TIDMALM
RNS Number : 4742D
Allied Minds PLC
27 April 2017
FOR IMMEDIATE RELEASE 27 April 2017
Allied Minds plc
("Allied Minds" or the "Group" or the "Company")
Annual Results Release
Allied Minds plc (LSE: ALM), an innovative US-focused IP
commercialisation company, announces its annual results for the
year ended 31 December 2016.
-- The Group Subsidiary Ownership Adjusted Value (GSOAV) was
$416.2 million as of 24 April 2017 compared to $535.8 million at 31
December 2015, a decrease of $119.6 million, or 22.3%, primarily
reflecting the discontinuation of funding at several subsidiaries
announced on 5 April 2017, partially offset by a net increase in
valuations across the remainder of the portfolio driven by HawkEye
360 and ABLS II.
-- Net loss of $128.7 million in 2016 (2015: $97.9 million),
primarily reflecting an increase in the overall growth of the
Group's investment in research and development, and the non-cash
finance cost from fair value accounting of the subsidiary preferred
shares liability.
-- At December 31, 2016 net cash and investments* totaled $226.1
million (2015: $194.8 million) of which $136.7 million (2015:
$115.0 million) is held at the parent level.
* includes funds in form of fixed income securities.
Jill Smith, interim Chief Executive Officer of Allied Minds,
said:
"I am excited by Allied Mind's strong foundation for growth
represented by highly promising companies in our current portfolio,
strong cash position and the distinct competitive advantages
inherent in our origination platform. Following the restructuring
earlier this month, we have reallocated our capital and management
resources to focus on accelerating commercialisation and pipeline
expansion.
Additionally, we have taken steps to evolve our business model
to achieve our goals, including by capitalising more fully on our
competitive advantages, broadening our syndicate and strengthening
capital allocation and operational discipline. We are confident
that we are well-positioned to build on our platform and
crystallise returns for our shareholders."
A call for investors and analysts will be held at 5.00 pm BST
today, Thursday 27 April 2017. Dial in details are available from
Citigate Dewe Rogerson (contact details below).
HIGHLIGHTS
Investment Highlights
During 2016, an aggregate of $108.2 million was invested into
new and existing portfolio companies, including:
-- $60.2 million from subsidiary fundraisings with $48.5 million
coming from third-party investment and $11.7 million from Allied
Minds, to support and accelerate the development of four of the
Group's existing companies: Federated Wireless; Precision Biopsy;
HawkEye 360 and ABLS II.
o Federated Wireless, a company developing cloud-based software
enabling dynamic sharing of surplus spectrum owned by the US
military, raised $22.0 million in early 2016. Allied Minds invested
$5.0 million in this fundraising and third-party investment totaled
$17.0 million.
o Precision Biopsy, a company developing early intervention
technology that detects in real time suspicious tissue during
prostate biopsy examinations, raised $5.0 million during 2016, and
received $6.0 million from a fundraising completed in 2015, both
sums from external investors.
o Hawkeye 360, a company developing a space-based radio
frequency (RF) mapping and analytics system to be operated via a
constellation of formation-flying small satellites in Low Earth
Orbit (LEO), raised $11.0 million in a funding round led by Razor's
Edge Ventures, with additional participation by Allied Minds and a
defence market leader. A further $2.75 million of new equity was
issued by Hawkeye 360 post-period end, of which $1.5 million was
issued in the form of warrants in association with a $3.0 million
development programme.
o ABLS II raised $15.0 million as it moved from initial
feasibility studies to fund the lead optimisation programme for its
novel small molecule therapeutics for the treatment of fibrotic and
autoimmune diseases. $12.0 million of this funding was provided by
ABLS Capital (of which Allied Minds provided $2.7 million), with
the remaining $3.0 million from Bristol-Myers Squibb (BMS).
o The balance of the $60.2 million of capital invested via
subsidiary fundraisings comprised $1.2 million of initial seed
capital raised from external sources at ABLS Capital (net of
placing fees) to cover the initial operating expenses of this
entity.
-- In addition to these fundraisings, $48.0 million was invested
by the Group into new and other existing portfolio companies,
including investments in four new businesses: Signature Medical
(Boston University), ABLS Capital and ABLS III (New York University
(NYU)), and Vatic Materials (Penn State). Following further due
diligence on Vatic Materials, a decision was taken post-period end
not to exercise an option to license underlying IP and the business
was terminated.
-- Separately, ABLS secured binding equity commitments of up to $80.0 million into ABLS Capital (predominantly from external investors). These commitments, together with up to $20.0 million from BMS, will fund development costs for lead optimisation programmes of promising drug compounds sourced by ABLS, the partnership formed between Allied Minds and BMS in 2014, following successful completion of the initial feasibility phase. Of these commitments, $12.0 million was drawn in 2016 to fund the lead optimisation programme for ABLS II, as described above. Included in the $80.0 million of commitments to ABLS Capital is the $1.2 million of net cash payments made to ABLS Capital by the external investors referred above.
-- In December 2016 Allied Minds raised $80.3 million in gross
proceeds via a placing of new ordinary shares, equivalent to 8.1%
of the existing share capital prior to the placing. Proceeds from
the placing will be applied to invest alongside third parties in
the Group's later stage subsidiaries and selected earlier stage
subsidiaries and to invest in the pipeline of innovative new
technologies.
Corporate Operational Highlights
-- During the year, Allied Minds engaged with nearly 50 new
research institutions, bringing the total US universities and
federal laboratories in the Allied Minds partner network to
207.
-- The investment team reviewed more than 2,700 new technologies
developed by the partner network. Following extensive due diligence
on over 20 of the most promising technologies, the Group formed and
funded four new businesses, resulting in a total Group portfolio of
27 subsidiary businesses at 31 December 2016 (17 following the
post-period end closure of ABLS I, Vatic Materials and each of
Biotectix, Cephalogics, CryoXtract, Novare Pharmaceuticals, Optio
Labs, RF Biocidics, and SoundCure/Tinnitus Treatment Solutions (the
Discontinued Subsidiaries)).
-- Allied Minds launched a strategic alliance with GE Ventures
to jointly identify and commercialise next--generation
technologies. Under the terms of the agreement, Allied Minds and GE
Ventures agreed to invest in new and existing technologies sourced
from both Allied Minds' and GE Ventures' innovation pipelines.
-- The Group entered into exciting new strategic partnerships
and renewed valuable existing partnerships with leading technology
sources, including the MITRE Corporation, the Aerospace
Corporation, and Pacific Northwest National Labs.
-- During 2016 and post-period, Allied Minds and its
subsidiaries further developed existing collaborations with
industry leaders including BMS, Intel, Advanced Micro Devices
(AMD), Alphabet, Cisco, Ruckus Wireless (Brocade), Qualcomm, Nokia,
Telrad Networks, Siemens and others, validating the quality of our
platforms, people and technologies.
-- During 2016 the total workforce expanded from approximately
359 to 413 employees and consultants. The workforce increase was
almost entirely concentrated in the operating subsidiaries. Our
workforce comprises approximately 68% engineering and technical
development professionals, 11% leadership and management
professionals and 21% sales, marketing and other business
development professionals.
Financial Highlights
-- Net cash and investments* of $226.1 million (2015: $194.8
million) of which $136.7 million (2015: $115.0 million) held at the
parent level.
* includes funds in form of fixed income securities.
-- Revenues of $2.7 million (2015: $3.3 million) reflecting the
early stage nature of our portfolio businesses
-- Net loss of $128.7 million, (2015: $97.9 million) primarily
reflecting an increase in the overall growth of the Group's
investment in commercial and R&D activities, as well as the
non-cash finance cost from fair value accounting of the subsidiary
preferred shares liability.
-- GSOAV of $416.2 million as of 24 April 2017 ($535.8 million
as at 31 December 2015), reflecting the discontinuation of funding
at the Discontinued Subsidiaries, partially offset by a net
increase in valuation in the remainder of the portfolio
(specifically, at Hawkeye 360 and ABLS II).
Corporate Partnership Highlights
-- ABLS, a drug development joint venture with BMS:
o reviewed more than 245 technologies from partner research
institutions;
o called on $12.0 million of pre-committed funds, and received a
further $3 million of funding from BMS, to finance the lead
optimisation phase for ABLS II's novel treatment for fibrotic and
autoimmune diseases;
o formed ABLS III (d/b/a i<BETA>eCa Therapeutics),
licensing technology sourced from NYU School of Medicine, using
proprietary compounds targeting the Wnt signalling (see below);
and
o after the period end, closed ABLS I following Board
determination that the ABLS I feasibility programme was not
successfully completed.
-- Strategic Alliance with GE Ventures
o formed in September 2016; and
o perform ongoing work to identify candidate technologies for
joint investment.
Selected Subsidiary Highlights
-- BridgeSat, a developer of optical communications networks for the satellite industry:
o initiated development for the three facets of the BridgeSat
solution: space terminal, ground station, and management network
for targeted completion in 2017;
o post-period end entered into a commercial agreement with
Swedish Space Corporation (SSC) securing access for BSI equipment
at SSC ground sites; and
o secured initial customer agreements for hardware and data
services.
-- Federated Wireless, a developer of software providing spectrum allocation solutions:
o received Federal Communications Commission's (FCC) conditional
approval for its Spectrum Allocation System (SAS), with full
approval expected in 2017;
o demonstrated interoperability with Alphabet's SAS system, a
key step in the FCC approval process;
o founded the CBRS (Citizen's Broadband Radio Service) Alliance
with Alphabet, Intel, Qualcomm, Ruckus Wireless (Brocade), Nokia
and others, promoting the ecosystem development for shared
spectrum; and
o signed partnership agreements with Siemens and Telrad Networks
and completed trials with these partners as well as Alphabet, Dell,
Ruckus and Qualcomm in 2016 and Nokia, Ericsson, Sercomm and Juni
post-period end. Trials with a further 9 ecosystem members are
pending, including one with a national Mobile Network Operator
(MNO).
-- Hawkeye360, a company developing a space-based radio
frequency (RF) mapping/analytics system:
o engaged contractors and commenced manufacturing of satellites
and payloads;
o announced the formation of an Advisory Board, and the
appointment of John Serafini as CEO; and
o secured launch on a SpaceX Falcon 9 rocket targeted for Q1
2018.
-- Precision Biopsy, a company developing alternative prostate
cancer diagnostics and focal therapy:
o began clinical trials in the US in a Cohort A study for
ClariCore(TM), to date completing more than 100 patients at 6 US
clinical sites.
-- SciFluor, a drug discovery and development company making strategic use of fluorine:
o commenced Phase I/II FDA trials with SF0166, an eye drop
formulation of a drug intended to treat age-related macular
degeneration (Wet AMD) and diabetic macular edema (DME)
populations, following delays due to FDA requests for additional
data;
o secured further patent protection covering methods of use of
SF0166 in AMD, DME and retinal vein occlusion (RVO); and
o completed pre-clinical testing, including toxicology, and
prepared IND submission for SF0034 (a fluorinated derivative of
retigabine).
-- Spin Transfer Technologies (STT), a next-generation computer memory company:
o shipped samples of its DM1 Diagnostic Memory chip to target
customers;
o became only the second company to have shipped perpendicular
ST-MRAM samples;
o announced fabrication of key magnetic components (pMTJs) as
small as 20nm - among the smallest MTJs every reported; and
o completed prototypes of memory arrays at megabit level
densities, another key step in the commercialisation process.
-- In addition, Allied Minds formed four new businesses during the year:
o ABLS entered into a licence agreement with NYU School of
Medicine, via ABLS III d/b/a i<BETA>eCa Therapeutics, in
relation to proprietary compounds targeting the Wnt signalling.
These compounds were developed by Dr. Ramanuj Dasgupta, Research
Associate Professor at NYU School of Medicine, and NYU's drug
discovery accelerator, the Office of Therapeutics Alliances (OTA).
The Wnt pathway plays a key role in the development and progression
of a number of cancers affecting large numbers of patients;
o ABLS Capital, a vehicle with binding funding commitments of up
to $80.0 million, mostly from external investors, to be drawn down
together with up to $20.0 million of funding from BMS to fund lead
optimisation studies for ABLS subsidiaries that have successfully
completed initial feasibility programmes;
o Signature Medical, which secured an exclusive option to
license patent rights from Boston University relating to technology
for application on a wearable device enabling diagnosis and
monitoring of heart failure during hospital therapy and post
discharge; and
o Vatic Materials, which closed post-period end following a
decision not to exercise an option to license underlying technology
due to an unsatisfactory due diligence outcome.
Outlook for Selected Subsidiaries
Several of our subsidiaries are nearing important commercial
milestones. Highlighted below are some of the key events we expect
in 2017. It is in the nature of early stage investing that business
plans need to adapt dynamically in response to changing
circumstances. Where this becomes necessary we will provide an
update on revised plans and timings.
Subsidiary Expected 2017 Event
------------------- -------------------------------------------------------------------
ABLS * Advance ABLS entities through pre-clinical programmes
* Create 2 new subsidiaries
BridgeSat
* Complete Series A fund-raise
* Acquire launch customers
* Demonstrate operation of first BridgeSat ground
station
Federated Wireless
* Complete Series B fund-raise
* Receive formal SAS and ESC FCC certification
* Launch spectrum access commercial product
HawkEye 360
* Prepare for 2018 Pathfinder launch
* Initiate contract for development of next commercial
satellite clusters
Precision Biopsy
* Complete Cohort A; Initiate Cohort B
* Progress ClariCore(TM) CE Mark and FDA approval
SciFluor
* SF0166: complete Phase I/II trials in DME (AMD in
2018)
* SF0034: file IND and complete enrollment
STT
* Advance technology to demonstrate differentiators
* Secure strategic development / investing partner
* Complete Series B fund-raise
Board and Management Highlights
The Group continued to evolve and strengthen its Board with the
appointment of Jill Smith as an Independent Non-executive Director
in January 2016.
In addition to Chris Silva's resignation as Chief Executive
Officer on 10 March 2017, the Company accepted the resignation of
Marc Eichenberger as Chief Operating Officer on 26 April 2017.
In compliance with Listing Rule 9.6.3, the following documents
have today been submitted to the National Storage Mechanism and
will shortly be available for inspection at
www.morningstar.co.uk/uk/NSM:
-- Annual Report and Accounts for the year ended 31 December 2016; and
-- Notice of 2017 Annual General Meeting.
Printed copies of these documents together with the Form of
Proxy will be posted to shareholders shortly. Copies will also be
available shortly on the Investor Relations section of the
Company's website at
http://investors.alliedminds.com/reports-and-presentations
The 2017 Annual General Meeting will be held at 1.00 pm BST on 1
June 2017 at the offices of DLA Piper UK LLP, 1 London Wall,
London, EC2Y 5EA.
For more information, please contact:
Allied Minds plc +1 617 419 1800
Jill Smith, Chief Executive Officer www.alliedminds.com
Citigate Dewe Rogerson +44 20 7638 9571
Toby Mountford / Rob Newman alliedminds@citigatedr.co.uk
Further information on Allied Minds is available on our website:
www.alliedminds.com
Notes
(i) Nature of announcement
This Annual Results Release was approved by the directors on 27
April 2017. The financial information set out in this Annual
Results Release does not constitute the Company's statutory
accounts for the years ended 31 December 2016 or 2015 but is
derived from those accounts. Statutory accounts for the year ended
31 December 2015 have been filed with the Registrar of Companies.
Statutory accounts for 2016 will be delivered to the registrar of
companies in due course. The auditor has reported on those
accounts; their reports were (i) unqualified, (ii) did not include
a reference to any matters to which the auditor drew attention by
way of emphasis without qualifying their report and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006. The text of the Auditor's report can be found in the
Company's full Annual Report and Accounts for the year ended 31
December 2016 (2016 Annual Report).
(ii) Forward looking statements
This Annual Results Release and the 2016 Annual Report contain
statements that are or may be forward-looking statements, including
statements that relate to the Company's future prospects,
developments and strategies. The forward-looking statements are
based on current expectations and are subject to known and unknown
risks and uncertainties that could cause actual results,
performance and achievements to differ materially from current
expectations, including, but not limited to, those risks and
uncertainties described in the risk management section of the 2016
Annual Report. These forward-looking statements are based on
assumptions regarding the present and future business strategies of
the Company and the environment in which it will operate in the
future. Each forward-looking statement speaks only as at the date
of this Annual Results Release. Except as required by law,
regulatory requirement, the Listing Rules and the Disclosure and
Transparency Rules, neither the Company nor any other party intends
to update or revise these forward-looking statements, whether as a
result of new information, future events or
otherwise.
2016 Annual Report and Accounts
STRATEGIC REPORT
Chairman's Report
I am pleased to present this Annual Report to shareholders for
the financial year ended 31 December 2016 which was an important
period in Allied Minds' development.
During 2016 we successfully raised funds at both Group and
subsidiary level, putting the Company in a stronger financial
position to capitalise on the opportunities in front of us. We made
solid progress at a number of our subsidiaries, including, for
example, Federated Wireless, which has advanced rapidly against its
key regulatory and commercial objectives, and HawkEye 360, a
younger Allied Minds subsidiary with exciting potential, as
evidenced by the participation of Razor's Edge and a defence market
leader in the recent Series A funding round. We are also pleased
with our developments with corporate partners across the Group,
most notably our new strategic alliance with GE Ventures.
In March 2017 the Board appointed Jill Smith as interim CEO,
replacing Chris Silva. I would like to thank Chris Silva for his
contribution as CEO and co-founder of the Company and to welcome
Jill Smith in her new role as interim CEO. Chris played an
important role in building Allied Minds into a key player in IP
commercialisation in the US - the largest market in the world for
R&D investment.
Jill's appointment is aligned to the Board's objective to bring
about a material acceleration in the pace of commercialisation
activities across our portfolio and pipeline. Jill brings to the
role a successful track record over 25 years of leading public and
private businesses in the technology and information services
sector, including 16 years operating as a CEO. Most recently, Jill
served as Chairman, Chief Executive Officer and President of
DigitalGlobe Inc. (NYSE: DGI), a global provider of satellite
imagery products and services, including through its successful IPO
in 2009. Her skills and experience, in particular in driving
revenue growth and leading successful monetisation events, are
exactly what is required at this stage in the Company's
development.
Following Jill's appointment the Board took the difficult
decision to undertake a restructuring resulting in the
discontinuation of funding at several subsidiary businesses:
Biotectix; Cephalogics; CryoXtract; Novare Pharmaceuticals; Optio
Labs; RF Biocidics; and SoundCure/Tinnitus Treatment Solutions (the
Discontinued Subsidiaries). While many of the Discontinued
Subsidiaries had demonstrated progress against technical
milestones, the Board determined that the path to commercialisation
was unlikely to yield appropriate financial returns and that
capital earmarked to these subsidiaries should be diverted to more
promising areas of the portfolio and to scaling our pipeline and
partnerships. The restructuring has resulted in a mark down to
Group Subsidiary Ownership Adjusted Value (GSOAV). However, it
places Allied Minds in a stronger position to deliver returns to
shareholders over the medium term to longer term through
accelerated commercialisation and monetisations, and portfolio
growth.
Following the restructuring and Jill's appointment, we are well
placed to accelerate commercialisation across the portfolio and
increase the pace of pipeline development. Together with the Board
I look forward to the outcome of the internal review initiated by
Jill and in particular to her proposals to unlock faster progress
towards value crystallisation for our shareholders. I would like to
thank our shareholders for their continued support and our
management team and staff for their hard work and commitment.
Peter Dolan
Chairman
27 April 2017
CEO's Report
I am delighted to have been appointed interim CEO of Allied
Minds and would like to thank my predecessor, Chris Silva, for his
contribution in co-founding and building the Company, and our
employees and partners for the warm welcome they have extended to
me in my new role.
Following my appointment, the Board ratified a recommendation
from myself and the senior management team at Allied Minds to
undertake a restructuring resulting in the discontinuation of
funding at several subsidiary businesses. This was a necessary step
in ensuring Allied Minds is set up to direct capital and management
resource to the most promising areas of the portfolio and pipeline,
consistent with the imperative to accelerate commercialisation and
crystallise returns to our shareholders.
An internal review of all facets of Allied Minds' model and
strategy is underway, focusing on capital allocation and on
priorities to strengthen our competitive advantages and accelerate
the growth in shareholder value. We expect to report on conclusions
from this review in the summer. I set out some preliminary
observations below.
Firstly, a more disciplined, systematic, and dynamic approach to
capital allocation will be implemented. There will be more intense
interrogation and validation of assumptions underpinning our
investment decisions, both in origination and in determining the
ongoing business and capital plans for our existing subsidiaries.
Out of this process we will allocate capital where we see the
greatest opportunities for growth, and we will be quicker and more
objective in terminating future investments where the path to
commercialisation and external funding becomes unclear.
Secondly, we will seek to broaden our syndication model,
bringing in more external investors potentially at an earlier stage
in order to provide external validation, and in the case of
strategic investors, to bind in commercial partners where this can
help accelerate or de-risk progress to commercialisation. The
recent HawkEye 360 Series A fundraising, including Razor's Edge and
a defence market leader, is a good example of this.
Thirdly, we have an enviable origination platform, in particular
via our AMFI network accessing relatively advanced or proven
technologies from federally funded laboratories, and will examine
options to bring about an acceleration in the velocity of new
investments around more consistent and defined themes where we can
leverage our competitive advantages.
I look forward to reporting on the conclusions of the internal
review in the summer. In the meantime I would like to thank
shareholders for their ongoing support.
Jill Smith
Chief Executive Officer
27 April 2017
Company Overview
The Opportunity
The US is the world's largest market for research and
development (R&D) investment, with more than $125.0 billion in
annual spending by the US federal government, resulting in
thousands of US patent applications per annum. Although US
universities and federal research institutions have an established
technology transfer process designed to commercialise this
intellectual property, they face a number of challenges.
Universities often lack the resources necessary to adequately and
efficiently identify the most marketable opportunities. As a
result, many universities license only a relatively small number of
patents per year from a base of thousands, of which only a small
fraction progress to the next stage of development. Likewise,
corporations have large areas of R&D output which may not align
with their core strategy and target markets but could be refocused
on other markets with cooperation from outside investors.
Allied Minds was established with the objective of collaborating
with US universities and federal research institutions, and more
recently with corporations, to identify high-potential innovations
and inventions at an early stage, and to invest to develop the
underlying technology into commercially attractive products and
services, bring them to market and ultimately monetise them with a
view to delivering attractive returns to shareholders.
Our Strategy and Capital Allocation
Our origination strategy focuses on leveraging our partner
network to uncover innovations in technology and life sciences with
the potential to disrupt large and growing markets. We see an
opportunity to focus an increasing proportion of our new
investments around particular themes or clusters of expertise
within certain sectors, providing an opportunity to leverage
technical and operating expertise, origination contacts, client and
co-investor relationships both at Group level and across our
subsidiary businesses. At the same time, we will retain the
flexibility to invest opportunistically away from these clusters
where we see opportunities to generate attractive shareholder
returns.
We seek to invest in projects at an early stage, sometimes
immediately following an academic breakthrough or invention. As
such our investments have significant upside potential, but also
carry significant risk inherent in the early stage model. It is our
job to ensure that companies that do not have a clear path to
commercial traction are terminated early and with minimum sunk
capital, while treating all parties involved fairly and with
respect. Although our model assumes that not all of our investments
will succeed, we expect to make sufficient successful investments
to generate attractive average returns across the portfolio as a
whole because we enjoy competitive advantages via our origination
platform and central operating expertise, and focus on investing in
innovations that are disruptive to large and growing markets and
maintaining control positions where appropriate.
Our role in our early stage subsidiaries is to provide equity
funding, management, operating expertise and shared service
resources to bridge the period from brand new invention to an
externally financeable business plan. A key component of the
Company's strategy is to maintain strict capital discipline within
an operationally efficient model for new companies while the
commercial viability of the technology is explored and tested.
We believe that for early-stage businesses it is important to
retain initial control of projects. Over time, as our companies
mature and raise outside capital from financial, strategic and
commercial partners to accelerate their journey to
commercialisation, we expect our proportionate ownership levels to
be diluted. We will follow our money, or invest to mitigate
dilution, to the extent consistent with our goal to maximise risk
adjusted returns for our shareholders, taking into account
competing uses of capital across our portfolio and pipeline.
As our portfolio has matured, greater Board and management focus
has been concentrated on operating and realising key commercial
milestones at our more mature subsidiaries, representing a majority
of GSOAV. The importance of these subsidiaries to the Group is a
key consideration in weighing capital allocation decisions.
Evolution of Our Business Model and Approach
Since inception, Allied Minds has sought to deliver the
commercial potential of selected university owned, early-stage
intellectual property by working with technology transfer offices
(TTOs) and establishing a structure to form, fund, manage and build
start-up companies to develop innovative products and services that
transform a market or meet unmet customer needs.
As an extension of its university model, in September 2012,
Allied Minds reached agreements for first-of-a-kind Public Private
Partnerships (PPP) with several US Department of Defense
laboratories and federal government agencies, and subsequently
reached agreements with other federal government agencies such as
the Department of Homeland Security and the Department of Energy.
Under these PPPs, the Company typically receives certain access and
licensing rights to inventions originating from the US Department
of Defense laboratories and other federal government agencies which
can be commercialised for government and/or enterprise customers.
More recently our origination model has further evolved with the
formation of partnerships and alliances with US corporations,
including BMS (via ABLS) and GE Ventures. These relationships
provide us with access to technology, expertise and capital, and
have the potential to de-risk and accelerate the path to
commercialisation and monetisation.
Form
In 2016 Allied Minds evaluated over 2,700 potential projects
from across a broad range of university and federal laboratories
and addressing a broad range of underlying technologies. We
maintain regular contact with our university partners, including
via campus visits and interaction between Allied Minds staff and
university technology transfer personnel and researchers.
In order for a project to proceed past the first review stage,
it must score highly in key technical assessment criteria. Projects
are assessed on a number of criteria, including: value proposition;
disruptive technology; initial commercial application; addressable
market; business model; potential intellectual property protection;
competitive landscape; financing profile; regulatory path; and
potential exit routes where applicable.
Approximately 2% of those projects reviewed are selected for
further evaluation, involving sector experts and academic peers to
perform a deeper evaluation of the scientific and commercial
potential of the project. Of these projects, approximately half are
selected for detailed due diligence resulting in preparation of a
detailed product and business development plan and budget
structured around key milestones. Following this full diligence
process, historically we have invested in 4 to 6 new technologies
per annum. We see scope to increase this rate of investment in the
future.
After selecting a project, Allied Minds typically establishes a
subsidiary company that receives an exclusive licence for the
commercial rights to the underlying intellectual property. The
subsidiary is usually majority owned by Allied Minds in either a
limited liability company or incorporated structure, with the
originating university and inventor(s) each potentially receiving a
minority shareholding in that entity.
Fund
The subsidiary businesses use the seed funding to validate the
core scientific principles of the intellectual property, and
evaluate the likelihood of commercial success of a technology prior
to making any significant additional commitment to fund, develop
and commercialise the technology.
In certain cases the subsidiary is funded by Allied Minds to
conduct deep due diligence over a period of approximately 3 months,
at the end of which further seed funding is invested or the
subsidiary is terminated.
Disbursement of additional funding by Allied Minds and future
rounds of financing for further development are dependent on
achievement of key milestones designed to measure technological and
commercial progress. Where a project has failed to deliver
sufficient additional proof points, or new market or technical
information renders the opportunity commercially unattractive, and
the technology cannot be pivoted to an alternative commercial path,
Allied Minds will look to terminate the investment early.
At each stage in the business development cycle we review and
explore opportunities to secure third party investment. Going
forward we expect to increase our focus on opportunities to enlist
strategic investors, potentially at an earlier stage, to validate
the commercial opportunity and lock in cooperation with a view to
accelerating or de-risking the path to commercialisation and
monetisation.
Manage
We evaluate on an on-going basis the progress and potential of
each of the Company's businesses, and make strategy and funding
decisions based on the achievement of key milestones. The Company
sets out to identify key achievements within each subsidiary that
indicate growth momentum such as revenue, industry partnerships,
and go-to-market agreements, as a means of commercially validating
the technology and business case.
Allied Minds actively manages and monitors its businesses
throughout the life-cycle towards commercialisation. During the
early stages, Allied Minds typically provides technical and
executive leadership, as well as shared services support. At the
appropriate time we will support a subsidiary business in hiring a
full time CEO and other critical talent and in putting in place
incentives to drive results. As businesses evolve, Allied Minds
builds and leads the Board, recruits advisors and forms advisory
Boards comprising of seasoned industry experts who act as mentors,
while maintaining dedicated personnel to oversee progress.
Allied Minds provides administrative support, including sales
and marketing research, consulting, competitive analysis,
technology analysis, payroll and IT support, and operational
advice, to enable our businesses to focus on research, product
development and commercialisation activities while achieving
operational and financial efficiency.
Portfolio Summary
During 2016, an aggregate of $108.2 million was invested into
new and existing portfolio companies. This included $60.2 million
from fundraisings, of which $48.5 million came from third-party
investment, to further accelerate the development of Federated
Wireless, ABLS II, Precision Biopsy and HawkEye 360. In addition to
these fundraisings, $48.0 million was invested by the Group into
new and other existing portfolio companies, including investments
in four new businesses: Vatic Materials (Penn State) (closed
post-period end); Signature Medical (Boston University); ABLS III
(NYU); and ABLS Capital.
Allied Minds currently has majority ownership in, or operating
control of, all of its subsidiary businesses. Below we provide an
overview of our 17 current existing subsidiary businesses,
including year formed, and Allied Minds' ownership interest. These
17 subsidiary businesses include 4 entities which do not directly
provide or are not directly developing products and services:
Allied-Bristol Life Sciences (ABLS) (the holding company for ABLS
drug development subsidiaries); ABLS Capital (a funding vehicle for
ABLS drug development subsidiaries); Allied Minds Federal
Innovations (AMFI) (a company with contractual sourcing
relationships with certain federal laboratory research partners);
and Foreland (a holding company for Allied Minds' cyber security
investments).
Ownership
Interest
Subsidiary Year Formed (1) Overview
------------------------------- ------------ ---------- ---------------------------------------
Corporate partnerships
Allied-Bristol Life 2014 80.00% Created with BMS to identify
Sciences, LLC and conduct pre-clinical
development of therapeutic
candidates which are intended
to be sold to BMS prior to
clinical development
ABLS Capital 2016 30.25% Funding vehicle with up to
$80 million of binding commitments
to support development of
ABLS drug compounds proceeding
to lead optimisation phase
ABLS II, LLC 2014 35.95% Novel small molecule therapeutics
for the treatment of fibrotic
and autoimmune diseases,
developed in the Harvard
University laboratory of
Professor Malcolm Whitman
ABLS III, LLC, 2016 80.00% Proprietary compounds developed
d/b/a i<BETA>eCa Therapeutics by Dr. Ramanuj Dasgupta at
the NYU School of Medicine
that target the Wnt signalling
pathway and nuclear beta
catenin, which plays a key
role in the development and
progression of a number of
cancers affecting large numbers
of patients
Life sciences
LuxCath, LLC 2012 98.00% A catheter-based real-time
tissue and lesion visualisation
technology for use during
cardiac ablation procedures
initially focused on atrial
fibrillation ablation
Precision Biopsy, Inc. 2008 64.59% A medical device platform,
ClariCore(TM), utilising
tissue spectroscopy, which
seeks to distinguish tissue
characteristics in real-time
and to guide clinicians toward
areas of disease for optimum
therapy initially focused
on prostate cancer. Developing
focal therapy system using
ClariCore(TM) for abnormal
tissue targeting in the prostate
SciFluor Life Sciences, 2010 69.89% Developing a best-in-class
Inc. portfolio of compounds based
on the strategic use of fluorine
initially focused on retinal,
CNS, fibrotic and pain related
diseases
Signature Medical, 2016 100.00% Developing cardiac signature
Inc. technology for application
on a wearable device enabling
diagnosis and monitoring
of heart failure during hospital
therapy and post discharge
Technology
Allied Minds Federal 2012 100.00% Through a series of Public
Innovations, Inc. Private Partnerships (PPPs)
with the US federal government,
aims to develop and commercialise
the next generation of transformative
technologies from US federal
research institutions
BridgeSat, Inc. 2015 100.00% Developing an optical connectivity
system that aims to increase
the speed, security and efficiency
of data transmissions from
LEO satellites, unmanned
aerial systems, and remote
terrestrial infrastructure
compared to traditional radio
frequency solutions
Federated Wireless, 2012 72.96% A leader in the emerging
Inc. market for Shared Spectrum,
their CINQ cloud-based platform
provides coordinated shared
spectrum resources to enterprise
customers, network operators
and service providers
Foreland Technologies, 2013 100.00% A cyber security platform
Inc. company which aims to discover,
incubate and commercialise
emerging technologies with
greater speed and agility
than the rest of the market
HawkEye 360, Inc. 2015 53.11% Building a constellation
of small satellites in LEO
to generate reports on wireless
signals that can be used
to track and monitor global
transportation networks and
assist with emergencies
Percipient Networks, 2014 100.00% Developing threat-intelligence
LLC driven cloud-based cyber
security technologies for
proactive enterprise network
defence
Seamless Devices, Inc. 2014 79.12% Developer of semiconductor
devices using a novel approach
to analog-to-digital signal
processing based on switched-mode
signal processing technology
and algorithms
Spin Transfer Technologies, 2007 48.40% MRAM computer memory that
Inc. is being developed with the
aspiration of becoming a
leading universal memory
technology to address a segment
of the $60 billion per annum
worldwide computer memory
market
Whitewood Encryption 2014 100.00% Developer of the next-generation
Systems, Inc. systems of data encryption
that leverage advanced quantum
cryptography technologies
In addition Allied Minds is party to an agreement with GE
Ventures establishing a Strategic Alliance through which the two
parties envisage cooperating to jointly invest in technologies from
their pipelines.
Notes:
(1) Ownership interests are as at 24 April 2017 (being the
latest practicable date prior to the publication of this document),
and are based upon percentage interest in issued and outstanding
share capital in the subsidiary undertakings. Allied Minds'
ownership of HawkEye 360 was 56.11% as at 31 December 2016, prior
to the second closing of the Series A preferred equity funding
round completed in January 2017 which took Allied Minds' ownership
to 53.18%, and the subsequent exercise of employee options taking
Allied Minds' ownership to 53.11% as at 24 April 2017. The
calculation of this ownership interest excludes the dilutive impact
of unexercised warrants issued in association with a $3.0 million
development programme.
(2) In 2016, Allied Minds ceased operations at its subsidiary
SiEnergy Systems having determined that the underlying clean energy
technology would not meet key milestones. After the period end ABLS
I ceased operations and the company was dissolved following Board
determination that the feasibility programme was not successfully
completed, and Vatic Materials was closed following unsatisfactory
due diligence outcomes. Also post-period end funding was
discontinued at Biotectix; Cephalogics; CryoXtract; Novare
Pharmaceuticals; Optio Labs; RF Biocidics; and SoundCure/Tinnitus
Treatment Solutions.
Subsidiary Valuation
All of the Company's subsidiary companies are currently majority
owned and/or controlled and therefore fully consolidated in the
Company's consolidated financial statements prepared in accordance
with International Financial Reporting Standards as adopted by the
EU (IFRS). As a result, the Consolidated Statements of Financial
Position incorporated within the Company's consolidated financial
statements do not include current valuations of the Company's
subsidiary companies.
While in previous years we have disclosed the ownership adjusted
valuations for each of the Group's top ten subsidiary businesses by
value, in line with certain peers, this year we are disclosing
ownership adjusted value at an aggregate level only for the Group
as a whole. We believe this practice will better serve the
interests of our shareholders by protecting the Group's position in
discussions with potential partners and external investors in our
subsidiaries. We will continue to disclose qualitatively against
the key drivers of material movements in the ownership adjusted
values in the aggregate life sciences and technology portfolios,
and in aggregate for the Group. We will also disclose against
movements in subsidiary valuations arising specifically from
fundraising rounds involving external investors.
At the close of each annual financial period, the Directors
formally approve the value of all subsidiary businesses in the
Group which is used to derive the GSOAV. There can be no guarantee
that the aforementioned valuation of the Group will be considered
to be correct in light of the future performance of the various
Group businesses, or that the Group would be able to realise
proceeds in the amount of such valuations, or at all, in the event
of a sale by it of any of its subsidiaries.
The GSOAV was $416.2 million as of the date of this annual
report and accounts. Of that, 87.1% is valued by reference to the
valuation implied by the most recent third party funding round.
Compared to $535.8 million when last disclosed, this reflects a
decrease of $119.6 million, or 22.3%. This decrease is primarily
attributed to the liquidation of several subsidiary businesses
subsequent to year end and write off of their value, namely
Biotectix, Cephalogics, CryoXtract, Optio Labs, Novare, RF
Biocidics and SoundCure/Tinnitus Treatment Solutions. This decrease
was partially offset by an increase in value at HawkEye 360
demonstrated by the consummation of a third-party fundraising and
an increase at ABLS due to ABLS II moving into the lead
optimisation programme.
Ownership adjusted value represents Allied Minds' interest in
the equity value of each subsidiary and is calculated as follows:
(Business Enterprise Value - Long Term Debt + Cash) x Allied Minds
percentage ownership plus the value of debt provided by Allied
Minds plc to each subsidiary business. Allied Minds commits
post-seed funding to its subsidiaries in the form of loans.
Partner Network
The Group has well established relationships with the most
prestigious academic research institutions across the United
States. Allied Minds aims to gain direct access to technologies at
the forefront of research by working to deepen our relationships
with selected institutions and selectively adding highly regarded
research centres across the US.
The Group continues to expand its relationships with US
government laboratories and other federal funded research and
development centers (FFRDCs), with the objective of commercialising
select technological inventions developed in the corresponding US
federal government laboratory. In particular, Allied Minds has
formalised new technology commercialisation agreements with leading
FFRDCs such as the Aerospace Corporation and the MITRE
Corporation.
In addition we have added a third leg to our origination
platform in the form of corporate partnerships. This began with the
formation of our ABLS partnership with BMS, and has continued with
our strategic alliance with GE Ventures formed in September 2016.
We continue to actively explore additional sources of world-class
technology innovation.
During the year Allied Minds engaged with nearly 50 new research
institutions, bringing the total US universities and federal
laboratories in the Allied Minds partner network to 207. The
investment team reviewed more than 2,700 new technologies developed
by the partner network, and following extensive due diligence on
over 20 of the most promising, formed and funded four new
businesses, resulting in a total Group portfolio of 17 subsidiary
businesses (following the closure of ABLS I, Vatic Materials and
the Discontinued Subsidiaries post-period end), and executed
options to license three additional technologies.
Below is a list of research institutions engaged with in
2016.
Aerospace Corporation
Air Force Institute of Technology
Albert Einstein College of Medicine
Argonne National Laboratory
Arizona State University
Army Research Lab CERDEC
Beaumont Health System
Beth Israel Deaconess Medical Center
Binghamton University
Boston Children's Hospital
Boston University
Brandeis University
Brigham and Women's Hospital
Brookhaven National Laboratory
Brown University
California Institute of Technology
Carnegie Mellon University
Case Western University
Cedars-Sinai Hospital
City of Hope
City University of New York
Cleveland Clinic
Columbia University
Cornell University
Dana Farber Cancer Institute
Dartmouth College
Draper Labs
Drexel University
Duke University
Emory University
Fermi National Accelerator Laboratory
Florida Institute of Technology
Florida State University
GE-Hitachi Nuclear Energy Americas
General Electric
George Washington University
Georgetown University
Georgia Institute of Technology
Harvard University
Houston Methodist Hospital
Idaho National Laboratory
Indiana University
Iowa State University
Jet Propulsion Laboratory
Johns Hopkins University
Johns Hopkins University - Applied Physics Lab
Lawrence Berkeley National Laboratory
Lawrence Livermore National Laboratory
Lehigh University
Los Alamos National Laboratory
Louisiana State University
Marshall University
Massachusetts General Hospital
Massachusetts Institute of Technology
Mayo Clinic
McLean Hospital
Memorial Sloan Kettering Cancer Center
Michigan State University
Michigan Technological University
Missouri University of Science and Technology
MIT Lincoln Laboratory
MITRE
Mount Sinai School of Medicine
NASA - Ames Research Center
NASA - Armstrong Flight Research Center
NASA - Glenn Research Center
NASA - Goddard Space Flight Center
NASA - Johnson Space Center
NASA - Kennedy Space Center
NASA - Langley Research Center
NASA - Marshall Space Flight Center
NASA - Stennis Space Center
National Energy Technology Laboratory
National Institute of Standards and Technology
National Institutes of Health
National Institute of Health - NCATS
National Institute of Health - NCINational Oceanic and
Atmospheric Administration
National Radio Astronomy Observatory
National Renewable Energy Laboratory
National Security Agency
Naval Air Weapons Station China Lake
Naval Research Laboratory
Naval Surface Warfare Center Crane
New Jersey Innovation Institute
New York University
North Carolina State University
North Dakota State University
Ohio Aerospace Institute
Northeastern University
Northwestern University
Oak Ridge National Laboratory
Ohio State University
Ohio University
Oregon State University
Pacific Northwest National Laboratory
Partners Healthcare
PATH
Pennsylvania State University
Picatinny Arsenal
Princeton University
Purdue University
Rice University
Rockefeller University
Rutgers University
St Louis University
Sandia National Laboratories
Sanford Burnham Prebys Medical Discovery Institute
Savannah River National Laboratory
Scripps Institute
Southern Illinois University
Southern Methodist University
SPAWAR
St Jude's
Stanford University
State University of New York - Binghamton
State University of New York - Downstate
State University of New York - Stony Brook
Stevens Institute of Technology
Temple University
Texas AandM University
Texas Tech
The Children's Hospital of Philadelphia
Tufts University
US Army AMRDEC
US Army ARDEC
US Army Engineer Research and Development Center
US Army Research Laboratory
US Department of Homeland Security
US Department of Agriculture
US Environmental Protection Agency
US Naval Air Station Patuxent River
US Naval Air Weapons Station China Lake
US Naval Surface Warfare Center - Indian Head EOD
US Naval Undersea Warfare Center
Uniformed Services University of the Health Science
University of Alabama
University of Arizona
University of Arkansas for Medical Sciences
University of California - Berkeley
University of California - Davis
University of California - Irvine
University of California - Los Angeles
University of California - Merced
University of California - Riverside
University of California - San Diego
University of California - San Francisco
University of California - Santa Barbara
University of California - Santa Cruz
University of California - System
University of Central Florida
University of Chicago
University of Colorado
University of Colorado - Denver
University of Delaware
University of Florida
University of Houston
University of Idaho
University of Illinois - Chicago
University of Illinois - Urbana Champaign
University of Iowa
University of Kansas
University of Louisville
University of Maryland - Baltimore
University of Maryland - College Park
University of Massachusetts - Amherst
University of Massachusetts - Dartmouth
University of Michigan
University of Minnesota
University of Missouri - Columbia
University of Nebraska
University of Nebraska - Lincoln
University of Nebraska Medical Center
University of New Hampshire
University of North Carolina at Chapel Hill
University of North Carolina at Pembroke
University of North Dakota
University of North Texas
University of Notre Dame
University of Oregon
University of Pennsylvania
University of Pittsburgh
University of Rochester
University of South Carolina
University of South Dakota
University of South Florida
University of Southern California
University of Texas - Austin
University of Texas - Dallas
University of Texas - Southwestern
University of Utah
University of Virginia
University of Washington
University of Wisconsin - Madison
University of Wisconsin - Milwaukee
Utah State University
Utah State University Space Dynamics Laboratory
Vanderbilt University
Vencore Labs
Virginia Polytechnic Institute and State University (Virginia
Tech)
Wake Forest University
Washington State University
Washington University in St. Louis
Wayne State University
Wentworth Institute of Technology
Yale University
Key Performance Indicators
The following Key Performance Indicators (KPIs) were selected to
measure the performance of the Company in 2016:
-- number of new subsidiary businesses, strategic transactions,
financing transactions and other validating events consummated
-- Group Subsidiary Ownership Adjusted Value (GSOAV);
-- Group revenue growth; and
-- the number of subsidiaries that achieve the majority of their
financial, operational, technical and other performance milestones
established by the Board.
Performance against 2016 KPIs is set out below:
KPI 2016 2015 Performance
---------------------------- --------------- --------------- -----------------------
New subsidiary businesses,
strategic transactions,
financing transactions
and other validating
events consummated 19 18 5.6% increase
$119.6 million / 22.3%
GSOAV $416.2 million $535.8 million decrease
Group revenue $2.7 million $3.3 million $0.6 million decrease
Number of subsidiaries
achieving a majority
of their financial,
operational, technical
and other performance
milestones 12 15 20.0% decrease
Notes:
(1) $416.2 million is GSOAV estimated as at 24 April 2017,
following the Board's decision to discontinue funding at several
subsidiary businesses.
As part of the appointment of Jill Smith as interim Chief
Executive Officer, and the Group restructuring announced on 5 April
2017, the Board re-evaluated the previously selected KPIs. The
Board, led by Ms. Smith, undertook a comprehensive review of the
objectives of the Group, and re-set detailed management and Group
objectives for 2017. These revised objectives seek to link
financial, operational, technical and other performance milestones
established by the Board directly to remuneration and KPIs. As a
result of the process, the following KPIs were selected to measure
the performance of the Group in 2017:
-- Change in Group Subsidiary Ownership Adjusted Value (GSOAV); and
-- Change in percentage level of achievement of management by objectives (MBOs).
The 2017 MBOs, including financial, operational, technical and
other performance targets and their weightings for the upcoming
year were set at the start of 2017, and refined in April 2017, as
follows:
Target Weightings
MBO
Deliver Validating Events(1) and Technical Milestones(2)
for Key Subsidiaries 40.0%
Secure Funding and Strategic Relationships for
Subsidiary Companies 20.0%
Strengthen Investment Committee Process:
Establish Corporate Partner Goals and Commitments 5.0%
Expand New Company Pipeline Development 5.0%
Define Path to Commercialisation, Liquidity Event
or Key Commercial or Strategic Differentiators 10.0%
Develop Strategic Plan to Drive Shareholder Value 10.0%
Manage Cash 10.0%
Total Percentage of Target 100.0%
==================
Notes:
(1) "Validating Events" represent various material achievements,
such as fundraisings, mergers and acquisitions, development
partnerships, strategic alliances, customer contracts and other
significant corporate events.
(2) "Technical Milestones" represent various research and
development achievements, as well as advancement of clinical
trials.
Portfolio Review and Developments
This section covers the Group's more advanced subsidiaries, and
also includes by way of explanation those subsidiaries subject to
material valuation write-downs at the end of 2016.
Corporate Partnerships
ABLS, LLC
ABLS is a drug discovery and development company created in
August 2014 through a partnership between Allied Minds and BMS. The
company's mission is to create novel drug candidates against
serious diseases with large market potential. These include
fibrosis, cardiovascular, immunescience, immuno-oncology, oncology,
and genetically-defined disease, aligning to BMS's strategic areas
of focus. BMS has the option to acquire drug compounds from ABLS
upon completion of the lead optimisation phase for a pre-agreed
multiple of invested capital, with Allied Minds retaining rights to
potential milestone and royalty payments.
ABLS sources new drug candidates from Allied Minds' network of
institutional research partners and funds the initial feasibility
study, typically requiring up to approximately $1 million of
capital, through a newly formed subsidiary. Consistent with Allied
Minds' overall strategy, the ABLS model presents an opportunity for
us, with BMS, to evaluate each ABLS subsidiary and determine at an
early stage and with limited capital invested whether to continue
development based on the results of such subsidiary's initial phase
of research, development and testing, measured against objectives
defined by ABLS and BMS.
If the drug passes the initial feasibility stage, it will enter
into the optimisation phase to develop and test a lead drug
candidate, typically requiring further capital investment of up to
$15.0 million. Funding for lead optimisation is provided by a
combination of Allied Minds via ABLS Capital, LLC (ABLS Capital)
(80.0%) and BMS (20.0%). The optimisation phase studies are in part
carried out at a BMS R&D Site in India, called Biocon-BMS
Research Center (BBRC).
ABLS Capital was formed to provide the majority of the capital
required to fund up to ten (10) ABLS subsidiaries though the lead
optimisation phase. In April 2016 ABLS Capital secured commitments
amounting to $80.0 million, including $40.0 million from Woodford
Investment Management and $20.0 million from Invesco Perpetual.
These funding commitments will be used to invest alongside the up
to $20.0 million from BMS to fund these lead optimisation
phases.
The ABLS partnership aligns Allied Minds with a seasoned large
pharmaceutical partner and creates a natural early stage
(pre-clinical) acquirer of developing assets, potentially
de-risking the drug development process for Allied Minds and
providing attractive risk adjusted returns.
The company reviewed more than 245 technologies in 2016. As of
this date, three subsidiaries have been launched, although one of
these (ABLS I) ceased operations after the period end following
Board determination that results from feasibility studies did not
warrant progress to the lead optimisation phase. Pre-clinical work
is underway on the other two programmes in collaboration with BBRC.
Active negotiations are currently underway in relation to two
potential new deals with scope to close in the first half of
2017.
ABLS I, LLC
ABLS I was a company formed in August 2015 pursuing pre-clinical
development of a Yale University based technology: Antibody
Recruiting Molecules. As described above, the ABLS model is
structured to allow decisions to be made early in development with
little capital invested, lowering risk and helping to inform better
capital allocation among the ABLS subsidiaries. Consistent with
this approach, upon review and assessment of the initial research
and testing results completed in ABLS I's initial feasibility
phase, ABLS and BMS resolved that the pre-set objectives were not
met and accordingly, the lead optimisation phase for ABLS I was not
approved and the company was dissolved post-period end.
ABLS II, LLC
ABLS II was formed in June 2015 to undertake pre-clinical
discovery and development of molecules against a novel target
(Prolyl tRNA Synthetase) for treatment of fibrotic diseases.
Harvard University researchers had earlier identified the mechanism
of halofuginone (a natural product with anti-fibrotic properties)
as an inhibitor of Prolyl tRNA Synthetase. ABLS II's objective is
to discover and develop halofuginone analogues with novel IP,
better safety and superior efficacy. ABLS II has synthesised
various molecules and is evaluating them for safety and efficacy.
In May 2016 ABLS announced that ABLS II had successfully passed
feasibility and in August ABLS II successfully raised $15.0 million
of funding from ABLS Capital and BMS to fund the lead optimisation
phase.
ABLS III, LLC, d/b/a i<BETA>eCa Therapeutics
i<BETA>eCa Therapeutics was formed in March 2016 with IP
licensed exclusively from New York University (NYU) School of
Medicine. NYU researchers have identified novel inhibitors of
nuclear beta catenin, a key player in the Wnt signaling pathway and
a major driver of various cancers. These molecules are targeted
specifically against nuclear (vs cytoplasmic) beta catenin thereby
potentially offering better safety and efficacy. The company's
objective is to develop molecules with improved potency, efficacy
and better pharmaceutical properties.
Strategic Alliance with GE Ventures
Created in September 2016 to jointly identify and invest in
technologies from Allied Minds' and GE Ventures' combined
pipelines.
Other Subsidiary Businesses
BridgeSat, Inc.
BridgeSat is reinventing satellite communication with an
advanced optical communications network that delivers fast,
reliable and affordable data transmission to enable a new era of
applications and services. Optical communications is an alternative
to RF communications to meet the exponentially growing need for
data downlinking from satellites, including LEO satellites.
BridgeSat estimates that the immediate addressable optical downlink
market is $1.5 billion annually, a sub-set of the $9.6 billion
satellite network market. BridgeSat made good progress against its
business plan over 2016, developing the three facets of its
solution: space terminal, ground station, and management network,
and post-period end secured agreement with The Swedish Space
Corporation (SSC) to install its equipment at 3 of SSC's ground
sites.
Federated Wireless, Inc.
Federated Wireless extends the access of carrier networks
through sharing of wireless spectrum amongst multiple tiers of
users through an innovative cloud-based wireless infrastructure
solution. The allocation and management of spectrum employing a
shared-economy model is hugely disruptive to the status quo of
large spectrum block auctions. The Federated Wireless platform,
consisting of a cloud based Spectrum Allocation System (SAS) and
Environmental Sensing Capability (ESC), unlocks commercial access
to spectrum in the 3.5 GHz band, called the CBRS, that is owned by
the US military and is surplus to its requirements at a given point
in time.
In February the company announced the formation of an alliance
with other wireless industry leaders to build an ecosystem for the
3.5 GHz band. The other six founding companies in the CBRS Alliance
are: Alphabet, Dell, Intel, Qualcomm, Nokia, and Ruckus Wireless
(Brocade). The six companies together aim to build a robust
ecosystem of industry participants and make CBRS solutions as
widely available as possible. The Alliance was formalised in August
2016 as the CBRS Alliance and membership quadrupled by year-end to
include cable companies, carriers, and equipment providers.
In May 2016 Federated Wireless announced that it officially
began the certification process with the FCC for its SAS.
Certification is the final phase of the regulatory process as the
company prepares its solution for commercial use. Conditional
approval of certification was received in December 2016 and final
approval is expected in mid-2017. Federated Wireless continues to
work closely with the FCC and leads the WInnForum in helping to
establish standards for the 3.5 GHz band and shared spectrum.
In June 2016 the first two partner agreements for Federated
Wireless were announced with
Siemens and Telrad. Both companies currently operate in the 3.65
GHz band and will be early
adopters of the FCC's CBRS rules in order to evolve and expand
their networks using the Federated Wireless CINQ XP product. In
December, Federated Wireless and Alphabet's access team
successfully demonstrated interoperability between their respective
SASs; a requirement for FCC certification and an important
milestone in validating the operational viability of CBRS.
During the year Federated Wireless completed trials with
Alphabet, Dell and Qualcomm, and has trials with a 15 further
ecosystem members signed or underway and 6 in pipeline. These
collaborations re-affirm that the CBRS model is a commercially
viable way to allocate and manage limited spectrum resources.
HawkEye 360, Inc.
HawkEye 360, formed in September 2015, is developing a
space-based RF mapping and analytics system to be operated via a
constellation of company developed formation-flying small
satellites in LEO.
HawkEye 360 intends to be a leader in the emerging small
satellite industry and its Pathfinder constellation of small
satellites, which will be flown in formation 600 kilometres from
the Earth's surface, aims to enable commercial applications such as
allowing governmental entities and corporate customers to closely
monitor transportation networks across air, land and sea to ensure
normal and safe activity. For government regulators,
telecommunications companies and satellite broadcasters, HawkEye
360's system is being designed with the ability to monitor RF
spectrum usage to help identify areas of interference, better
understand spectrum deployment, and avoid negative impact to
operations. The system could also help to detect and locate
activated emergency beacons to improve response times in
life-threatening situations.
At the beginning of 2016 HawkEye 360 announced the formation of
an Advisory Board including a former Director of the National
Reconnaissance Office (NRO), former Director of National
Geospatial-Intelligence Agency (NGA) and a former Secretary of
Department for Homeland Security (DHS). Over the remainder of the
year HawkEye 360 announced the selection of its satellite and
payload manufacturers, with manufacturing now underway, and secured
launch planned for Q1 2018.
Funds from HawkEye 360's $13.75 million series A round completed
in February 2017 will be deployed to complete the development of
the Pathfinder Cluster of three small satellites as well as to
support the cost of testing and launch in early 2018, and to grow
the company's engineering and business development teams.
Precision Biopsy, Inc.
Existing prostate cancer diagnostics rely on biopsy procedures
which are performed "blindly", sampling 12-14 cores at random.
Precision Biopsy's ClariCore(TM) live tissue identification
technology directs the physician to sample only "suspicious"
tissue, potentially reducing by up to 90% the number of core
samples subject to pathology and providing immediate feedback to
biopsied patients. ClariCore(TM) may also improve cancer diagnosis
and detection rates by enabling the urologist to probe extra
locations, including the anterior prostate, when all previous
biopsy location have indicated as "normal".
Existing therapeutics for prostate cancer suffer in the same way
as diagnostics from the inability to definitively localise the
cancer tumour. Precision Biopsy has filed patents to develop and is
currently developing a three-dimensional prostate mapping system
utilising a variation of the ClariCore(TM) system. It is intended
that this mapping system will accurately identify the tumour and
selected margins to allow for focal treatment of the affected area
of the prostate using RF ablation, HIFU, cryoablation, radiation,
or other focal therapy technologies such as drug injection,
potentially reducing the need for radical prostatectomy procedures
and preserving healthy tissue. The company is also developing a
focal therapy system which would enable the urologist to locally
and focally ablate selective suspicious segments of the prostate
utilising the ClariCore(TM) system to guide the therapy.
In mid-2016 Precision Biopsy received FDA IDE (Investigational
Device Exemption) approval to test ClariCore(TM) in a Cohort A
study intended to collect patient data to develop its commercial
tissue classification algorithm. This IDE approval has allowed the
company to expand the clinical trial by adding a second arm to the
study enrolling patients for the Transrectal Ultrasound (TRUS) and
MR/Fusion study. To date, Precision Biopsy has completed over 100
patients in its Cohort A trial at six US clinical sites. A second
clinical trial initiation, Cohort B, is planned and trial results
are expected to support submission for approval, commercial release
and system launch in the US and EU.
SciFluor Life Sciences, Inc.
SciFluor aims to develop a best-in-class portfolio of compounds
principally through the strategic use of fluorine. It engages in
drug discovery and development and is building a portfolio of
proprietary compounds seeking to serve various billion dollar
markets. SciFluor has evolved its current portfolio by adding
fluorine to drug compounds with the intention of improving potency,
selectivity, rates of absorption, metabolic stability, and
half-life. These factors all improve the specific drugs and can
positively impact delivery, dosing, side effects and more. For
reference, approximately 25% of drugs currently marketed or in the
pipeline contain fluorine. SciFluor's principal products are based
on two patented lead compounds:
-- SF0166, a patented small molecule integrin antagonist wholly
owned by SciFluor and intended to treat eye conditions,
specifically retinal diseases including AMD, DME and retinal vein
occlusion (RVO), representing an estimated 50 million patients
worldwide and over $8.0 billion market value. What makes SF0166
potentially disruptive is that it is a topical drug delivered via
eye drops and is intended to replace current drugs delivered via
repeated injection into the back of the eye.
-- SF0034, a KCNQ2/3 modulator (a potassium channel activator),
which is a fluorinated derivative of retagabine, is also patented
and wholly owned by SciFluor. SF0034 could eliminate key safety
issues associated with retigabine and could potentially serve
markets totaling $5.0 billion in aggregate including:
epilepsy/seizures; tinnitus; amyotrophic lateral sclerosis (ALS or
Lou Gehrig's disease); and channelopathies (genetically-defined
rare diseases based on mutations of the potassium channel).
In February 2016, SciFluor was granted U.S. Patent No. 9,266,884
covering methods of using SF0166 in the treatment of a range of
diseases including AMD, DME and RVO. SciFluor had been previously
granted U.S. Patent 8,901,144 covering compositions of matter that
include SF0166.
In July 2016 the Investigational New Drug (IND) Application to
the FDA went into effect for SF0166 Topical Ophthalmic Solution
(SF0166). The company has initiated dosing in Phase I/II trials for
both DME and wet-AMD in multiple centers in the US.
The company is also evolving a portfolio beyond its two lead
compounds.
Spin Transfer Technologies, Inc. (STT)
STT engages in the development of OST -MRAM, an innovative
memory integrated circuit technology originally sourced from
NYU.
Electronic memory devices used in today's computers are
specialised to handle different computing and data storage tasks.
Non-volatile memories, such as Flash, retain information after
power has been turned off, but Flash memory suffers from slow write
speed and poor endurance. High-speed memories, such as Dynamic
Random-Access Memory (DRAM), offer greater read and write
performance, but DRAM is volatile and requires significantly higher
power to operate. In addition, both Flash and DRAM have
questionable scalability to finer process geometries than currently
used in today's state of the art semiconductor micro
lithography.
MRAM is a promising technology for the next generation of memory
applications. OST- MRAM's potentially unique combination of fast
write speed, low power, and virtually unlimited endurance is
expected to enable it to address a wide range of applications in
the standalone and embedded memory markets, which collectively had
a combined estimated value of greater than $60 billion per annum
worldwide.
During 2016 STT announced that it had successfully demonstrated
its OST-MRAM technology through the production of a working
prototype device. Supported by the 2015 completion of its wafer
fabrication clean room used for developing and prototyping the new
"magnetic" portion of the chip fabrication process, the company's
engineering development cycles have accelerated markedly, reliably
achieving under 2-3 week engineering cycle time for wafers, reduced
by greater than 75% in comparison to the typical two month or
longer cycle time that was the operating norm prior to the clean
room completion. This has enabled the company to make rapid strides
in its migration to perpendicular magnetic tunnel junction (pMTJ)
technology, the so-called third generation of MRAM. As a result, in
December 2016 the company began shipping samples of its "DM1"
Diagnostic Memory chip to target customers. The samples were
prepared and screened to credible standards of function and
reliability.
In addition, STT completed prototypes of memory array with
megabit-level densities with accompanying performance and yield
statistics. In doing so the company completed its first steps in
advancing the capability of its pMTJ manufacturing process to
support high-density, commercially relevant memory arrays. In
September 2016 the company announced that it had fabricated pMTJs
as small as 20nm - among the smallest MTJs ever reported. This
'megabit density' technology demonstration, along with the pMTJ DM1
samples, are essential enablers to the company's initial market
outreach.
The above progress signals the impending completion of STT's
first major phase of development, resulting in a 'baseline pMTJ
technology' that the company believes will be both viable against
competitors (with typical incremental improvements in time) and
highly credible in securing an advanced CMOS (complementary
metal-oxide semiconductor) manufacturing partner (with process
capabilities compatible with even higher bit density memories, e.g.
20-45nm lithography-capable), strategic joint development
partner(s), and early stage license agreements.
The company's early stage cooperative development arrangements
with its Asian CMOS foundry partners has progressed as anticipated.
STT plans to expand one or both of those relationships, as well as
add additional relationships, enabled by the impending readiness of
the 'baseline pMTJ technology'.
Discontinued Subsidiaries
Consistent with the Allied Minds' model, where a project has
failed to deliver sufficient additional proof points for ultimate
commercialisation and financial return, no longer supports on-going
development and commercialisation activity, and cannot be
successfully redirected to an alternative commercial path, Allied
Minds will look to cease operations and terminate the project.
In 2016, Allied Minds ceased operations at its subsidiary
SiEnergy having determined that the clean energy technology would
not meet key milestones.
Post-period end ABLS I ceased operations and was dissolved
following Board determination that it had not successfully
completed initial feasibility studies, and Vatic Materials was
closed following unsatisfactory due diligence outcomes. Also
post-period end funding was discontinued at: Biotectix;
Cephalogics; CryoXtract; Novare Pharmaceuticals; Optio Labs; RF
Biocidics; SoundCure/Tinnitus Treatment Solutions, following Board
determination that these subsidiaries were unlikely to generate
appropriate returns and capital and management resource should be
diverted to more promising areas of the portfolio and pipeline.
Financial Review
The financial results of the year reflect the Group's
sustainable model of deploying capital into our portfolio of Group
controlled businesses at the right pace. During 2016, $108.2
million was invested into new and existing portfolio companies.
This included $60.2 million from subsidiary fundraisings (including
$6.0 million raised in 2015 but received from investors in 2016),
with $48.5 million coming from third-party investment, to further
accelerate the development of four of the Group's existing
companies, ABLS II, Federated Wireless, Precision Biopsy and
HawkEye 360. In addition to these fundraisings, $48.0 million was
invested by the Group into new and other existing portfolio
companies.
Consolidated Statement of Comprehensive Loss
For the years ended 31 December
2016 2015
$ '000 $ '000
Revenue 2,664 3,300
Cost of revenue (5,563) (3,925)
Selling, general and administrative expenses (55,484) (46,888)
Research and development expenses (55,292) (49,209)
Finance cost, net (15,267) (1,267)
Other comprehensive income 208 46
--------- ----------------
Total comprehensive loss (128,734) (97,943)
of which attributable to:
Equity holders of the parent (96,125) (77,752)
Non-controlling interests (32,609) (20,191)
Revenue decreased by $0.6 million, to $2.7 million in 2016
(2015: $3.3 million). This decrease is mainly attributable to the
lower product revenue at RF Biocidics. The revenue in the early
stage companies' segment decreased to $0.6 million in 2016 (2015:
$1.1 million). Cost of revenue increased by $1.6 million to $5.6
million (2015: $3.9 million), reflecting write offs of inventory at
RF Biocidics and CryoXtract.
Selling, general and administrative (SG&A) expenses
increased by $8.6 million, to $55.5 million, for the year ended 31
December 2016 (2015: $46.9 million), largely due to the overall
growth of the Group. Of this increase, $6.5 million relates to an
increase in personnel expenses reflecting the increase in headcount
and salaries as well as an increase in non-cash share-based
compensation expense by $1.7 million. The increase is also
attributed to higher non-cash depreciation, amortisation and
impairment charges which were higher by $3.8 million compared to
prior year, offset by a $0.8 million decrease in sales and
marketing cost, a $1.0 million decrease in occupancy and related
expenses, and a $0.7 million decrease in professional services.
R&D expenses increased by $6.1 million to $55.3 million for
the year ended 31 December 2016 (2015: $49.2 million). The increase
is attributed to the overall growth of the Group's research and
development activities, reflecting the acceleration of activities
at a few companies as supported by third party financing rounds in
2015 and 2016 and ramping up full scale of R&D activities of
companies created in late 2014 and into 2015.
Finance cost, net increased by $14.0 million to $15.3 million in
2016 (2015: $1.3 million) primarily due to the finance cost from
fair value accounting adjustment of the subsidiary preferred shares
liability balance of $17.6 million, offset by exchange rate profits
of $1.3 million and interest income, net of interest expense, of
$1.0 million.
As a result of the above discussed factors, total comprehensive
loss increased by $30.8 million to $128.7 million for the year
ended 31 December 2016 (2015: $97.9 million). Total comprehensive
loss for the year attributed to the equity holders of the Group was
$96.1 million (2015: $77.8 million) and $32.6 million (2015: $20.2
million) was attributable to the owners of non-controlling
interests.
Consolidated Statement of Financial Position
As of 31 December
2016 2015
$ '000 $ '000
Non-current assets 38,282 92,784
Current assets 232,007 158.427
Total assets 270,239 251,211
Non-current liabilities 720 863
Current liabilities 155,402 108,974
Equity 114,117 141,374
Total liabilities and equity 270,239 251,211
Significant performance-impacting events and business
developments reflected in the Company's financial position at year
end include:
-- Property and equipment decreased by $2.3 million to $31.9
million as at 31 December 2016 (2015: $34.2 million), mainly
reflecting depreciation expense of $5.7 million and impairment
charges of $0.4 million, offset by purchases of approximately $3.8
million, of which $1.8 million relates to STT;
-- Intangible assets as of 31 December 2016 decreased by $1.6
million to $2.8 million (2015: $4.4 million) mainly as a result of
amortisation expense of $0.9 million and impairment charges of $1.0
million, offset by additions of $0.3 million in capitalised
development costs, acquired licenses and software assets;
-- Other investments, non-current decreased to $2.7 million
(2015: $51.5 million) reflecting the investment of excess cash into
fixed income government and corporate securities that have
maturities longer than twelve months;
-- Cash and cash equivalents increased by $103.6 million to
$209.2 million at 31 December 2016 from $105.6 million at 31
December 2015. The increase is mainly attributed to $128.1 million
of cash from financing activities from the Company's equity placing
in December 2016 and proceeds from subsidiary financing rounds, and
$70.7 million cash from investing activities mainly reflecting the
conversion of fixed income security investments into cash and cash
equivalents. The overall increase in cash and cash equivalents was
offset by $95.2 million of net cash used in operations;
-- Other investments, current decreased to $14.2 million (2015:
$37.6 million) reflecting the investment of excess cash into fixed
income government and corporate securities that have maturities
shorter than twelve months;
-- Inventories increased by $1.1 million to $2.6 million as at
31 December 2016 (2015: $1.5 million) reflecting the purchases of
inventories of $2.1 million, offset by cost of goods sold and other
obsolescence charges of $1.0 million;
-- Trade and other receivables decreased by $1.4 million to $5.9
million at 31 December 2016 (2015: $7.3 million) as a result of
decrease in prepaid and other current assets of $0.7 million mainly
from write off of advance payments for inventory units at RFB, plus
a net decrease of $0.7 million in trade receivables;
-- Subscription receivable of $6.0 million reflecting the second
tranche of the Series A preferred round at Precision Biopsy due by
third party investors was collected in 2016 and the balance
decreased to nil as at 31 December 2016 (2015: $6.0 million);
-- The loans balance, current and non-current, decreased to $0.1
million as of 31 December 2016 (2015: $0.3 million) reflecting the
repayment of the principal balance by CryoXtract Instruments;
-- Subsidiary preferred shares increased by $46.8 million to
$140.9 million as of 31 December 2016 (2015: $94.1 million) as a
result of Series A preferred rounds of $29.2 million at Federated
Wireless, Precision Biopsy and HawkEye 360 in 2016 as well as the
fair value adjustment for the year of $17.6 million primarily at
SciFluor and STT ;
-- Deferred revenue remained consistent at $0.5 million as of 31
December 2016, when compared to $0.4 million in prior year; and
-- Share capital and premium increased by $1.4 million to a
combined $160.7 million at 31 December 2016 (2015: $159.3 million)
primarily due to exercises of stock options under the U.S. Stock
Option Plan. Merger reserve increased by $77.9 million due to the
net proceeds from the Company's equity placing in December 2016.
The increase in accumulated deficit of $96.6 million to $289.4
million (2015: 192.8 million) reflected the net comprehensive loss
attributable to equity holders of the Group for the year of $96.1
million (2015: $77.8 million) and the effect from change in
non-controlling interest of $6.2 million (2015: $3.2 million),
offset by the share-based compensation expense charge for the year
of $5.9 million (2015: $3.2 million).
Consolidated Statement of Cash Flows
For the years ended 31 December
2016 2015
$ '000 $ '000
Net cash outflow from operating activities (95,220) (81,918)
Net cash inflow/(outflow) from investing
activities 70,729 (74,999)
Net cash inflow from financing activities 128,087 38,397
Net increase/(decrease) increase in cash
and cash equivalents 103,596 (118,520)
Cash and cash equivalents in the beginning
of the year 105,555 224,075
Cash and cash equivalents at the end of
the year 209,151 105,555
============= ==============
The Group's net cash outflow from operating activities of $95.2
million in 2016 (2015: $81.9 million) was primarily due to the net
operating losses for the year of $113.7 million, offset by the net
effect from movement in working capital of $0.5 million, adjustment
for non-cash items such as depreciation, amortisation, impairments
and share-based expenses of $16.4 million and interest received net
of paid and other finance charges of $1.6 million.
The Group had a net cash inflow from investing activities of
$70.7 million in 2016 (2015: outflow of $75.0 million) mainly
reflecting the disposal of fixed income investment securities of
$72.3 million and $2.5 million from disposal of an equity accounted
investee, offset by purchases or property and equipment net of
disposals of $3.8 million, and purchases of intangible assets net
of disposals of $0.3 million.
The Group's net cash inflow from financing activities of $128.1
million in 2016 (2015: $38.4 million) primarily reflects $78.1
million of net proceeds from the Company's equity placing in
December 2016, $49.0 million proceeds from subsidiary financing
rounds in ABLS II, Federated Wireless, HawkEye 360 and Precision
Biopsy, and $1.2 million from exercises of stock options, offset by
$0.2 million repayment of notes payable.
The Group's strategy is to maintain healthy, highly liquid cash
balances that are readily available to support the activities of
its subsidiaries by providing working capital, maintaining the
level of research and development activities required to achieve
the set milestone goals, and acquiring capital equipment where
necessary to support research and development activities. To
further minimise its exposure to risks the Group does not maintain
any material borrowings or cash balances in foreign currency.
Risk Management
The execution of the Group's strategy is subject to a number of
risks and uncertainties. A key focus for the Board is to formally
identify the principal risks facing the Group and develop a robust
and effective framework to ensure that the risks are both well
understood and appropriate for the Company's risk appetite to
achieve the stated corporate goals. This process needs to address
both risks arising from the internal operations of the Group and
those arising from the business environment in which it operates.
It is possible that one or more of these identified risks could
impact the Group in a similar timeframe which may compound their
effects.
As an early-stage investor in start-ups, the Group inherently
faces significant risks and challenges. The overall aim of the risk
management policy is to achieve an effective balancing of risk and
reward, although ultimately no strategy can provide an absolute
assurance against loss.
The Board has carried out a robust assessment of the principal
risks facing the Group, including those that would threaten its
business model, future performance, solvency and/or liquidity. The
major risks and uncertainties identified by the Board are set out
below along with the consequences and mitigation strategy of each
risk.
1. The science and technology being developed or commercialised
by the Group's businesses may fail and/or the Group's business may
not be able to develop their intellectual property into
commercially viable products or technologies. There is also a risk
that some of the subsidiary businesses may fail or not succeed as
anticipated, resulting in an impairment of the Group's value.
Impact: The failure of any of the Group's subsidiary businesses
would impact the Group's value. A failure of one of the major
subsidiary businesses could also impact on the perception of the
Group as a builder of high value businesses and possibly make
additional fund raising at the Group or subsidiary level more
difficult.
Mitigation:
-- Before making any investment, extensive due diligence is
carried out by the Group which covers all the major business risks
including market size, strategy, adoption and intellectual
property.
-- The initial seed round investment is typically quite small
with additional investment only being made on successful completion
of milestones.
-- A disciplined approach to capital allocation is pursued such
that proof of concept has to be achieved before substantial capital
is committed.
-- Members of the Group's management team who carry out the
initial due diligence initially run the subsidiary in its
incubation phase and subsequently move to becoming independent
directors staying with the project to help ensure consistency of
management. The Group's point of contact will stay in regular
communication with the senior management of the subsidiary
business.
-- Dedicated leadership with deep industry or sector knowledge
is recruited and retained as appropriate, and the Group ensures
that each subsidiary has independent directors and/or other
advisors, as appropriate for the relevant stage of development.
-- During incubation stage, we closely monitor milestone
developments and should a project fail to achieve sufficient
progress, we terminate the investments.
-- The Company carries out face-to-face quarterly reviews with
the management of each of the subsidiary businesses.
-- The shared services model provides significant administrative
support to the subsidiary businesses whilst the budgetary and
financial controls ensure good governance.
-- Within the Group there is a wealth of management expertise
which can be called upon to support each of the subsidiary
businesses where necessary.
-- The Group actively uses third party advisors and consultants,
specific to the particular domain in which a subsidiary business
operates, to assist on market strategy and direction.
2. The Group expects to continue to incur substantial
expenditure in further research and development, product
development and marketing activities of its businesses. There is no
guarantee that the Group will become profitable prior to achieving
a sale or other exit event, and, even if it does, it may be unable
to sustain profitability.
Impact: The strategic aim of the business is to generate profits
for its shareholders through the investment into IP-based
start-ups, delivering value through capital gain. As such, profits
will be generated on exits. The timing and size of these potential
inflows is uncertain and should exits not be forthcoming, or in the
event that they are achieved but at values significantly less than
the amount of capital invested, then it would be difficult to
sustain the current levels of investment in the subsidiary
businesses and continue to make new investments. This will lead to
reduced activity across the Group. In turn this could make raising
additional capital at the Group level difficult and it could
ultimately lead to the failure of the Group as a whole.
Mitigation:
-- The Group retains significant cash balances in order to
support its internal cash flow requirements, including to support
the cash requirements for each subsidiary and for corporate
resources.
-- The Group has close relationships with a wide group of
investors, including its shareholder base to ensure it can continue
to access the capital markets.
-- Senior management continually seek to create additional
strategic relationships for the Group, and each subsidiary
continually seeks to engage in strategic relationships relevant to
their respective markets and to maintain current information on and
awareness of potential exit strategies.
3. If a significant number of the Group's relationships with US
universities and federal government institutions were to break down
or be terminated or expire, then the Group would lose any rights
that it has to act as a private sector partner in the
commercialisation of intellectual property being generated by such
universities, other research intensive institutions or US federal
research institutions.
Impact: Termination of certain of the Group's existing
relationships would impact the quantity and potential quality of
the Company's deal flow. This may in turn prevent the Company from
completing promising new deals and reduce its opportunity to create
new subsidiaries. This could potentially have an adverse effect on
the Group's long term prospects and performance.
Mitigation:
-- The Group currently receives in excess of 2,700 items of
intellectual property per year from its 207 partner institutions.
The risk of losing deal flow through the termination of
relationships is greatly lessened by the wide portfolio and
geographic spread of our partners.
-- The Group continues to strengthen its partner network. The
Group seeks to ensure that it has a diversity of relationships to
ensure that no one university or US government laboratory has
inordinate influence on our prospects, and at the same time we seek
to develop deep relationships with select research institutions in
order to strengthen the quality and quantity of new deal
opportunities.
-- The Group dedicates resources to manage and expand the partner network.
-- The Group is fostering new relationships with strategic
corporate partners to expand and strengthen its partner network and
pipeline for opportunities.
4. A majority of the Group's intellectual property relates to
technologies originated in the course of research conducted in, and
initially funded by, US universities or other federally-funded
research institutions. Although the Group has been granted
exclusive licenses to use this intellectual property, there are
certain limitations inherent in these licenses, for example as
required by the Bayh-Dole Act of 1980.
Impact: There are certain circumstances where the US government
has rights to utilise the underlying intellectual property without
any economic benefit flowing back to the Group. In the event this
were to happen, this could impact the financial return to the Group
on its investment in the applicable subsidiary businesses.
Mitigation:
-- To the Board's knowledge, while these so called "march in"
rights exist, the US government has never had cause to use
them.
-- The Group seeks to develop dual use capabilities for the
technology it licenses and generally tends to avoid use cases
directly applicable to government use.
-- This risk is also mitigated through employing experienced
technology transfer experts supported by our legal team to assess
risks that may arise out of this eventuality.
5. The Group currently has in place cooperative research and
development agreements with certain US Department of Defense
laboratories and federal funded government institutions. Certain
regulatory measures apply to these agreements which restrict the
export of information and material that may be used for military or
intelligence applications by a non-US person, and compliance with
these regulatory measures may be complex and limit commercial
alternatives.
Impact: If the Group were to breach restrictions on the use of
certain licensed technologies, particularly those derived from
federally funded research facilities, this could materially impact
upon the Group's ability to license additional intellectual
property from these establishments. In certain circumstances it may
also lead to the termination of existing licenses. In the event
that this were to happen, this could materially affect a number of
the Group's businesses and potentially harm the reputation and
standing of the Group and cause the termination of certain
important relationships with federally funded research
institutions.
Mitigation:
-- Prior to licensing any technology under these agreement, the
Group's management seeks to identify the commercial and other
alternatives available for products and services associated with
such technology and innovations, and to ensure that there are
sufficient markets available to justify the capital investment.
-- Prior to the commercialisation process, the Group's
management seeks to obtain all the necessary clearances from
applicable regulatory bodies to ensure that the export of products
based upon the licensed IP is strictly in accordance with
government guidelines.
-- The Group employs a number of individuals with experience in
working with various government agencies.
-- Senior management is fully cognisant with the regulations and
sensitivities in relation to this issue and in particular with
International Traffic in Arms Regulations (ITAR) which regulate the
use of technologies for export, and has numerous mitigating actions
available should issues arise.
6. The Group operates in complex and specialised business
domains and requires highly qualified and experienced management to
implement its strategy successfully. All of the operations of the
Group and its subsidiary businesses are located in the United
States, which is a highly competitive employment market. There is a
risk that the Group may lose key personnel, or fail to attract or
retain new personnel. Furthermore, given the relatively small size
of the senior management at the corporate level, the Group is
reliant on a small number of key individuals.
Impact: The loss of key personnel would have an adverse impact
on the ability of the Group to continue to grow and may negatively
affect the Group's competitive advantage.
Mitigation:
-- The Board annually seeks external expertise to assess the
competitiveness of the compensation packages of its senior
management.
-- Senior management continually monitor and assess compensation
levels to ensure the Group remains competitive in the employment
market.
-- While staff turnover has historically been low and the Group
continues to attract highly qualified individuals, management
encourages development and inclusion through coaching and mentoring
programmes.
7. A large proportion of the overall value of the Group's
businesses may be concentrated in a small proportion of the Group's
businesses. If one or more of the intellectual property rights
relevant to a valuable business were terminated, this would have a
material adverse impact on the overall value of the Group's
businesses.
Impact: The termination of critical IP licenses would materially
impact the value of the subsidiary business and have a consequent
effect on the value of the overall Group.
Mitigation:
-- In each subsidiary, the management is specifically directed
to pursue a policy of generating and patenting additional
intellectual property to both provide additional protection and
create direct IP ownership for the subsidiary business.
-- Where possible, the Group seeks to negotiate intellectual
property ownership rights in any research and development agreement
it enters into with a network partner, such that the Group becomes
a part owner of the underlying IP.
-- The Group has a diversified portfolio of subsidiary
businesses. The value of any one of its subsidiaries relative to
the aggregate value of the Group is closely monitored to ensure
that the concentration of risk of any one subsidiary is not
disproportionate.
8. Clinical studies and other tests to assess the commercial
viability of a product are typically expensive, complex and
time-consuming, and have uncertain outcomes. If the Company fails
to complete or experiences delays in completing tests for any of
its product candidates, it may not be able to obtain regulatory
approval or commercialise its product candidates on a timely basis,
or at all.
Impact: Significant delays in any of the clinical studies to
support the appropriate regulatory approvals could significantly
impact the amount of capital required for the subsidiary business
to achieve final regulatory approval, which in turn may impact the
value of such subsidiary. A critical failure in any stage of a
clinical testing programme would probably necessitate a termination
of the project and a loss of the Group's investment.
Mitigation:
-- The Group has dedicated internal resources to establish and
monitor each of the clinical programmes in order to try and
maximise successful outcomes.
-- During the evaluation and due diligence phase prior to the
initial investment, focus is placed on an analysis of the risks of
the clinical phase of development.
-- Prior to the launch of any clinical testing it will be normal
for a dedicated management team (and in certain cases an advisory
team to include key opinion leaders (KOLs)) to be hired, and
experience with the management of clinical programmes would be a
prerequisite qualification.
-- In the event of the outsourcing of these trials, care and
attention is given to assure the quality of the Contract Research
Organization (CRO) vendors used to perform the work.
9. The Group expects to remain viable through December 2019
given its current cash and financial position. However, if the
Group is unable to raise capital, generate sufficient revenue,
appropriately manage expenses, or exit any of its existing Group
businesses prior to the end of such period, then the Group's
business, financial condition, results of operations, prospects and
future viability could be adversely affected.
Impact: Lack of capital could restrict the Group's ability to
further fund, develop and commercialise its existing businesses and
prevent the Group from investing in attractive new opportunities.
In turn, this could ultimately lead to failure of individual
subsidiaries and loss of investment as well as failure of the Group
as a whole.
Mitigation:
-- The Group maintains close relationships with its shareholder
base, strategic partners, and a wide group of investors to ensure
it continuous access to the capital markets.
-- The Group has historically had a strong financial position,
including prior to its initial public offering (IPO), and holds
significant control over the Company's investments and how
subsidiary company working capital requirements are met.
-- The Company strives to maintain majority ownership and/or
control over all of the subsidiary companies, so that it can seek
to influence optimal capital allocation, use of cash, and
fund-raising strategy.
-- The Company has built a valuable portfolio of subsidiary companies since its inception.
-- The Company continuously and critically reviews the progress
of its subsidiaries against pre-set milestones to ensure its
financial capital and human resource is properly allocated to the
more promising areas of its portfolio to help strengthen and
accelerate the Group's path to monetisation.
Brexit
On 23 June 2016, the UK electorate voted to leave the European
Union in a so-called "Brexit" referendum. The full consequences of
the decision to leave the European Union will not be known for some
time. The uncertainty surrounding the implementation and effect of
Brexit has caused and is likely to continue to cause increased
economic volatility.
It is expected that companies based in the UK and with
significant UK and EU operational focus will be the most directly
impacted by Brexit. All of the Group's subsidiary businesses are
based in the US, and substantially all of the business and
operations of the Group are conducted in the US. However, the Group
has raised significant capital in the UK and may need to raise
additional capital in the UK in the future to support the growth
and development of its subsidiaries. The uncertainty caused by
Brexit may result in the Group being unable to obtain additional
capital on a timely basis on commercially acceptable terms.
In addition, Brexit exposes the Group to increased foreign
currency risk. Foreign exchange risk is an exposure for the Group
as it derives substantially all of its revenue in US dollars and
the Group's businesses borrow, account in, and are valued in, US
dollars, but its shares trade in amounts denominated in pounds
sterling. Any capital raised by the Group in the UK would be
denominated in pounds sterling, but would be allocated to
subsidiary businesses which operate in the US and whose functional
currency is US dollars.
If the Group requires and fails to obtain sufficient capital on
acceptable terms, it may be forced to curtail or abandon its
planned growth activity and to forego further investment in
developing certain of its current businesses, and otherwise be
subject to a material adverse impact on the Group's business and
financial condition.
Corporate and Social Responsibility
Details on the Group's policies, activities and aims with regard
to its corporate and social responsibilities, including diversity,
are included in the Sustainability section and are incorporated
herein by reference.
This Strategic Report of the 2016 Annual Report has been
approved by the Board of Directors.
ON BEHALF OF THE BOARD
Peter Dolan Jill Smith
Chairman Chief Executive Officer
27 April 2017
Consolidated Financial Information
The financial information set out below has been extracted from
the 2016 Annual Report and is an abridged version of the full
financial statements, not all of which are reproduced in this
Annual Results Release.
Directors' Responsibilities Statement
The responsibility statement set out below has been reproduced
from the 2016 Annual Report, which was published in April 2017, and
relates to that document and not this announcement.
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Group and the parent Company and the undertakings included
in the consolidation taken as a whole; and
-- the Strategic Report of the 2016 Annual Report includes a
fair review of the development and performance of the business and
the position of the Group and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
We consider the 2016 Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Group's position and performance,
business model and strategy.
ON BEHALF OF THE BOARD
Peter Dolan Jill Smith
Chairman Chief Executive Officer
27 April 2017
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
For the year ended 31 December Note 2016 2015
$ '000 $ '000
---------- ---------
Revenue 3 2,664 3,300
Operating expenses:
Cost of revenue 4,5 (5,563) (3,925)
Selling, general and administrative
expenses 4,5 (55,484) (46,888)
Research and development expenses 4,5 (55,292) (49,209)
Operating loss (113,675) (96,722)
Finance income 7 2,879 723
Finance cost 7 (561) (53)
Finance cost from IAS 39 fair
value accounting 7 (17,585) (1,937)
---------- ---------
Finance cost, net (15,267) (1,267)
Loss before taxation (128,942) (97,989)
Taxation 25 - -
Loss for the period (128,942) (97,989)
Other comprehensive loss:
Items that may be reclassified subsequently
to profit or loss:
Foreign currency translation differences 208 46
Other comprehensive income, net
of taxation 208 46
Total comprehensive loss for the
period (128,734) (97,943)
========== =========
Loss attributable to:
Equity holders of the parent (96,333) (77,797)
Non-controlling interests 17 (32,609) (20,192)
(128,942) (97,989)
========== =========
Total comprehensive loss attributable
to:
Equity holders of the parent (96,125) (77,752)
Non-controlling interests (32,609) (20,191)
(128,734) (97,943)
========== =========
Loss per share $ $
---------- ---------
Basic 8 (0.44) (0.36)
---------- ---------
Diluted 8 (0.44) (0.36)
---------- ---------
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As of 31 December Note 2016 2015
---------- -----------
$ '000 $ '000
Non-current assets
Property and equipment 9 31,882 34,173
Intangible assets 10 2,762 4,384
Investment in equity accounted investees 11 - 1,612
Other investments 12 2,668 51,545
Other financial assets 22 904 842
Other non-current assets 16 228
Total non-current assets 38,232 92,784
Current assets
Cash and cash equivalents 13 209,151 105,555
Other investments 12 14,244 37,648
Inventories 14 2,551 1,511
Trade and other receivables 15 5,900 7,342
Subscription receivable 18,22 - 6,000
Other financial assets 22 161 371
Total current assets 232,007 158,427
Total assets 270,239 251,211
========== ===========
Equity
Share capital 16 3,657 3,429
Share premium 16 157,067 155,867
Merger reserve 16 263,435 185,544
Translation reserve 16 192 (16)
Accumulated deficit (i) 16 (289,437) (192,819)
Equity attributable to owners of
the Company 134,914 152,005
Non-controlling interests (i) 16,17 (20,797) (10,631)
----------- ------------
Total equity 114,117 141,374
Non-current liabilities
Loans 19 - 112
Other non-current liabilities 20 720 751
Total non-current liabilities 720 863
Current liabilities
Trade and other payables 20 13,941 14,268
Deferred revenue 3 458 395
Loans 19 115 228
Subsidiary preferred shares 18 140,888 94,083
Total current liabilities 155,402 108,974
Total liabilities 156,122 109,837
Total equity and liabilities 270,239 251,211
=========== ============
(i) The 2015 amounts have been reclassified. See note 1.
See accompanying notes to consolidated financial statements.
Registered number: 8998697
The financial statements were approved by the Board of Directors
and authorised for issue on 27 April 2017 and signed on its behalf
by:
Jill Smith
Chief Executive Officer
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2016
Total
Note Share capital Share Merger Translation Accumulated parent Non-controlling Total
---------------------
Deficit interests
Shares Amount premium reserve reserve (i) equity (i) equity
$'
000 $' 000 $' 000 $' 000 $' 000 $' 000 $' 000 $' 000
------------ ------- -------- -------- ------------ ------------ --------- ---------------- ----------
Balance at 31 December
2014 214,445,579 3,411 153,442 185,544 (61) (115,027) 227,309 2,524 229,833
Total comprehensive
loss for the year
Loss from continuing
operations - - - - - (77,797) (77,797) (20,192) (97,989)
Foreign currency
translation - - - - 45 - 45 1 46
Total comprehensive
loss for the year 45 (77,797) (77,752) (20,191) (97,943)
Gain/(loss) arising
from change in
non-controlling
interest 17 - - - - - (3,228) (3,228) 3,228 -
Exercise of stock
options 6 1,191,784 18 2,425 - - - 2,443 - 2,443
Equity-settled share
based payments 6 - - - - - 3,233 3,233 3,808 7,041
-------- ------------ ----------------
Balance at 31 December
2015 215,637,363 3,429 155,867 185,544 (16) (192,819) 152,005 (10,631) 141,374
Total comprehensive
loss for the year
Loss from continuing
operations - - - - - (96,333) (96,333) (32,609) (128,942)
Foreign currency
translation - - - - 208 - 208 - 208
Total comprehensive
loss for the year 208 (96,333) (96,125) (32,609) (128,734)
Issuance of ordinary
shares 16 17,457,015 219 - 77,891 - - 78,110 - 78,110
New funds into
non-controlling
interest 16 - - - - - - - 13,773 13,773
Gain/(loss) arising
from change in
non-controlling
interest 17 - - - - - (6,229) (6,229) 6,229 -
Exercise of stock
options 6 650,000 9 1,200 - - - 1,209 - 1,209
Equity-settled share
based payments 6 - - - - - 5,944 5,944 2,441 8,385
-------- ------------ ----------------
Balance at 31 December
2016 233,744,378 3,657 157,067 263,435 192 (289,437) 134,914 (20,797) 114,117
============ ======= ======== ======== ============ ============ ========= ================ ==========
(i) The 2014 and 2015 amounts have been reclassified. See note
1.
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2016 2015
Note $ '000 $ '000
---------- ----------
Cash flows from operating activities:
Net operating loss (113,675) (96,722)
Adjustments to reconcile net loss
to net cash
used in operating activities:
Depreciation 9 5,714 3,339
Amortisation 10 921 747
Impairment losses on property
and equipment 9 340 308
Impairment losses on intangible
assets 10 1,025 1
Share-based compensation expense 5,6 8,385 7,041
Changes in working capital:
(Increase)/decrease in inventory 14 (1,040) 1,408
Decrease/(increase) in trade
and other receivables 15 1,442 (1,505)
Decrease in other assets 361 -
(Decrease)/increase in trade
and other payables 20 (327) 2,929
(Decrease)/increase in other
non-current liabilities 20 (31) 569
Increase(decrease) in deferred
revenue 3 63 (749)
Interest received 7 1,610 721
Interest paid 7 (527) (41)
Other finance income 7 519 36
Net cash used in operating activities (95,220) (81,918)
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment,
net of disposals 9 (3,763) (21,490)
Purchases of intangible assets,
net of disposals 10 (324) (1,723)
Disposal of investment in equity
accounted investees 11 2,535 -
Disposal/(purchases) of other investments 12 72,281 (51,786)
Net cash provided by/(used in) investing
activities 70,729 (74,999)
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock
options 16 1,209 2,443
Repayment of notes payable 19 (225) (211)
Proceeds from issuance of share
capital 16 78,110 -
Proceeds from issuance of share
capital in subsidiaries 17 13,773 -
Proceeds from issuance of preferred
shares in subsidiaries 18 35,220 36,165
Net cash provided by financing activities 128,087 38,397
---------- ----------
Net increase/(decrease) in cash and
cash equivalents 103,596 (118,520)
Cash and cash equivalents at beginning
of the period 105,555 224,075
Cash and cash equivalents at end
of the period 209,151 105,555
========== ==========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2016
(1) Accounting Policies
Basis of Preparation
Allied Minds plc ("Allied Minds" or the "Company") is a company
incorporated and domiciled in the UK. The Annual Report and
Accounts of Allied Minds and its subsidiaries (together referred to
as the "Group") are presented for the year ended 31 December 2016.
The group financial statements consolidate those of the Company and
its subsidiaries and include the Group's interest in associates
using the equity method of accounting. The Group financial
statements have been prepared and approved by the directors in
accordance with the International Financial Reporting Standards,
International Accounting Standards, and Interpretations
(collectively "IFRS") issued by the International Accounting
Standards Board ("IASB") as adopted by the European Union ("adopted
IFRSs"). The accounting policies set out below have, unless
otherwise stated, been applied consistently to all periods
presented in these consolidated financial statements.
Reclassification
During the year management further considered certain aspects of
accounting for share options issued by subsidiary companies and
concluded that the credit in equity associated with the related
IFRS 2 charges is more appropriately allocated wholly to
non-controlling interests rather than pro-rata to parent equity and
non-controlling interests. As a result a reclassification has been
reflected at 31 December 2015 to reduce negative non-controlling
interests and reduce accumulated deficit within parent equity by
$10.2 million (31 December 2014: $7.5 million). There is no impact
on total equity at either 31 December 2015 or 31 December 2014 and
no impact on the consolidated statement of comprehensive loss for
the year ended 31 December 2015.
Basis of Measurement
The consolidated financial statements, with exception of
financial instruments, have been prepared on the historical cost
basis.
Use of Judgments and Estimates
In preparing these consolidated financial statements, management
has made judgments, estimates and assumptions that affect the
application of the Group's accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates. Estimates and underlying
assumptions are reviewed on an on-going basis. Revisions to
estimates are recognised prospectively. The effects on the amounts
recognised in the consolidated financial statements, or on other
alternative performance measures, is included in the following
notes:
-- Note 11 and 18 - portfolio and subsidiary preferred shares
valuations: when determining the appropriate valuation methodology
and deriving the estimated fair value of subsidiary undertakings
and subsidiary preferred shares. This includes making certain
estimates of the future earnings potential of the subsidiary
businesses, appropriate discount rate and earnings multiple to be
applied, marketability and other industry and company specific risk
factors.
-- Note 18 - subsidiary preferred shares liability
classification: when determining the classification of financial
instruments in terms of liability or equity. These judgements
include an assessment whether the financial instrument include any
embedded derivative features, whether they include a contractual
obligations upon the Group to deliver cash or other financial
assets or to exchange financial assets or financial liabilities
with another party, and whether that obligation will be settled by
the Company's exchanging a fixed amount of cash or other financial
assets for a fixed number of its own equity instruments. Further
information about these critical judgments and estimates is
included below under Financial Instruments.
Changes in Accounting Policies
No other new standards, interpretations and amendments effective
for the first time from 1 January 2016 have had a material effect
on the Group's financial statements.
Going Concern
The Directors have prepared trading and cash flow forecasts for
the Group covering the period to 31 December 2019. Despite the fact
that the Group is currently loss making and is likely to continue
to be so, at least in the short term, after making enquiries and
considering the impact of risks and opportunities on expected
cashflows, and given the fact that the Group has $226 million of
available funds in the form of cash and fixed income securities as
at 31 December 2016, the Directors have a reasonable expectation
that the Group has adequate cash to continue in operational
existence for the period to 31 December 2019. For this reason, they
have adopted the going concern basis in preparing the financial
statements.
Basis of Consolidation
Allied Minds plc was formed on 15 April 2014 and the
consolidated financial statements for each of the years ended 31
December 2016 and 2015 comprises the financial statements of Allied
Minds plc and its subsidiaries.
Subsidiaries
The financial information of the subsidiaries is prepared for
the same reporting period as the parent Company, using consistent
accounting policies. Subsidiaries are entities controlled by the
Group. The Group controls an entity when it 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 financial statements of subsidiaries are included
in the consolidated financial statements from the date that control
commences until the date that control ceases. Losses applicable to
the non-controlling interests in a subsidiary are allocated to the
non-controlling interests even if doing so causes the
non-controlling interests to have a deficit balance.
Changes in the Group's interest in a subsidiary that do not
result in a loss of control are accounted for as equity
transactions. Where the Group loses control of a subsidiary, the
assets and liabilities are derecognised along with any related NCI
and other components of equity. Any resulting gain or loss is
recognised in profit or loss. Any interest retained in the former
subsidiary is measured at fair value when control is lost.
Associates
Associates are those entities in which the Group has significant
influence, but not control, over the financial and operating
policies. Significant influence is presumed to exist when the Group
holds between 20 and 50 percent of the voting power of another
entity.
Associates are accounted for using the equity method (equity
accounted investees) and are initially recognised at cost. The
Group's investment includes goodwill identified on acquisition, net
of any accumulated impairment losses. The consolidated financial
statements include the Group's share of the total comprehensive
income and equity movements of equity accounted investees, from the
date that significant influence commences until the date that
significant influence ceases. When the Group's share of losses
exceeds its interest in an equity accounted investee, the Group's
carrying amount is reduced to nil and recognition of further losses
is discontinued except to the extent that the Group has incurred
legal or constructive obligations or made payments on behalf of an
investee.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income
and expenses arising from intra- group transactions, are
eliminated. Unrealised gains arising from transactions with
equity-accounted investees are eliminated against the investment to
the extent of the Group's interest in the investee. Unrealised
losses are eliminated in the same way as unrealised gains, but only
to the extent that there is no evidence of impairment.
Acquisitions and disposals of non-controlling interests
Non-controlling interests ("NCI") are measured at their
proportionate share of the acquiree's identifiable net assets at
the acquisition date. Changes in the Group's interest in a
subsidiary that do not result in a loss of control are accounted
for as equity transactions.
Acquisitions and disposals of non-controlling interests that do
not result in a change of control are accounted for as transactions
with owners in their capacity as owners and therefore no goodwill
is recognised as a result of such transactions. The adjustments to
non-controlling interests are based on a proportionate amount of
the net assets of the subsidiary. Any difference between the price
paid or received and the amount by which non-controlling interests
are adjusted is recognised directly in equity and attributed to the
owners of the parent.
Functional and Presentation Currency
This consolidated financial statements are presented in US
dollars, which is the functional currency of most of the entities
in the Group.
Foreign Currency
Transactions in foreign currencies are translated to the
respective functional currencies of Group entities at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
balance sheet date are retranslated to the functional currency at
the foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the income
statement. Non-monetary assets and liabilities that are measured in
terms of historical cost in a foreign currency are translated using
the exchange rate at the date of the transaction. Non-monetary
assets and liabilities denominated in foreign currencies that are
stated at fair value are retranslated to the functional currency at
foreign exchange rates ruling at the dates the fair value was
determined.
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation, are
translated to the Group's presentational currency (U.S. dollar) at
foreign exchange rates ruling at the balance sheet date. The
revenues and expenses of foreign operations are translated at an
average rate for the year where this rate approximates to the
foreign exchange rates ruling at the dates of the transactions.
Exchange differences arising from this translation of foreign
operations are reported as an item of other comprehensive income
and accumulated in the translation reserve or non- controlling
interest, as the case may be. When a foreign operation is disposed
of, such that control, joint control or significant influence (as
the case may be) is lost, the entire accumulated amount in the
Translation reserve, net of amounts previously attributed to
non-controlling interests, is reclassified to profit or loss as
part of the gain or loss on disposal. When the Group disposes of
only part of its interest in a subsidiary that includes a foreign
operation while still retaining control, the relevant proportion of
the accumulated amount is reattributed to non-controlling
interests. When the Group disposes of only part of its investment
in a subsidiary or an associate that includes a foreign operation
while still retaining significant influence or joint control, the
relevant proportion of the cumulative amount is reclassified to
profit or loss.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid instruments
with original maturities of three months or less.
Inventories
Inventories are measured at the lower of cost and net realisable
value. The cost of inventories is based on the specific
identification or weighted-average method. The cost of inventories
includes expenditure incurred in acquiring the inventories,
production or conversion costs and other costs incurred in bringing
them to their existing location and condition. In the case of
manufactured inventories and work in progress, cost includes an
appropriate share of production overheads based on normal operating
capacity.
Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion
and selling expenses.
Financial Instruments
Financial Assets
The Group initially recognises loans and receivables and
deposits on the date that they are originated. All other financial
assets are recognised initially on the trade date at which the
Group becomes a party to the contractual provisions of the
instrument.
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows on the financial asset
in a transaction in which substantially all the risks and rewards
of ownership of the financial asset are transferred.
Financial assets and liabilities are offset and the net amount
presented in the Consolidated Statement of Financial Position when,
and only when, the Group has a legal right to offset the amounts
and intends either to settle on a net basis or to realise the asset
and settle the liability simultaneously.
The Group classifies its financial assets into the following
categories: cash and cash equivalents, trade and other receivables,
security and other deposits, other investments. Fixed income
securities are recognised at fair value through profit and loss.
The remaining categories are recognised at amortised cost using the
effective interest rate method.
Other investments comprise fixed income debt securities,
including government agency and corporate bonds, are stated at
amortised cost less impairment. It is the Group policy to hold
these investments until a maximum maturity of three years.
Financial Liabilities
The Group initially recognises debt securities issued and
subordinated liabilities on the date that they are originated. All
other financial liabilities are recognised initially on the trade
date at which the Group becomes a party to the contractual
provisions of the instrument.
The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled or expire.
The Group classifies non-derivative financial liabilities into
the following categories: trade and other payables and loans. Such
financial liabilities are recognised at fair value through profit
and loss plus any directly attributable transaction costs.
Subsequent to initial recognition these financial liabilities are
measured at amortised cost using the effective interest method.
Warrants are accounted for as financial liabilities and recorded
at fair value.
The Group's financial liabilities include subsidiary preferred
shares some of which incorporate embedded derivatives. In
accordance with IAS 39.11 the Group has elected not to bifurcate
the embedded derivative but fair value the entire instrument at
each reporting date. The gain or loss on remeasurement to fair
value is recognised immediately in profit or loss.
Financial instruments issued by the Group
Following the adoption of IAS 32, financial instruments issued
by the Group are treated as equity only to the extent that they
meet the following two conditions:
-- they include no contractual obligations upon the Group to
deliver cash or other financial assets or to exchange financial
assets or financial liabilities with another party under conditions
that are potentially unfavourable to the Group; and
-- where the instrument will or may be settled in the Company's
own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Company's own
equity instruments or is a derivative that will be settled by the
Company's exchanging a fixed amount of cash or other financial
assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the financial
instrument is classified as a financial liability. Where the
instrument so classified takes the legal form of the Company's own
shares, the amounts presented in the financial information for
share capital and merger reserve account exclude amounts in
relation to those shares.
Where a financial instrument that contains both equity and
financial liability components exists these components are
separated and accounted for individually under the above
policy.
Share Capital
Ordinary shares are classified as equity. The Group considers
its capital to comprise share capital, share premium, merger
reserve, translation reserve, and accumulated deficit.
Property and Equipment
Property and equipment is stated at cost less accumulated
depreciation and any accumulated impairment losses. Cost includes
expenditure that is directly attributable to the acquisition of the
asset. Assets under construction represent machinery and equipment
to be used in operations, R&D activities, or to be leased to
customers once completed.
When parts of an item of property and equipment have different
useful lives, they are accounted for as separate items (major
components) of property and equipment. Depreciation is calculated
using the straight-line method over the estimated useful lives of
the related assets:
Computers and electronics 3 years
Furniture and fixtures 5 years
Machinery and equipment 5 -20 years
Under construction Not depreciated until transferred into use
Leasehold improvements Shorter of the lease term or estimated
useful life of the asset
Depreciation methods, useful lives and residual values are
reviewed at least annually and adjusted if appropriate.
Intangible Assets
Licenses (or Options to License) and Purchased In Process
Research & Development
Licenses or options to license represent licenses or such
options provided by universities, federal laboratories, and
scientists in exchange for an equity ownership in the entities or
cash. Purchased in process research & development ("IPR&D")
represents time and expertise already invested by the scientist and
provided in exchange for an equity interest in the entity. Licenses
or options to license and purchased IPR&D are valued based on
the amount of cash directly paid to acquire those assets or based
on the amount of cash contributed by Allied Minds, at inception of
the subsidiary, and the proportionate amount of equity ascribed to
Allied Minds. The licenses or options to license and IPR&D are
capitalised only when they meet the criteria for capitalisation,
namely separately identifiable and measurable and it is probable
that economic benefit will flow to the entity.
Capitalised Development Costs
Research and development costs include charges from universities
based on sponsored research agreements (SRAs) that the subsidiaries
of Allied Minds enter into with universities. Under these
agreements, the universities perform research on the technology
that is being licensed to the subsidiaries. Research and
development costs also include charges from independent research
and development contractors, contract research organisations
(CROs), and other research institutions.
Expenditure on research activities is recognised in profit or
loss as incurred. Development expenditure is capitalised only if
the expenditure can be measured reliably, the product or process is
technically and commercially feasible, future economic benefits are
probable, the Group intends to and has sufficient resources to
complete development and to use or sell the asset, and if the Group
can measure reliably the expenditure attributable to the intangible
asset during its development. The point at which technical
feasibility is determined to have been reached is when regulatory
approval has been received, where applicable. Management determines
that commercial viability has been reached when a clear market and
pricing point have been identified, which may coincide with
achieving recurring sales. Development activities involve a plan or
design for the production of new or substantially improved products
or processes. The expenditure considered for capitalisation
includes the cost of materials, direct labour and an appropriate
proportion of overhead costs. Otherwise, the development
expenditure is recognised in profit or loss as incurred. Subsequent
to initial recognition, development expenditure is measured at cost
less accumulated amortisation and any accumulated impairment
losses.
Software
Software intangible assets that are acquired by the Group and
have finite useful lives are measured at cost less accumulated
amortisation and any accumulated impairment losses.
Finite-lived intangible assets are amortised on a straight-line
basis over their estimated useful lives, from the date that they
are available for use. Intangible assets which are not yet
available for use (and therefore not amortised) are tested for
impairment at least annually.
Amortisation
Amortisation is charged to the income statement on a
straight-line basis over the estimated useful lives of intangible
assets unless such lives are indefinite. Intangible assets with an
indefinite useful life and goodwill are systematically tested for
impairment at each balance sheet date. Other intangible assets are
amortised from the date they are available for use. Amortisation
methods, useful lives and residual values are reviewed at least
annually and adjusted if appropriate.
The estimated useful lives of the Group's intangible assets are
as follows:
Licences and Options to License Over the remaining life of the underlying patents
Purchased IPR&D Over the remaining life of the underlying
patents, once commercial viability has been achieved
Development cost Over the remaining life of the underlying
technology
Software 2 years
Taxation
Tax on the profit or loss for the year comprises current and
deferred tax. Tax is recognised in the income statement except to
the extent that it relates to items recognised directly in equity,
in which case it is recognised in equity.
Current Income Tax
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year, using tax rates enacted or
substantially enacted at the reporting date, and any adjustment to
tax payable in respect of previous years.
Deferred Income Tax
Deferred tax is recognised in respect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation
purposes. Deferred tax assets are recognised for unused tax losses,
unused tax credits and deductible temporary differences to the
extent that it is probable that future taxable profits will be
available against which they can be used. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent that
it is no longer probable that the related tax benefit will be
realised.
Deferred tax is measured at the tax rates that are expected to
be applied to temporary differences when they reverse, using tax
rates enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax liabilities and
assets, and they relate to taxes levied by the same tax authority
on the same taxable entity, or on different tax entities where the
Group intends to settle current tax liabilities and assets on a net
basis or their tax assets and liabilities will be realised
simultaneously.
Deferred taxes are recognised in profit or loss except to the
extent that it relates to items recognised directly in equity or in
other comprehensive income.
Impairment
Impairment of Non-Financial Assets
Non-financial assets consist of property and equipment and
intangible assets, including licences, purchased IPR&D,
capitalised development cost, with finite lives and such intangible
assets which are not yet available for use.
The Group reviews the carrying amounts of its property and
equipment and finite-lived intangibles at each reporting date to
determine whether there is any indication of impairment. If any
such indication exists, then the asset's recoverable amount is
estimated. Intangible assets which are not yet available for use
are tested annually for impairment.
For impairment testing, assets are grouped together into the
smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of
other assets or cash-generating units ("CGUs").
The recoverable amount of an asset or CGU is the greater of its
value in use and its fair value less costs to sell. Value in use is
based on the estimated future cash flows, discounted to their
present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks
specific to the asset or CGU.
An impairment loss is recognised in profit and loss if the
carrying amount of an asset or CGU exceeds its recoverable amount.
Impairment losses are allocated to reduce the carrying amounts of
assets in a CGU on a pro rata basis.
Impairment of Financial Assets
Financial assets not classified as at fair value through profit
or loss are assessed at each reporting date to determine whether
there is objective evidence of impairment.
Objective evidence that financial assets are impaired
includes:
-- default or delinquency by a debtor;
-- restructuring of an amount due to the Group on terms that the
Group would not consider otherwise;
-- indications that a debtor or issuer will enter bankruptcy;
-- adverse changes in the payment status of borrowers or issuers;
-- the disappearance of an active market for a security; or
-- observable data indicating that there is measurable decrease
in expected cash flows from a group of financial assets.
Financial Assets Measured at Amortised Cost
The Group considers evidence of impairment for these assets at
both an individual asset and a collective level. All individually
significant assets are individually assessed for impairment. Those
found not to be impaired are then collectively assessed for any
impairment that has been incurred but not yet individually
identified. Assets that are not individually significant are
collectively assessed for impairment. Collective assessment is
carried out by grouping together assets with similar risk
characteristics.
In assessing collective impairment, the Group uses historical
information on the timing of recoveries and the amount of loss
incurred, and makes an adjustment if current economic and credit
conditions are such that the actual losses are likely to be greater
or lesser than suggested by historical trends.
An impairment loss is calculated as the difference between an
asset's carrying amount and the present value of the estimated
future cash flows discounted at the asset's original effective
interest rate. Losses are recognised in profit or loss and
reflected in an allowance account. When the Group considers that
there are no realistic prospects of recovery of the asset, the
relevant amounts are written off. If the amount of impairment loss
subsequently decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised, then the
previously recognised impairment loss is reversed through profit or
loss.
Share-based Payments
Share-based payment arrangements in which the Group or its
subsidiaries receive goods or services as consideration for their
own equity instruments are accounted for as equity-settled
share-based payment transactions, regardless of how the equity
instruments are obtained by the Group or its subsidiaries. Grants
of equity instruments under the subsidiary stock option incentive
plans are accounted for as equity-settled in the consolidated
accounts of the parent and are reflected in equity as a credit to
Non-Controlling Interest.
The grant date fair value of share-based payment awards granted
to employees is recognised as an employee expense, with a
corresponding increase in equity, over the period that the
employees become unconditionally entitled to the awards. The fair
value of the options granted is measured using an option pricing
valuation model, taking into account the terms and conditions upon
which the options were granted. The amount recognised as an expense
is adjusted to reflect the actual number of awards for which the
related service and non-market vesting conditions are expected to
be met, such that the amount ultimately recognised as an expense is
based on the number of awards that do meet the related service and
non-market performance conditions at the vesting date. For
share-based payment awards with non-vesting conditions, the grant
date fair value of the share-based payment is measured to reflect
such conditions and there is no true-up for differences between
expected and actual outcomes.
Employee Benefits
Short-term Employee Benefits
Short-term employee benefit obligations are measured on an
undiscounted basis and are expensed as the related service is
provided. A liability is recognised for the amount expected to be
paid if the Group has a present legal or constructive obligation to
pay this amount as a result of past service provided by the
employee, and the obligation can be estimated reliably.
Defined Contribution Plans
A defined contribution plan is a post-employment benefit plan
under which an entity pays fixed contributions into a separate
entity and has no legal or constructive obligation to pay further
amounts. Obligations for contributions to defined contribution
plans are recognised as an employee benefit expense in the periods
during which related services are rendered by employees. Prepaid
contributions are recognised as an asset to the extent that a cash
refund or a reduction in future payments is available.
Phantom Plan
The Phantom Plan is a cash settled bonus plan. Expense is
accrued when it is determined that it is probable that a payment
will be made and when the amount can be reasonably estimated.
Provisions
A provision is recognised in the balance sheet when the Group
has a present legal or constructive obligation as a result of a
past event, that can be reliably measured and it is probable that
an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects risks specific to
the liability.
Revenue Recognition
Sale of Goods
Revenue is recognised when the significant risks and rewards of
ownership have been transferred to the customer, recovery of the
consideration is probable, the associated costs and possible return
of goods can be estimated reliably, there is no continuing
management involvement with the goods and the amount of revenue can
be measured reliably.
The transfer of significant risks and rewards of ownership
usually occurs when products are shipped and the customer takes
ownership and assumes risk of loss.
Rendering of Services
The Group recognises revenue from rendering of services at the
time services are provided to the customer and the Group has no
additional performance obligation to the customer.
Government Grants
Grants received are recognised as revenue when the related work
is performed and the qualifying research and development costs are
incurred.
License Revenue
The Group recognises revenue from fees associated with licensing
of its technologies to third parties in the form of license fees
and royalties on an accruals basis in accordance with the substance
of the relevant agreement and when the Company's right to receive
payment is established, provided that it is probable that the
economic benefits will flow to the Company and the amount of
revenue can be measured reliably.
Finance Income and Finance Costs
Finance income mainly comprises interest income on funds
invested and foreign exchange gains. Finance costs mainly comprise
loan interest expense and foreign exchange losses. Interest income
and interest payable are recognised as they accrue in profit or
loss, using the effective interest method.
Fair Value Measurements
A number of the Group's accounting policies and disclosures
require the measurement of fair values, for both financial and
non-financial assets and liabilities.
When measuring the fair value of an asset or a liability, the
Group uses market observable data as far as possible. Fair values
are categorised into different levels in a fair value hierarchy
based on the inputs used in the valuation techniques as
follows:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a
liability might be categorised in different levels of the fair
value hierarchy, then the fair value measurement is categorised in
its entirety in the same level of the fair value hierarchy as the
lowest level input that is significant to the entire
measurement.
The Group recognises transfers between levels of the fair value
hierarchy at the end of the reporting period during which the
change has occurred.
The carrying amount of cash and cash equivalents, accounts
receivable, deposits, accounts payable, accrued expenses and other
current liabilities in the Group's Consolidated Statements of
Financial Position approximates their fair value because of the
short maturities of these instruments.
Operating Leases
Payments made under operating leases are recognised in profit or
loss on a straight-line basis over the term of the lease. Lease
incentives received are recognised as an integral part of the total
lease expense, over the term of the lease.
Operating Segments
Allied Minds determines and presents operating segments based on
the information that internally is provided to the executive
management team, the body which is considered to be Allied Minds'
Chief Operating Decision Maker ("CODM").
An operating segment is a component of Allied Minds that engages
in business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to
transactions with any of the Allied Minds' other components. The
operating segment's operating results are reviewed regularly by the
CODM to make decisions about resources to be allocated to the
segment, to assess its performance, and for which discrete
financial information is available.
(2) New Standards and Interpretations not yet Adopted
A number of new standards, interpretations and amendments to
existing standards are effective for annual periods beginning after
1 January 2017, and have not therefore been applied in preparing
this consolidated financial information. Management has yet to
complete an analysis of these new standards, interpretations and
amendments to existing standards on the results of its operations,
financial position, and disclosures. The Group intends to adopt
these standards on their respective effective dates.
The following are amended or new standards and interpretations
that may impact the Group. The Group is currently considering the
impact of the proposed changes but their adoption is not expected
to have a material effect on the financial statements unless
otherwise indicated:
IFRS 9, 'Financial instruments' (effective 1 January 2018)
IFRS 9, 'Financial instruments', deals with recognition,
measurement, classification and impairment and derecognition of
financial instruments. The actual impact of adopting IFRS 9 on the
Group's consolidated financial statements in 2018 is not known and
cannot be reliably estimated because it will be dependent on the
financial instruments that the Group holds and economic conditions
at that time as well as accounting elections and judgements that it
will make in the future. The new standard may require the Group to
revise its accounting processes and internal controls related to
reporting financial instruments and these changes are not yet
complete. However, the Group has performed a preliminary assessment
of the potential impact of adoption of IFRS 9 based on its
positions at 31 December 2016 under IAS 39:
Classification - Financial assets
IFRS 9 contains three principal classification categories for
financial assets that reflect the business model in which assets
are managed and their cash flow characteristics: measured at
amortised cost, fair value through other comprehensive income
("FVOCI") and fair value through profit or loss ("FVTPL"). The
standard eliminates the existing IAS 39 categories of held to
maturity, loans and receivables and available for sale. Based on
its preliminary assessment, the Group does not believe that the new
classification requirements, if applied at 31 December 2016, would
have had a material impact on its financial assets that are managed
on a fair value basis.
Other investments
At 31 December 2016, the Group had equity investments in the
form of fixed income securities classified as available-for-sale
with a fair value of $16.9 million that are held for supporting the
short-term liquidity needs of the Group. The Group does not expect
the purpose of those investment to change and as such, all fair
value gains and losses will continue to be recognised in profit or
loss as they arise.
Investments in subsidiaries
Currently, all group subsidiaries are fully consolidated in the
consolidated financial statements. The value of those investments
is disclosed as an alternative performance measure, which was
determined at $416.2 million as of 24 April 2017. In future, the
Company's position in those investments may be reduced to a point
where the Company no longer exercises control over these entities
and they are deconsolidated from the group accounts and presented
separately as investments in equity securities on the consolidated
statement of financial position. If these investments continue to
then be held for the same long-term strategic purposes, per the
application of IFRS 9, the Group may elect then to classify them as
FVOCI or FVTPL. The Group has not yet made a decision in this
regard. In the former case, all fair value gains and losses would
be reported in other comprehensive income, no impairment losses
would be recognised in profit or loss and no gains or losses would
be reclassified to profit or loss on disposal. In the latter case,
all fair value gains and losses would be recognised in profit or
loss as they arise, increasing volatility in the Group's
profits.
Classification - Financial liabilities
Under IAS 39 all fair value changes of liabilities designated as
at fair value through profit or loss are recognised in profit or
loss, whereas under IFRS 9 these fair value changes are generally
presented as follows:
- the amount of change in the fair value that is attributable to
changes in the credit risk of the liability is presented in OCI;
and
- the remaining amount of change in the fair value is presented in profit or loss.
The Group has designated subsidiary preferred shares liability
at FVTPL. The Group's preliminary assessment did not indicate any
material impact if IFRS 9's requirements regarding the
classification of financial liabilities were applied at 31 December
2016.
IFRS 15, 'Revenue from contracts with customers' (effective 1
January 2018)
IFRS 15, 'Revenue from contracts with customers', deals with
revenue recognition and establishes principles for reporting useful
information to users of financial statements about the nature,
amount, timing and uncertainty of revenue and cash flows arising
from an entity's contracts with customers. For sale of certain
products that require extensive testing and acceptance period,
revenue is currently recognized upon final acceptance from the
customer and the consideration is received or the uncertainty
around it is removed, i.e. related risk and regards of ownership
are transferred to the customer and the economic benefits from the
transaction flow to the Company. Under IFRS 15, revenue can be
recognised earlier when a customer obtains control of a good or
service while the product goes through the testing period and thus
has the ability to direct the use and obtain the benefits from the
good or service. However, risk of collectability may still exist
and prevent from earlier revenue recognition. The Group assessed
the impact of IFRS 15 on existing and future expected revenue
transactions and concluded that the adoption of IFRS 15 will have
no material impact on the group consolidated financial
statements.
Amendments to IAS 7, 'Statement of cash flows' disclosure
initiative (effective date to be confirmed)
Amendments to IAS 12, 'Income taxes' regarding the recognition
of deferred tax assets for unrealised losses (effective date to be
confirmed)
Amendments to IFRS 2, 'Share-based Payment' to clarify
classification and measurement (effective date to be confirmed)
IFRS 16, 'Leases' (effective 1 January 2019)
(3) Revenue
Revenue recorded in the statement of comprehensive loss consists
of the following:
For the year ended 31 December: 2016 2015
$'000 $'000
------ ------
Product revenue 1,829 2,208
Service revenue 835 606
Grant revenue _ 486
Total revenue in consolidated statement
of loss 2,664 3,300
====== ======
Product revenue includes license revenue of $55,000 and $10,000
during 2016 and 2015, respectively.
Deferred revenue recorded in the statement of financial position
consists of the following:
As of 31 December: 2016 2015
$'000 $'000
------ ------
Customer deposits 297 -
Other deferred revenue, current 161 395
------ ------
Total deferred revenue in statement of
financial position 458 395
====== ======
(4) Operating Segments
Basis for Segmentation
For management purposes, the Group's principal operations are
currently organised in two types of activities:
(i) Early stage companies - subsidiary businesses that are in
the early stage of their lifecycle characterised by incubation,
research and development activities; and
(ii) Commercial stage companies - subsidiary businesses that
have substantially completed their research and development
activities and that have developed one or more products that are
actively marketed.
Due to their size and nature Spin Transfer Technologies, Inc.
(or "STT", an early stage company) and RF Biocidics, Inc. (or
"RFB", a commercial stage company) are not aggregated and presented
as two additional separate reportable segments. The Group's
principal operations are therefore presented as four reportable
segments being early stage company - STT, early stage companies -
other, commercial stage company - RFB, and commercial stage
companies - other.
The Group's CODM reviews internal management reports on these
segments at least quarterly in order to make decisions about
resources to be allocated to the segment and to assess its
performance.
Other operations include the management function of the head
office at the parent level of Allied Minds.
Information about Reportable Segments
The following provides detailed information of the Group's
reportable segments as of and for the years ended 31 December 2016
and 2015, respectively:
2016
$'000
-----------------------------------------------------------------------------------------------------
Early stage Commercial Other Consolidated
-------------------------- --------------------------
STT Other RFB Other operations
------------ ------------ ------------ ------------ ---------------------- ---------------------
Statement of
Comprehensive
Loss
Revenue _ 622 553 1,489 _ 2,664
Cost of
revenue _ (134) (3,911) (1,518) _ (5,563)
Selling, general and
administrative expenses (8,628) (17,392) (4,304) (5,536) (19,624) (55,484)
Research and development
expenses (15,006) (39,048) (140) (1,098) _ (55,292)
Finance income/(cost),
net (9,791) (7,682) _ (26) 2,232 (15,267)
Loss for the period (33,425) (63,634) (7,802) (6,689) (17,392) (128,942)
Other comprehensive
income/(loss) _ _ (74) _ 282 208
Total comprehensive
loss (33,425) (63,634) (7,876) (6,689) (17,110) (128,734)
============ ============ ============ ============ ====================== =====================
Total comprehensive
loss attributable to:
Equity holders
of the parent (16,924) (52,173) (4,523) (5,395) (17,110) (96,125)
Non-controlling
interests (16,501) (11,461) (3,353) (1,294) _ (32,609)
Total comprehensive
loss (33,425) (63,634) (7,876) (6,689) (17,110) (128,734)
============ ============ ============ ============ ====================== =====================
Statement of financial
position
Non-current
assets 29,235 3,402 738 1,032 3,825 38,232
Current
assets 13,859 78,197 4,808 822 134,321 232,007
------------ ------------ ------------ ------------ ---------------------- ---------------------
Total Assets 43,094 81,599 5,546 1,854 138,146 270,239
Non-current
liabilities (90) (4) (18) (110) (498) (720)
Current
liabilities (64,394) (86,362) (1,075) (493) (3,078) (155,402)
Total Liabilities (64,484) (86,366) (1,093) (603) (3,576) (156,122)
------------ ------------ ------------ ------------ ---------------------- ---------------------
Net Assets (21,390) (4,767) 4,453 1,251 134,570 114,117
============ ============ ============ ============ ====================== =====================
2015
$'000
------------------------------------------------------------------------------------------------------------
Early stage Commercial Other Consolidated
--------------------------------- --------------------------
STT Other RFB Other operations
----------------- -------------- ------------ ------------ --------------------- ----------------------
Statement of
Comprehensive
Loss
Revenue _ 1,141 957 1,202 _ 3,300
Cost of
revenue _ (205) (2,791) (929) _ (3,925)
Selling, general and
administrative expenses (7,591) (14,116) (5,162) (5,255) (14,764) (46,888)
Research and development
expenses (11,752) (35,145) (217) (2,095) _ (49,209)
Finance income/(cost),
net (1,506) (330) _ (43) 612 (1,267)
Loss for the period (20,849) (48,655) (7,213) (7,120) (14,152) (97,989)
Other comprehensive
income/(loss) _ _ (26) _ 72 46
Total comprehensive
loss (20,849) (48,655) (7,239) (7,120) (14,080) (97,943)
================= ============== ============ ============ ===================== ======================
Total comprehensive
loss attributable to:
Equity holders
of the parent (11,331) (42,404) (4,230) (5,707) (14,080) (77,752)
Non-controlling
interests (9,518) (6,251) (3,009) (1,413) _ (20,191)
Total comprehensive
loss (20,849) (48,655) (7,239) (7,120) (14,080) (97,943)
================= ============== ============ ============ ===================== ======================
Statement of financial
position
Non-current
assets 31,692 4,568 2,810 1,687 52,027 92,784
Current
assets 34,531 52,590 5,068 1,774 64,464 158,427
----------------- -------------- ------------ ------------ --------------------- ----------------------
Total Assets 66,223 57,158 7,878 3,461 116,491 251,211
Non-current
liabilities (113) (339) (271) (115) (25) (863)
Current
liabilities (55,265) (48,757) (1,140) (1,149) (2,663) (108,974)
Total Liabilities (55,378) (49,096) (1,411) (1,264) (2,688) (109,837)
----------------- -------------- ------------ ------------ --------------------- ----------------------
Net Assets 10,845 8,062 6,467 2,197 113,803 141,374
================= ============== ============ ============ ===================== ======================
In 2016, Cost of revenue and Selling, general and administrative
expenses of segments STT, Early stage - other, RFB, Commercial
stage - other, and Other operations included depreciation and
amortisation expense of $4,728,000, $1,036,000, $480,000, $238,000,
and $153,000 respectively (2015: $2,316,000, $936,000, $554,000,
$232,000, and $49,000).
The proportion of net assets shown above that is attributable to
non-controlling interest is disclosed further in notes 11 and
17.
Geographic Information
Whilst the Group includes RF Biocidics (UK) Limited, which is a
UK company, the revenues and net operating losses of that
subsidiary are not considered material to the Group, and therefore
the Group revenues and net operating losses for the years ended 31
December 2016 and 2015 are considered to be entirely derived from
its operations within the United States and accordingly no
additional geographical discloses are provided.
(5) Operating Expenses
The average number of persons employed by the Group (including
Directors) during the year, analysed by category, was as
follows:
For the year ending 31 December: 2016 2015
----- -----
Selling, general and administrative 88 73
Research and development 121 87
Total 209 160
===== =====
The aggregate payroll costs of these persons were as
follows:
For the year ending 31 December: 2016 2015
------- -------
$'000 $'000
------- -------
Selling, general and administrative 28,913 22,416
Research and development 21,644 17,710
Total 50,557 40,126
======= =======
Total operating expenses were as follows:
For the year ending 31 December: 2016 2015
-------- --------
$'000 $'000
-------- --------
Salaries and wages 36,050 27,602
Payroll taxes 2,110 1,781
Healthcare benefit 2,837 2,328
Other payroll cost 1,175 1,374
Share-based payments 8,385 7,041
Total 50,557 40,126
-------- --------
Cost of revenue 5,563 3,925
Other SG&A expenses 26,571 24,472
Other R&D expenses 33,648 31,499
Total operating expenses 116,339 100,022
======== ========
2016 2015
$'000 $'000
-------- --------
Auditor's remuneration
Audit of these financial statements 425 346
Audit of the financial statements
of subsidiaries 20 20
Review of half-yearly report 106 89
Taxation compliance services _ 49
551 504
======== ========
The cumulative amount of litigation settlements during 2016 is
$1,750,000.
See note 6 for further disclosures related to share-based
payments and note 24 for management's remuneration disclosures.
(6) Share-Based Payments
UK Long Term Incentive Plan
On 19 June 2014, Allied Minds plc established the UK Long Term
Incentive Plan ("LTIP"). Under the LTIP, awards over Ordinary
Shares may be made to employees, officers and Directors, and other
individuals providing services to the Company and its subsidiaries.
Awards may be granted in the form of share options, share
appreciation rights, restricted or unrestricted share awards,
performance share awards, restricted share units, phantom-share
awards and other share-based awards. Awards were made under the
LTIP upon the Company's admission to the LSE at the IPO. Vesting is
subject to the achievement of performance conditions and continued
services of the participant. In respect of these initial awards
made to employees at the IPO, vesting is dependent upon performance
metrics as follows:
-- 60 per cent of each award will be subject to performance
conditions based on the Company's total shareholder return ("TSR")
performance over a three year period; and
-- 40 per cent of each award will be subject to performance
conditions based on a basket of shareholder value metrics ("SVM").
Performance will be assessed on these measures on a scorecard basis
over a three year period.
In respect of the initial awards, at the end of the three year
measurement period, performance against the relevant measures is
calculated to determine the number of Ordinary Shares which have
satisfied the vesting criteria and 50 per cent of the award will
then vest at that time. The remaining 50 per cent will vest in two
equal tranches after one and two years from the end of the vesting
period, respectively, subject to the relevant participant still
being employed within (or being a director of a company within) the
Group at the relevant vesting date (or being an earlier good leaver
as described further in the LTIP).
Subsequently, in the first half of 2015, annual awards were made
to employees under the LTIP that vest 100 per cent after the three
year measurements period subject to both the TSR and SVM
performance conditions.
During 2016, annual awards were made to employees of the Group
under the LTIP that vest 100 per cent after the three year
measurements period subject to the TSR performance conditions
only.
Awards made to Directors of Allied Minds vest 100 per cent after
a three year period subject to continued service condition
only.
Awards have been made under the LTIP during 2016 and 2015 in
respect of a total of 1,499,247 and 450,251 Ordinary Shares,
respectively. A summary of stock option activity under the UK LTIP
for the year ended 31 December 2016 and 2015, respectively, is
shown below:
For the year ended 31
December: 2016 2015
--------------------------- ---------------------------
TSR SVM TSR SVM
------------ ------------- ------------ -------------
Number of shares granted
at maximum ('000) 1,443 56 170 280
Weighted average fair
value (GBP) 2.19 3.37 7.01 5.99
Fair value measurement Monte Carlo Market value Monte Carlo Market value
basis of ordinary of ordinary
share share
The share grants that vest upon the occurrence of a market
condition (i.e. the TSR performance) and service condition were
adjusted to current market price at the date of the grant to
reflect the effect of the market condition on the non-vested
shares' value. The Company used a Monte Carlo simulation analysis
utilising a Geometric Brownian Motion process with 50,000
simulations to value those shares. The model takes into account
share price volatilities, risk-free rate and other covariance of
comparable UK public companies and other market data to predict
distribution of relative share performance. This is applied to the
reward criteria to arrive at expected value of the TSR awards.
The share grants that vests only upon the occurrence of a
non-market performance condition (i.e. the SVM grants) and service
condition were valued at the fair value of the shares on the date
of the grants and the vesting conditions are taken into account by
subsequently adjusting the number of instruments included in the
measurement of the transaction amount so that, ultimately, the
amount of recognised share-based expense is based on the number of
instruments that eventually vest.
The accounting charge does not necessarily represent the
intended value of share-based payments made to recipients, which
are determined by the Remuneration Committee according to
established criteria. The share-based payment charge for the fiscal
year ended 31 December 2016 related to the UK LTIP was $5.9 million
(2015: $3.1 million).
U.S. Stock Option/Stock Issuance Plan
The U.S. Stock Option/Stock Issuance Plan (the "U.S. Stock
Plan") was originally adopted by Allied Minds, Inc. (now Allied
Minds, LLC) in 2008. The U.S. Stock Plan provides for the grant of
share option awards, restricted share awards, and other awards to
acquire common stock of Allied Minds, Inc. (now Allied Minds, LLC).
All stock options granted to employees under this plan are equity
settled, for a ten-year term. Pursuant to the Company's IPO in
2014, Allied Minds plc adopted and assumed the rights and
obligations of Allied Minds, Inc. (now Allied Minds, LLC) under
this plan except that the obligation to issue Common Stock is
replaced with an obligation to issue ordinary shares to satisfy
awards granted under the U.S. Stock Plan.
No new stock option grants were awarded in 2016 and 2015 under
the Allied Minds 2008 Plan. A summary of stock option activity in
the U.S. Stock Plan is presented in the following table:
Weighted Weighted
Number average Number average
of exercise of exercise
options price options price
2016 2016 2015 2015
---------- ---------- ------------ ----------
Outstanding as of
1 January 9,204,712 $ 2.10 10,396,496 $ 2.09
Granted during the
year _ _ - -
Exercised during
the year (650,000) $ 1.86 (1,191,784) $ 2.05
Forfeited during
the year _ _ - -
Outstanding as of
31 December 8,554,712 $ 2.12 9,204,712 $ 2.10
========== ========== ============ ==========
Exercisable as of
31 December 8,554,712 $ 2.12 9,204,712 $ 2.10
---------- ---------- ------------ ----------
Intrinsic value $ 31.5 $ 35.2
of Exercisable million million
The options outstanding as of 31 December 2016 and 31 December
2015 had an exercise price in the range of $0.68 to $2.60.
As of 19 June 2014, the maximum number of options reserved under
the plan were issued and outstanding and as a result of the
Company's IPO in 2014, all issued and outstanding options vested on
19 June 2014 and some options were exercised, resulting in the
accelerated share- based payment charge of additional $2.4 million
for the period. The Company does not intend to make any further
grants under the U.S. Stock Plan.
Restricted share awards are outstanding over 118,800 ordinary
shares, which were granted under the U.S. Stock Plan to the
non-executive Directors. These ordinary shares vest in three equal
tranches on each of the first three anniversaries of Admission
provided that the non-executive Director in question is still
providing services to the Group on the relevant vesting date.
The share-based payment charge for the fiscal year ended 31
December 2016 related to the U.S. Stock Plan was $57,000 (2015:
$131,000).
Other Plans
Spin Transfer Technologies
Stock compensation expense was approximately $1,129,000 and
$1,937,000 and for the year ended 31 December 2016 and 2015,
respectively. Deferred stock compensation expense under these
grants was approximately $1,199,000 and $1,277,000 as of 31
December 2016 and 2015, respectively.
The fair value of the stock option grants awarded in 2016 and
2015 under the 2012 Equity Incentive Plan was estimated as of the
date of grant using a Black-Scholes- Merton option valuation model
that uses the following weighted average assumptions:
2016 2015
------- -------
Expected option life (in
years) 6.10 5.79
Expected stock price volatility 40.99% 41.54%
Risk-free interest
rate 1.21% 1.79%
Expected dividend
yield - -
Grant date option
fair value $ 3.18 $ 3.23
Share price at grant
date $ 7.77 $ 7.77
Exercise
price $ 7.77 $ 7.77
Expected volatility has been based on an evaluation of the
historical volatility of the share price of publicly traded
companies comparable to STT, particularly over the historical
period commensurate with the expected term. The expected term of
the instruments has been based on historical experience and general
option holder behavior.
A summary of stock option activity in the STT plans is presented
in the following table:
Weighted Weighted
Number average Number average
of exercise of exercise
options price options price
2016 2016 2015 2015
---------- ---------- ---------- ----------
Outstanding as
of 1 January 1,849,367 $ 7.43 1,440,394 $ 7.29
Granted during
the year 346,426 $ 7.77 434,746 $ 7.77
Exercised during
the year - - - -
Forfeited during
the year (7,500) $ 7.77 (25,773) $ 5.40
Outstanding as
of 31 December 2,188,293 $ 7.48 1,849,367 $ 7.43
========== ========== ========== ==========
Exercisable as
of 31 December 1,397,056 $ 7.34 964,632 $ 7.30
---------- ---------- ---------- ----------
Intrinsic value $ 0.1 $ 0.5
of Exercisable million million
The options outstanding as of 31 December 2016 had an exercise
price in the range of $6.97 to $7.77 (2015: $6.97 to $7.77) and a
weighted-average contractual life of approximately 8.7 years (2015:
9.1 years).
Plans Under Other Subsidiaries
The stock compensation expense under other subsidiaries of the
Company, which adopted stock option incentive plans in 2016 and
prior was $1,312,000 (2015: $1,871,000). Deferred stock
compensation expense under these grants as of 31 December 2016 was
approximately $1,035,000 (2015: $1,655,000) .
Allied Minds Phantom Plan
In 2007, Allied Minds established a cash settled bonus plan for
Allied Minds employees, also known as its Phantom Plan. In 2012,
the board of directors adopted the Amended and Restated 2007
Phantom Plan. Under the terms of the Amended and Restated Plan,
upon a liquidity event Allied Minds will allocate 10% of the value
(after deduction of the amount invested by Allied Minds and accrued
interest at a rate not exceeding 5% per annum) of the invested
capital owned by Allied Minds of each operating company to the plan
account. Upon a liquidity event, plan participants holding units
will receive their proportionate share of the plan account. The
allocated shares at all times remain the sole and exclusive
property of Allied Minds and holders of units have no rights or
interests in Allied Minds. No amount has been paid out to employees
under the Phantom Stock Plan through 31 December 2016.
Allied Minds has not accrued any expense relating to the Phantom
Plan as of 31 December 2016 or 2015. Management will record an
expense relating to this plan when it is probable that a subsidiary
will be sold and the amount of the payout is reasonably
estimable.
Share-based Payment Expense
The Group recorded share-based payment expense related to stock
options of approximately $8,385,000 and $7,041,000 for the years
ended 31 December 2016 and 2015, respectively. There was no income
tax benefit recognised for share- based payment arrangements for
the years ended 31 December 2016 and 2015, respectively, due to
operating losses. Shared-based payment expenses are included in
selling, general and administrative expenses and research and
development expenses in the Consolidated Statement of Comprehensive
Income.
(7) Finance Cost, Net
The following table shows the breakdown of finance income and
cost:
For the year ended 31
December: 2016 2015
$'000 $'000
--------- --------
Interest income on:
- Bank deposits 1,610 721
Foreign exchange gain 1,269 2
Finance income 2,879 723
--------- --------
Interest expense on:
- Financial liabilities
at amortised cost (527) (41)
Foreign exchange loss (34) (12)
--------- --------
Finance cost contractual (561) (53)
Loss on fair value measurement
of subsidiary preferred
shares (17,585) (1,937)
Finance cost (18,146) (1,990)
--------- --------
Total finance cost,
net (15,267) (1,267)
========= ========
See note 18 for further disclosure related to subsidiary
preferred shares.
(8) Loss Per Share
The calculation of basic and diluted loss per share as of 31
December 2016 was based on the loss attributable to ordinary
shareholders of $96.3 million (2015: $77.8 million) and a weighted
average number of ordinary shares outstanding of 217,317,696 (2015:
214,958,849), calculated as follows:
Loss attributable to ordinary shareholders
2016 2015
$'000 $'000
--------- ------- --------- --------------------
Basic Diluted Basic Diluted
--------- ------- --------- --------- ---------
Loss for the year
attributed to the
owners of the Company (96,333) (96,333) (77,797) (77,797)
Loss for the year
attributed to the
ordinary shareholders (96,333) (96,333) (77,797) (77,797)
========= ======= ========= ========= =========
Weighted average number of ordinary shares
2016 2015
Basic Diluted Basic Diluted
------------ ------------ ------------ ------------
Issued ordinary shares
on 1 January 215,637,363 215,637,363 214,445,579 214,445,579
Effect of share capital
issued 1,390,196 1,390,196 _ _
Effect of share options
exercised 290,137 290,137 513,270 513,270
Weighted average ordinary
shares 217,317,696 217,317,696 214,958,849 214,958,849
============ ============ ============ ============
Loss per share
2016 2015
$ $
------- -------- -----------------
Basic Diluted Basic Diluted
------- -------- ------- --------
Loss per share (0.44) (0.44) (0.36) (0.36)
======= ======== ======= ========
(9) Property and Equipment
Property and equipment, net, consists of the following at:
Cost
Machinery Furniture Computers
in and and Leasehold and Under
$'000 Equipment Fixtures Improvements Electronics Construction Total
---------- ---------- ------------- ------------ ------------- ---------
Balance as of 31
December 2014 14,362 403 1,536 601 3,531 20,433
Additions, net
of transfers 18,184 169 3,135 564 (562) 21,490
Disposals (168) - - - - (168)
---------- ---------- ------------- ------------ ------------- ---------
Balance as of 31
December 2015 32,378 572 4,671 1,165 2,969 41,755
---------- ---------- ------------- ------------ ------------- ---------
Additions, net
of transfers 4,560 313 919 239 (2,268) 3,763
Disposals (1,829) (23) (27) (53) - (1,932)
Balance as of 31
December 2016 35,109 862 5,563 1,351 701 43,586
========== ========== ============= ============ ============= =========
Accumulated
Depreciation
and Impairment
loss
Machinery Furniture Computers
in and and Leasehold and Under
$'000 Equipment Fixtures Improvements Electronics Construction Total
---------- ---------- ------------- ------------ ------------- ---------
Balance as of 31
December 2014 (3,180) (149) (770) (316) 312 (4,103)
Depreciation (2,371) (198) (235) (223) (312) (3,339)
Impairment loss (422) 150 (6) (30) - (308)
Disposals 168 - - - - 168
---------- ---------- ------------- ------------ ------------- ---------
Balance as of 31
December 2015 (5,805) (197) (1,011) (569) - (7,582)
---------- ---------- ------------- ------------ ------------- ---------
Depreciation (4,378) (135) (876) (325) - (5,714)
Impairment loss (320) (7) - (13) - (340)
Disposals 1,829 23 27 53 - 1,932
Balance as of 31
December 2016 (8,674) (316) (1,860) (854) - (11,704)
========== ========== ============= ============ ============= =========
Property and
equipment,
net
Machinery Furniture Computers
in and and Leasehold and Under
$'000 Equipment Fixtures Improvements Electronics Construction Total
------------- --- ---------- ---------- ------------- ------------ ------------- ---------
Balance as of 31
December 2015 26,573 375 3,660 596 2,969 34,173
Balance as of 31
December 2016 26,435 546 3,703 497 701 31,882
Impairment of property and equipment of $340,000 and $308,000
for the years ended 31 December 2016 and 2015, respectively, is
mainly attributed to the closing of subsidiary companies, which
resulted in the associated assets being impaired, see further
detail in note 26. Impairment of property and equipment is included
in selling, general and administrative expenses in the consolidated
statement of comprehensive income.
Property and equipment under constructions represents assets
that are in the process of being built and not placed in service as
of the reporting date.
(10) Intangible Assets
Information regarding the cost and accumulated amortisation of
intangible assets is as follows:
Cost
in Licenses Purchased Software Development Total
$'000 IPR&D cost
--------- ---------- --------- ------------ --------
Balance as of 31 December
2014 4,385 768 257 303 5,713
--------- ---------- --------- ------------ --------
Additions - Acquired
separately 1,032 - 490 - 1,522
Additions - Internally
developed - - - 201 201
Disposals - - (3) - (3)
--------- ---------- --------- ------------ --------
Balance as of 31 December
2015 5,417 768 744 504 7,433
--------- ---------- --------- ------------ --------
Additions - Acquired
separately 85 - 20 - 105
Additions - Internally
developed - - - 219 219
Disposals (681) - (34) (629) (1,344)
Balance as of 31 December
2016 4,821 768 730 94 6,413
========= ========== ========= ============ ========
Accumulated amortisation
and Impairment
loss
in Licenses Purchased Software Development Total
$'000 IPR&D cost
--------- ---------- --------- ------------ --------
Balance as of December
31, 2014 (2,103) (79) (98) (24) (2,304)
--------- ---------- --------- ------------ --------
Amortisation (512) (23) (180) (32) (747)
Impairment loss - - (1) - (1)
Disposals - - 3 - 3
--------- ---------- --------- ------------ --------
Balance as of December
31, 2015 (2,615) (102) (276) (56) (3,049)
--------- ---------- --------- ------------ --------
Amortisation (522) (22) (318) (59) (921)
Impairment loss (487) - - (538) (1,025)
Disposals 681 - 34 629 1,344
Balance as of December
31, 2016 (2,943) (124) (560) (24) (3,651)
========= ========== ========= ============ ========
Intangible assests,
net
in Licenses Purchased Software Development Total
$'000 IPR&D cost
--------- ---------- --------- ------------ --------
Balance as of 31 December
2015 2,802 666 468 448 4,384
Balance as of 31 December
2016 1,878 644 170 70 2,762
Amortisation expense is included in selling, general and
administrative expenses in the consolidated statement of
comprehensive loss. Amortisation expense, recorded using the
straight-line method, was approximately $921,000 and $747,000 for
the years ended 31 December 2016 and 2015, respectively.
Impairment of intangible assets of $1,025,000 and $1,000 for the
years ended 31 December 2016 and 2015, respectively, is mainly
attributed to the closing of subsidiary companies, which resulted
in the associated intangible assets being impaired to zero, see
further detail in note 26. Impairment expense is included in
selling, general and administrative expenses in the consolidated
statement of comprehensive income.
At each reporting period, management considers qualitative and
quantitative factors that define the future prospects of the
respective investment and assesses whether it supports the value of
the underlying intangible.
(11) Investment in Subsidiaries and Associates
Group Subsidiaries
Allied Minds has 33 subsidiaries as of 31 December 2016. As of
and for the two years ended 31 December 2016 the capitalisation of
all subsidiary companies in the Group portfolio is in the form of
ordinary shares only, except for certain subsidiaries where Series
A preferred shares were issued to both the parent company and third
parties in financing rounds, namely ABLS II, Federated Wireless,
HawkEye 360, Precision Biopsy, SciFluor Life Sciences and Spin
Transfer Technologies. Series A preferred shares as per cent of the
total ownership percentage of economic interest in those
subsidiaries as of 31 December 2016 were 19.14%, 6.71%, 56.11%
18.15%, 3.82% and 8.01%, respectively.
The following outlines the formation of each subsidiary and
evolution of Allied Minds' equity ownership interest over the two
year period ended 31 December 2016:
Ownership percentage
of economic interest
at
Inception 31 December (2)
Date Location (4) 2016 2015
----------- -----------
Active subsidiaries
Holding companies
Allied Minds, LLC (1), (3) 19/06/14 Boston, MA 100.00% 100.00%
Allied Minds Securities Corp.
(3) 21/12/15 Boston, MA 100.00% 100.00%
Project Poldark (Jersey) Limited
(3) 29/11/16 Boston, MA 100.00% _
Early stage companies
ABLS Capital, LLC 09/07/15 Boston, MA 30.25% _
Allied-Bristol Life Sciences,
LLC 31/07/14 Boston, MA 80.00% 80.00%
ABLS I, LLC 24/09/14 Boston, MA 74.00% 80.00%
ABLS II, LLC 24/09/14 Boston, MA 35.95% 80.00%
ABLS III, LLC 10/03/16 Boston, MA 80.00% _
Allied Minds Federal Innovations,
Inc. 09/03/12 Boston, MA 100.00% 100.00%
Arlington,
Federated Wireless, Inc. 08/08/12 VA 72.99% 90.58%
Federated Wireless Government Arlington,
Solutions, Inc. (3) 04/05/16 VA 72.99% 90.58%
Foreland Technologies, Inc. 23/01/13 Boston, MA 100.00% 100.00%
BridgeSat, Inc. 09/02/15 Boston, MA 100.00% 100.00%
Cambridge,
Cephalogics, LLC 29/11/06 MA 95.00% 95.00%
HawkEye 360, Inc. 16/09/15 Herndon, VA 56.11% 81.25%
HawkEye 360 Federal, Inc. (3) 22/09/15 Herndon, VA 56.11% 81.25%
LuxCath, LLC 29/05/12 Boston, MA 98.00% 98.00%
Baltimore,
Optio Labs, Inc. 28/02/12 MD 81.23% 81.23%
Wakefield,
Percipient Networks, LLC 29/01/14 MA 100.00% 100.00%
Precision Biopsy, Inc. 17/06/08 Denver, CO 64.59% 68.32%
ProGDerm, Inc. (dba Novare
Pharmaceuticals) 19/09/08 Boston, MA 90.38% 90.38%
Cambridge,
SciFluor Life Sciences, LLC 14/12/10 MA 69.89% 69.89%
Seamless Devices, Inc. 14/10/14 San Jose, CA 79.12% 79.41%
Signature Medical, Inc. 12/12/16 Boston, MA 100.00% -
Spin Transfer Technologies,
Inc. 03/12/07 Fremont, CA 48.40% 48.40%
Vatic Materials, Inc. 21/11/16 Boston, MA 100.00% -
Whitewood Encryption Systems,
Inc. 21/07/14 Boston, MA 100.00% 100.00%
Commercial stage companies
Biotectix, LLC 16/01/07 Richmond, CA 64.35% 64.35%
CryoXtract Instruments, LLC 23/05/08 Woburn, MA 93.24% 93.24%
Sacramento,
RF Biocidics, Inc. 12/06/08 CA 67.14% 67.14%
RF Biocidics (UK) Ltd (3) 10/09/10 United Kingdom 67.14% 67.14%
SoundCure, Inc. (3) 04/06/09 San Jose, CA 84.62% 84.62%
Tinnitus Treatment Solutions,
LLC 26/02/13 San Jose, CA 100.00% 100.00%
Closed subsidiaries
Cambridge,
SiEnergy Systems, LLC (3) 21/09/07 MA - 100.00%
Number of active subsidiaries as
31 December: 33 29
=========== ===========
Notes:
(1) On 19 June 2014, Allied Minds plc completed a reorganisation
of its corporate structure, whereby Allied Minds plc acquired the
entire issued share capital of Allied Minds, Inc., first
incorporated on 4 June 2004, which at the same time changed its
name to Allied Minds, LLC;
(2) Represents ownership percentage used in allocations to
non-controlling interests except for Federated Wireless, HawkEye
360, Precision Biopsy, SciFluor Life Sciences, and Spin Transfer
Technologies in which cases the percentage used to allocate the
non-controlling interests was 94.15%, 0%, 80.35%, 86.86%, and
56.13%, respectively, where in these cases there are liability
classified preferred shares in issue, which are excluded.
(3) These subsidiaries do not represent separate subsidiary
businesses referred to earlier within the annual report.
(4) All subsidiaries have a registered office address at CT
Corporation System, Corporation Trust Center, 1209 Orange Street,
Wilmington, DE 19801, United States except for Allied Minds
Securities Corp. with registered office address at CT Corporation
System, 155 Federal Street, Suite 700, Boston, MA 02110, United
States; Project Poldark (Jersey) Limited with registered office
address 44 Esplanade, St Helier, Jersey, JE4 9WG, United Kingdom
and Biotectix, LLC, Cephalogics, LLC, and CryoXtract, LLC at CT
Corporation System, 120 South Central Avenue, Suite 400, Clayton,
MO 63105, United States.
In April 2016, Allied Minds completed the formation of ABLS
Capital, LLC in partnership with existing shareholders of the
Group. The members of ABLS Capital committed to up to $80 million
for the development of drug discovery programs, of which 22.5% was
committed by Allied Minds, and contributed an initial $2 million
for 2 million Class B shares to fund the operations of the
subsidiary. The purpose of this partnership is to fund 80% of the
lead optimization phase of up to ten new drug candidates that pass
initial feasibility studies funded by Allied Bristol Life Sciences,
LLC ("ABLS"). The remaining 20% of lead optimization phase
investment, or up to an additional $20 million, will be funded by
Bristol-Myers Squibb, pursuant to the terms of the partnership
formed in 2014 through ABLS. Further, in August 2016, ABLS Capital
raised $12 million of new equity in a Class B shares round pursuant
to the initial commitment discussed above, which were used to
further fund the development at ABLS II. Under the terms of the
ABLS Capital organization documents, Allied Minds is appointed as
the manager of the company and effectively controls the policies
and management of ABLS Capital. As a result, following the
transactions from 2016, Allied Minds continues to exercise
effective control over ABLS Capital and as such the subsidiary will
continue to be fully consolidated within the group's financial
statements.
In August 2016, ABLS II closed a Series A round of financing
issuing 6,410,256 shares of Preferred Stock at issue price of
$2.34/share to ABLS Capital ($12.0 million) and Bristol-Myers
Squibb Company ($3.0 million), raising approximately $15.0 million.
Under the terms of the ABLS II organization documents, through its
control over ABLS and ABLS Capital, the Company effectively
controls the policies and management of ABLS II. As a result,
following the transaction, Allied Minds continues to exercise
effective control over ABLS II and as such the subsidiary will
continue to be fully consolidated within the group's financial
statements.
In October 2014, Spin Transfer Technologies ("STT") completed a
Series A financing round as a result of which the Allied Minds'
ownership percentage in STT decreased from 56.13% to 48.40%. Whilst
Allied Minds owns less than 50.00% of the voting share capital
after the transaction and as of 31 December 2014, the company
remains the largest single shareholder at 48.40% of the voting
share capital, and retains control over the majority of the voting
rights on the board of directors of STT. Under the terms of the STT
organisational documents, the board of directors effectively
controls the policies and management of STT, and in all instances,
the board acts by majority vote. In addition, all material
shareholder voting provisions of the STT organisational documents
require a simple majority for approval, giving the Company
substantial influence over the outcome of all actions which require
a shareholder vote. As a result, following the transaction, Allied
Minds continues to exercise effective control over STT and as such
will continue to be fully consolidated within the group's financial
statements.
The following tables summarise the financial information related
to the Group's subsidiaries with material non-controlling
interests, aggregated for interests in similar entities, and before
intra-group eliminations.
As of and for the year ended 31 December:
2016
$'000
----------------------------------------
Early stage Commercial
-------------------- ------------------
STT Other RFB Other
--------- --------- -------- --------
Statement of Comprehensive Loss
Revenue _ 594 553 1,223
Loss for the year (33,425) (59,193) (7,802) (5,937)
Other comprehensive loss _ _ (74) _
Total comprehensive loss (33,425) (59,193) (7,876) (5,937)
========= ========= ======== ========
Comprehensive loss attributed
to NCI (16,501) (11,461) (3,353) (1,294)
Statement of Financial Position
Non-current assets 29,235 3,242 738 1,029
Current assets 13,859 77,637 4,808 751
Total Assets 43,094 80,879 5,546 1,780
Non-current liabilities (90) (4) (18) _
Current liabilities (64,394) (85,658) (1,075) (421)
Total Liabilities (64,484) (85,662) (1,093) (421)
--------- --------- -------- --------
Net Assets (21,390) (4,783) 4,453 1,359
========= ========= ======== ========
Carrying amount of NCI (15,074) 10,061 (9,114) (6,670)
Statement of Cash Flows
Cash flows from operating
activities (18,617) (51,853) (7,993) (7,653)
Cash flows from investing
activities (2,360) (402) 1,595 (332)
Cash flows from financing
activities 303 80,888 8,189 8,154
--------- --------- -------- --------
(20,674) 28,633 1,791 169
========= ========= ======== ========
2015
$'000
----------------------------------------
Early stage Commercial
-------------------- ------------------
STT Other RFB Other
--------- --------- -------- --------
Statement of Comprehensive Loss
Revenue _ 654 957 1,104
Loss for the year (20,849) (42,119) (7,213) (7,171)
Other comprehensive loss _ _ (26) _
Total comprehensive loss (20,849) (42,119) (7,239) (7,171)
========= ========= ======== ========
Comprehensive loss attributed
to NCI (9,518) (6,250) (3,009) (1,413)
Statement of Financial Position
Non-current assets 31,692 5,920 2,810 1,685
Current assets 34,531 51,774 5,068 1,725
Total Assets 66,223 57,694 7,878 3,410
Non-current liabilities (113) (38) (271) (117)
Current liabilities (55,265) (48,198) (1,140) (1,142)
Total Liabilities (55,378) (48,236) (1,411) (1,259)
--------- --------- -------- --------
Net Assets 10,845 9,458 6,467 2,151
========= ========= ======== ========
Carrying amount of NCI (4,281) (3,550) (7,031) (5,928)
Statement of Cash Flows
Cash flows from operating
activities (17,142) (41,293) (8,237) (9,369)
Cash flows from investing
activities (19,629) (4,079) (198) (348)
Cash flows from financing
activities 1,863 75,974 7,228 9,154
--------- --------- -------- --------
(34,908) 30,602 (1,207) (563)
========= ========= ======== ========
Portfolio Valuation
At the close of each annual financial period, the Directors
formally approve the value of all subsidiary businesses in the
Group, which is used to derive the "Group Subsidiary Ownership
Adjusted Value". This Group Subsidiary Ownership Adjusted Value is
a sum-of-the-parts ("SOTP") valuation of all the subsidiaries that
make up the Group. GSOAV is an alternative performance measure
("APM") used by the Directors as a key performance indicator
("KPI") to measure the performance of the Group. An APM is a
numeric measure of the Group's financial position that is not a
GAAP measure. As the Group exercises control over all of its
investments in subsidiary undertakings their activities are fully
consolidated in the group accounts and the value of those
investments is not separately disclosed in the statement of
financial position. Only the value of non-controlling interests of
certain subsidiaries reflecting the subsidiary preferred shares
liability is disclosed separately in the statement of financial
position, as further discussed in footnote 18.
The Group Subsidiary Ownership Adjusted Value ("GSOAV") was
$416.2 million as of 24 April 2017 (2015: $535.8m). The decrease
compared to prior year is primarily attributed to the liquidation
of several subsidiary businesses subsequent to year end as
discussed in note 26, namely Biotectix, Cephalogics, CryoXtract,
Novare Pharmaceuticals, Optio Labs, RF Biocidics (including RF
Biocidics (UK) Ltd), and SoundCure/Tinnitus Treatment Solutions.
The decrease was partially offset by an increase in value at
HawkEye 360 demonstrated by the consummation of a third-party
fundraising and an increase to ABLS due to ABLS II moving into the
lead optimisation programme.
Ownership adjusted value represents Allied Minds' interest in
the equity value of each subsidiary and is calculated as follows:
lower of (Business Enterprise Value - Long Term Debt + Cash) x
Allied Minds percentage ownership plus the value of debt provided
by Allied Minds plc to each subsidiary business, or the subsidiary
Business Enterprise Value. Allied Minds commits post seed funding
to its subsidiaries in the form of loans.
Valuation Methodology
Each subsidiary company is regularly evaluated based on a range
of inputs, including: company performance and progress towards
development milestones; market and competitor analyses based on
information from databases and public material; and interviews with
scientists and physicians.
The Group Subsidiary Ownership Adjusted Value represents the
sum-of-the-parts ("SOTP") of, principally, net present value
("NPV") or risk-adjusted net present value ("rNPV") from discounted
cash flow ("DCF") valuations and valuations based on recent third
party investment at the subsidiary level. A DCF valuation is used
for the majority of Allied Minds subsidiaries. The DCF valuations
are updated when the underlying assumptions for the valuations
warrant a change. Generally, valuations are not increased unless
warranted by or in anticipation of a financing transaction.
Valuations are decreased in situations where the subsidiary is
falling short of expected progress. Otherwise, the valuations are
kept constant. When available, financing transactions are used as
the basis for the subsidiary valuation. In limited instances other
techniques such as based on asset values are utilised.
Set out below are the two principal methodologies applied to
value each Group company to derive the Group Subsidiary Ownership
Adjusted Value as of the current year annual report and
accounts:
Discounted cash flow Funding transaction (2)
(1)
----------------------- ------------------------------
BridgeSat, Inc Allied Bristol Life Sciences,
LLC
Foreland Technologies, ABLS II, LLC
LLC
LuxCath, LLC Federated Wireless, Inc.
Percipient Networks, HawkEye 360, Inc.
LLC
Seamless Devices, Inc. Precision Biopsy, Inc.
Whitewood Encryption SciFluor Life Sciences,
Systems, Inc. Inc.
Spin Transfer Technologies,
Inc.
As per cent of GSOAV: As per cent of GSOAV:
8.0% (2015: 26.5%) 87.1% (2015: 70.7%)
(1) The DCF valuation model was updated in the current year for
BridgeSat, while for the remaining companies where DCF is used as
basis for the subsidiary valuation the values were kept constant
from prior year;
(2) Funding transactions used as basis for the subsidiary
valuations were consummated in the current year, except for Allied
Bristol Life Sciences (2014), Spin Transfer Technologies (2014),
and SciFluor Life Sciences (2015).
In addition to the two principal valuation methodologies, the
Directors have valued using alternative valuation methodologies
Allied Minds Federal Innovations, Inc. ("AMFI") representing 4.9%
of the group Subsidiary Ownership Adjusted Value (2015: 2.8%). AMFI
was valued using an asset-based methodology that reflects the
intellectual property to which it has access as at 31 December 2016
and 2015.
For detail of the Net Present Value ("NPV") method used in
estimating the group valuations from discounted cash flows see
footnote 18.
Associates
Ownership percentage
Registered 31 December
Location number 2016 2015
----------- ------------ ------------ ----------
Vicenza,
Stalam S.p.A. Italy 2083930244 _ 28.5%
2016 2015
$'000 $'000
------------ ----------
Stalam S.p.A. _ 1,612
Carrying amount for equity accounted
investees _ 1,612
============= ==========
In December 2013, RF Biocidics ("RFB") entered into a
manufacturing agreement with the strategic partner Stalam S.p.A.
("Stalam") in Italy, which made Stalam an exclusive manufacturer of
the Apex product line series, as well as any new generation RF
Systems that incorporates both Stalam and RFB technologies which
the parties develop jointly as part of the agreement. Following
this transaction in March 2014, RF Biocidics acquired ordinary
shares representing 28.5% of the capital of that manufacturer in
exchange for 1.1 million Euro ($1.5 million).
The Group's interest in Stalam is presented in the below table
as of 31 December:
2016 2015
$'000 $'000
------- ------
Carrying amount of interest
in associates
Share
of:
Profit from continuing
operations _ 52
Total comprehensive
income _ 52
======== ======
In November 2016, Stalam was acquired by third party investors
and RF Biocidics sold its interest in the investment in Stalam for
2.3 million Euro ($2.4 million) plus a potential earn out of 0.6
million Euro ($0.6 million) of which 0.1 million Euro ($0.1
million) was realised in 2016, resulting in a gain for the period
of $0.9 million.
(12) Other Investments
As of 31 December: 2016 2015
$'000 $'000
------- -------
Fixed income securities
Treasury and government agencies _ 3,468
Corporate bonds 14,244 34,180
Other investments, current 14,244 37,648
Fixed income securities
Treasury and government agencies _ 10,871
Corporate bonds 2,668 40,674
Other investments, long-term 2,668 51,545
------- -------
Total other investments 16,912 89,193
======= =======
Other investments represent investments in fixed income
securities issued by government agencies and US and non-US
corporations. As of 31 December 2016, the investments had a credit
rating of A- to A+, maturities of up to 2 years and original coupon
rate from 0.00% to 5.00% (2015: 0.50% to 7.65%).
(13) Cash and Cash Equivalents
As of 31 December: 2016 2015
$'000 $'000
-------- --------
Bank balances 209,283 105,687
Restricted cash (132) (132)
Total cash and cash equivalents 209,151 105,555
======== ========
Restricted cash represents cash reserved as collateral against a
letter of credit with a bank issued for the benefit of a landlord
in lieu of a security deposit to an office space lease for one of
the Group's subsidiaries. The amount is classified as other
financial assets, non-current in the statement of financial
position.
(14) Inventories
As of 31 December: 2016 2015
$'000 $'000
------ ------
Finished units 2,505 1,007
Work in progress 15 149
Raw materials 31 355
Total inventories 2,551 1,511
====== ======
Finished units and raw materials recognised as cost of revenue
in the year amounted to $1,756,000 (2015: $2,057,000). The
write-down of inventories to net realisable value recognized
through cost of revenue was $3,403,000 (2015: $1,778,000).
(15) Trade and Other Receivables
As of 31 December: 2016 2015
$'000 $'000
------ ------
Trade receivables 312 1,012
Prepayments and other current assets 5,588 6,330
Total trade and other receivables 5,900 7,342
====== ======
(16) Equity
In December 2016, the Company issued 17,457,015 ordinary shares
of one pence at 367 pence, which were admitted to the premium
listing segment of the Official List of the UK Listing Authority
and to trading on the LSE's Main Market for listed securities. This
resulted in approximately $78.1 million of net proceeds from the
equity placing (net of issue cost of $2.2 million). The amounts
subscribed for share capital in excess of the nominal value in
relation to this transaction are reflected in the merger reserve
balance as of 31 December 2016.
During 2016, existing and former employees of the Group
exercised options to purchase 650,000 shares of the Company under
the U.S. Stock Plan (2015: 1,191,784), resulting in additional
share premium of $1,200,000 (2015: $2,443,000).
As of 31 December 2016, 11,551,496 ordinary shares were reserved
under the U.S. Stock Plan and 23,374,437 were reserved under the
LTIP, see note 6 for further discussion of the share-based payment
plans.
Movements below explain the movements in share capital:
As of 31 December: 2016 2015
$'000 $'000
---------- ----------
Equity
Share capital, GBP0.01 par value,
issued and fully paid 3,657 3,429
233,744,378 and 215,637,363,
respectively
Share premium 157,067 155,867
Merger reserve 263,435 185,544
Translation reserve 192 (16)
Accumulated deficit (i) (289,437) (192,819)
Equity attributable to owners
of the Company 134,914 152,005
Non-controlling interests (i) (20,797) (10,631)
Total equity 114,117 141,374
========== ==========
(i) The 2015 amounts have been reclassified, see note 1.
Holders of Ordinary Shares are entitled to vote, on all matters
submitted to shareholders for a vote. Each Ordinary Share is
entitled to one vote. Each ordinary share is entitled to receive
dividends when and if declared by the Company's board of directors.
The Company has not declared any dividends in the past.
Share premium represents the amounts subscribed for share
capital in excess of the nominal value, net of directly
attributable issue costs.
Merger reserve reflects the amounts subscribed for share capital
in excess of the nominal value in relation to the qualifying
acquisition of subsidiary undertakings.
Translation reserve comprises all foreign exchange differences
arising from the translation of the financial statements of foreign
operations.
(17) Acquisition of Non-Controlling Interest ("NCI")
For the two years ended 31 December 2016, the Group recognised
the following changes in common and preferred stock ownership in
subsidiaries resulting in changes to non-controlling interest:
-- In March 2016, Allied-Bristol Life Sciences (ABLS) launched
its third project - ABLS III, LLC (dba i<BETA>eCa
Therapeutics), in a partnership with New York University (NYU).
ABLS owns 100% of the common stock of ABLS III. Following the
transaction Allied Minds continues to exercise effective control
over ABLS and subsidiaries including ABLS III and as such the
subsidiary will continue to be fully consolidated within the
group's financial statements
-- In April 2016, the Group completed the formation of ABLS
Capital, LLC in partnership with existing shareholders of Allied
Minds. The members of the LLC committed to up to $80 million for
the development of up to 10 drug discovery programs, of which
Allied Minds commits 22.5%, and contributed an initial $2 million
funding for 2 million Class B shares. The purpose of this
partnership is to fund 80% of the lead optimisation phase of up to
ten new drug candidates that pass initial feasibility studies
funded by ABLS. The remaining 20% of lead optimization phase
investment, or up to an additional $20 million, will be funded by
Bristol-Myers Squibb Company (BMS), pursuant to the terms of the
partnership formed in 2014 through ABLS. Following the transaction,
Allied Minds continues to exercise effective control over ABLS
Capital and as such the subsidiary will continue to be fully
consolidated within the group's financial statements.
In August 2016, ABLS Capital raised $12 million of new equity in
a Class B shares round pursuant to the initial commitment discussed
to fund its portion of the ABLS II financing (see below). There is
no change in the subsidiary's governance structure as a result of
the round. Following the transaction Allied Minds continues to
exercise effective control over ABLS Capital and as such the
subsidiary will continue to be fully consolidated within the
group's financial statements.
-- In August 2016, ABLS II closed a Series A round of financing
issuing 6,410,256 shares of Preferred Stock at issue price of $2.34
per share to ABLS Capital and Bristol-Myers Squibb Company, raising
approximately $15.0 million, resulting in a $19.0 million
post-money valuation. The use of proceeds from the Series A round
is intended primarily to fund further development of the lead
optimisation program. Should this next lead optimisation phase
prove successful, Bristol-Myers Squibb has the right to acquire
Allied Minds' interest in ABLS II at a pre-determined multiple of
invested capital.
The following summarises the changes in the non-controlling
ownership interest in subsidiaries by reportable segment:
Early Stage Commercial Consolidated
-------------------- ------------------
STT Other RFB Other
$'000 $'000 $'000 $'000 $'000
--------- --------- -------- -------- -------------
Non-controlling interest
as of
31 December 2014 (i) 7,674 1,904 (3,000) (4,054) 2,524
Share of comprehensive
loss (9,518) (6,251) (3,009) (1,413) (20,191)
Effect of change in Company's
ownership interest 143 3,077 8 - 3,228
Equity-settled share
based payments 1,937 1,707 103 61 3,808
--------- --------- -------- -------- -------------
Non-controlling interest
as of 31
December 2015 (i) 236 437 (5,898) (5,406) (10,631)
========= ========= ======== ======== =============
New funds into non-controlling
interest _ 13,773 _ _ 13,773
Share of comprehensive
loss (16,501) (11,460) (3,353) (1,295) (32,609)
Effect of change in Company's
ownership interest 62 6,030 137 - 6,229
Equity-settled share
based payments 1,129 1,281 _ 31 2,441
--------- --------- -------- -------- -------------
Non-controlling interest
as of 31
December 2016 (15,074) 10,061 (9,114) (6,670) (20,797)
========= ========= ======== ======== =============
(i) The 2014 and 2015 amounts have been reclassified, see note
1.
(18) Subsidiary Preferred Shares
Certain of the Group's subsidiaries have outstanding preferred
shares which have been classified as a subsidiary preferred shares
in current liabilities in accordance with IAS 39 as the
subsidiaries have a contractual obligation to deliver cash or other
assets to the holders under certain future liquidity events, and/or
a requirement to deliver an uncertain number of common shares upon
conversion. The preferred shares do not contain mandatory dividend
rights. The preferred shares are convertible into common stock of
the subsidiary at the option of the holder and mandatorily
convertible into common stock of the subsidiary upon a qualified
public offering at or above certain value and gross proceeds
specified in the agreements or upon the vote of the holders of a
majority of the subsidiary preferred shares. Under certain
scenarios the number of common stock shares receivable on
conversion will change. The Group has elected not to bifurcate the
variable conversion feature as a derivative liability, but account
for the entire instrument at fair value through the income
statement.
The preferred shares are entitled to a vote with holders of
common stock on an as converted basis. The holders of the preferred
shares are entitled to a liquidation preference amount in the event
of a liquidation or a deemed liquidation event of the respective
subsidiary. The Group recognises the subsidiary preferred shares
balance upon the receipt of cash financing, and records the change
in its fair value for the respective reporting period through
profit and loss. Preferred shares are not allocated shares of the
subsidiary losses.
The following summarises the subsidiary preferred shares
balance:
Finance
cost from
IAS 39
fair value
As of 31 December: 2016 accounting Additions 2015
$'000 $'000 $'000 $'000
Spin Transfer Technologies 61,383 9,865 _ 51,518
SciFluor Life Sciences 32,381 6,798 _ 25,583
Precision Biopsy 22,518 536 5,000 16,982
Federated Wireless 17,342 372 16,970 _
HawkEye 360 7,264 14 7,250 _
-------- ------------ ---------- -------
Total subsidiary preferred
shares 140,888 17,585 29,220 94,083
======== ============ ========== =======
The redemption is conditional on occurrence of uncertain future
events beyond the control of the Group. The amount that would be
payable in case of such events is as follows:
2016 2015
As of 31 December: $'000 $'000
Spin Transfer Technologies 50,000 50,000
SciFluor Life Sciences 25,200 25,200
Precision Biopsy 22,000 17,000
Federated Wireless 17,000 _
HawkEye 360 7,250 _
-------- --------
Total liquidation preference 121,450 92,200
======== ========
For the two years ended 31 December 2016, the Group recognised
the following changes in subsidiary preferred shares:
2016
-- Federated Wireless completed a $22.0 million round of Series
A financing in January 2016. Of the $22.0 million raised in this
financing, Allied Minds contributed approximately $5.0 million for
the purchase of 2,727,580 preferred shares, and other existing
shareholders of the Group contributed with the remainder of the
round.
-- Precision Biopsy received the second tranche of the October
2015 Series A round (see below) and raised addition $5.0 million
from one of the existing shareholders that originally participated
in the round for additional 945,966 shares.
-- HawkEye 360 completed a $11.0 million round of Series A-2
financing in November 2016. Of the $11.0 million raised in this
financing, Allied Minds contributed approximately $4 million for
the purchase of 3,096,459 preferred shares, and other new investors
contributed with the remainder of the round.
2015
-- SciFluor Life Sciences completed a $30.0 million round of
Series A financing in April 2015. Of the $30.0 million raised in
this financing, Allied Minds contributed approximately $4.8 million
for the purchase of 501,857 preferred shares, and other existing
shareholders of the Group contributed with the remainder of the
round.
-- Precision Biopsy completed a $33.6 million round of Series A
financing in October 2015. Of the $33.6 million raised in this
financing, Allied Minds contributed approximately $16.6 million for
the purchase of 3,140,608 preferred shares, and other existing
shareholders of the Group contributed with the remainder of the
round. The round was funded in two tranches and the second tranche
of $10.0 million was due after one year from closing of the round,
of which $4.0 million was contributed by Allied Minds and other
existing shareholders of the Group contributed with the remainder
$6.0 million.
The fair value is derived using the option pricing model where
the key inputs and assumptions include the subsidiary valuations,
which are either based on the implied value from a third party
funding round, on a Net Present Valuation method or asset based
valuation, volatility, time to liquidity, risk free rate and
discount for lack of marketability (DLOM).
Net Present Valuation ("NPV") method
NPV is a standard technique used in valuation and can be defined
as the difference between the present value of the future cash
flows from an investment and the amount of investment. Present
value of the estimated cash flows is computed by discounting them
at the required rate of return which includes an adjustment for
risk.
The following are important factors when determining fair value
based on NPV:
-- Estimated income generally consists of sales, co-development
revenues, one-time payments and royalty payments on sales depending
on the company, its business model and industry. These are
estimated based on a variety of factors including: total
addressable market; competitive factors; barriers to competition;
pricing; typical standards for contract value; royalty rates; and
likelihood of development of a product that is commercially
viable.
-- Costs and capital expenditures are estimated for each phase
of development based on the companies' information or according to
industry standards. Costs are typically forecasted for cost of
goods, SG&A (selling, general and administrative), research and
development as well as a variety of other expenses. These are
typically developed "from the ground up" for earlier years and for
later years depicted as a factor or percentage of sales.
-- The terminal or exit value represents the aggregate value of
an entity at the end of the discrete forecast period. Terminal
value may be estimated using the terminal multiple method, which
inherently assumes that the business will be valued at the end of
the projection period based on reference valuations. Under this
methodology, the terminal value is typically calculated by applying
one of two commonly accepted methodologies:
- Multiple base terminal value: Use of an appropriate multiple
to the relevant financial metric forecasted for the last projected
year taking into consideration the ongoing growth potential of the
business in the terminal year. Exit values included in the analysis
are typically projected as a multiple of EBIT, EBITDA or Sales
based on the final year results for the forecast period. Where
available, a set of guideline public companies that are similar to
the company to be used for comparative purposes and the multiple is
derived from this set;
- Gordon growth model based terminal value: Use of a formula
that calculates the present value of cash flow in the terminal year
growing into infinity at an ascribed terminal growth rate. The
terminal growth rate is derived by estimating the long-term annual
growth potential of the business at the terminal year.
-- Selection of discount rates is based on part utilising
American Institute of Certified Public Accountants (AICPA) practice
standards varying by stage of development of the subsidiary as well
as other risk factors and typically range from 20-45%.
-- Where available NPV results are compared against peer
companies and to valuations for similar companies.
Due to the early stage nature of the Group's subsidiary
companies, projections are particularly sensitive to certain key
assumptions namely:
-- Discount rate and in particular risk premium;
-- The ability to predict the cost and timing of achieving technical and commercial viability;
-- Projected revenue and operating costs in the post-product
development phase of each company; and
-- The size and share of addressable market for intellectual
property, products and services developed.
Where has been a third party funding round in the year this has
been used as the implied value of the subsidiary, adjusted for
indexation where this is deemed to be appropriate.
Whilst the Board considers the methodologies and assumptions
adopted in the valuation are supportable, reasonable and robust,
because of the inherent uncertainty of valuation, those estimated
values may differ significantly from the values that would have
been used had a ready market for the investment existed and the
differences could be significant.
Option Pricing Model Inputs
The following presents the quantitative information about the
significant unobservable inputs used in the fair value measurement
of the Group's subsidiary preferred shares liability
designated:
As of 31 December: 2016 2015
Volatility 33.0% - 75.5% 60.0% - 70.0%
Time to Liquidity (years) 2.06 - 3.76 3.78 - 4.76
Risk-Free Rate 1.22% - 1.70% 1.48% - 1.71%
DLOM 20.0% - 27.5% 20.0% - 27.8%
Sensitivity Analysis
The following summarises the sensitivity from the assumptions
made by the Company in respect to the unobservable inputs used in
the fair value measurement of the Group's subsidiary preferred
shares liability, as well as that in respect to the enterprise
value of the underlying subsidiary in general:
As of 31 December: 2016 2015
$'000 $'000
----------- ----------
Input Sensitivity Subsidiary Preferred
range Shares Liability
increase/(decrease)
-------------------- ------------ -----------------------
Enterprise Value -2% (1,746) (1,232)
+2% 1,746 1,232
Volatility -10% (377) 1,783
+10% (776) (2,353)
Time to Liquidity -6 months 416 1,253
+6 months (762) (1,221)
Risk-Free Rate -0.18% /
(1) -0.12% 416 1,253
+0.13% /
+0.12% (762) (1,221)
DLOM -5.0% 42 42
+5.0% (26) (26)
(1) Risk-free rate is a function of the time to liquidity input
assumption.
The change in fair value of the subsidiary preferred shares is
recorded in Finance cost, net in the consolidated statement of
comprehensive loss.
(19) Loans
As of 31 December: 2016 2015
$'000 $'000
------ ------
Non-current liabilities
- Loans:
Unsecured loan - 112
- 112
Current liabilities
- Loans:
Unsecured loan 115 228
115 228
Total loans 115 340
====== ======
The terms and conditions of outstanding loans are as
follows:
2016 2015
$'000 $'000
------------------ ------------------
Currency Nominal Year Face Carrying Face Carrying
interest of maturity value amount value amount
As of 31 December: rate
---------- ---------- ------------- ------- --------- ------- ---------
Unsecured loan USD 6.5% 2013-17 115 115 340 340
Total interest bearing
liabilities 115 115 340 340
======= ========= ======= =========
CryoXtract Instruments, LLC Promissory Note
In May 2012, CryoXtract Instruments, LLC signed a promissory
note with a state financing authority in the amount of $800,000 to
provide working capital for materials and fund salaries. The note
fully matures in May 2017 and bears interest of 6.5%. Payment of
interest only is due in the first 18 months. As of 31 December
2013, CryoXtract had drawn the full balance of the note, of which
$225,000 and $221,000 was repaid during 2016 and 2015,
respectively, and $115,000 (2015: $28,000), net of discount, is
included in current liabilities. Interest expense incurred on the
note was $26,000 and $41,000 for the years ended 31 December 2016
and 2015, respectively.
As part of the consideration for the loan, CryoXtract had issued
to the lender a warrant entitling the lender to purchase an
aggregate of 65,310 membership units in the subsidiary's ordinary
shares, representing 0.01% of the total membership units. The fair
value of the warrant issued of $35,000 is amortised over the life
of the loan as a discount against the note balance.
(20) Trade and Other Payables
As of 31 December: 2016 2015
$'000 $'000
------- -------
Trade payables 4,362 6,326
Accrued expenses 9,210 7,690
Other current liabilities 369 252
Trade and other payables,
current 13,941 14,268
Other non-current payables 720 751
Total trade and other
payables 14,661 15,019
======= =======
(21) Leases
Office and laboratory space is rented under non-cancellable
operating leases. These lease agreements contain various clauses
for renewal at the Group's option and, in certain cases, escalation
clauses typically linked to rates of inflation.
Minimum rental commitments under non-cancellable leases were
payable as follows:
For the year ended 31 December: 2016 2015
$'000 $'000
------ ------
Less than one year 2,015 2,421
Between one and five years 3,713 4,822
More than five years 438 1,183
Total minimum lease
payments 6,166 8,426
====== ======
Total rent expense under these leases was approximately
$2,859,000 and $2,673,000 in 2016 and 2015, respectively. Rent
expenses are included in selling, general and administrative
expenses and research and development expenses in the consolidated
statements of comprehensive loss.
(22) Financial Instruments and Related Disclosures
The following table shows the carrying amounts and fair values
of financial assets and financial liabilities, including their
levels in the fair value hierarchy:
As of 31 December: 2016
$'000
----------------------------------------------
Carrying Fair value
-----------------------------------
Level Level Level
amount 1 2 3 Total
--------- ------ -------- ------- --------
Financial assets designated
as fair value through
profit or loss
Fixed income securities 16,912 - 16,912 - 16,912
Loans and receivables
Cash and cash equivalents 209,151 - 209,151 - 209,151
Trade and other
receivables 5,900 - 5,900 - 5,900
Security and other
deposits 1,065 - 1,065 - 1,065
--------- ------ -------- ------- --------
Total 233,028 - 233,028 - 233,028
========= ====== ======== ======= ========
Financial liabilities
designated as fair
value through profit
or loss
Subsidiary preferred
shares 140,888 - - 140,888 140,888
Financial liabilities
measured at amortised
cost
Unsecured loan 115 - 123 - 123
Trade and other
payables 14,662 - 14,662 - 14,662
Total 155,665 - 14,785 140,888 155,673
As of 31 December: 2015
$'000
Carrying Fair value
Level Level Level
amount 1 2 3 Total
Financial assets
designated as fair
value through profit
or loss
Fixed income securities 89,193 14,360 75,385 - 89,745
Loans and receivables
Cash and cash equivalents 105,555 - 105,555 - 105,555
Trade and other
receivables 7,342 - 7,342 - 7,342
Subscription receivable 6,000 - 6,000 - 6,000
Security and other
deposits 1,213 - 1,213 - 1,213
Total 209,303 14,360 195,495 - 209,855
Financial liabilities
designated as fair
value through profit
or loss
Subsidiary preferred
shares 94,083 - - 94,083 94,083
Financial liabilities
measured at amortised
cost
Unsecured loan 340 - 359 - 359
Trade and other
payables 15,019 - 15,019 - 15,019
Total 109,442 - 15,378 94,083 109,461
The fair value of financial instruments that are not traded is
determined by using valuation techniques that maximise the use of
observable market data where it is available and rely as little as
possible on entity specific estimates. If all significant inputs
required to fair value an instrument are observable, the instrument
is included in Level 2. Where the inputs for determining the fair
value of financial instruments are not based on observable market
data, the instrument is included in Level 3.
The Group has determined that the carrying amounts for cash and
cash equivalents, trade and other receivables and payables,
security and other deposits, and customer deposits are a reasonable
approximation of their fair values and are included in Level 2.
For assumptions used in the fair value measurement of the
Group's subsidiary preferred shares liability designated as Level
3, see footnote 18.
(23) Capital and Financial Risk Management
The Group's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the business. Management monitors the level
of capital deployed and available for deployment in subsidiary
projects. The board of directors seeks to maintain a balance
between the higher returns that might be possible with higher
levels of deployed capital and the advantages and security afforded
by a sound capital position.
The Group's executive management and board of directors have
overall responsibility for establishment and oversight of the
Group's risk management framework. The Group is exposed to certain
risks through its normal course of operations. The Group's main
objective in using financial instruments is to promote the
commercialisation of intellectual property through the raising and
investing of funds for this purpose. The Group's policies in
calculating the nature, amount and timing of funding are determined
by planned future investment activity. Due to the nature of
activities and with the aim to maintain the investors' funds secure
and protected, the Group's policy is to hold any excess funds in
highly liquid and readily available financial instruments and
reduce the exposure to other financial risks.
The Group has exposure to the following risks arising from
financial instruments:
Credit Risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations. Financial instruments that potentially
subject the Group to concentrations of credit risk consist
principally of cash and cash equivalents, other investments in the
form of fixed income securities, and trade and other
receivables.
The Group held following balances:
As of 31 December: 2016 2015
$'000 $'000
-------- --------
Cash and cash equivalent 209,151 105,555
Other investments 16,912 89,193
Trade and other receivables 5,900 7,342
231,963 202,090
======== ========
The Group maintains money market funds, certificates of
deposits, and fixed income securities with financial institutions,
which the Group believes are of high credit quality. Risk control
assesses the credit quality of the customer, taking into account
its financial position, past experience and other factors.
Individual risk limits are set based on ratings in accordance with
limits set by the board. The utilisation of credit limits is
regularly monitored. The credit quality of financial assets that
are neither past due nor impaired can be assessed by reference to
credit ratings (if available) or to historical information about
counterparty default rates.
Group policy is to maintain its funds in highly liquid deposit
accounts with reputable financial institutions.
The aging of trade receivables that were not impaired was as
follows:
As of 31 December: 2016 2015
$'000 $'000
------ ------
Neither past due nor
impaired 162 784
Past due 30-90 days 81 110
Past due over 90 days 921 842
Reserve for bad debt (852) (724)
312 1,012
====== ======
The Group has no significant concentration of credit risk. The
Group assesses the credit quality of customers, taking into account
their current financial position. An analysis of the credit quality
of trade receivables that are neither past due nor impaired is as
follows:
As of 31 December: 2016 2015
$'000 $'000
Customers with less than
three years of 312 1,012
trading history with the
Group
312 1,012
Liquidity Risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. The Group's approach to managing liquidity is to
ensure, as far as possible, that it will have sufficient liquidity
to meet its liabilities when they are due, under both normal and
stressed conditions, without incurring unacceptable losses or
risking damage to the Group's reputation.
The Group seeks to manage liquidity risk, ensuring that
sufficient liquidity is available to meet foreseeable
requirements.
The following are the remaining contractual maturities of
financial liabilities at the reporting date. The amounts are gross
and undiscounted, and include estimated interest payments and
exclude the impact of netting agreements. The current portion of
the carrying amount of lease obligations is included in trade and
other payables.
As of 31 December
2016: Contractual cash flows
Carrying Less than More than
$'000 amount Total 1 year 2-5 years 5 years
Trade and other payables 13,941 13,941 13,941 - -
Other non-current
liabilities 720 720 236 433 51
Unsecured bank loans 115 115 115 - -
14,776 14,776 14,292 433 51
As of 31 December
2015: Contractual cash flows
Carrying Less than More than
$'000 amount Total 1 year 2-5 years 5 years
Trade and other payables 14,268 14,268 14,268 - -
Other non-current
liabilities 751 751 358 365 28
Unsecured bank loans 340 370 252 118 -
15,359 15,389 14,878 483 28
It is not expected that the cash flows included in the maturity
analysis could occur significantly earlier, or at significantly
different amounts.
Market Risk
Market risk is the risk that changes in market prices - such as
foreign exchange rates, interest rates and equity prices - will
affect the Group's income or the value of its holdings of financial
instruments. The objective of market risk management is to manage
and control market risk exposures within acceptable parameters,
while optimising the return. The Group maintains the exposure to
market risk from such financial instruments to insignificant
levels. The Group exposure to changes in interest rates is
determined to be insignificant.
Capital Risk Management
The Group is funded by equity finance and long term borrowings.
Total capital is calculated as 'total equity' as shown in the
consolidated statement of financial position.
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital. In order to maintain or adjust the capital
structure, the Group may issue new shares or borrow new debt. The
Group has some external debt and no material externally imposed
capital requirements. The Group's share capital is set out in note
16.
(24) Related Parties
Transactions with Key Management Personnel
Key Management Personnel Compensation
Key management personnel compensation received comprised the
following:
For the year ended 31 December: 2016 2015
$'000 $'000
Short-term employee benefits 3,097 3,341
Share-based payments 2,073 1,708
Total 5,170 5,049
Short-term employee benefits of the Group's key management
personnel include salaries and bonuses, health care and other
non-cash benefits.
Share-based payments include the value of awards granted under
the LTIP during the year. Share-based payments under the LTIP are
subject to vesting terms over future periods. See further details
of the two plans in note 6.
Bonuses to key management for the year of $1,673,000 were
outstanding at 31 December 2016 (2015: $1,260,000) and were paid in
January of 2017.
Key Management Personnel Transactions
Directors' remuneration for the year comprised the
following:
For the year ended 31 December: 2016 2015
$'000 $'000
Non-executive Directors' fees 492 357
Non-executive Directors' share-based
payments 275 225
Total 767 582
There were no outstanding fees to non-executive Directors at 31
December 2016 (2015: $105,000).
Executive management and Directors of the Company control 2.0%
of the voting shares of the Company as of 31 December 2016 (2015:
2.2%).
Other related party transactions
Consolidated Statement of Comprehensive Loss
For the year ended 31 December: 2016 2015
$'000 $'000
Purchase of goods
Equity-accounted investee 948 1,334
Consolidated Statement of Financial Position
As of 31 December: 2016 2015
$'000 $'000
Purchase of goods outstanding
balance
Equity-accounted investee _ 171
The Group has not engaged in any other transactions with key
management personnel or other related parties.
(25) Taxation
Amounts recognised in profit or loss
No current income tax expense was recorded for US jurisdictions
for the years ended 31 December 2016 and 2015 due to accumulated
losses.
For the year ended 31 December: 2016 2015
$'000 $'000
Net loss 128,942 97,989
Income taxes - -
Net loss before taxes 128,942 97,989
Reconciliation of Effective Tax Rate
The Group is primarily subject to taxation in the US, therefore
the reconciliation of the effective tax rate has been prepared
using the US statutory tax rate. A reconciliation of the US
statutory rate to the effective tax rate is as follows:
2016 2015
% %
Weighted average statutory rate 35.0 35.0
Effect of state tax rate in US 5.2 5.3
Credits 3.4 3.7
Share-based payment remeasurement (1.8) (2.6)
Other (5.0) (2.6)
Current year losses for which
no deferred
tax asset is recognised (36.8) (38.8)
- -
Factors that may affect future tax expense
The Group is primarily subject to taxation in the US and UK.
Additionally, the Group is exposed to state taxation in various
jurisdictions throughout the US. Changes in corporate tax rates can
change both the current tax expense (benefit) as well as the
deferred tax expense (benefit). Reductions in the UK corporation
tax rate to 19% (effective 1 April 2017) and to 18% (effective 1
April 2020) were substantially enacted on 26 October 2015. A
further reduction to 17% (effective 1 April 2020) was substantially
enacted on 6 September 2016. The maximum corporate tax rate in the
US for the corresponding periods is 35%.
Unrecognised Deferred Tax Assets
Deferred tax assets have not been recognised in respect of the
following items, because it is not probable that future taxable
profit will be available against which the Group can use the
benefits therefrom:
As of 31 December: 2016 2015
$'000 $'000
Operating tax losses (1) 115,868 87,280
Capital losses (2) 1,146 1,612
Research credits (1) 10,130 6,558
Temporary differences (3) 20,620 15,390
Deferred tax assets 147,764 110,840
Other temporary differences (3) (1,079) (398)
Deferred tax liabilities (1,079) (398)
Deferred tax assets, net, not recognised 146,685 110,442
(1) expire starting in 2024
(2) expiring since 2015
(3) generally will expire 20 years subsequent
to the time the deduction is taken
Deferred tax is measured at the rates that are expected to apply
in the period when the temporary differences are expected to
reverse, based on tax rates and laws that have been enacted or
substantially enacted by the statement of financial position date.
The reduction in the main rate of UK corporation tax to 20% (from
23%) was substantially enacted on 2 July 2013 and applied from 1
April 2015. However, the UK corporation tax rate initially reduced
from 23% to 21% from 1 April 2014. The change in the UK corporate
tax rate did not materially impact the calculation of the deferred
tax assets as these assets are generally exposed to tax in US
jurisdiction.
There were no movements in deferred tax recognised in income or
equity in 2016 or 2015 as the deferred tax asset was not recognised
in any of those years.
As of 31 December 2016 the Company had United States federal net
operating losses carry forwards (NOLs) of approximately $287.6
million (2015: $216.6 million) available to offset future taxable
income, if any. These carry forwards start to expire in 2026 and
are subject to review and possible adjustment by the Internal
Revenue Service. The Company may be subject to limitations under
Section 382 of the Internal Revenue Code as a result of changes in
ownership.
(26) Subsequent Events
The Company has evaluated subsequent events through 27 April
2017, which is the date the consolidated financial information is
available to be issued.
HawkEye 360, Inc.
In February 2017, HawkEye completed a second closing of the
Series A-2 financing round for additional $2.75 million, of which
$1.25 million from existing shareholders of the Group and members
of management of the company for 967,641 Series A-2 shares and a
warrant to purchase 1,161,172 Series A-2 shares for $1.5 million
issued to an existing investor of the company.
Group Restructuring Plan
In April 2017, concurrent with the departure of the former CEO,
management undertook a reevaluation of the portfolio and strategic
investment direction of the Group and the Board of Directors
approved a restructuring plan that resulted in the discontinuance
of funding for several of the group subsidiary businesses. Those
companies included Biotectix, Cephalogics, CryoXtract, Novare
Pharmaceuticals, Optio Labs, RF Biocidics, and SoundCure/Tinnitus
Treatment Solutions. This decision will allow the Group to
reallocated capital and management resources previously earmarked
for these subsidiaries in the previously approved 2017 budgets to
the portfolio and pipeline of our most promising companies
consistent with the goal to accelerate commercialisation of
existing companies and invest in new opportunities where there is
greater potential for value creation. The Company is in process of
determining the net realisable value of the underlying assets at
these subsidiaries to which those assets will be written off, which
as of 31 December 2016 included property and equipment of $0.8
million, intangible assets of $1.6 million, inventories of $2.5
million, trade and other receivables of $0.3 million, and other
non-current financial assets of $0.1 million. The Company wrote off
fixed and intangible assets of $1.1 million and $0.3 million at
CryoXtract and Novare Pharmaceuticals, respectively, as of 31
December 2016, reflecting indications that those investments were
impaired as of the year end. The Company expects the total cost of
this restructuring plan to be approximately $5.5 million and have
accrued this amount accordingly in April 2017. The restructuring is
estimated to result in approximately $9.0 million of savings from
costs that the Group would have otherwise incurred if it continued
to support these businesses in 2017 after the restructuring
event.
Vatic Materials, Inc.
Operations at Vatic Materials, Inc., a wholly-owned subsidiary
of the Group, were discontinued subsequent to year end in April
2017. There was no material impact of this event to the Group
financials as of 31 December 2016.
Company Information
Company Registration Number 08998697 Brokers
Credit Suisse International
Registered Office 1 Cabot Square
40 Duke's Place London E14 4QJ
London EC3A 7NH United Kingdom
United Kingdom TEL: +44 (0)20 7888 8888
Website Numis Securities Limited
www.alliedminds.com The London Stock Exchange Building
10 Paternoster Square
Board of Directors London EC4M 7LT
Peter Dolan United Kingdom
(Non-Executive Chairman) TEL: +44 207 260 1000
Jill Smith Registrar
(Chief Executive Officer) Capita Asset Services
The Registry
Rick Davis 34 Beckenham Road
(Senior Independent Director) Beckenham Kent BR3 4TU
United Kingdom
Jeff Rohr TEL UK: 0871 664 0300
(Independent Non-Executive Director) TEL Overseas: +44 208 639 3399
Kevin Sharer Solicitors
(Independent Non-Executive Director) DLA Piper UK LLP
3 Noble Street
Company Secretary London EC2V 7EE
Michael Turner United Kingdom
TEL: +44 870 011 1111
Independent Auditor
KPMG LLP
15 Canada Square
London E14 5GL
United Kingdom
TEL: +44 207 311 1000
Media Relations
Citigate Dewe Rogerson
3 London Wall Buildings
London EC2M 5SY
United Kingdom
TEL: +44 207 638 9571
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR VQLFLDZFZBBQ
(END) Dow Jones Newswires
April 27, 2017 02:01 ET (06:01 GMT)
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