954,769

 

     (6,663,145)

 

       28,993,092

 

 

 

 

 

 

 

 

 

 

 

 

Capital additions

 

                      -

 

                       -

 

                        -

 

  -

 

                     -

Amortisation

                      -

 

                       -

 

           155,084

 

                      -

 

            155,084

Recognition of share-based      

 

 

 

 

 

 

 

 

 

   payments

 

                      -  

 

             98,881

 

                -  

 

     -

 

              98,881

 

 

 

5.  Business and geographical segments, (continued)

 

Business segments (continued)

 

For management purposes for 2014, the Group was also organised into three business segments - advisory services, investing activities, and intellectual property. 

 

 

 

 

       Advisory

 

       Investing

 

   Intellectual

 

 

 

 

 

 

 

        services

 

       activities

 

    property

 

 Eliminations

 

 Consolidated

 

 

 

   Year ended

 

   Year ended

 

Year ended

 

  Year ended

 

  Year ended

 

 

 

31 December

 

31 December

 

31 December

 

31 December

 

 31 December

 

 

 

              2014

 

               2014

 

            2014

 

             2014

 

              2014

 

 

 

              US $

 

              US $

 

             US $

 

             US $

 

              US $

REVENUE

 

 

 

 

 

 

 

 

 

 

External advisory fees

 

           480,000

 

 -

 

 -

 

                     -

 

           480,000

External license fees

 

                       -

 

                       -

 

               4,700

 

                     -

 

               4,700

  Total revenue

 

           480,000

 

                       -

 

               4,700 

 

                     -

 

           484,700

Cost of sales

 

                       -

 

                       -

 

                       -

 

                     -

 

                      -

Gross profit/(loss)

 

          480,000

 

                       -

 

               4,700

 

                     -

 

           484,700

Administrative expenses

 

         (632,994)

 

      (1,121,667)

 

      (1,739,690)

 

                     -

 

       (3,494,351)

 

 

 

 

 

 

 

 

 

 

 

 

Segment result

 

         (152,994)

 

      (1,121,667)

 

      (1,734,990)

 

                     -

 

       (3,009,651)

 

 

 

 

 

 

 

 

 

 

 

 

Fair value losses on investments

 

 -

 

    (10,084,273)

 

 -

 

         156,295 

 

       (9,927,978)

Interest income

 

                       -

 

           849,384

 

 -

 

                     -

 

           849,384

Other gains and losses

 

                       -

 

           663,064

 

            12,201 

 

                     -

 

           675,265

Finance costs

 

 -

 

      (1,121,244)

 

           (55,055)

 

                     -

 

       (1,176,299)

Gain/(loss) before tax

 

         (152,994)

 

    (10,814,736)

 

      (1,777,844)

 

         156,295  

 

     (12,589,279)

Income taxes

 

                 (388)   

 

                       -

 

                  (54)

 

                     - 

 

                  (442)

 

 

 

 

 

 

 

 

 

 

 

 

Gain/(loss) after tax

 

          (153,382)

 

    (10,814,736)

 

      (1,777,898)

 

          156,295 

 

     (12,589,721)

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

Segment assets

 

        4,755,987

 

     32,265,609

 

           495,689

 

     (5,523,730)

 

      31,993,555

 

 

 

 

 

 

 

 

 

 

 

 

Segment liabilities

 

        6,637,842

 

     22,482,537

 

        6,283,283

 

     (4,996,286)

 

      30,407,376

 

 

 

 

 

 

 

 

 

 

 

 

Capital additions

 

                        -

 

                      -

 

                       -

 

-

 

                        -

Depreciation

 

                   308

 

                      -

 

  - 

 

 -

 

                    308

Amortisation

                        -

 

                      -

 

            155,084

 

                      -

 

            155,084

Recognition of share-based      

 

 

 

 

 

 

 

 

 

   payments

 

           -  

 

            98,377

 

                        - 

 

 -

 

              98,377

 

 

 

 

5.  Business and geographical segments, (continued)

 

Geographical segments

 

The Group's operations are located in the United States and the United Kingdom.

 

The following table provides an analysis of the Group's external advisory fees by geographical location of the investment:

 

 

 

External advisory fees by

 

 

geographical location

 

 

 

 

 

 

 

2015

 

2014

 

 

US $

 

US $

 

 

 

 

 

United States

 

60,000

 

    480,000

United Kingdom

 

      399,904

 

               -

 

 

    459,904

 

    480,000

 

The following table provides an analysis of the Group's external license fees by geographical location:

 

 

 

External license fees by

 

 

geographical location

 

 

 

 

 

 

 

 

2014

 

 

 

US $

 

 

 

 

United States

 

 

 -

Europe

 

 

 4,700

 

 

59,951

 

4,700 

 

The following is an analysis of the carrying amount of segment assets and capital additions analysed by the geographical area in which the assets are located:

 

 

Carrying amount

 

Additions to fixtures, fittings,

 

of segment assets

 

equipment, and intangible assets

 

 

 

 

 

 

 

 

 

2015

 

2014

 

2015

 

2014

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

United States

   8,229,718

 

 25,324,577

 

     -

 

     -

United Kingdom

 31,655,446

 

   6,668,978

 

-

 

-

 

 39,885,164

 

 31,993,555

 

-

 

-

 

 

 

6.  Profit/(loss) before tax

 

Profit/(loss) before tax has been arrived at after crediting/(charging) the following gains and losses:

 

 

Group

 

Company

 

Group

 

Company

 

Year ended

 

Year ended

 

Year ended

 

Year ended

 

31 December 2015

 

31 December 2015

 

31 December 2014

 

31 December 2014

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

Net foreign exchange gains

                 489,572

 

                  489,572

 

                 663,081

 

                  663,081

 

 

 

 

 

 

 

 

Change in fair value of financial assets designated as at fair value through profit or loss

            10,107,644

 

7,364,577

 

             (9,927,978)

 

            (10,107,910)

 

 

 

 

 

 

 

 

Depreciation of equipment

                             -

 

                           -

 

                         308

 

                           -

 

 

 

 

 

 

 

 

Amortisation of intangible assets

                 155,084

 

                           -

 

                 155,084

 

                           -

 

 

 

 

 

 

 

 

Auditors' remuneration - audit services

                 129,388

 

                    55,474

 

                 129,258

 

                     54,188

 

 

 

 

 

 

 

 

 

 

7.  Staff costs

 

The average monthly number of employees (including Executive Directors) was:

 

 

 

2015

 

2014

 

 

Number

 

Number

 

 

 

 

 

Amphion Innovations plc, Amphion Innovations

 

 

 

 

US Inc., and DataTern, Inc.  (some employees and costs are shared)

 

4

 

4

 

 

 

 

 

Total for the Group

 

4

 

4

 

 

 

Group

 

Company

 

Group

 

Company

 

 

2015

 

2015

 

2014

 

2014

Their aggregate remuneration comprised:

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

 

Wages and salaries

 

1,158,414

 

211,870

 

851,377

 

156,827

Social security costs

 

42,001

 

7,230

 

28,852

 

4,808

Other pension costs  (see note 23)

 

               -

 

-

 

               -

 

-

 

 

 

 

 

 

 

 

 

 

 

1,200,415

 

219,100

 

880,229

 

161,635

 

 

 

8.  Interest income

 

 

 

Group

 

Company

 

Group

 

Company

 

Year ended

 

Year ended

 

Year ended

 

Year ended

 

31 December

 

31 December

 

31 December

 

31 December

 

2015

 

2015

 

2014

 

2014

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

    Bank deposits

43

 

43

 

42

 

42

    Investments

678,781

 

557,080

 

849,342

 

805,007

    Other

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

678,824

 

557,123

 

849,384

 

805,049

 

At 31 December 2015, the receivable for accrued interest income from Partner Companies has been reduced by a provision for doubtful debts of US $2,256,762 (2014: US $805,007).

 

 

9.  Finance costs

 

 

Group

 

Company

 

Group

 

Company

 

Year ended

 

Year ended

 

Year ended

 

Year ended

 

31 December

 

31 December

 

31 December

 

31 December

 

2015

 

2015

 

2014

 

2014

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

Interest on promissory notes

1,187,427

 

1,138,455

 

1,176,299

 

1,121,244

 

 

10.  Income tax expense

 

 

Group

 

Group

 

Year ended

 

Year ended

 

31 December 2015

 

31 December 2014

 

US $

 

US $

 

 

 

 

Isle of Man income tax

                             -

 

                             -

Tax on US subsidiaries

                      1,900

 

                         442

 

 

 

 

Current tax

                      1,900

 

                         442

                                                                                                 

From 6 April 2006, a standard rate of corporate tax of 0% applies to Isle of Man companies, with exceptions taxable at the 10% rate, namely licensed banks in respect of deposit-taking business, companies that profit from land and property in the Isle of Man, and companies that elect to pay tax at the 10% rate.  No provision for Isle of Man taxation is therefore required (2014: US $nil).  The Company is treated as a Partnership for U.S. federal and state income tax purposes and, accordingly, its income or loss is taxable directly to its partners. 

 

The Company has three subsidiaries, two in the USA, and one in the Kingdom of Bahrain.  The US subsidiaries, Amphion Innovations US Inc. and DataTern, Inc., are Corporations and therefore taxed directly.  The US subsidiaries suffer US federal tax, state tax, and New York City tax on their taxable net income. 

 

 

 

 

10.  Income tax expense, (continued)

 

The Group charge for the year can be reconciled to the profit per the consolidated income statement as follows:

 

 

2015

 

2014

 

 US $

 

 US $

 

 

 

 

Profit/(loss) before tax

           5,943,699

 

        (12,589,279)

 

 

 

 

Tax at the Isle of Man income tax rate of 0%

                          -

 

                          -

 

 

 

 

Effect of different tax rates of subsidiaries

 

 

 

operating in other jurisdictions

1,900

 

442

 

 

 

 

Current tax/(refund)

1,900

 

442

 

 

 

 

11.  Earnings per share

 

The calculation of the basic and diluted earnings per share attributable to the ordinary equity holders of the parent is based on the following data:

  

Earnings

 

 

 

 

Year ended

 

Year ended

 

31 December 2015

 

31 December 2014

 

US $

 

US $

 

 

 

 

Profit/(loss) for the purposes of basic and diluted earnings per share         

5,941,799

 

(12,589,721)

 

 

Number of shares

 

 

 

 

Year ended

 

Year ended

                                                                                                           

31 December 2015

 

31 December 2014

 

 

 

 

Weighted average number of ordinary shares for                                              

 

 

 

    the purposes of basic earnings per share

179,083,069

 

147,390,887

 

 

 

 

Effect of dilutive potential ordinary shares:

 

 

 

    Options

3,925,501

 

-

    Convertible promissory notes

56,369,051

 

65,412,061

 

 

 

 

Weighted average number of ordinary shares for

 

 

 

    the purposes of diluted earnings per share

239,377,621

 

212,802,948

 

Share options that could potentially dilute basic earnings per share in the future have not been included in the calculation of diluted earnings per share in 2014 because they are antidilutive.

 

Loss per share

 

Year ended

 

Year ended

 

31 December 2015

 

31 December 2014

 

US $

 

US $

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

                     0.03

 

                      (0.09)

 

 

 

 

 

 

 

 

Diluted

 

 

                      0.02

 

                      (0.09)

             
 

 

 

12.  Intangible assets

 

 

Group

 

Patents, software,

 

trademark, and copyright

COST

US $

 

 

At 1 January 2014

 1,610,489

Additions

                                           -

 

 

At 1 January 2015

                            1,610,489

Additions

                                           - 

 

 

At 31 December 2015

                            1,610,489

 

 

AMORTISATION

 

 

 

At 1 January 2014

                            1,025,305

Charge for the period

                               155,084

 

 

At 1 January 2015

                            1,180,389

Charge for the period

155,084

 

 

At 31 December 2015

                            1,335,473

 

 

CARRYING AMOUNT

 

 

 

At 31 December 2015

                               275,016

 

 

At 31 December 2014

                               430,100

 

 

The intangible assets include certain intellectual property assets which were acquired on 20 December 2007 in a transaction between Amphion Innovations plc, DataTern, Inc. ("DataTern"), a wholly owned subsidiary of Amphion Innovations plc, and FireStar Software, Inc. ("FireStar"), a company in which Amphion Innovations plc holds an investment.  The assets were purchased for the following consideration:  discharge of debtor of US $415,000 and assumption by Amphion of certain third party payables totaling approximately US $1.8 million.  In 2009, settlements were made with certain third parties which resulted in a decrease of US $793,861 in payables assumed by Amphion and as a result intangible assets acquired from FireStar were adjusted for the amount of the decrease.  Under the terms of the purchase, FireStar retained an interest of 48.29% of any future distributions on the 502 Patent and 24.14% of any future distributions on the 402 and 077 Patents.  In August 2012, the terms were amended so that FireStar will retain an interest of 5.5% of gross settlements for the first US $40 million of gross settlements.  For gross settlements between US $40 million and up to US $80 million, payments to FireStar will be 11% of gross settlements. For settlements above US $80 million, payments to FireStar from DataTern will be 12.1% of gross settlements.  No amounts were due to FireStar at the year end (2014: US $nil).

 

In February 2016, a UCC Financing Statement was filed with the Texas Secretary of State recording DataTern Inc.'s patents as collateral to McCarter & English, LLP for any amounts due to them, which equaled US $250,000 in February 2016.

 

 

 

13.  Property, plant, and equipment

 

 

Group

 

Company

 

Property, plant,

 

Property, plant,

 

and equipment

 

and equipment

COST

US $

 

US $

 

 

 

 

At 1 January 2014

              70,502

 

19,986

Additions

                       -

 

-

 

 

 

 

At 1 January 2015

              70,502

 

                           19,986

Additions

                       -

 

-

 

 

 

 

At 31 December 2015

              70,502

 

19,986

 

 

 

 

ACCUMULATED DEPRECIATION

 

 

 

 

 

 

 

At 1 January 2014

              70,194

 

19,986

Charge for the period

                308

 

-

Exchange difference

                       -

 

-

 

 

 

 

At 1 January 2015

              70,502

 

19,986

Charge for the period

                   -

 

-

Exchange difference

                        -

 

-

 

 

 

 

At 31 December 2015

              70,502

 

19,986

 

 

 

 

CARRYING AMOUNT

 

 

 

 

 

 

 

At 31 December 2015

                        -

 

-

 

 

 

 

At 31 December 2014

                   -

 

-

 

 

14.  Investments in subsidiaries

 

Details of the Company's subsidiaries at 31 December 2015 and 2014 are as follows:

 

 

 

Place of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

incorporation

 

Proportion of

 

Proportion of

 

 

 

 

 

 

 

Name of

 

(or registration)

 

ownership interest

 

voting power held

 

Share

 

 

 

 

 

subsidiary

 

and operation

 

2015

 

2014

 

2015

 

2014

 

class

 

Principal activity

 

 

 

 

 

%

 

%

 

%

 

%

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amphion Innovations US Inc.

 

Delaware, USA

 

100

 

100

 

100

 

100

 

Common

 

Advisory services

 

DataTern, Inc.

 

Texas, USA

 

100

 

100

 

100

 

100

 

Common

 

Intellectual property

 

MSA Holding Company BSC

 

Kingdom of Bahrain

 

100

 

100

 

100

 

100

 

Ordinary

 

Investments

 

                                           

 

The investments in subsidiaries are all stated at cost less any provision for impairment where appropriate.  MSA Holding Company BSC was dormant in 2015 and 2014.

 

 

 

 

15.  Investments  

 

At fair value through profit or loss

 

 

Group

 

Company

 

Level 1

Level 2

Level 3

Total

 

Level 1

Level 2

Level 3

Total

 

         US $

         US $

           US $

         US $

 

        US $

       US $

          US $

US $

At 1 January 2015

  6,668,978

                -

 22,098,681

28,767,659

 

  6,668,978

                -

 19,394,128

26,063,106

 

 

 

 

 

 

 

 

 

 

Investments during the year

     106,041  

  -

       728,394

     834,435

 

       63,210 

  -

      728,393

     791,603

Transfers between levels

13,209,624

                -

(13,209,624)

                 -

 

10,505,071

                -

(10,505,071)

                -

Disposals

(2,265,422)

                -

                    -

(2,265,422)

 

(2,265,422)

                -

                 -

(2,265,422)

Fair value gains/(losses)

13,936,225

                -

  (3,828,581)

10,107,644

 

11,078,617

                -

  (3,828,580)

 7,250,037

 

 

 

 

 

 

 

 

 

 

At 31 December 2015

31,655,446

                -

   5,788,870

37,444,316

 

26,050,454

                -

   5,788,870

31,839,324

 

 

 

 

 

 

 

 

 

 

At 1 January 2014

15,579,671 

                -

 20,166,416

35,746,087

 

15,579,671 

                -

 18,635,046

34,214,717

 

 

 

 

 

 

 

 

 

 

Investments during the year

  -  

  -

   2,949,550

  2,949,550

 

 -  

                -  

   1,800,004

 1,800,004

Fair value losses

(8,910,693)

                -

  (1,017,285)

(9,927,978)

 

(8,910,693)

                -

  (1,040,922)

(9,951,615)

 

 

 

 

 

 

 

 

 

 

At 31 December 2014

  6,668,978

                -

 22,098,681

28,767,659

 

 6,668,978

                -

 19,394,128

26,063,106

 

The Group and Company is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.  In the case of the Group and Company, investments classified as Level 1 have been valued based on a quoted price in an active market.  Investments classified as Level 2 have been valued using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).  Fair values of unquoted investments classified as Level 3 in the fair value hierarchy have been determined in part or in full by valuation techniques that are not supported by observable market prices or rates.  Investment valuations for Level 3 investments have been arrived at using a variety of valuation techniques and assumptions.  For instances where the fair values are based upon the most recent market transaction but which occurred more than twelve months previously, the investments are classified as Level 3 in the fair value hierarchy.

 

The Group net increase in fair value for the year of US $10,107,644 (2014: decrease of US $9,927,978) includes a net decrease of US $3,828,581 in Level 3 investments (2014: decrease of US $1,017,285) that has been estimated using valuation techniques in accordance with the International Private Equity and Venture Capital Valuation Guidelines.  The Company net increase in fair value for the year of US $7,250,037 (2014: decrease of US $9,951,615) includes a net decrease of US $3,828,851 in Level 3 investments (2014: decrease of US $1,040,922) that has been estimated using valuation techniques in accordance with the International Private Equity and Venture Valuation Guidelines.

 

During 2015, Group securities with a carrying value of US $13,209,624 at 31 December 2014 were transferred from Level 3 to Level 1 because the securities were listed on the AIM of the London Stock Exchange in 2015 and they are currently actively traded in that market.  The securities now have a published price quotation in an active market.  During 2015, Company securities with a carrying value of US $10,505,071 at 31 December 2014 were transferred from Level 3 to Level 1.

 

The 2015 Group and Company disposals include the sale of 779,642 Kromek Group plc ordinary shares for US $392,314 as a monthly payment to the institutional lender and the exchange of 2,916,523 Kromek Group plc ordinary shares for US $1,873,108 of the Company's convertible promissory notes (see note 18).
 

 

15.  Investments, (continued)

 

Fair value determination

 

As described in note 2 the Directors have valued the investments in accordance with the guidance laid down in the International Private Equity and Venture Capital Valuation Guidelines.  The inputs used to derive the investment valuations are based on estimates and judgments made by management which are subject to inherent uncertainty.  As such the carrying value in the financial statements may differ materially from the amount that could be realised in an orderly transaction between willing market participants on the reporting date.

 

In making their assessment of fair value, management has considered the total exposure to each entity including equity, warrants, options, promissory notes, and receivables.

 

Further information in relation to the directly held private investment portfolio that are Level 3 at 31 December 2015 is set out below:

 

 Level 3

Fair value

Methodology

Unobservable inputs

 

US $

 

 

Private investments

5,788,870

Multiple methods used in combination including:  Discount to last market price,

Discount (30%-100%),

 

 

discount to last financing round, price of future financing round, and third party

price of fund raising.

 

 

valuation.

 

 

Further information in relation to the directly held private investment portfolio at 31 December 2014 is set out below:

 

 Level 3

Fair value

Methodology

Unobservable inputs

 

US $

 

 

Private investments

22,098,681

Multiple methods used in combination including:  Discount to last market price,

Discount (30%-100%),

 

 

discount to last financing round, price of future financing round, and third party

price of fund raising.

 

 

valuation.

 

 

Given the range of techniques and inputs used in the valuation process and the fact that in most cases more than one approach is used, a sensitivity analysis is not considered to be a practical or meaningful disclosure.  It should be noted however that increases or decreases in any of the inputs listed above in isolation may result in higher or lower fair value measurements.

 

At the reporting date, the potential effect of using reasonably possible alternative assumptions as inputs to valuation techniques from which the fair values of the investments are determined would be an increase of approximately US $nil (2014: US $nil) to profit or loss of the Group and the Company using more favourable assumptions and an approximate decrease of US $2.3 million (2014: US $2.1 million) to profit or loss of the Group and the Company using less favorable assumptions. 

 

The Group's ownership percentages of the investments are as follows:

 

 

 

 

2015

 

2014

 

 

 

 

Fully-diluted

 

Fully-diluted

 

 

Country of incorporation

 

ownership %

 

ownership %

 

 

 

 

 

 

 

Axcess International, Inc.  *

 

United States of America

 

8.64

 

11.08

FireStar Software, Inc.  *

 

United States of America

 

11.44

 

11.44

Kromek Group plc

 

England & Wales

 

5.27

 

10.32

Motif Bio plc  *

 

United States of America

 

29.21

 

16.69

m2m Imaging Corporation  *

 

United States of America

 

15.62

 

25.58

Novacyt S.A. (merged with Lab 21 Limited)

 

France

 

0.18

 

0.21

PrivateMarkets, Inc.   *

 

United States of America

 

20.55

 

21.27

WellGen, Inc.  *

 

United States of America

 

23.90

 

24.31

 

The ownership percentages do not include the potential conversion of convertible promissory notes issued by the Partner Companies. 

Where more than 20% of the diluted ownership is held by the Group or the Group has representation on the Board of the Partner

 

 

 

15.  Investments, (continued)

 

Companies, the Group is considered to have significant influence over the Partner Companies.  These are indicated above by an * above.

 

16.  Other financial assets and liabilities

 

The carrying amounts of the Group's financial assets and financial liabilities at the statement of financial position date are as follows.  The accounting policies described in note 2 explain how the various categories of financial instruments are measured.

 

 

Group

 

Company

 

2015

2014

 

2015

2014

 

Carrying

Fair

Carrying

Fair

 

Carrying

Fair

Carrying

Fair

 

amount

value

amount

value

 

amount

value

amount

value

 

US $

US $

US $

US $

 

US $

US $

US $

US $

Financial assets

 

 

 

 

 

 

 

 

 

Fair value through profit or loss

 

 

 

 

 

 

 

 

 

Fixed asset investments - designated

 

 

 

 

 

 

 

 

     as such upon initial recognition

  37,444,316

  37,444,316

    28,767,659

  28,767,659

 

  31,839,324

  31,839,324

  26,063,106

  26,063,106

Currents assets

 

 

 

 

 

 

 

 

 

Loans and receivables

 

 

 

 

 

 

 

 

 

Security deposit

         22,008

         22,008

         13,600

         13,600

 

                 -

                 -

                 -

                 -

Prepaid expenses and other

 

 

 

 

 

 

 

 

 

     receivables

    1,206,843

    1,206,843

    2,569,380

    2,569,380

 

    6,099,021

    6,099,021

    5,365,760

    5,365,760

Cash and cash equivalents

       936,981

       936,981

       212,816

       212,816

 

       883,074

       883,074

       192,807

       192,807

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

Amortised cost

 

 

 

 

 

 

 

 

 

Trade and other payables

  10,346,011

  10,346,011

  10,270,584

  10,270,584

 

    3,491,093

    3,491,093

    3,307,920

    3,307,920

Current portion of convertible

 

 

 

 

 

 

 

 

 

     promissory notes

    8,312,180

    8,312,180

  10,189,891

  10,189,891

 

    8,312,180

    8,312,180

  10,189,891

  10,189,891

Current portion of notes payable

  10,334,901

  10,334,901

    8,964,901

    8,964,901

 

    9,389,901

    9,389,901

    8,964,901

    8,964,901

Notes payable

                  -

                  -

       982,000

       982,000

 

                  -

                  -

                  -

                  -

 

The carrying value of cash and cash equivalents, the security deposit, prepaid expenses and other receivables, and trade and other payables, in the Directors' opinion, approximate to their fair value at 31 December 2015 and 2014.  

 

 

 

 

16.  Other financial assets and liabilities, (continued)

 

The following table sets out the fair values of financial instruments not measured at fair value and analyses it by the level in the fair value hierarchy into which each fair value measurement is categorised at 31 December 2015.

 

Group

 

Company

Level 1

Level 2

Level 3

Total

 

Level 1

Level 2

Level 3

Total

US $

US $

US $

US $

 

US $

US $

US $

US $

 

 

 

 

 

 

 

 

 

-

       22,008

-

          22,008

 

-

-

 -

                -

 

 

 

 

 

 

 

 

 

-

   1,206,843

-

     1,206,843

 

-

  6,099,021

-

  6,099,021

-

      936,981

-

        936,981

 

-

     883,074

-

     883,074

-

 2,165,832

-

     2,165,832

 

-

 6,982,095

-

  6,982,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 10,346,011

-

  10,346,011

 

-

  3,491,093

-

  3,491,093

Current portion of convertible

 

 

 

 

 

 

 

 

 

-

  8,312,180

-

     8,312,180

 

-

 8,312,180

-

  8,312,180

Current portion of notes payable

-

 10,334,901

-

  10,334,901

 

-

9,389,901

-

  9,389,901

-

28,993,092

-

  28,993,092

 

-

21,193,174

-

21,193,174

                       

 

Credit risk

 

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.  The Group has adopted a policy of only dealing with creditworthy counterparties, as a means of mitigating the risk of financial loss from defaults.

 

The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.  All deposits are held with banks with an S&P rating of AA- or higher.  The maximum exposure to credit risk for the financial asset investments designated at fair value through the profit and loss is represented by their carrying value.

 

The Group's exposure to counterparty credit risk also arises from balances owed from Partner Companies relating to fees charged for services provided by Amphion.  Amphion seeks to mitigate the risk noted above through its philosophy of working with a small number of rigorously selected Partner Companies, assisting them to grow by implementing a consistent and proven methodology developed over the management team's 20 years of company building experience.  The Group's time tested model of company creation is built on a risk management process that relies on proven, defensible intellectual property sourced from some of the world's leading corporations and universities.

 

 

 

 

16.  Other financial assets and liabilities, (continued)

 

The following table is an analysis of the age of financial assets:

 

Group

 

 

 

 

More than 3

 

 

 

Not past due

Not more than

months and not

More than

 

 

or impaired

3 months

more than 1 year

1 year

Total

 

                 US $

                    US $

 US $

US $

US $

2015

 

 

 

 

 

Fees receivable - gross

     -

                         -

                                 -

          2,720,000

    2,720,000

Impairment

                       -

                          -

                                 -

         (2,690,000)

    (2,690,000)

Rebillable expenses

           537,949 

                         -

                                 -

                          - 

         537,949 

Other receivables

           497,841

                         -

                                 -

          2,361,224

      2,859,065

Impairment

                        -

                         -

                                 -

         (2,256,763)

    (2,256,763)

Prepaid expenses 

              36,592

                         -

                                 -

                         -

           36,592

 

        1,072,382

                          -

                                 -

              134,461

      1,206,843

 

 

 

 

 

 

2014

 

 

 

 

 

Fees receivable - gross

      - 

              60,000

                    180,000

          2,480,000  

    2,720,000 

Impairment

                        -

              (60,000)

                   (180,000)

         (1,610,000)

    (1,850,000)

Rebillable expenses

 987,040

                        -

                                 -

                          - 

         987,040 

Other receivables

            624,773

                        -

                                 -

          1,415,636

      2,040,409

Impairment

                        -

                        -

                                 - 

         (1,405,636)

    (1,405,636)

Prepaid expenses 

              77,567

                        -

                                 -

                         -

           77,567

 

        1,689,380

                          -

                                 -

              880,000  

     2,569,380

 

The allowance account for fees receivable is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amounts considered irrecoverable are written off against the fees receivable directly.

 

 

 

  

 

16.  Other financial assets and liabilities, (continued)

 

Company    

 

 

 

 

More than 3

 

 

 

Not past due

Not more than

months and not

        More than

 

 

 or impaired

3 months

more than 1 year

              1 year

          Total

 

                 US $

                    US $

 US $

                 US $

            US $

2015

 

 

 

 

 

Rebillable expenses

               525,427

    -

                                   -

                         -

           525,427

Due from subsidiaries

            5,096,425

                            -

                                   -

                         -

        5,096,425

Other receivables

            347,027

                            -

                                   -

2,351,224

        2,698,251

Impairment

           -

                            -

                                   -

(2,256,763)

    (2,256,763)

Prepaid expenses

     35,681

                            -

                                   -

                         -

              35,681

 

            6,004,560

                            -

                                   -

94,461

        6,099,021

 

 

 

 

 

 

2014

 

 

 

 

 

Rebillable expenses

               940,325

                            -

                                   -

                         -

           940,325

Due from subsidiaries

            3,803,622

                            -

                                   -

                         -

        3,803,622

Other receivables

            578,487

                            -

                                   -

                      1,405,636

        1,984,123

Impairment

          -

 

 

(1,405,636)

       (1,405,636)

Prepaid expenses

                  43,326

                            -

                                   -

                         -

              43,326

 

            5,365,760

                            -

                                   -

                         -

        5,365,760

 

 

 

 

 

 

 

 

Liquidity risk

 

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.  The principal risk to which the Group is exposed is liquidity risk. 

 

Amphion's investments are in Partner Companies that are often development stage companies and will likely experience significant negative cash flow.  The Partner Companies may be unable to obtain financing to fund their negative cash flows due to market conditions or lack of operational progress.  In these instances, though Amphion is not obligated to do so, the Group may feel it necessary to provide additional investment to the Partner Company and also defer payment of the advisory fees due.  Amphion may also be required to spend additional management time on these companies.

 

The Group's investments in private investments are generally illiquid.  As a result, the Group may not be able to liquidate these investments in order to meet its liquidity requirements.  The Group's investments in listed securities are considered to be readily realisable because they are traded readily on stock exchanges.

 

Adverse market conditions may also delay liquidity events for the Partner Companies, thereby requiring additional rounds of financing in which Amphion may feel it necessary to participate.  During these adverse market conditions Amphion may also find it difficult to raise additional capital.

 

Liquidity risk is managed on a regular basis by the Board.  This includes the preparation of cash flow forecasts to identity any potential liquidity issues and consider potential options for resolutions of issues identified.  The Group maintains a line of credit that can be used to meet liquidity needs subject to the value of the collateral (see note 18).  The Group may also issue equity in order to meet liquidity needs.

 

 

 

 

 

 

16.  Other financial assets and liabilities, (continued)

 

The following table is a maturity analysis that shows the remaining contractual maturity for the Group and Company's financial liabilities:

 

Group

 

 

Less than

1-3

3 months

Over

 

 

1 month

months

to 1 year

1 year

Total

 

           US $

       US $

           US $

          US $

          US $

2015

 

 

 

 

 

Trade payables & other payables

 10,346,011

    -

-

-

10,346,011

Current portion of promissory notes

81,301

433,333

9,820,267

-

10,334,901

Convertible promissory notes

-

8,312,180

-

-

8,312,180

 

 

 

 

 

 

2014

 

 

 

 

 

Trade payables & other payables

 10,270,584

    -

-

-

10,270,584

Current portion of promissory notes

447,968

733,333

7,783,600

-

8,964,901

Convertible promissory notes

-

-

10,189,891

-

10,189,891

Notes payable

-

-

-

982,000

982,000

 

Company

 

 

Less than

1-3

3 months

Over

 

 

1 month

months

to 1 year

1 year

Total

 

           US $

       US $

           US $

          US $

          US $

2015

 

 

 

 

 

Trade payables & other payables

3,491,093

    -

        -

         -

3,491,093

Current portion of promissory notes

81,301

333,333

8,975,267

-

9,389,901

Convertible promissory notes

-

8,312,180

 -

-

8,312,180

 

 

 

 

 

 

2014

 

 

 

 

 

Trade payables & other payables

3,307,920

    -

        -

         -

3,307,920

Current portion of promissory notes

447,968

733,333

7,783,600

-

8,964,901

Convertible promissory notes

-

-

 10,189,891

-

10,189,891

 

 

Market risk

 

Market risk is the risk that changes in interest rates, foreign exchange rates, equity prices, and other rates, prices, volatilities, correlations, or other market conditions will have an adverse impact on the Group's financial position or results.  Thus market risk comprises three elements - foreign currency risk, interest rate risk, and other price risk.  Information to enable an evaluation of the nature and extent of these three elements of market risk are shown below.

 

 

 

 

16.  Other financial assets and liabilities, (continued)

 

Foreign currency risk

 

The Group undertakes certain transactions denominated in foreign currencies.  Hence, exposures to exchange rate fluctuations arise.  Exchange rate exposures are managed by minimising the balance of foreign currencies to cover expected cash flows during periods where there is strengthening in the value of the foreign currency.  The Group has two UK Partner Companies which are denominated in GBP.  The Group have convertible promissory notes issued in GBP.  The valuations of these two companies and the convertible promissory notes fluctuate along with the US dollar/Sterling exchange rate.  No hedging of this risk is undertaken. 

 

The carrying amounts of foreign currency denominated monetary net assets at the reporting date are as follows:

 

 

Group

 

Company

 

2015

2014

 

2015

2014

 

US $

US $

 

US $

US $

 

 

 

 

 

 

Sterling - Cash equivalent

                    -

                    -

 

                   -

                    -

Sterling - Investment

   31,612,738

     6,594,390

 

   26,007,746

     6,594,390

Convertible promissory notes

    (8,312,180)

  (10,189,891)

 

    (8,312,180)

  (10,189,891)

 

A 5% (2014: 5%) strengthening of the US dollar against the British pound sterling at the reporting date would have decreased profit or loss of the Group by approximately US $1.2 million (2014: increased US $180,000).  A 5% (2014: 5%) weakening of the US dollar against the British pound sterling would have increased profit or loss of the Group by approximately US $1.2 million (2014: decreased US $180,000).  A 5% (2014: 5%) strengthening of the US dollar against the British pound sterling at the reporting date would have decreased profit or loss of the Company by approximately US $885,000 (2014: increased US $180,000).  A 5% (2014: 5%) weakening of the US dollar against the British pound sterling would have increased profit or loss of the Company by approximately US $885,000 (2014: decreased US $180,000).  The GBP/USD rate used at 31 December 2015 was 1.4746 (2014: 1.5578).  In management's opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the sensitivity analysis is based on balances at the end of the year and does not reflect the exposure during the year.

 

Interest rate risk

 

The Group's exposure to interest rate risk is restricted to the cash and cash equivalent balance of US $936,981 (2014: US $212,816).  The Company's exposure to interest rate risk is restricted to the cash and cash equivalent balance of US $883,074 (2014: US $192,807).  At 31 December 2015, the Group's and Company's bank accounts were in general not interest bearing due to the low base rate.  Changes in interest rates would have no significant impact on the profit or losses of the Company. 

 

Other price risks

 

The Group is exposed to equity price risks arising from equity investments.  Equity investments are held for strategic, rather than trading purposes.  The Group does not actively trade these investments.

 

A reasonable movement in equity market prices of 10% would increase/decrease profit or loss for the Group by US $3,165,545 (2014: US $668,898) and the Company by US $2,605,045 (2014: US $668,898).

 

The amounts generated from the sensitivity analysis are estimates of the impact of market risk assuming that specified changes occur.  Actual results in the future may differ materially from these results due to developments in the global financial markets which may cause exchange rates to vary from the hypothetical amounts disclosed above, which therefore should not be considered a projection of likely future events and losses.

 

 

 

 

 

17.  Trade and other payables

 

Group

 

Trade and other payables principally comprise amounts outstanding for purchases and ongoing costs. 

Company

 

Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. 

 

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

 

In December 2012, Berkeley Research Group, LLC ("BRG"), an expert consultant engaged by DataTern filed for arbitration claiming US $1,142,478 was owed to them.  DataTern opposed the arbitration and vigorously contested the amount owed.  In January 2015, the arbitrator found in favor of BRG and awarded them an amount totaling US $2,090,865 for the balance due and legal costs.  DataTern contested the award and filed a lawsuit seeking to overturn the award.  In March 2016, the Company reached a settlement with BRG for US $1,575,000.  The payment terms are US $100,000 paid upon signing the settlement agreement, and further payments of US $400,000 on 30 April 2016, US $500,000 on 30 June 2016 and US $575,000 on 31 December 2016.  Should Amphion fail to make a payment, the full amount of the judgement, US $2,236,286.49, will be due less any amounts paid.  As a consequence of this settlement, the liability has been transferred from DataTern Inc. to Amphion Innovations plc.

 

18.  Promissory notes

 

Convertible promissory notes

 

During 2015, US $439,524 (£287,283) additional convertible promissory notes were issued in payment of the accrued interest payable on the notes as of 31 December 2014 and the quarters ended 31 March 2015, 30 June 2015, and 30 September 2015.  In addition, US $1,873,108 (£1,191,584) convertible promissory notes were exchanged for Kromek Group plc ordinary shares as part of the exercise of the exchange rights.  At 31 December 2015, the convertible promissory notes totaled US $8,312,180 (£5,636,905) (2014: US $10,189,891; £6,541,206) and the warrants issued totaled 11,273,813 (2014:  13,082,416). 

 

The amended and restated Unsecured Convertible Promissory Notes December 2008-December 2015 were convertible into ordinary shares of the Company at any time at a conversion price of ten pence per ordinary share, accrued interest at the rate of 7% if paid in ordinary shares or 5% if paid in cash or additional notes on a quarterly basis and were to mature on 31 December 2015.  For every £1 note, two warrants were issued with an exercise price of 12 pence per share with an expiration date of 31 December 2015.  Each noteholder had the right to exchange the whole or part of its holding into Kromek shares.  The exchange rights were exercisable from 15 December 2014 to 30 December 2014.  Holders of US $1,873,108 of the convertible promissory notes requested the exchange and in June 2015 the Company issued 2,916,523 ordinary shares of Kromek Group plc to the holders.

 

At a meeting of the holders of the convertible promissory notes on 30 December 2015, the terms of the notes were amended to extend the due date to 28 February 2016 rather than 31 December 2015.  At a meeting of the holders on 26 February 2016, the terms of the notes were further amended.  The notes will now be redeemed on 31 December 2017 unless previously converted.  The notes will be convertible into ordinary shares at a conversion price of 8 pence per share.  The notes may be converted at the option of the holder at any time prior to the earlier of redemption or maturity.  The interest terms remain the same.  For every £1 of note held, the Company will issue two warrants to subscribe for shares.  The exercise price of the warrants will be 10 pence per share with an expiration date of 31 December 2017.  Each note holder may serve at least 60 days' notice on the Company to redeem up to a proportion of the notes held by it on the following dates:  15% on 31 May 2016; 20% on 30 November 2016; 20% on 30 June 2017.  The amounts are payable within 45 days.  The balance of the notes will be redeemed in full on 31 December 2017.  The Company has received redemption requests totaling approximately £300,000 for the 31 May 2016 redemption date.  The amounts are payable by 15 July 2016.

 

The net proceeds received from the issue of the convertible promissory notes and warrants are classified as a financial liability due to the fact that the notes are denominated in a currency other than the Company's functional currency and that on any future conversion a fixed number of shares would be delivered in exchange for a variable amount of cash (see note 2).

 

 

 

 

 

18.  Promissory notes, (continued)

 

Promissory notes

 

In June 2014, the Company was granted a loan facility by an institutional lender (the "Lender").  During 2014, the Company drew down US $3 million with a further draw down facility of up to a maximum of US $10 million, subject to the consent of each party.  The facility is secured by part of Amphion's holding in Kromek Group PLC ("Kromek") and may be repaid at the Company's discretion in cash, the issue of Amphion shares, or the payment of Kromek shares.  As part of the loan terms the lender received warrants to purchase Amphion shares and Kromek simulated warrants.  The interest rate of the loan was 12% per annum of the gross amount provided to the Company.  The Company also paid a further 8% of the gross amount provided as an implementation fee.  During 2015, the Company drew down an additional US $3,300,000.  Under the terms of the November 2015 draw, the simulated warrants over Kromek Group plc were cancelled, the interest rate on the facility was reduced to 10% and no additional Amphion warrants were granted.  The additional draw is to be repaid in monthly installments starting 1 March 2016 with the final monthly repayment due on 1 November 2016.  The proceeds were used to repay the existing amount due under the facility and for working capital for Amphion and its Partner Companies.  The balance of the loan at 31 December 2015 is US $3,000,000 (2014:  US $2,575,000).  As part of the loan facility, the Directors agreed to a Deed of Postponement that regulates the Directors' rights in respect to the repayment of any debt due to them from the Company.  The Directors agreed to defer payment of their debt by the Company until the loan facility is repaid in full.  The loan facility was amended in April 2016 (see note 24 for full details).

 

In July 2014, the Company issued Richard Morgan, a Director of the Company, a demand promissory note for US $81,301 for advances he made to the Company.  The promissory note has an interest rate of 5% per annum.

 

In February 2015, the Company cancelled US $6,308,600 of promissory notes issued to the former Chairman of the Company and his trust, which matured on 31 December 2014, and replaced them with promissory notes that matured on 31 December 2015.  The promissory notes accrue interest at the rate of 7% per annum.  In addition, 3,500,000 warrants issued in connection with the original notes were cancelled and replaced with warrants that expired on 31 December 2015 and had an exercise price of 8 pence per ordinary share.  The Company has agreed, in principle, to replace the US $6,308,600 of notes payable, which expired on 31 December 2015, with the issue of promissory notes that will now mature on 31 December 2016.  The rate of interest on the new notes will remain unchanged at 7%.  The new notes will also contain certain provisions for early repayment.  Refer to note 23 for further details.

 

During 2013, Amphion Capital Management LLC, a related party, advanced DataTern Inc., a subsidiary of the Company, US $222,000 under promissory notes.  The promissory notes accrue interest at 5% and are payable three years from issuance.  Terms include a requirement that 50% of the gross profits (defined as gross settlement revenue, less direct expenses, contingency fees, and FireStar's profit share) will be dedicated to repayment of the note.  There is an additional contingent return of 1.002% of the gross profits up to 100% return on the note and thereafter 0.498% of gross profits up to a total return of 300% on the note.  The balance of this note at 31 December 2015 is US $155,000 (2014: US $192,000).

 

During 2013, Richard Morgan, a Director of the Company, advanced DataTern Inc., a subsidiary of the Company, US $190,000 under promissory notes.  The promissory notes accrue interest at 5% and are payable three years from issuance.  Terms include a requirement that 50% of the gross profits (defined as gross settlement revenue, less direct expenses, contingency fees, and FireStar's profit share) will be dedicated to repayment of the note.  There is an additional contingent return of 0.501% of the gross profits up to 100% return on the note and thereafter 0.249% of gross profits up to a total return of 300% on the note.  The balance of this note at 31 December 2015 is US $190,000 (2014: US $ 190,000).

 

During 2013, R. James Macaleer, the former Chairman of the Company, advanced DataTern Inc., a subsidiary of the Company, US $600,000 under promissory notes.  The promissory notes accrue interest at 5% and are payable three years from issuance.  Terms include a requirement that 50% of the gross profits (defined as gross settlement revenue, less direct expenses, contingency fees, and FireStar's profit share) will be dedicated to repayment of the note.  There is an additional contingent return of 2.00% of the gross profits up to 100% return on the note and thereafter 1.00% of gross profits up to a total return of 300% on the note.  The balance of this note at 31 December 2015 is US $600,000 (2014: US $600,000).

 

 

 

 

 

 

 

 

 

19.  Share capital

 

 

2015

 

2014

 

£

 

£

 

 

 

 

Authorised:

 

 

 

   500,000,000 ordinary shares of 1p each

      5,000,000

 

  5,000,000

 

 

 Number

 

£

 

US $

 

 

 

 

 

 

Balance as at 31 December 2013

146,884,071

 

1,468,840

 

2,693,319

 

 

 

 

 

 

Issued for cash or services:

 

 

 

 

 

   Ordinary shares of 1p each

690,663

 

6,907

 

11,833

   Ordinary shares of 1p each

703,772

 

7,038

 

11,504

 

 

 

 

 

 

Balance as at 31 December 2014

148,278,506

 

1,482,785

 

2,716,656

 

 

 

 

 

 

Issued for cash or services:

 

 

 

 

 

   Ordinary shares of 1p each

344,471

 

3,445

 

5,288

   Ordinary shares of 1p each

2,148,243

 

21,482

 

33,060

   Ordinary shares of 1p each

1,298,646

 

12,986

 

19,599

   Ordinary shares of 1p each

15,239,477

 

152,395

 

225,904

   Ordinary shares of 1p each

29,311,230

 

      293,112

 

451,087

   Ordinary shares of 1p each

598,850

 

5,989

 

9,286

 

 

 

 

 

 

Balance as at 31 December 2015

197,219,423

 

1,972,194

 

3,460,880

 

The authorised share capital was increased to 500,000,000 ordinary shares upon the Company's re-registration under the Companies Act 2006 in August 2014.

 

Holders of the ordinary shares are entitled to receive dividends and other distributions and to attend and vote at any general meeting.

 

During the year ended 31 December 2015, the following changes occurred to the share capital of the Company:

 

On 16 February 2015, the Company issued 344,471 ordinary 1p shares at a premium of 2.25p per share (US $11,896) to Directors in payment of 2015 first quarter Directors' fees.

 

On 3 March 2015, the Company issued 2,148,243 ordinary 1p shares at a premium of 2.14p per share (US $70,749) to an institutional lender as a monthly payment on the loan.

 

On 1 April 2015, the Company issued 1,298,646 ordinary 1p shares at a premium of 1.66p per share (US $32,535) to an institutional lender as a monthly payment of the loan.

 

On 10 April 2015, the Company issued 15,239,477 ordinary 1p shares at premiums ranging from 2.50p to 3.375p per share (US $635,114) to an institutional lender in settlement of their exercise of warrants that were issued in conjunction with the loan facility.

 

On 10 June 2015, the Company issued 29,311,230 ordinary 1p shares at a premium of 4.25p per share (US $1,917,118) in a placing.

 

On 21 September 2015, the Company issued 598,850 ordinary 1p shares at a premium of 5.25p per share (US $48,750) to Directors in payment of 2015 second and third quarter Directors' fees.

 

 

 

 

 

20.  Operating lease arrangements

 

At the balance sheet date, the Group has outstanding commitments under non-cancellable operating leases, which fall due as follows:

 

 

2015

 

2014

 

 

US $

 

US $

 

 

 

 

 

Within one year

 

96,000

 

7,500

In the second to fifth years inclusive

 

40,000

 

-

After five years

 

-

 

-

 

 

 

 

 

 

 

136,000

 

7,500

 

Operating lease payments represent rentals payable by the Group for certain of its office properties.  On 27 October 2015, the Company entered into a license agreement for the New York office for a term of 18 months beginning on 1 December 2015.  The agreement automatically renews for an additional term of one year unless either party gives notice to the other that it elects not to renew the agreement at least 60 days prior to the expiration date.  The Group recognised expenses of US $91,618 in respect of operating lease arrangements in the year ended 31 December 2015. 

 

21.  Share-based payments

 

In 2006 the Group established the 2006 Unapproved Share Option Plan ("the Plan") and it was adopted pursuant to a resolution passed on 8 June 2006.  Under this plan, the Compensation Committee may grant share options to eligible employees, including Directors, to subscribe for ordinary shares of the Company.  The number of shares over which options may be granted under the Plan cannot exceed 10% of the ordinary share capital of the Company in issue on a fully diluted basis.  The Plan will be administered by the Compensation Committee.  The number of shares, terms, performance targets, and exercise period will be determined by the Compensation Committee.

 

The options issued under the Plan total 28,650,000 and 18,000,000 have been forfeited or expired.  At 31 December 2015, a total of 6,916,667 options under the Plan were vested (2014: 5,516,667).

 

No options were issued during 2015.  During 2014, 7,000,000 options were issued under the Plan.  Twenty percent of the options vested on 31 December 2014 and the remaining 80% will vest ratably and monthly over 4 years from 1 September 2014.  They expire on 23 September 2024 and have an exercise price of £0.02225.

 

As of 31 December 2015, a total of 42,278,869 options and warrants have been issued (2014: 42,278,869) and 29,828,869 have been forfeited or expired (2014: 26,328,869). 

 

 

2015

 

2014

 

Number of

 

Weighted

 

Number of

 

Weighted

 

share options

 

average

 

share options

 

average

 

 

 

exercise

 

 

 

exercise

 

 

 

price (in £)

 

 

 

price (in £)

 

 

 

 

 

 

 

 

Outstanding at beginning of period

    15,950,000

 

0.07

 

      8,983,333

 

0.11

Granted during the period

                    -

 

-

 

    10,500,000

 

0.04

Forfeited during the period 

                    -

 

-

 

                     -

 

-

Expired during the period

(3,500,000)

 

0.08

 

(3,533,333)

 

0.08

Outstanding at the end of the period

    12,450,000

 

0.07

 

    15,950,000

 

0.07

Exercisable at the end of the period

     8,716,667

 

0.09

 

     10,816,667

 

0.10

 

 

 

 

 

 

 

 

21.  Share-based payments, (continued)

 

The options are recorded at fair value on the date of grant using the Black-Scholes model.  The inputs into the model are as follows:

 

 

 2015

 

 2014

 

 US $

 

 US $

 

 

 

 

Weighted average share price

-

 

0.03

Weighted average exercise price

-

 

0.06

Expected volatility

-

 

65-77%

Expected life

-

 

    1-10 years

Risk free rate

-

 

0.25-2.60%

Expected dividends

                    -

 

                    -

 

Expected volatility was determined by calculating the historical volatility of the Group's share price from the date listing to the end of the year. 

 

No options were granted in 2015.  In 2014, options were granted on 23 September 2014 and 31 December 2014.  The aggregate of the estimated fair value of the options granted is US $118,300.

 

The Company and Group recognised share based payments of US $23,660 and US $47,044 relating to equity-settled share-based payment transactions in 2015 and 2014 respectively. 

 

22.  Retirement benefit plans

 

The Company established a defined contribution plan under Section 401(k) of the Internal Revenue Code.  The plan enables qualified employees to reduce their taxable income by contributing up to 15% of their salary to the plan.  The Company may elect to make a matching contribution to the plan.  The Company has elected not to make a contribution for the years ended 31 December 2015 or 2014.

 

23.  Related party transactions

 

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note.  Details of transactions between the Group and other related parties are disclosed below.

                                                                               

During the year, the Group paid miscellaneous expenses on behalf of Motif BioSciences, Inc. ("Motif") such as office expenses and expenses related to their initial public offering.   At 31 December 2015, the amount owed by Motif to the Group was US $1,599 (2014: US $119,019). 

 

Amphion Innovations US Inc., a subsidiary of the Company, has entered into an agreement with Axcess International, Inc. ("Axcess") to provide advisory services.  Richard Morgan and Robert Bertoldi, Directors of the Company, are also Chairman and Director of Axcess, respectively.  Amphion Innovations US Inc. will receive a monthly fee of US $10,000 pursuant to this agreement.  The agreement was effective until 1 March 2015 and will renew thereafter on an annual basis until terminated by one of the parties.  The monthly fee is suspended for any month in which Axcess' cash balance falls below US $500,000.  Amphion Innovations US Inc. received US $nil for the year ended 31 December 2015 (2014: US $nil) on the basis that the cash has fallen below the US $500,000 level. 

 

Amphion Innovations US Inc. entered into an agreement with Motif BioSciences, Inc. ("Motif") to provide advisory and consulting services.  Richard Morgan, a Director of the Company, is also the Chairman of Motif.  The annual fee for the services is US $240,000.  The agreement was effective until 1 April 2015.  Amphion Innovations US Inc.'s fee for the period ended 31 December 2015 was US $60,000 (2014: US $240,000). 

 

On 1 April 2015, Motif Bio plc entered into an advisory and consultancy agreement with Amphion Innovations US Inc.  Richard Morgan, a Director of the Company, is also the Chairman of Motif Bio plc and Robert Bertoldi, a Director of the Company, is also a Director of Motif Bio plc.  The consideration for the services is US $120,000 per annum.  In the event that Motif Bio plc raises a

 

 

 

23.  Related party transactions, (continued)

 

minimum of £5,000,000 in gross proceeds on AIM admission or a secondary raise, a one-time payment of US $300,000 will be paid to Amphion Innovations US Inc.  This amount was paid on 21 July 2015.  The agreement is for an initial period of twelve months and will automatically renew each year on the anniversary date unless either party notifies the other by giving 90 days written notice prior to expiration.  Amphion Innovations US Inc.'s fee for the period ended 31 December 2015 was US $399,904 (2014: US $nil).

 

On 1 April 2015, Motif Bio plc entered into a consultancy agreement with Amphion Innovations plc for Robert Bertoldi, an employee of Amphion Innovations plc, to provide services to Motif Bio plc.  The consideration for the services is US $5,000 per month.  On 1 November 2015, the consideration increased to US $180,000 annually.  The agreement is for an initial period of twelve months and will automatically renew each year on the anniversary date unless either party notifies the other by giving 90 days written notice prior to expiration.

 

Amphion Innovations US Inc. has entered into an agreement with m2m Imaging Corp. ("m2m") to provide advisory and consulting services.  Robert Bertoldi, a Director of the Company, is also the Chairman of m2m.  The monthly fee under this agreement is US $15,000.  This agreement renews on an annual basis until terminated by either party.  Amphion Innovations US Inc.'s fee for the periods ended 31 December 2015 and 2014 were suspended.  At 31 December 2015, US $630,000 (2014: US $630,000) remains payable.  This balance has been reduced by a provision for doubtful debts in the amount of US $600,000 (2014: US $600,000).

 

Amphion Innovations US Inc. has entered into an agreement with WellGen, Inc. ("WellGen") to provide advisory and consulting services.  Richard Morgan and Robert Bertoldi, Directors of the Company, are also Chairman and Directors of WellGen, respectively.  The fee under this agreement is US $60,000 per quarter.  The agreement renews annually until terminated by either party.  The subsidiary's fee for the year ended 31 December 2015 was suspended (2014: US $240,000).  At 31 December 2015 US $1,320,000 (2014: US $1,320,000) remains payable.  This balance has been reduced by a provision for doubtful debts in the amount of US $1,320,000 (2014: US $480,000).

 

Amphion Innovations US Inc. has entered into an agreement with PrivateMarkets, Inc. ("PrivateMarkets") to provide advisory services.  Richard Morgan, a Director of the Company, is also the Chairman of PrivateMarkets.  The fee under this agreement is US $30,000 per quarter until the successful sale of at least US $3,000,000 of equity and thereafter, US $45,000 per quarter.  This agreement will renew annually unless terminated by either party.  The subsidiary's fee for the years ended 31 December 2015 and 2014 were suspended.  At 31 December 2015, US $770,000 (2014: US $770,000) remains payable by PrivateMarkets.  This balance has been reduced by a provision for doubtful debts in the amount of US $770,000 (2014: US $770,000).

 

Amphion Innovations US Inc. has entered into an agreement with DataTern, Inc. ("DataTern") (a wholly owned subsidiary of the Company) to provide advisory and consulting services.  Richard Morgan and Robert Bertoldi, Directors of the Company, are also Directors of DataTern.  The quarterly fee under this agreement is US $60,000 and renews annually unless terminated by either party.  The subsidiary's fee for the years ended 31 December 2015 and 2014 was suspended. 

 

During 2013 Richard Morgan, a Director of the Company, advanced US $190,000 to a subsidiary of the Company under a promissory note.  The promissory note accrues interest at 5% per annum and is payable March 2016.  (See note 18).  In 2010 Richard Morgan, a Director of the Company, advanced US $352,500 to the Company.  In July 2014, the balance of this advance was converted into a demand note that accrues interest at 5% per annum.  At 31 December 2015, US $81,301 remains outstanding.  The net amount payable by the Company at 31 December 2015 to Richard Morgan is US $2,249,714 (2014: US $2,230,702).  The amount payable includes a voluntary salary reduction of US $1,753,533, US $341,779 of which will be payable at the discretion of the Board at a later date.

 

On 31 December 2015, US $6,308,600 of promissory notes payable issued to R. James Macaleer, the former Chairman of the Company, and his trust matured and 3,500,000 warrants expired.  The Company has agreed, in principle, to replace the US $6,308,600 of notes payable with the issue of promissory notes that will now mature on 31 December 2016.  The rate of interest on the new notes will remain unchanged at 7%.  The new notes also contain certain provisions for early repayment.  In no case will any payment be made on the new notes until the amounts outstanding under the Company's existing loan facility are fully repaid.  The final payment under the facility is currently scheduled for 1 November 2016 (amended to 1 February 2017 in April 2016).  During 2013, R. James Macaleer advanced US $600,000 to a subsidiary of the Company under a promissory note.  The promissory note accrues interest at 5% per annum and is payable three years from issuance.  (See note 18).  At 31 December 2015, Mr. Macaleer was due US $1,859,115 (2014: US $1,387,513) for accrued interest on the promissory notes.

 

 

 

 

23.  Related party transactions, (continued)

 

The Company entered into a consulting agreement with Fifth Capital Limited for the term 1 January 2015 to 31 March 2015.  The term continues for subsequent periods of 90 days unless either the consultant or Amphion terminates the agreement.  Miroslaw Izienicki, a Director of the Company, is also the Director of Fifth Capital Limited.  The fee under this agreement is £3,000 per month, £400 of which may be paid in the Company's stock.

 

At 31 December 2015, US $110,666 (2014: US $116,667) was due to Gerard Moufflet, a Director of the Company, for Director's fees and US $8,337 (2014: US $8,337) for expenses.

 

At 31 December 2015, US $6,672 (2014: US $6,917) was due to Anthony Henfrey, a retired Director of the Company, for expenses.  Dr. Henfrey waived his entitlement to receive his director's fees for 2014.

 

At 31 December 2015, US $23,535 (2014: US $23,535) was due to Richard Mansell-Jones, a retired Director of the Company for Director's fees.

 

At 31 December 2015, US $947,293 (2014: US $855,925) was due to Robert Bertoldi, a Director of the Company, for voluntary salary reductions in 2009 through 2015 of which US $188,769 is payable at the discretion of the Board.

 

Directors' interests

 

The Directors' direct ownership in the Partner Companies is as follows:

 

 

 

Fully diluted %

Investment company

 

owned by Directors

 

 

2015

 

2014

 

 

 

 

 

Axcess International, Inc.

 

5.46%

 

5.66%

FireStar Software, Inc.

 

0.71%

 

1.49%

Kromek Group PLC

 

0.22%

 

0.96%

Motif Bio plc

 

0.80%

 

5.29%

m2m Imaging Corp.

 

1.66%

 

1.46%

Novacyt S.A.

 

0.00%

 

0.00%

PrivateMarkets, Inc.

 

2.92%

 

2.89%

WellGen, Inc.

 

3.10%

 

3.09%

 

The Directors who held office at 31 December 2015 had the following interests in the Company's ordinary share capital:

 

 

2015

 

2014

 

2015

 

2014

 

2015

 

2014

 

 

Number of

 

Number of

 

Convertible

 

Convertible

 

 

 

 

 

 

ordinary

 

ordinary

 

promissory

 

promissory

 

Number of

 

Number of

 

 

shares

 

shares

 

notes

 

notes

 

warrants

 

warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

Richard C.E. Morgan

 

        23,642,499

 

        25,642,499

 

     £981,666

 

     £934,079

 

   1,963,331

 

   1,868,158

Robert J. Bertoldi

 

          6,436,431

 

          6,436,431

 

                   -

 

                   -

 

                  -

 

                  -

R. James Macaleer

 

                        -

 

        25,595,535

 

                   -

 

       £12,408

 

                  -   

 

   4,024,817 

Gerard Moufflet

 

          1,180,208

 

          1,039,583

 

                   -

 

                   -

 

                  -

 

                  -

Miroslaw Izienicki

 

             403,433

 

             102,083

 

                   -

 

                   -

 

                  -

 

                  -

 

 

 

 

 

 

 

23.  Related party transactions, (continued)

 

Aggregate Directors' remuneration

 

The total amounts for Directors' remuneration was as follows:

 

 

 

 

 

Year ended

 

Year ended

 

31 December 2015

 

31 December 2014

 

US $

 

US $

Emoluments

1,014,987

 

775,030

 
 
Directors' emoluments and compensation

 

 

 

 

  (1) Group

 

 

 

 

 

 

 

 

 

 

 

Fees/Basic salary

 

 

 

 

 

 

 

 

 

Group

 

accrued Payment

 

Group

 

 

 

Year ended

 

Period ended

 

Fees/Basic

 

 not subject to

 

Benefits

 

 

 

31 December

 

31 December

 

salary paid

 

board discretion

 

In kind

 

Bonuses

 

2015 total

 

2014 total

 

US $

 

US $

 

US $

 

US $

 

US $

 

US $

Name of Director

 

 

 

 

 

 

 

 

 

 

 

Executive-salary

 

 

 

 

 

 

 

 

 

 

 

Richard C.E. Morgan

200,477

 

149,523

 

18,895

 

110,000

 

478,895

 

          370,881

Robert J. Bertoldi

206,036

 

                   91,368

 

            18,895

 

90,000

 

406,299

 

          324,363

Non-executive - fees

 

 

 

 

 

 

 

 

 

 

 

R. James Macaleer

38,512

 

                           -  

 

            -

 

-

 

            38,512

 

            34,189

Anthony W. Henfrey

                -

 

                           -  

 

            -

 

-

 

                    -  

 

                    -  

Gerard Moufflet

        36,461

 

                           -  

 

            -

 

-

 

            36,461

 

            30,741

Miroslaw Izienicki

        54,820

 

                           -  

 

            -

 

-

 

            54,820

 

            14,856

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate emoluments

536,306

 

                 240,891

 

            37,790

 

200,000

 

       1,014,987

 

       775,030

 

 

(1)   Deferred fees/basic salary refers to voluntary salary reductions taken by the Executive Directors in 2015 which were recorded as a liability in 2015 in the Group accounts, payment of which is not subject to the discretion of the Board.

 

Directors' share options

 

Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company granted to or held by the Directors.  Details of options for Directors who served during the year are as follows:

 

 

 

1

 

31

 

Date from

 

Name of

 

 January

 

December

Exercise

which

         Expiry

Director

Scheme

2015

Granted

2015

price

exercisable

            date

 

 

 

 

 

 

 

 

Richard Morgan

2006 Unapproved Share Option Plan

500,000

             -

  500,000

£0.1075

 24 Mar 2010

24 Mar 2019

Richard Morgan

2006 Unapproved Share Option Plan

2,500,000

-

   2,500,000

£0.02225

 23 Sep 2014

23 Sep 2024

Robert Bertoldi

2006 Unapproved Share Option Plan

350,000

             -

  350,000

£0.1075

 24 Mar 2010

24 Mar 2019

Robert Bertoldi

2006 Unapproved Share Option Plan

2,500,000

-

2,500,000

£0.02225

 23 Sep 2014

23 Sep 2024

 

 

5,850,000

             -

5,850,000

 

 

 

 

 

 

 

 

 

 

24.  Subsequent events

 

In January 2016, the Company issued 291,806 ordinary shares to certain of its Board members in consideration of their directors' fees for the fourth quarter of 2015 and the first quarter of 2016.

 

In February 2016, a UCC Financing Statement was filed with the Texas Secretary of State recording DataTern Inc.'s patents as collateral to McCarter & English, LLP for any amounts due to them.

 

At a meeting on 26 February 2016, the holders of £5,707,738 of convertible promissory notes agreed to amend the terms of the note.  The notes will now be redeemed on 31 December 2017, will be convertible into ordinary shares at 8 pence per share, and will pay interest at 7% if paid in ordinary shares or 5% if paid in cash or additional notes.  In addition, for every £1 of note held, the noteholder will be issued two warrants with an exercise price of 10 pence per share.  Each note holder may serve at least 60 days' notice on the Company to redeem up to a proportion of the notes held by it on the following dates:  15% on 31 May 2016; 20% on 30 November 2016; 20% on 30 June 2017. 

 

In April 2016, the Company reached a settlement with Berkeley Research Group LLC, an expert consultant engaged by DataTern Inc, for US $1,575,000.  The payment terms are: US $100,000, paid on signing of the settlement agreement; US $400,000 on 30 April 2016; US $500,000 on 30 June 2016; and US $575,000 on 31 December 2016.  Should Amphion fail to make a payment, the full amount of the judgement, US $2,236,286.49, will be due less any amounts paid.  As a consequence of the settlement, the liability has been transferred from DataTern Inc. to Amphion.

 

In April 2016, the Company borrowed an additional US $1,765,000 under the YA Global Master SPV Ltd. Loan facility increasing the amount borrowed under the facility to US $4.1 million.  Under the terms of the additional draw, the interest rate will be 10% with repayments starting on 1 May 2016 and with the final repayment due on 1 February 2017.  The proceeds are to be used to repay the existing amount due under the facility and for working capital for Amphion and its Partner Companies.  The loan is secured by the pledge by the Company of 7,774,678 ordinary shares of Kromek Group PLC and 14,906,145 ordinary shares of Motif Bio plc.  Additional terms of the facility allow the conversion of the drawn-down amount into ordinary shares in the Company.  Up to US $500,000 of the facility may be converted at 6.5 pence per ordinary share and the remainder of the amount drawn-down, approximately US $3.6 million, may be converted at 8.0 pence per ordinary share.

 

In May 2016, the Company amended its financial advisor agreement with Plumtree Capital Limited.  The fee under this new agreement will be a monthly retainer of £1,250, commission of five percent on any investment in the Company by investors introduced by Plumtree and five year warrants to subscribe for 300,000 ordinary shares at an exercise price of 3.5p.

 

The Company has received redemption requests on its convertible promissory notes totaling approximately £300,000 for the 31 May 2016 redemption date.  The amounts are payable by 15 July 2016.

 

On 11 May 2016, DataTern Inc. entered into a Consulting Services Agreement ("CSA") with Gerchen Keller Capital, LLC ("GKC").  The CSA grants GKC exclusivity for sixty days to review the litigation taking place in the District of Massachusetts for case numbers 11-11970 and 11 -12220.

 

Notice

The financial information set out above does not constitute the Group's statutory accounts for the year ended 31 December 2015 or 2014, but is derived from those accounts.  The auditors have reported on those accounts; their report was unqualified, but did draw attention to matters by way of emphasis relating to significant uncertainty in respect of going concern and valuation of Partner Company investments and other receivables from Partner Companies for both the 2015 and 2014 year ends, and did not contain statements under s. 15(4) or (6) Companies Act 1982 of the Isle of Man.

Approval

This statement was approved by the Board of Directors on 23 June 2016.

Copies of the Annual Report and Accounts

Copies of the Annual Report and Accounts will be sent to all shareholders.  Further copies will be obtainable from the Company's primary office: Amphion Innovations plc, Attn: Investor Relations, 125 Park Avenue, 25th Floor, New York, NY 10017, USA. 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR AKBDQDBKBFAB