TIDMAMP
RNS Number : 0200C
Amphion Innovations PLC
23 June 2016
23 June 2016
Amphion Innovations plc
Final Results for the year to 31 December 2015
London and New York, 23 June 2016 - Amphion Innovations plc
(LSE: AMP) ("Amphion" or the "Company"), the developer of medical
and technology businesses, today announces its audited final
results for the year to 31 December 2015 (the "Period").
Financial Highlights:
-- Net Asset Value per ordinary share in the Company ("Ordinary
Shares") was 3.8 pence (US $0.055)* at Period-end, an increase from
0.7 pence (US $0.01) per Ordinary Share at 31 December 2014;
-- Raised GBP2.1 million through the placing of new Ordinary
Shares (June 2015) and the exercise of warrants throughout the
Period;
-- Cash resources as at Period-end of approximately US $0.9 million; and
-- Reduced total liabilities by US $1.4 million during the Period.
Partner Companies' Highlights:
-- Successful IPO of Partner Company Motif Bio plc ("Motif") in
April 2015, raising GBP2.8 million at 20 pence per Motif share;
-- Motif raised a further GBP22 million at 50 pence per share in
July 2015 with a placing of new Motif shares with institutional
investors;
-- Independent tests on Motif's lead antibiotic product iclaprim
showed it to be effective in vitro against a range of Gram-positive
bacteria, and was found to be 16 times more potent than
trimethoprim, an existing synthetic antibiotic used to treat
bacterial infections; and
-- Kromek Group plc ("Kromek") raised GBP11 million in August
2015 through a placing of new Kromek shares.
Post-Period Highlights:
-- Motif began dosing the first patient in the Phase III iclaprim trials (March 2016);
-- Loans in the amount of US $6,308,600 owing to the estate of former Chairmen restructured;
-- Convertible Promissory Notes in the amount of GBP5,707,738 amended and extended
* Exchange rate at 31 December 2015 - 1.4746.
Richard Morgan, CEO of Amphion Innovations plc commented:
"The rise in our Net Asset Value per Ordinary Share was mainly
due to the increase in the value of our holdings in Motif Bio plc.
Following its successful IPO in April 2015, Motif concluded a
financing in July to raise GBP22 million (before expenses) in a
placing with several leading institutional investors, at a price
significantly higher than the IPO price. We believe Motif has a
very bright future and is now on its way to becoming a significant
player in the antibiotic market, which has a growing need for novel
therapies.
"We are committed to working closely with Motif to help it
achieve its goals. In addition, we now have the opportunity to move
forward one or two other Partner Companies and, for the first time
in many years, to begin to explore the possibility of adding to
Amphion's portfolio. We look forward to the future with renewed
confidence and to being able to report further progress from our
Partner Companies in due course."
Contacts:
Amphion Innovations
Charlie Morgan
+1 212 210 6224
Yellow Jersey PR
Charles Goodwin / Dominic Barretto
+44 (0)7747 788 221
Panmure Gordon Limited (Nominated Adviser and Corporate
Broker)
Freddy Crossley / Duncan Monteith (Corporate Finance)
Charlie Leigh-Pemberton (Corporate Broking)
+44 (0)20 7886 2500
Northland Capital Partners Limited (Joint Corporate Broker)
Patrick Claridge / David Hignell (Corporate Finance)
John Howes (Corporate Broking)
+44 (0)20 3861 6625
Plumtree Capital Limited (Financial Adviser)
Stephen Austin
+44 (0)20 7183 2493
+646 568 7502
Chief Executive Officer's Statement
Financial Results and Net Asset Value
Revenue in 2015 was US $519,855 (2014: US $484,700) while total
administrative expenses were US $4,680,212 in 2015 (2014: US
$3,494,351). As a result, the operating loss for the year was US
$4,160,357 (2014: US $3,009,651). Revenue remained below that of
prior years due partly to the absence of licensing income from
DataTern and partly from the inability of our Partner Companies to
contribute management fees.
Total administrative expenses have at least two different
components: the general overheads and operating costs of the parent
company and the expenses incurred within and by DataTern, our
wholly-owned subsidiary. The latter are consolidated into the total
but are dictated by the activity related to the IP licensing
programme, which is discussed further below. The former includes
the write-down of fees and other income due from the Partner
Companies, which are now judged to be uncollectable, and also
includes certain expenses related to the fund-raising activities
described further below. General overhead and operating expenses
excluding expenses related to DataTern, the write down of
receivables and the fund-raising expenses, were again tightly
controlled at US $1,769,809 (2014: US $1.5 million).
During the year, the Company was able to raise capital from the
equity capital markets for the first time in seven years. In April,
holders of warrants associated with an institutional lender elected
to exercise all their warrants, generating approximately GBP581,000
in net proceeds to the Company. In June the Company raised
additional capital through a placing of new Ordinary Shares, with
net proceeds to the Company of circa GBP1.54 million before
expenses. In addition, in June and July the Company completed an
exchange of Kromek shares for Convertible Notes to those note
holders who had duly notified the Company in December 2014. Partly
as a result of these financing activities, the Company's total
liabilities decreased by US $1.41 million over the year and, as at
Period-end, the Company's cash balance was US $936,981.
Following the successful IPO of Motif on London's AIM market in
early April 2015, Motif's share price rose from 20 pence at the IPO
to a high of 70.75 pence at the end of June. At the end of the
year, the share price was 42.75 pence. As a result, the value of
Amphion's holdings in Motif rose from US $13.2 million at the end
of December 2014 to US $27.0 million at the end of December 2015.
This increase was the main factor behind the improvement in
Amphion's Net Asset Value per Ordinary Share to 3.8 pence at 31
December 2015. At the same time the share price of Kromek finished
the year at 35.5 pence, which was almost exactly where it started.
Since the start of 2016, the Kromek share price has fallen to 29
pence, while Motif's share price has remained broadly unchanged and
is currently 47.5 pence. Motif and Kromek also completed
substantial financings in July and August 2015 respectively and
have sufficient financial resources relative to their current
operating costs.
Amphion's holding of intellectual property assets is valued at
amortised cost of US $275,016. In addition to the initial purchase
of these IP assets from our Partner Company, FireStar Software,
Amphion has made significant additional investment in these assets,
which has been expensed as incurred and the value of those assets
continues to be carried only at amortised historical cost. The
Directors believe that the realisable value of the intellectual
property assets held by DataTern is substantially in excess of the
carrying value. Further to this, the incremental investments being
made in the pursuit of the parties infringing DataTern's IP will
generate a significant profit. We believe that if we are successful
in concluding licensing agreements with the various infringing
parties at levels that meet our expectations, the Company's NAV per
Ordinary Share could be significantly higher.
Motif Bio plc
On 2 April 2015, Motif successfully completed its IPO and
admission to AIM, raising GBP2.8 million at 20 pence per ordinary
share. On 23 June 2015, Motif concluded a conditional placing of 44
million new ordinary shares at a placing price of 50 pence per
ordinary share with institutional investors to raise GBP22 million.
On 22 July 2015, the FDA designated iclaprim as a Qualified
Infectious Diseases Product ("QIDP") for hospital acquired
bacterial pneumonia ("HABP"). This satisfied the final condition of
the placing, with admission of the 44 million new ordinary shares
occurring on 27 July 2015. On 22 July 2015, the Company reported
that the FDA had also designated iclaprim as QIDP for acute
bacterial skin and skin structure infections ("ABSSSI"), the second
of two serious and life threatening infections for which Motif
applied for QIDP status. With QIDP designation, iclaprim is now
eligible for a total of 10 years of market exclusivity from the
date of approval.
The decision by Motif to focus on its antibiotic programme has
proven to be timely given the growing recognition of the worldwide
problems caused by antibiotic resistance. In July 2014, Prime
Minister David Cameron announced the launch of a global taskforce,
under the leadership of Jim O'Neill, former chairman of Goldman
Sachs Asset Management, to coordinate an international effort to
seek new therapies to combat antibiotic resistant superbugs. Prime
Minister Cameron commented: "If we fail to act, we are looking at
an almost unthinkable scenario where antibiotics no longer work and
we are cast back to the dark ages of medicine where treatable
infections and injuries can kill once again". Motif's mission is to
address this global health crisis by developing new antibiotics
that work in different ways to those commonly used today.
Iclaprim has a novel mechanism of action and enjoys a number of
important clinical and commercial attributes, such as a low
propensity to develop resistance, which has been demonstrated in
vitro. Iclaprim was originally developed by Hoffman-La Roche Inc.
and completed comprehensive development in 2008, including two
Phase III trials with over 900 patients, half of whom were treated
with this antibiotic. Although the FDA declined to approve the drug
at the time, despite having met the original goals agreed with the
agency, the FDA confirmed that they were satisfied with the safety
profile of iclaprim and this was confirmed in Motif's April 2015
meeting with the agency. On 2 March 2016, Motif announced that the
first person to enter the new Phase III trial had been screened and
dosed. The trial is expected to take about 18 months and, in light
of the extensive development history and the improvements in the
trial design, Motif believes the drug will meet the new endpoints.
Subject to the necessary regulatory approvals, Motif expects to
begin marketing the drug in 2018.
DataTern and the Intellectual Property Licensing Programme
DataTern Inc. ("DataTern"), a wholly owned subsidiary of the
Company, announced in September that it received a favourable
ruling by the U.S. District Court in Massachusetts (the "Court"),
which denied two motions for summary judgment filed by
MicroStrategy Inc. ("MicroStrategy") seeking dismissal of
DataTern's claims on the grounds of validity and infringement. In
May 2015, there was a hearing on the two motions: one motion argued
that DataTern's '502 patent is invalid under section 101 of the
United States Patent Act, and the second argued that MicroStrategy
did not infringe the '502 patent.
The Court found that the '502 patent solved a specific problem
in computing using an inventive concept and concluded that the
invention was eligible for patent protection under the U.S. Supreme
Court's most recent precedent. On the second motion, concerning the
issue of infringement, the Court denied MicroStrategy's motion
seeking a determination that it did not infringe because its
Business Platform did not use an "object model", leaving the door
open to revisit related issues in the future.
These were important and favourable rulings, taken together with
the ruling from the Federal Circuit Court of Appeals received in
late December 2014, in its appeal in the MicroStrategy case, which
the Company's legal advisers also considered to be clearly
favourable. MicroStrategy sells business intelligence and analytics
software platforms used by other defendants. There are seven
defendants in the MicroStrategy case, which remains the only active
case at this time. A preliminary schedule has been established
which calls for the trial to begin in the third quarter of
2016.
The '502 patent and the '402 patent are directed to how
object-oriented software applications access data stored in
relational databases. Such applications are widely used and exist
within most current databases are relational databases. We continue
to believe that companies that are using or want to use DataTern's
patented technology should enter into equitable licensing
agreements.
The Company's legal team, supported by the Company's extensive
team of technical and patent experts, continues to believe in the
strength of its intellectual property. Both of DataTern's key
patents have completed a comprehensive re-examination by the United
States Patent and Trademark Office ("USPTO") and successfully
emerged both fully validated and with additional claims added. Our
goal remains to generate a fair and reasonable return on the very
substantial investment made by DataTern and FireStar over many
years in the development of this innovative technology. If we are
successful, we believe that the value of the net income to DataTern
should be substantially in excess of its carrying value. It remains
the considered opinion of the Company's team that the two patents
are both valid and being infringed by a wide range of companies
that are practicing this critical art. The Board believes that a
Claim Construction ruling, which is fully reflective of its
interpretation of the claims of the patents, would establish
significant infringement by a large number of companies and it
believes that DataTern should be able to generate a significant
amount of revenue from this asset over the next few years.
Under the revenue sharing agreement with DataTern, Amphion's
Partner Company, FireStar Software Inc. (where the technology and
patents were originally developed), would share directly in the
revenue stream.
Building Value in the Partner Companies
Since flotation, our basic business model has been to start and
build companies with high value potential based on innovative and
proprietary, but basically proven, technology. Our continued
ability to select good IP and to develop the IP portfolios in each
of our Partner Companies is a critical success factor and is
getting steadily stronger as we deepen our knowledge and experience
in this area. This knowledge underpins Amphion's investment in each
Partner Company at the outset and as it develops. However, our
primary goal in every company is the development of a successful
business model and operating capabilities that can utilise the
technology to develop and commercialise innovative products,
generate revenue, and make profits.
Following the successful IPO for Motif on AIM in April 2015, we
have the opportunity to advance other Partner Companies and to
start to consider, for the first time in over five years, how best
to grow the Company in the future.
m2m is poised to make good progress. We anticipate being able to
expand the core business and can identify a number of ways in which
we can enlarge and improve the scope of the business by combining
with other emerging companies. Magnetic Resonance Imaging ("MRI")
is a medical imaging modality that is being increasingly used in
pre-clinical investigations as well as for clinical diagnostics.
m2m has a number of patents on the technology which is aimed at
improving the diagnostic quality of MRI images, and the company's
leadership has identified a number of pathways to expand its
footprint in the general area.
We continue to believe that Kromek's technology platform has
great potential. With the acquisition of eV Products in 2013,
Kromek gained one of the leading cadmium zinc telluride ("CZT")
production capabilities in the world. As the cost of producing this
material becomes competitive with scintillator technology, the
opportunity exists for a lasting shift to CZT-based detector
systems, bringing the benefits of multispectral imaging to CT
systems and nuclear medicine, for example in SPECT systems. In
August 2015, Kromek completed a follow-on financing with
institutional and other investors, raising approximately GBP11
million (before expenses) through a placing and open offer of new
ordinary shares at 25 pence. During its last fiscal year to April
2016, Kromek announced a number of orders from DARPA and from other
existing customers, totaling approximately US $28 million to be
recognised over the lifetime of the orders. As a result, Kromek is
entering its new fiscal year with a substantial backlog and the
recently announced orders support our view that, in time, the
technology should be widely adopted for use across all of its
target markets, including medical imaging systems. Following the
placing last year, Amphion's shareholding in Kromek decreased to
approximately 5.27%.
In April 2014, the case Axcess brought against Baker & Botts
LLP, the law firm, went to the jury which returned a verdict in
favour of Axcess of US $40.5 million. The judge then overruled this
verdict. Axcess' appeal to the Texas Appeals Court for a new trial
was denied and they are now in the process of pursuing an appeal to
the Texas Supreme Court. Axcess is also appealing the decision by
the US Patent and Trademark Office to invalidate the patent that is
the subject of a suit against Savi Technologies. That appeal is
being made to the Federal Circuit Court of Appeals and will be
heard sometime in the third quarter of 2016. In parallel, Amphion
has worked closely with Axcess' legal advisers to evaluate the
extent to which all 13 patents in its portfolio are being
infringed. It is clear that many companies are now offering
products or services that incorporate some of the basic wireless
technology developed by Axcess over the last 15 years. A number of
companies in the transportation, security, and other sectors appear
to be infringing one or more of these patents.
FireStar has continued to work on the development of its
patented technology, which was also the basis of the formation of
PrivateMarkets and is incorporated in its EdgeNode(TM) product.
PrivateMarkets, an Amphion Partner Company, offers an
internet-based marketplace that links together a network of
potential buyers and sellers who trade specific physical
commodities. EdgeNode enables companies to facilitate low-cost,
secure, machine-to-machine messaging, in a novel architecture,
which is well suited to the needs of the healthcare and financial
industries. The current focus is moving increasingly towards
healthcare and, in particular, the potential productivity gains
that should be possible with use of the technology in managing data
and images so vital to clinical trials. With this change in focus
we may consider the opportunity to reintegrate the trading
applications licensed to PrivateMarkets back into FireStar so that
all the technology rights reside in the same company.
WellGen continues to explore the opportunity to develop a novel
functional beverage based on a patented anti-inflammatory
ingredient. The market for such products has been expanding rapidly
in recent years. The company signed a joint venture and supply
agreement with a US-based sports drink company that has established
distribution channels in the mid-west of the United States, with an
opportunity to expand to other US markets and beyond.
Financing
Financial support for Amphion over the last few years has come,
for the most part, from the Directors and the management team.
Following the Kromek IPO in late 2013, Amphion was able, for the
first time, to access a loan facility in 2014, granted by an
institutional lender, using the value of the publicly traded assets
as security for a loan to bridge the Company financially through to
the IPO of Motif. That approach served the Company well. Since
then, the Company has borrowed additional funds under this loan
facility and, during 2015, Amphion was able, for the first time in
many years, to access the equity capital markets again on two
occasions in April and June 2015, raising a total of GBP2,119,683.
The support from the management team has continued but with reduced
prominence.
The liabilities on the balance sheet stood at a total of
approximately US $29 million at the end of the year, about a
reduction of approximately US $1.4 million from one year earlier.
Total assets at the end of 2015 stood at approximately US $40
million and the ratio of liabilities to total assets at the end of
2015 was therefore approximately 72%. While this appears to be a
high level of gearing, some of the liabilities are at the DataTern
level, although consolidated into the Company's reporting accounts.
Adjusting for the settlement made with BRG (announced in April),
the remainder of the third party payables at the DataTern level
stood at about US $1 million. Of the remainder of the liabilities,
US $13,912,283 were amounts owing to current or former board
members and US $6,845,347 were amounts due to the other holders of
the Company's CPN, which was extended in February. The remainder of
the Company's liabilities total approximately US $7.2 million
representing 18% of total assets. The management team has worked
closely with the main holders of notes and other claims on the
Company in order to extend the maturity of these obligations to the
maximum extent possible.
On 5 January 2016 the Company announced that it agreed, in
principle, to replace the US $3,308,600 of Notes payable to R.
James Macaleer, the former Chairman of the Company, and the US
$3,000,000 of Notes payable to the RJM Amphion Trust, a trust set
up for the benefit of Mr. Macaleer's children, with the issue of
new promissory notes that are now due to mature on 31 December 2016
("New Promissory Notes"), if not extended further. The rate of
interest on the new notes will remain unchanged at 7%. The new
notes also contain certain provisions for early repayment. However,
in no case will any payment be made on the new notes until the
amounts outstanding under the Company's existing loan facility are
fully repaid. The final payment under the existing facility has
recently been extended to 1 February 2017, and therefore it is
expected that the Company will attempt to extend the maturity date
of the New Promissory Notes beyond 1 February 2017.
In addition, on 2 March 2016 the Company announced that at a
meeting on 26 February 2016, the holders of GBP5,707,738
Convertible Promissory Notes previously due on 31 December 2015
(the "Notes", and the "Note Holders") unanimously agreed to amend
the terms of the Notes, which will now be redeemed on 31 December
2017 (subject to certain early partial redemption options) unless
previously converted. The Notes will be convertible into fully paid
Ordinary Shares at 8 pence per Ordinary Share and will pay interest
at 7% if the respective Noteholder elects to be paid in Ordinary
Shares, or will pay interest at 5% if the respective Noteholder
elects to be paid in cash or additional Notes, until conversion or
redemption. In addition, for every GBP1 of Note held, the
respective Noteholder will be issued two warrants. Each warrant
granted will entitle the holder to subscribe for Shares at 10 pence
per Ordinary Share.
A Tribute to Jim Macaleer
We want to take this opportunity to express our lasting
gratitude for the support and guidance given over many years by the
Company's former Chairman, Mr. James Macaleer, who passed away in
October 2015. Not only did Jim have an illustrious career in
starting and building Shared Medical Systems into a multi-billion
dollar enterprise (acquired in 2000 by Siemens) but he was also an
important contributor to the success of Vortech Inc, one of
Amphion's earlier medical imaging companies (sold to Kodak in 1994
for about US $130 million). Jim later became an investor in Amphion
and then an active member of our Board. We could not have survived
the difficult period during and following the inertia of the
capital markets in 2008 without his continued support. We miss his
wise counsel almost as much as his signature Hawaiian shirts.
Prospects for 2016 and Beyond
The success of the Motif IPO and the subsequent increase in the
value of our shareholding has been the driver behind the increase
in our Net Asset Value. It has also demonstrated the value of our
patient and persistent approach to the development of our Partner
Companies. Despite the sharp increase in Motif's share price since
the IPO, we believe that it should be valued more in-line with
comparable companies trading on NASDAQ and that our holding could
be worth considerably more than the level shown on the balance
sheet at the year end. We continue to work closely with Motif to
develop the business and close the valuation gap. We believe Motif
has a very bright future and we are committed to helping the
company to become a major player in the antibiotic
biopharmaceutical world.
The Board and management have supported Amphion through several
lean years but the fact that we have been able to raise fresh
equity capital is an encouraging development. While our stated goal
is to reduce the level of gearing or leverage on our balance sheet,
we are committed to doing so in ways that preserve the shareholder
value we have managed to create through this support. Between July
2015 and February 2016 the main biotech indexes (such as the NASDAQ
Biotechnology Index) fell by about 40%. Most publicly traded
biopharma companies fell along with the sector as a whole and Motif
was no exception. The weighting of Amphion's shareholding in Motif
relative to the total assets of the Company currently causes
Amphion's share price to be correlated to the Motif share price. As
a result of the fall in the price of both Motif's and Amphion's
shares in the second half of 2015 and in early 2016 as valuations
in the sector were pressured, we decided the best course to raise
more capital for Amphion in the short-term was to increase further
the use of our loan facility, rather than attempt to approach the
equity market on a further occasion. The additional loans are quite
small in relation to the total value of our marketable assets and
we believe this form of financing makes the most sense for our
shareholders for the time being.
The outlook for Amphion depends increasingly on the value we can
capture from our holdings in Motif, Kromek and, if we can move it
forward successfully, m2m. We are very actively supporting the
development of both Motif and m2m and view the future of all three
companies with optimism. In addition, we continue to support
DataTern's IP licensing programme and the recent successes in court
reinforce our belief that we should see a good outcome from this
programme in the next year or two. As we look to the future beyond
the horizon for these particular programmes, we will begin to
consider how best to build on the platform we have created and
maintained, in order to capitalise on our experience and knowledge
in supporting emerging life science companies.
Richard C.E. Morgan
Chief Executive Officer
Amphion Innovations plc
Consolidated statement of
comprehensive income
For the year ended 31
December 2015
Notes
Year ended Year ended
31 December 31 December
2015 2014
---------------------- -------------------------
Continuing operations US $ US $
Revenue 4 519,855 484,700
Cost of sales - -
Gross profit 519,855 484,700
Administrative expenses (4,680,212) (3,494,351)
Operating loss (4,160,357) (3,009,651)
Fair value gains/(losses)
on investments 15 8,512,215 (9,927,978)
Realised gains on sale
of investment 15 1,595,429 -
Interest income 8 678,824 849,384
Other gains and losses 505,015 675,265
Finance costs 9 (1,187,427) (1,176,299)
Profit/(loss) before
tax 6 5,943,699 (12,589,279)
Tax on profit/(loss) 10 (1,900) (442)
Profit/(loss) for the
year 5,941,799 (12,589,721)
---------------------- -------------------------
Other comprehensive income
Exchange differences
arising on translation
of foreign operations - 18
Other comprehensive income
for the year - 18
---------------------- -------------------------
Total comprehensive income/(loss)
for the year 5,941,799 (12,589,703)
====================== =========================
The Directors consider that all results
derive from continuing activities.
Profit/(loss) per share 11
Basic US $ 0.03 US $ (0.09)
====================== =========================
Diluted US $ 0.02 US $ (0.09)
====================== =========================
The notes are an integral
part of these financial statements.
Amphion Innovations plc
Company statement of
comprehensive
income
For the year ended 31
December 2015
Year ended Year ended
31 December 31 December
Notes 2015 2014
------------------------------- ----------------------------------
US $ US $
Continuing operations
Administrative expenses (2,068,530) (1,121,478)
Operating loss (2,068,530) (1,121,478)
Fair value gains/(losses)
on investments 15 5,654,608 (9,951,615)
Realised gain on sale
of investments 15 1,595,429 -
Impairment of subsidiary
investment 114,540 (156,295)
Interest income 8 557,123 805,049
Other gains and losses 505,015 665,248
Finance costs 9 (1,138,455) (1,121,244)
Profit/(loss) before
tax 6 5,219,730 (10,880,335)
Tax on profit/(loss) 10 - -
Profit/(loss) for the
year 5,219,730 (10,880,335)
------------------------------- ----------------------------------
Other comprehensive income
for the year - -
Total comprehensive
income/(loss)
for the year 5,219,730 (10,880,335)
=============================== ==================================
The Directors consider that all results
derive from continuing activities.
The notes are an integral
part of these financial statements.
Amphion Innovations
plc
Consolidated statement
of financial position
At 31 December 2015
31 December 31 December
Notes 2015 2014
---------------------- ----------------------
US $ US $
Non-current assets
Intangible assets 12 275,016 430,100
Property, plant, and
equipment 13 - -
Security deposit 16 22,008 13,600
Investments 15 37,444,316 28,767,659
37,741,340 29,211,359
---------------------- ----------------------
Current assets
Prepaid expenses and
other receivables 16 1,206,843 2,569,380
Cash and cash equivalents 16 936,981 212,816
2,143,824 2,782,196
---------------------- ----------------------
Total assets 39,885,164 31,993,555
====================== ======================
Current liabilities
16,
Trade and other payables 17 10,346,011 10,270,584
16,
Notes payable 18 10,334,901 8,964,901
Convertible promissory 16,
notes 18 8,312,180 10,189,891
28,993,092 29,425,376
---------------------- ----------------------
Non-current liabilities
16,
Notes payable 18 - 982,000
- 982,000
---------------------- ----------------------
Total liabilities 28,993,092 30,407,376
====================== ======================
Net assets 10,892,072 1,586,179
====================== ======================
Equity
Share capital 19 3,460,880 2,716,656
Share premium account 38,667,074 36,070,864
Translation reserve - -
Retained earnings (31,235,882) (37,201,341)
Total equity 10,892,072 1,586,179
====================== ======================
The financial statements were approved by the Board
of Directors and authorised for issue on
23 June 2016. They were signed
on its behalf by:
Director Director
Richard C.E. Morgan Robert J. Bertoldi
The notes are an integral
part of these financial statements.
Amphion Innovations plc
Company statement of
financial position
At 31 December 2015
31 December 31 December
Notes 2015 2014
------------------------- ------------------------
US $ US $
Non-current assets
Security deposit - -
Investments 15 31,839,324 26,063,106
Investment in subsidiaries 14 641,984 527,444
32,481,308 26,590,550
------------------------- ------------------------
Current assets
Prepaid expenses and
other receivables 16 6,099,021 5,365,760
Cash and cash equivalents 16 883,074 192,807
6,982,095 5,558,567
------------------------- ------------------------
Total assets 39,463,403 32,149,117
========================= ========================
Current liabilities
16,
Trade and other payables 17 3,491,093 3,307,920
16,
Notes payable 18 9,389,901 8,964,901
Convertible promissory 16,
notes 18 8,312,180 10,189,891
21,193,174 22,462,712
------------------------- ------------------------
Total liabilities 21,193,174 22,462,712
========================= ========================
Net assets 18,270,229 9,686,405
========================= ========================
Equity
Share capital 19 3,460,880 2,716,656
Share premium account 38,667,074 36,070,864
Retained earnings (23,857,725) (29,101,115)
Total equity 18,270,229 9,686,405
========================= ========================
The financial statements were approved
by the Board of Directors and authorised
for issue on 23 June 2016. They were
signed on its behalf by:
Director Director
Robert J.
Richard C.E. Morgan Bertoldi
The notes are an integral
part of these financial statements.
Amphion
Innovations
plc
Consolidated statement of
changes in equity
For the year ended
31 December 2015
Share
Share premium Translation Retained
Notes capital account reserve earnings Total
------------ -------------- ------------------- ---------------- ----------------
US $ US $ US $ US $ US $
Balance at 31
December
2013 2,693,319 36,042,868 (13,396) (24,645,286) 14,077,505
Loss for the
year - - - (12,589,721) (12,589,721)
Other comprehensive
income for the year - - 18 - 18
------------
Total
comprehensive
loss for the
year - - 18 (12,589,721) (12,589,703)
------------ -------------- ------------------- ---------------- ----------------
Issue of share
capital 19 23,337 27,996 - - 51,333
Recognition of
share-based
payments 21 - - - 47,044 47,044
Dissolution of
subsidiary - - 13,378 (13,378) -
Balance at 31
December
2014 2,716,656 36,070,864 - (37,201,341) 1,586,179
Profit for the
year - - - 5,941,799 5,941,799
Other comprehensive
income for the year - - - - -
------------
Total comprehensive
income for the year - - - 5,941,799 5,941,799
------------ -------------- ------------------- ---------------- ----------------
Issue of share
capital 19 744,224 2,596,210 - - 3,340,434
Recognition of
share-based
payments 21 - - - 23,660 23,660
Balance at 31
December
2015 3,460,880 38,667,074 - (31,235,882) 10,892,072
============ ============== =================== ================ ================
Amphion Innovations
plc
Company statement of
changes in equity
For the year ended 31
December 2015
Share
Share premium Retained
Notes capital account earnings Total
------------ --------------- -------------- --------------
US $ US $ US $ US $
Balance at 31 December
2013 2,693,319 36,042,868 (18,267,824) 20,468,363
Loss for the year - - (10,880,335) (10,880,335)
Total comprehensive
loss for the year - - (10,880,335) (10,880,335)
------------ --------------- -------------- --------------
Issue of share capital 19 23,337 27,996 - 51,333
Recognition of share-based
payments 21 - - 47,044 47,044
Balance at 31 December
2014 2,716,656 36,070,864 (29,101,115) 9,686,405
Profit for the year - - 5,219,730 5,219,730
Total comprehensive income
for the year - - 5,219,730 5,219,730
------------ --------------- -------------- --------------
Issue of share capital 19 744,224 2,596,210 - 3,340,434
Recognition of share-based
payments 21 - - 23,660 23,660
Balance at 31 December
2015 3,460,880 38,667,074 (23,857,725) 18,270,229
============ =============== ============== ==============
Amphion Innovations plc
Consolidated cash flow statement
For the year ended 31 December
2015
Year ended Year ended
31 December 31 December
Notes 2015 2014
-------------------------------- --------------------------------
US $ US $
Operating activities
Profit/(loss) 5,941,799 (12,589,721)
Adjustments for:
Depreciation of property,
plant, and equipment 13 - 308
Amortisation of intangible
assets 12 155,084 155,084
Recognition of share-based
payments 98,881 98,377
Increase in security deposit (8,408) -
Decrease in prepaid and
other receivables 1,362,537 1,084,816
Increase in trade and other
payables 75,427 859,021
Receivables reclassified
to investments 15 (432,420) (2,663,291)
Change in fair value of
investments (8,512,215) 9,927,978
Gain on sale of investments (1,595,429) -
Transfer of assets to settle
interest expense 89,480 -
Net cash used in operating
activities (2,825,264) (3,127,428)
-------------------------------- --------------------------------
Investing activities
Purchases of investments 15 (402,015) (286,259)
Net cash used in investing
activities (402,015) (286,259)
-------------------------------- --------------------------------
Financing activities
Proceeds on issue of shares,
net of costs 3,265,213 -
Proceeds on issue of promissory
notes 18 3,300,000 3,081,301
Proceeds on issue of convertible
promissory notes 18 - 646,220
Repayments of promissory
notes 18 (2,609,167) (455,000)
Net cash from financing
activities 3,956,046 3,272,521
-------------------------------- --------------------------------
Net increase/(decrease)
in cash and cash equivalents 728,767 (141,166)
Cash and cash equivalents
at the beginning of the
year 212,816 353,964
Effect of foreign exchange
rate changes (4,602) 18
Cash and cash equivalents
at the end of the year 936,981 212,816
================================ ================================
Interest received 43 42
================================ ================================
Interest paid 245,079 15,521
================================ ================================
Amphion Innovations plc
Company cash flow statement
For the year ended 31 December
2015
Year ended Year ended
31 December 31 December
Notes 2015 2014
------------------------------- ----------------------------------
Operating activities US $ US $
Profit/(loss) 5,219,730 (10,880,335)
Adjustments for:
Recognition of share-based
payments 98,881 98,377
Receivables reclassed to
investments 15 (389,587) (1,513,743)
Increase in prepaid and
other receivables (733,261) (549,828)
Increase/(decrease) in trade
and other payables 183,172 (418,967)
Change in fair value of
investments (5,654,608) 9,951,615
Gain on sale of investments (1,595,429) -
(Reversal of) impairment
of subsidiary investment (114,540) 156,295
Transfer of assets to settle
interest expense 89,480 -
Net cash used in operating
activities (2,896,162) (3,156,586)
------------------------------- ----------------------------------
Investing activities
Purchases of investments 15 (402,015) (286,259)
Net cash used in investing
activities (402,015) (286,259)
------------------------------- ----------------------------------
Financing activities
Proceeds on issue of shares,
net of costs 3,265,213 -
Proceeds on issue of promissory
notes 18 3,300,000 3,081,301
Proceeds on issue of convertible
promissory notes 18 - 646,220
Repayments of promissory
notes 18 (2,572,167) (425,000)
Net cash from financing activities 3,993,046 3,302,521
------------------------------- ----------------------------------
Net increase/(decrease) in
cash and cash equivalents 694,869 (140,324)
Cash and cash equivalents
at the beginning of the year 192,807 333,131
Effect of foreign exchange
rate changes (4,602) -
Cash and cash equivalents
at the end of the year 883,074 192,807
=============================== ==================================
Interest received 43 42
=============================== ==================================
Interest paid 244,414 15,521
=============================== ==================================
Amphion Innovations plc
Notes to the consolidated financial statements
For the year ended 31 December 2015
1. General information
Amphion Innovations plc (the "Company") is a public limited
company incorporated in the Isle of Man under the Companies Act
2006 with registered number 011472V on 29 August 2014 (formerly
registered under the Companies Acts 1931 to 2004 on 7 June 2005
with registered number 113646C). The address of the registered
office is Fort Anne, Douglas, Isle of Man, IM1 5PD. The principal
place of business is 125 Park Avenue, 25th Floor, New York, NY,
10017, USA. The principal activity of the Company and its
subsidiaries (the "Group") is to build shareholder value in high
growth companies in the medical and technology sectors, by using a
focused, hands-on company building approach, based on decades of
experience in both the US and UK.
The consolidated financial statements include the accounts of
Amphion Innovations plc and its three wholly owned subsidiaries,
Amphion Innovations US Inc. and DataTern, Inc., which are
incorporated in the United States, and MSA Holding Company which is
incorporated in the Kingdom of Bahrain. Amphion Innovations UK Ltd.
was dissolved on 8 July 2014.
These financial statements are presented in US dollars because
that is the currency of the primary economic environment in which
the Company operates.
Going concern
The Group's business activities, together with factors likely to
affect its future development, performance, and financial position
and commentary on the Group's financial results, its cash flows,
and liquidity requirements are set out in the CEO's Statement on
pages 2-7 and elsewhere within the financial statements. In
addition, note 16 to the financial statements includes the Group's
objectives, policies, and processes for managing its capital, its
financial risk management objectives, details of its financial
instruments, and its exposures to liquidity risk and credit
risk.
These financial statements have been prepared on the basis that
the Group is a going concern. Although the Group made an operating
loss and is in a net current liability position, it is forecasting
future positive cash flows.
The Directors have prepared cash flow forecasts extending at
least 12 months from the date of approval of these financial
statements, which include certain key assumptions about the ability
of the Group to continue to generate revenue from the realisation
of the Group's investment in Partner Companies and the ability to
raise external debt and equity financing.
The Directors are also of the view that other viable options to
allow the Group to continue as a going concern include the
reduction in its financial support to Partner Companies in the
short-term, although this may have an impact on the ability of the
Partner Companies to develop their businesses and raise additional
financing, the reduction in its working capital requirements, the
more aggressive realisation of the Group's investments in Partner
Companies, or from the licensing or sale of its intellectual
property.
However, certain conditions exist which indicate the existence
of a material uncertainty. These conditions and the Directors'
considerations in respect of these matters are discussed below:
-- In prior years, the Group has been able to meet its
obligations through fund raising (including the issue of shares and
convertible promissory notes ("CPNs")), from revenue generated
through the provision of advisory services to its Partner
Companies, and from the revenue generated from the licensing of
intellectual property. During 2015 and 2014 as a result of a lack
of cash being generated from these activities, the Group has had to
reduce its financial support to its Partner Companies and extend
the payment dates for its trade payables and its convertible
promissory notes. The Group has also reduced its operating costs
where possible, including salary and fee reductions for employees
and directors, and has obtained financial support from various
related parties, through the issue of promissory notes and
short-term loans (see note 23 for further detail). The Group will
continue to implement these measures and seek further financing as
required. In that regard in June 2014, the Group entered into a US
loan facility which is secured by 7,774,678 ordinary shares of
Kromek Group plc. The securities will be released upon repayment of
the loan (see note 18 for further details). This facility was
further extended in April 2016 to include Motif Bio plc shares as
security. The progress of certain of the Partner Companies has, as
a result of reduced financial support from the Group and current
economic conditions, been adversely impacted, resulting in a
reduction in their valuations for Level 3 investments (see note 15
for further detail). Relations with significant trade suppliers
have also been strained during the year. Should the Group fail to
generate
sufficient cash to support its Partner Companies and to pay
trade payables on a timely basis, the Group may see additional
adverse effects on its Partner Companies and their valuations and
in its relationship with its vendors.
1. General information, (continued)
-- As at 31 December 2015 the Group has US $18,647,081 (2014: US
$20,136,792) in notes payable including US $8,312,180 (2014: US
$10,189,891) of convertible promissory notes ("CPNs") that are due
to mature on 28 February 2016 (extended to 31 December 2017 in
February 2016) and US $3,000,000 from a loan facility payable in
monthly installments from 1 March 2016 to 1 November 2016.
-- The timing and ability of the Group to realise its
investments in Partner Companies is subject to inherent uncertainty
due to numerous factors including, but not limited to: the
liquidity of the investment; market conditions being favourable for
realisation whether through a listing or otherwise; potential for
restrictions being imposed that may limit full realisation of
investments sold; such as lock-in periods; and other factors that
are outside the control of the Group. The Group will realise
investments where the terms of any potential arrangement are
favourable to the Group.
-- In December 2012, Berkeley Research Group, LLC ("BRG"), an
expert consultant engaged by DataTern filed for arbitration
claiming US $1,142,478 was owed to them. DataTern opposed the
arbitration and vigorously contested the amount owed. In January
2015, the arbitrator found in favor of BRG and awarded them an
amount totaling US $2,090,865 for the balance due and legal costs.
DataTern contested the award and filed a lawsuit seeking to
overturn the award. In March 2016, the Company reached a settlement
with BRG for US $1,575,000. The payment terms are US $100,000 paid
upon signing the settlement agreement, and further payments of US
$400,000 on 30 April 2016, US $500,000 on 30 June 2016 and US
$575,000 on 31 December 2016. Should Amphion fail to make a
payment, the full amount of the judgement, US $2,236,286.49, will
be due less any amounts paid. As a consequence of this settlement,
the liability has been transferred from DataTern Inc. to Amphion
Innovations plc.
-- One of the Group's wholly owned subsidiary companies,
DataTern Inc., ("DataTern") was subject to lawsuits which were
brought by Microsoft Corporation ("Microsoft") and SAP AG, and SAP
America, Inc. ("SAP") in April 2011. In December 2012, a summary
judgment was entered in the lawsuits under which it was ruled that
Microsoft and SAP do not infringe on the DataTern patents. DataTern
and its legal team, supported by their extensive team of technical
and patent experts, strongly refuted the basis for the summary
judgment and filed an appeal. In April 2014, DataTern received a
broadly favourable decision on the appeal ending the cases brought
by Microsoft and SAP. The Group believes that the appeal ruling
will allow DataTern to continue to try to reach equitable licensing
agreements with the many companies that are infringing its patents.
The Group is looking for litigation financing to continue to pursue
the cases.
These conditions indicate the existence of a material
uncertainty which may cast significant doubt on the Group's ability
to continue as a going concern and therefore it may be unable to
realise its assets and discharge its liabilities in the normal
course of business. These financial statements do not include any
adjustments that would result from the going concern basis of
preparation being inappropriate.
However, after making enquiries, and considering the
uncertainties described above, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. For these reasons
they continue to adopt the going concern basis in preparing the
annual report and financial statements.
2. Significant accounting policies
The financial statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the EU
("IFRSs") as issued by the International Accounting Standards Board
("IASB"), interpretations issued by the International Financial
Reporting Committee of the IASB and applicable legal and regulating
requirements of Isle of Man law and the AIM rules of the London
Stock Exchange.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in these
financial statements.
Adoption of new and revised Standards
The Group has adopted the following new standards and amendments
to standards with a date of initial application of 1 January
2015:
2. Significant accounting policies, (continued)
-- Annual Improvements to IFRSs - 2010-2012 Cycle and 2011-2013 Cycle
The Group also elected to adopt the following two amendments
early:
-- Annual Improvements to IFRSs 2012-2014 Cycle, and
-- Disclosure Initiative: Amendments to IAS 1.
As these amendments merely clarify the existing requirements,
they do not affect the Group's accounting policies or any of the
disclosures.
Standards and interpretations issued but not yet effective
A number of new standards and amendments to standards are
effective for annual periods beginning after 1 January 2015 and
earlier application is permitted; however, the Group and Parent
Company has not early applied the following new or amended
standards in preparing these financial statements. The new
standards potentially relevant to the Group and Parent Company are
discussed below. The Group and Parent Company do not plan to adopt
these standards early.
New or Summary of the requirements Possible impact
amended on financial
standards statements
------------- ------------------------------ -----------------------
IFRS 9 IFRS 9, published in Based on the
Financial July 2014 and expected initial assessment,
Instruments to be adopted by the this standard
EU in H1 2016, replaces is not expected
the existing guidance to have a material
in IAS 39 Financial impact on the
Instruments: Recognition Group or Parent
and Measurement. IFRS Company. This
9 includes revised guidance is because financial
on the classification instruments currently
and measurement of financial measured at FVTPL
instruments, a new expected will continue
credit loss model for to be measured
calculating impairment at FVTPL under
on financial assets, IFRS 9 and those
and new general hedge currently measure
accounting requirements. at amortised
It also carries forward cost will continue
the guidance on recognition to be measured
and recognition of financial at amortised
instruments from IAS cost under IFRS
39. 9.
IFRS 9 is effective
for annual reporting
periods beginning on
or after 1 January 2018,
with early adoption
permitted.
------------- ------------------------------ -----------------------
The financial statements have been prepared on the historical
cost basis, except for financial instruments classified as fair
value through profit and loss. The principal accounting policies
adopted are set out below.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries). Control is achieved where the Company is
exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through
its power over the entity.
The results of subsidiaries acquired during the year are
included in the consolidated statement of comprehensive income from
the effective date of acquisition or up to the effective date of
disposal.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies used
into line with those used by the Group.
All intra-group transactions, balances, income, and expenses are
eliminated on consolidation.
Cash and cash equivalents
Cash and cash equivalents include balances with banks and demand
deposits, which have maturities of less than three months.
2. Significant accounting policies, (continued)
Investments in subsidiaries
Investments in subsidiaries are stated at cost less provisions
for impairment where appropriate.
Financial instruments
The Group designates its assets and liabilities into the
categories below.
(i) Financial assets and liabilities designated at fair value
through profit or loss at inception: These include equity,
warrants, options, and convertible promissory notes held in Partner
Companies. These are financial instruments that are not classified
as held for trading but are managed, and their performance is
evaluated on a fair value basis in accordance with the Group's
documented investment strategy. These investments have been
designated at fair value through profit or loss and accounted for
in accordance with IAS 39 Financial Instruments: Recognition and
Measurement, therefore IAS 28, Investments in Associates and Joint
Ventures, has not been applied by the Group to the investments that
it holds in associates.
-- Recognition
All regular way purchases and sales of financial instruments are
recognised on the trade date, which is the date that the Group
commits to purchase the asset. Regular way purchases or sales are
purchases or sales of financial instruments that require delivery
of assets within the period generally established by regulation or
convention in the market place. Realised gains and losses on
disposals of financial instruments are calculated using the
first-in-first-out ("FIFO") method.
-- Initial measurement
Financial instruments categorised at fair value through profit
or loss, are recognised initially at fair value, with transaction
costs for such instruments being recognised directly in the
Statement of Comprehensive Income.
-- Subsequent measurement
"Fair value" is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date in the
principal or, in its absence, the most advantageous market to which
the Group has access at that date. The fair value of a liability
reflects its non-performance risk.
When available, the Group measures the fair value of an
instrument using the quoted price in an active market for that
instrument. A market is regarded as "active" if transactions for
the asset or liability take place with sufficient frequency and
volume to provide pricing information on an ongoing basis. The
Group measures instruments quoted in an active market at a
mid-price.
If there is no quoted price in an active market, then the Group
uses valuation techniques that maximise the use of relevant
observable inputs and minimise the use of unobservable inputs. The
chosen valuation technique incorporates all of the factors that
market participants would take into account in pricing a
transaction.
The Group recognises transfers between levels of the fair value
hierarchy as at the end of the reporting period during which the
change has occurred.
The fair value of unlisted securities is established using
valuation techniques. Whenever possible the Group uses valuation
techniques which make maximum use of market-based inputs.
Accordingly, the valuation methodologies and principals used most
commonly by the Group are those contained in the International
Private Equity and Venture Capital Valuation Guidelines (the
"IPEVCV Guidelines") endorsed by the British & European Venture
Capital Associations.
Assets and long positions are measured at a bid price;
liabilities and securities sold short are measured at an asking
price.
Given the nature of the Group's investments in seed, start-up,
and early-stage companies where there are often no current and no
short-term future earnings or positive cash flows it can be
difficult to gauge the probability and financial impact of the
success or failure of development or research activities and to
make reliable cash flow forecasts. Consequently, the most
appropriate approach to determine fair value is a methodology that
is based on market data, that being the price of a
2. Significant accounting policies, (continued)
Financial instruments, (continued)
recent investment. Where the Group considers that the price of
recent investment, unadjusted, is no longer relevant, and there are
limited or no comparable companies or transactions from which to
infer value, the Group carries out an enhanced assessment taking
into consideration the key market drivers of the investee company
and the overall economic environment.
Where the Group considers that there is an indication that the
fair value has changed, an estimation is made of the required
amount of any adjustment from the last price of recent investment.
Wherever possible, this adjustment is based on objective data from
the investee company and the experience and judgment of the Group;
however, any adjustment is, by its very nature, subjective. Where a
deterioration in value has occurred, the Group reduces the carrying
value of the investment; however, in the absence of additional
financing rounds or profit generation it can be difficult to
determine the value that a purchaser may place on positive
developments given the potential outcome and the costs and risks to
achieving that outcome and accordingly caution is applied.
Factors that the Group considers include, inter alia, technical
measures such as product development phases and patent approvals,
financial measures such as cash burn rate and profitability
expectations, and market and sales measures such as testing phases,
product launches and, market introduction.
-- De-recognition
The Group de-recognises a financial asset when the contractual
rights to the cash flows from the financial asset expire or it
transfers the financial asset and the transfer qualifies for
de-recognition in accordance with IAS 39. The Group de-recognises a
financial liability when the obligation specified in the contract
is discharged, cancelled, or expired.
Impairment of financial assets
Financial assets, other than those classified as at fair value
through profit and loss, are assessed for indicators of impairment
at each balance sheet date. Financial assets are impaired where
there is objective evidence that, as a result of one or more events
that occurred after the initial recognition of the financial asset,
the estimated future cash flows of the investment have been
impacted.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangement entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting all of
its liabilities. Financial liabilities are derecognised when its
contractual obligations are discharged or cancelled, or expire.
Non-derivative financial liabilities are initially recognised at
fair value less any directly attributable transaction costs.
Subsequent to initial recognition, these liabilities are measured
at amortised cost using the effective interest method.
Compound financial instruments are required by IAS 32 Financial
Instruments: Presentation, to be separated into their liability and
equity components upon initial recognition. To meet the definition
of equity, the contract must be settled by a fixed amount of cash
in exchange for a fixed amount of equity instruments. Where the
Company issues convertible promissory notes ("CPNs") in a currency
other than its functional currency, a fixed number of shares will
be delivered in exchange for a variable amount of cash, therefore
the definition of equity is not met. Consequently, the CPNs are
classified wholly as liabilities at fair value through the
statement of comprehensive income. Where warrants are issued with
CPNs, they are accounted for as part of the same financial
instrument as the CPNs in accordance with IAS 39: Financial
instruments - Recognition and Measurement, since they were entered
into at the same time and in contemplation of each other, they have
the same counterparty, they relate to the same risk and are
non-transferable.
Prepaid expenses and other receivables
Prepaid expenses and other receivables are stated at their
amortised cost which approximates their fair value. Other
receivables are reduced by appropriate allowances for estimated
irrecoverable amounts and do not carry any interest.
Trade and other payables
Trade and other payables are not interest bearing and are stated
at amortised cost which approximates their fair value.
2. Significant accounting policies, (continued)
Equity instruments
Equity instruments issued by the Group are recorded at the
proceeds received, net of direct issue costs.
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based
payments.
The Group issues equity-settled share-based payments to certain
employees and consultants. Equity-settled share-based payments are
measured at fair value at the date of grant. The fair value
determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting
period, based on the Group's estimate of the shares that will
eventually vest. The fair value of equity-settled share-based
payments attributable to the issue of equity instruments is charged
against equity.
Fair value is measured using the Black-Scholes pricing model.
The expected life used in the model has been adjusted based on
management's best estimate for effects of non-transferability,
exercise restrictions, and behavioral considerations.
Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to continue as going concerns while maximising
the return to stakeholders through the optimisation of the debt and
equity balance. The capital structure of the Group consists of cash
and cash equivalents and equity attributable to equity holders of
the parent, comprising issued capital, reserves, and retained
earnings.
Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for, and
services provided, in the normal course of business, net of VAT and
other sales related taxes.
Revenue from license agreements is recognised in accordance with
the substance of the agreement and when it is probable that the
economic benefits associated with the transaction will flow to the
Group and the amount of the revenue can be measured reliably.
Where assignment of rights for a fixed fee under a
non-cancellable contract permits the licensee to exploit those
rights freely and the licensor has no remaining obligations to
perform, the revenue is recognised at the time of sale.
Where a license fee is contingent on the occurrence of a future
event, the revenue is only recognised when it is probable that the
fee will be received.
Cost of sales
Revenue related costs only include the direct fees paid for
strategic advisory services for licensing and enforcing various
patents.
Interest income
Interest income is recognised on an accruals basis.
Dividend income
Dividend income from investments is recognised when the
shareholders' right to receive payment has been established.
Leasing
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases.
2. Significant accounting policies, (continued)
Foreign currencies
The individual financial statements of each company in the Group
are presented in the currency of the primary economic environment
in which it operates (its functional currency). For the purpose of
the consolidated financial statements, the results and financial
position of each company in the Group are expressed in US dollars,
which is the functional currency of the Company, and the
presentation currency for the consolidated financial
statements.
Transactions in currencies other than US dollars are recorded at
the rates of exchange prevailing on the dates of the transactions.
At each statement of financial position date, monetary assets and
liabilities that are denominated in foreign currencies are
retranslated at the rates prevailing on the balance sheet date.
Non-monetary assets and liabilities carried at fair value that are
denominated in foreign currencies are translated at the rates
prevailing at the date when the fair value was determined.
Gains and losses arising on retranslation are included in net
profit or loss for the year, except for exchange differences
arising on non-monetary assets and liabilities where the changes in
fair value are recognised directly in equity.
On consolidation, the assets and liabilities of the Group's
overseas operations are translated at exchange rates prevailing on
the statement of financial position date. Income and expense items
are translated at the average exchange rates for the period unless
exchange rates fluctuate significantly in which case they are
translated at the rate on the date of the transaction. Exchange
differences arising, if any, are recognised in the statement of
comprehensive income and are transferred to the Group's translation
reserve.
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are
charged as an expense as they fall due.
Taxation
Income tax expense represents the sum of the tax currently
payable and deferred tax.
The tax currently payable is based on taxable profit for the
period. Taxable profit differs from net profit as reported in the
statement of comprehensive income because it excludes items of
income or expenditure that are taxable or deductible in other years
and it further excludes items that are never taxable or deductible.
The Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted at the balance
sheet date.
Deferred taxation is the tax expected to be payable or
recoverable on differences between the carrying amount of assets
and liabilities in the financial statements and the corresponding
tax basis used in the computation of taxable profit.
Deferred tax is calculated at the tax rates that are expected to
apply to the period when the liability is settled or the asset
realised.
Property, plant, and equipment
Property, plant, and equipment are stated at cost less
accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost or valuation
of assets over their estimated useful lives of 3-5 years, using the
straight-line method.
Intangible assets
Intangible assets comprise patents and other intellectual
property with finite useful lives and are measured initially at
purchase cost and are amortised on a straight-line basis over their
estimated useful lives of 5-10 years.
Impairment of tangible and intangible assets
At each statement of financial position date, the Group reviews
the carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the
2. Significant accounting policies, (continued)
Impairment of tangible and intangible assets, (continued)
recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where the
asset does not generate cash flows that are independent from other
assets, the Group estimates the recoverable amount of the
cash-generating unit to which the asset belongs. An intangible
asset with an indefinite useful life is tested for impairment
annually and an intangible asset which is amortised is tested for
impairment only when there is an indication that the asset may be
impaired.
3. Key sources of estimation uncertainty
The preparation of the Group's financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, and contingencies at the
date of the Group's financial statements, and revenue and expenses
during the reporting period. Actual results could differ from those
estimated. Significant estimates in the Group's financial
statements include the amounts recorded for the fair value of the
financial instruments and other receivables. By their nature, these
estimates and assumptions are subject to an inherent measurement of
uncertainty and the effect on the Group's financial statements of
changes in estimates in future periods could be significant.
Investments that are fair valued through profit or loss, as
detailed in note 15, are all considered to be 'Partner Companies'.
Those 'Partner Companies' categorised as Level 3 are defined as
investments in 'Private Companies'.
Fair value of financial instruments
As described in note 2, the Directors use their judgment in
selecting an appropriate valuation technique for financial
instruments not quoted in an active market ("Private Investments").
The estimation of fair value of these Private Investments includes
a number of assumptions which are not supported by observable
market inputs. The carrying amount of the Private Investments is US
$5.8 million (2014: US $22.1 million) in the Group and US $5.8
million (2014: US $19.4 million) in the Company.
Fair value of other receivables
The valuation of the Private Investments and other receivables
from Partner Companies at 31 December 2015 assumes that the Partner
Companies continue to receive ongoing funding in accordance with
their 2016/2017 forecasts. If this funding is not received, this
would have an adverse impact on the valuation of the investments
and the ability of the Partner Companies to settle their debts,
which in turn would impact the valuation of other receivables.
4. Revenue
An analysis of the Group's and Company's revenue for the period
is as follows:
Group Company Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2015 2015 2014 2014
------------ ------------ ------------ ------------
US $ US $ US $ US $
Continuing
operations
Advisory
fees 459,904 - 480,000 -
License fees 59,951 - 4,700 -
Fee income 519,855 - 484,700 -
============ ============ ============ ============
A provision for doubtful accounts has been set up for US
$840,000 for the advisory fees accrued from Partner Companies in
prior years and US $840,000 of bad debt expense was recognised in
the statement of comprehensive income.
In July 2011, DataTern, Inc. entered into a fee agreement with
McCarter & English LLP ("ME"). Under this agreement, ME will
represent DataTern in the assertion of all patent infringement
claims, except for claims in Texas and conflicts with existing ME
clients. There were no license settlements in 2015 and 2014
relating to the ME fee agreement and as a result no fees were paid
to ME.
4. Revenue, (continued)
In September 2012, Braden, Varner & Aldous, P.C., was
engaged to represent DataTern, Inc. in the patent infringement
cases in Texas. In September 2013, Braden, Varner & Aldous,
P.C. reduced their hourly rate in consideration for a partial
contingency on the Texas cases and the Microsoft matters. Under the
contingent fee agreement, Braden, Varner & Aldous, P.C. will
receive 15% of any individual settlement up to US $500,000 and 25%
on settlements above US $500,000 on the Texas cases. If the
contingent fee from Texas does not equal 4x return on their total
fee, Braden, Varner & Aldous, P.C. will make up the difference
on a contingent fee with 5% from any settlements or recoveries on
the Microsoft matters up to 4x return on their hourly fee. Prior to
the later of 31 December 2013, or 14 days after the ruling on the
NY appeal, but no later than 30 June 2014, DataTern Inc. can cancel
the contingent fee portion of this agreement if it pays all time
accrued at the standard hourly rates and by paying a bonus of 20%
of the total time billed. The contingent fee agreement termination
date of 30 June 2014 has been extended indefinitely by mutual
agreement. In February 2014, the engagement was moved to Forshey
Prostok, LLP along with the move of one of the partners. There has
been no activity in the Texas cases in 2014 and 2015.
As part of the December 2007 agreement for DataTern, Inc. to
purchase certain of the intangible assets from FireStar Software,
Inc. ("FireStar"), a portion of future revenues from these patents
will be retained by FireStar. No amounts have become payable to
FireStar to date.
5. Business and geographical segments
Business segments
IFRS 8 requires operating segments to be identified on the basis
of internal reports about components of the Group that are
regularly reviewed by the chief operating decision maker in order
to allocate resources to the segment and to assess its
performance.
For management purposes for 2015, the Group is organised into
three business segments - advisory services, investing activities,
and intellectual property. These business segments are the basis on
which the Group reports its primary segment information.
Segment information about these businesses is presented
below:
Advisory Investing Intellectual
services activities property Eliminations Consolidated
Year ended Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December 31 December
2015 2015 2015 2015 2015
US $ US $ US $ US $ US $
REVENUE
External
advisory fees 459,904 - - - 459,904
External license
fees - - 59,951 - 59,951
------------------ --------------------
Total revenue 459,904 - 59,951 - 519,855
Cost of sales - - - - -
------------------ -------------------- ------------------- ----------------- -----------------------
Gross
profit/(loss) 459,904 - 59,951 - 519,855
Administrative
expenses (1,740,679) (2,068,530) (871,003) - (4,680,212)
------------------ -------------------- -------------------
Segment result (1,280,775) (2,068,530) (811,052) - (4,160,357)
Fair value gains
on investments - 10,222,184 - (114,540) 10,107,644
Interest income - 678,824 - - 678,824
Other gains and
losses - 505,015 - - 505,015
Finance costs (342) (1,138,455) (48,630) - (1,187,427)
Gain/(loss)
before tax (1,281,117) 8,199,038 (859,682) (114,540) 5,943,699
Income taxes (1,575) - (325) - (1,900)
------------------ -------------------- -------------------
Gain/(loss)
after tax (1,282,692) 8,199,038 (860,007) (114,540) 5,941,799
OTHER
INFORMATION
Segment assets 7,188,691 39,694,435 307,168 (7,305,130) 39,885,164
Segment
liabilities 7,488,470 21,212,998 6,954,769 (6,663,145) 28,993,092
Capital
additions - - - - -
Amortisation - - 155,084 - 155,084
Recognition of
share-based
payments - 98,881 - - 98,881
5. Business and geographical segments, (continued)
Business segments (continued)
For management purposes for 2014, the Group was also organised
into three business segments - advisory services, investing
activities, and intellectual property.
Advisory Investing Intellectual
services activities property Eliminations Consolidated
Year ended Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December 31 December
2014 2014 2014 2014 2014
US $ US $ US $ US $ US $
REVENUE
External
advisory fees 480,000 - - - 480,000
External license
fees - - 4,700 - 4,700
------------------ -------------------
Total revenue 480,000 - 4,700 - 484,700
Cost of sales - - - - -
------------------ ------------------- ---------------------- ---------------------- -----------------------
Gross
profit/(loss) 480,000 - 4,700 - 484,700
Administrative
expenses (632,994) (1,121,667) (1,739,690) - (3,494,351)
------------------ ------------------- ----------------------
Segment result (152,994) (1,121,667) (1,734,990) - (3,009,651)
Fair value
losses on
investments - (10,084,273) - 156,295 (9,927,978)
Interest income - 849,384 - - 849,384
Other gains and
losses - 663,064 12,201 - 675,265
Finance costs - (1,121,244) (55,055) - (1,176,299)
Gain/(loss)
before tax (152,994) (10,814,736) (1,777,844) 156,295 (12,589,279)
Income taxes (388) - (54) - (442)
------------------ ------------------- ----------------------
Gain/(loss)
after tax (153,382) (10,814,736) (1,777,898) 156,295 (12,589,721)
OTHER
INFORMATION
Segment assets 4,755,987 32,265,609 495,689 (5,523,730) 31,993,555
Segment
liabilities 6,637,842 22,482,537 6,283,283 (4,996,286) 30,407,376
Capital
additions - - - - -
Depreciation 308 - - - 308
Amortisation - - 155,084 - 155,084
Recognition of
share-based
payments - 98,377 - - 98,377
5. Business and geographical segments, (continued)
Geographical segments
The Group's operations are located in the United States and the
United Kingdom.
The following table provides an analysis of the Group's external
advisory fees by geographical location of the investment:
External advisory fees by
geographical location
-------------------------------
2015 2014
US $ US $
United States 60,000 480,000
United Kingdom 399,904 -
459,904 480,000
============= ================
The following table provides an analysis of the Group's external
license fees by geographical location:
External license
fees by
geographical
location
---------------------
2015 2014
US $ US $
United States 50,551 -
Europe 9,400 4,700
59,951 4,700
============ =======
The following is an analysis of the carrying amount of segment
assets and capital additions analysed by the geographical area in
which the assets are located:
Carrying amount Additions to fixtures, fittings,
of segment assets equipment, and intangible assets
-------------------------- -----------------------------------
2015 2014 2015 2014
US $ US $ US $ US $
United States 8,229,718 25,324,577 - -
United Kingdom 31,655,446 6,668,978 - -
39,885,164 31,993,555 - -
============ ============ ================= ================
6. Profit/(loss) before tax
Profit/(loss) before tax has been arrived at after
crediting/(charging) the following gains and losses:
Group Company Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2015 2015 2014 2014
US $ US $ US $ US $
------------------------------ ---------------------------- ------------------------ ----------------------------
Net foreign
exchange
gains 489,572 489,572 663,081 663,081
============================== ============================ ======================== ============================
Change in
fair value
of financial
assets
designated
as at
fair value
through
profit or
loss 10,107,644 7,364,577 (9,927,978) (10,107,910)
============================== ============================ ======================== ============================
Depreciation
of
equipment - - 308 -
============================== ============================ ======================== ============================
Amortisation
of
intangible
assets 155,084 - 155,084 -
Auditors'
remuneration
- audit
services 129,388 55,474 129,258 54,188
============================== ============================ ======================== ============================
7. Staff costs
The average monthly number of employees (including Executive
Directors) was:
2015 2014
Number Number
Amphion Innovations plc,
Amphion Innovations
US Inc., and DataTern,
Inc. (some employees and
costs are shared) 4 4
Total for the Group 4 4
======= =======
Group Company Group Company
2015 2015 2014 2014
Their aggregate remuneration comprised: US $ US $ US $ US $
Wages and salaries 1,158,414 211,870 851,377 156,827
Social security costs 42,001 7,230 28,852 4,808
Other pension costs (see note 23) - - - -
1,200,415 219,100 880,229 161,635
================ ======== ================ ========
8. Interest income
Group Company Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2015 2015 2014 2014
------------ ------------ ------------ ------------
US $ US $ US $ US $
Interest
income:
Bank deposits 43 43 42 42
Investments 678,781 557,080 849,342 805,007
Other - - - -
678,824 557,123 849,384 805,049
============ ============ ============ ============
At 31 December 2015, the receivable for accrued interest income
from Partner Companies has been reduced by a provision for doubtful
debts of US $2,256,762 (2014: US $805,007).
9. Finance costs
Group Company Group Company
Year Year Year
ended ended ended Year ended
31 December 31 December 31 December 31 December
2015 2015 2014 2014
------------ ------------ ------------ ------------
US $ US $ US $ US $
Interest on promissory
notes 1,187,427 1,138,455 1,176,299 1,121,244
============ ============ ============ ============
10. Income tax expense
Group Group
Year ended Year ended
31 December 31 December
2015 2014
------------------------------ ------------------------------
US $ US $
Isle of Man
income tax - -
Tax on US subsidiaries 1,900 442
Current tax 1,900 442
============================== ==============================
From 6 April 2006, a standard rate of corporate tax of 0%
applies to Isle of Man companies, with exceptions taxable at the
10% rate, namely licensed banks in respect of deposit-taking
business, companies that profit from land and property in the Isle
of Man, and companies that elect to pay tax at the 10% rate. No
provision for Isle of Man taxation is therefore required (2014: US
$nil). The Company is treated as a Partnership for U.S. federal and
state income tax purposes and, accordingly, its income or loss is
taxable directly to its partners.
The Company has three subsidiaries, two in the USA, and one in
the Kingdom of Bahrain. The US subsidiaries, Amphion Innovations US
Inc. and DataTern, Inc., are Corporations and therefore taxed
directly. The US subsidiaries suffer US federal tax, state tax, and
New York City tax on their taxable net income.
10. Income tax expense, (continued)
The Group charge for the year can be reconciled to the profit
per the consolidated income statement as follows:
2015 2014
US $ US $
Profit/(loss) before tax 5,943,699 (12,589,279)
=========================== ===========================
Tax at the Isle of Man income tax rate of 0% - -
Effect of different tax rates of subsidiaries
operating in other jurisdictions 1,900 442
Current tax/(refund) 1,900 442
=========================== ===========================
11. Earnings per share
The calculation of the basic and diluted earnings per share
attributable to the ordinary equity holders of the parent is based
on the following data:
Earnings
Year ended Year ended
31 December 31 December
2015 2014
------------ -------------
US $ US $
Profit/(loss) for the purposes
of basic and diluted earnings
per share 5,941,799 (12,589,721)
============ =============
Number of shares
Year ended Year ended
31 December 31 December
2015 2014
------------
Weighted average number of
ordinary shares for
the purposes of basic earnings
per share 179,083,069 147,390,887
Effect of dilutive potential
ordinary shares:
Options 3,925,501 -
Convertible promissory notes 56,369,051 65,412,061
Weighted average number of
ordinary shares for
the purposes of diluted earnings
per share 239,377,621 212,802,948
============ ============
Share options that could potentially dilute basic earnings per
share in the future have not been included in the calculation of
diluted earnings per share in 2014 because they are
antidilutive.
Loss per share
Year ended Year ended
31 December 31 December
2015 2014
-------------------------- ----------------------------
US $ US $
Basic 0.03 (0.09)
========================== ============================
Diluted 0.02 (0.09)
========================== ============================
12. Intangible assets
Group
Patents, software,
trademark,
and copyright
--------------------------------------------
COST US $
At 1 January
2014 1,610,489
Additions -
At 1 January
2015 1,610,489
Additions -
At 31 December
2015 1,610,489
--------------------------------------------
AMORTISATION
At 1 January
2014 1,025,305
Charge for
the period 155,084
At 1 January
2015 1,180,389
Charge for
the period 155,084
At 31 December
2015 1,335,473
--------------------------------------------
CARRYING AMOUNT
At 31 December
2015 275,016
============================================
At 31 December
2014 430,100
============================================
The intangible assets include certain intellectual property
assets which were acquired on 20 December 2007 in a transaction
between Amphion Innovations plc, DataTern, Inc. ("DataTern"), a
wholly owned subsidiary of Amphion Innovations plc, and FireStar
Software, Inc. ("FireStar"), a company in which Amphion Innovations
plc holds an investment. The assets were purchased for the
following consideration: discharge of debtor of US $415,000 and
assumption by Amphion of certain third party payables totaling
approximately US $1.8 million. In 2009, settlements were made with
certain third parties which resulted in a decrease of US $793,861
in payables assumed by Amphion and as a result intangible assets
acquired from FireStar were adjusted for the amount of the
decrease. Under the terms of the purchase, FireStar retained an
interest of 48.29% of any future distributions on the 502 Patent
and 24.14% of any future distributions on the 402 and 077 Patents.
In August 2012, the terms were amended so that FireStar will retain
an interest of 5.5% of gross settlements for the first US $40
million of gross settlements. For gross settlements between US $40
million and up to US $80 million, payments to FireStar will be 11%
of gross settlements. For settlements above US $80 million,
payments to FireStar from DataTern will be 12.1% of gross
settlements. No amounts were due to FireStar at the year end (2014:
US $nil).
In February 2016, a UCC Financing Statement was filed with the
Texas Secretary of State recording DataTern Inc.'s patents as
collateral to McCarter & English, LLP for any amounts due to
them, which equaled US $250,000 in February 2016.
13. Property, plant, and equipment
Group Company
Property, Property,
plant, plant,
and equipment and equipment
------------------------- ---------------------------
COST US $ US $
At 1 January 2014 70,502 19,986
Additions - -
------------------------- ---------------------------
At 1 January 2015 70,502 19,986
Additions - -
At 31 December 2015 70,502 19,986
------------------------- ---------------------------
ACCUMULATED DEPRECIATION
At 1 January 2014 70,194 19,986
Charge for the period 308 -
Exchange difference - -
------------------------- ---------------------------
At 1 January 2015 70,502 19,986
Charge for the period - -
Exchange difference - -
At 31 December 2015 70,502 19,986
------------------------- ---------------------------
CARRYING AMOUNT
At 31 December 2015 - -
========================= ===========================
At 31 December 2014 - -
========================= ===========================
14. Investments in subsidiaries
Details of the Company's subsidiaries at 31 December 2015 and
2014 are as follows:
Place of
Proportion Proportion
incorporation of of
ownership voting
Name of (or registration) interest power held Share
Principal
subsidiary and operation 2015 2014 2015 2014 class activity
-------------- ------------------- -------- ----- ------- --------- --------- -------------
% % % %
Consolidated
Amphion
Innovations Delaware, Advisory
US Inc. USA 100 100 100 100 Common services
Texas, Intellectual
DataTern, Inc. USA 100 100 100 100 Common property
MSA Holding Kingdom
Company BSC of Bahrain 100 100 100 100 Ordinary Investments
The investments in subsidiaries are all stated at cost less any
provision for impairment where appropriate. MSA Holding Company BSC
was dormant in 2015 and 2014.
15. Investments
At fair value through profit or loss
Group Company
------------------------------------------------------------ -----------------------------------------------------------------------
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
------------ ----------------- ------------- ------------ ------------- ----------------- ------------------ -----------------
US US US US US US US
$ $ $ $ $ $ $ US $
At 1 January
2015 6,668,978 - 22,098,681 28,767,659 6,668,978 - 19,394,128 26,063,106
Investments
during the
year 106,041 - 728,394 834,435 63,210 - 728,393 791,603
Transfers
between levels 13,209,624 - (13,209,624) - 10,505,071 - (10,505,071) -
Disposals (2,265,422) - - (2,265,422) (2,265,422) - - (2,265,422)
Fair value
gains/(losses) 13,936,225 - (3,828,581) 10,107,644 11,078,617 - (3,828,580) 7,250,037
At 31 December
2015 31,655,446 - 5,788,870 37,444,316 26,050,454 - 5,788,870 31,839,324
============ ================= ============= ============ ============= ================= ================== =================
At 1 January
2014 15,579,671 - 20,166,416 35,746,087 15,579,671 - 18,635,046 34,214,717
Investments
during the
year - - 2,949,550 2,949,550 - - 1,800,004 1,800,004
Fair value
losses (8,910,693) - (1,017,285) (9,927,978) (8,910,693) - (1,040,922) (9,951,615)
At 31 December
2014 6,668,978 - 22,098,681 28,767,659 6,668,978 - 19,394,128 26,063,106
============ ================= ============= ============ ============= ================= ================== =================
The Group and Company is required to classify fair value
measurements using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. In the
case of the Group and Company, investments classified as Level 1
have been valued based on a quoted price in an active market.
Investments classified as Level 2 have been valued using inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices). Fair values of
unquoted investments classified as Level 3 in the fair value
hierarchy have been determined in part or in full by valuation
techniques that are not supported by observable market prices or
rates. Investment valuations for Level 3 investments have been
arrived at using a variety of valuation techniques and assumptions.
For instances where the fair values are based upon the most recent
market transaction but which occurred more than twelve months
previously, the investments are classified as Level 3 in the fair
value hierarchy.
The Group net increase in fair value for the year of US
$10,107,644 (2014: decrease of US $9,927,978) includes a net
decrease of US $3,828,581 in Level 3 investments (2014: decrease of
US $1,017,285) that has been estimated using valuation techniques
in accordance with the International Private Equity and Venture
Capital Valuation Guidelines. The Company net increase in fair
value for the year of US $7,250,037 (2014: decrease of US
$9,951,615) includes a net decrease of US $3,828,851 in Level 3
investments (2014: decrease of US $1,040,922) that has been
estimated using valuation techniques in accordance with the
International Private Equity and Venture Valuation Guidelines.
During 2015, Group securities with a carrying value of US
$13,209,624 at 31 December 2014 were transferred from Level 3 to
Level 1 because the securities were listed on the AIM of the London
Stock Exchange in 2015 and they are currently actively traded in
that market. The securities now have a published price quotation in
an active market. During 2015, Company securities with a carrying
value of US $10,505,071 at 31 December 2014 were transferred from
Level 3 to Level 1.
The 2015 Group and Company disposals include the sale of 779,642
Kromek Group plc ordinary shares for US $392,314 as a monthly
payment to the institutional lender and the exchange of 2,916,523
Kromek Group plc ordinary shares for US $1,873,108 of the Company's
convertible promissory notes (see note 18).
15. Investments, (continued)
Fair value determination
As described in note 2 the Directors have valued the investments
in accordance with the guidance laid down in the International
Private Equity and Venture Capital Valuation Guidelines. The inputs
used to derive the investment valuations are based on estimates and
judgments made by management which are subject to inherent
uncertainty. As such the carrying value in the financial statements
may differ materially from the amount that could be realised in an
orderly transaction between willing market participants on the
reporting date.
In making their assessment of fair value, management has
considered the total exposure to each entity including equity,
warrants, options, promissory notes, and receivables.
Further information in relation to the directly held private
investment portfolio that are Level 3 at 31 December 2015 is set
out below:
Level Fair Unobservable
3 value Methodology inputs
----------
US
$
Multiple methods used in combination
Private including: Discount to last market Discount
investments 5,788,870 price, (30%-100%),
discount to last financing round,
price of future financing round, price of
and third party fund raising.
valuation.
------------- ---------- ------------------------------------- ---------------
Further information in relation to the directly held private
investment portfolio at 31 December 2014 is set out below:
Level Fair Unobservable
3 value Methodology inputs
-----------
US $
Multiple methods used in combination
Private including: Discount to last market Discount
investments 22,098,681 price, (30%-100%),
discount to last financing round,
price of future financing round, price of
and third party fund raising.
valuation.
------------- ----------- ------------------------------------- ---------------
Given the range of techniques and inputs used in the valuation
process and the fact that in most cases more than one approach is
used, a sensitivity analysis is not considered to be a practical or
meaningful disclosure. It should be noted however that increases or
decreases in any of the inputs listed above in isolation may result
in higher or lower fair value measurements.
At the reporting date, the potential effect of using reasonably
possible alternative assumptions as inputs to valuation techniques
from which the fair values of the investments are determined would
be an increase of approximately US $nil (2014: US $nil) to profit
or loss of the Group and the Company using more favourable
assumptions and an approximate decrease of US $2.3 million (2014:
US $2.1 million) to profit or loss of the Group and the Company
using less favorable assumptions.
The Group's ownership percentages of the investments are as
follows:
2015 2014
Fully-diluted Fully-diluted
ownership ownership
Country of incorporation % %
Axcess International, United States
Inc. * of America 8.64 11.08
FireStar Software, United States
Inc. * of America 11.44 11.44
Kromek Group plc England & Wales 5.27 10.32
United States
Motif Bio plc * of America 29.21 16.69
m2m Imaging Corporation United States
* of America 15.62 25.58
Novacyt S.A. (merged
with Lab 21 Limited) France 0.18 0.21
PrivateMarkets, Inc. United States
* of America 20.55 21.27
United States
WellGen, Inc. * of America 23.90 24.31
The ownership percentages do not include the potential
conversion of convertible promissory notes issued by the Partner
Companies.
Where more than 20% of the diluted ownership is held by the
Group or the Group has representation on the Board of the
Partner
15. Investments, (continued)
Companies, the Group is considered to have significant influence
over the Partner Companies. These are indicated above by an *
above.
16. Other financial assets and liabilities
The carrying amounts of the Group's financial assets and
financial liabilities at the statement of financial position date
are as follows. The accounting policies described in note 2 explain
how the various categories of financial instruments are
measured.
Group Company
2015 2014 2015 2014
Carrying Fair Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value amount value
US $ US $ US $ US $ US $ US $ US $ US $
Financial assets
Fair value
through profit
or loss
Fixed asset investments - designated
as such upon
initial
recognition 37,444,316 37,444,316 28,767,659 28,767,659 31,839,324 31,839,324 26,063,106 26,063,106
Currents assets
Loans and
receivables
Security deposit 22,008 22,008 13,600 13,600 - - - -
Prepaid expenses
and other
receivables 1,206,843 1,206,843 2,569,380 2,569,380 6,099,021 6,099,021 5,365,760 5,365,760
Cash and cash
equivalents 936,981 936,981 212,816 212,816 883,074 883,074 192,807 192,807
Financial
liabilities
Amortised cost
Trade and other
payables 10,346,011 10,346,011 10,270,584 10,270,584 3,491,093 3,491,093 3,307,920 3,307,920
Current portion
of convertible
promissory
notes 8,312,180 8,312,180 10,189,891 10,189,891 8,312,180 8,312,180 10,189,891 10,189,891
Current portion
of notes
payable 10,334,901 10,334,901 8,964,901 8,964,901 9,389,901 9,389,901 8,964,901 8,964,901
Notes payable - - 982,000 982,000 - - - -
The carrying value of cash and cash equivalents, the security
deposit, prepaid expenses and other receivables, and trade and
other payables, in the Directors' opinion, approximate to their
fair value at 31 December 2015 and 2014.
16. Other financial assets and liabilities, (continued)
The following table sets out the fair values of financial
instruments not measured at fair value and analyses it by the level
in the fair value hierarchy into which each fair value measurement
is categorised at 31 December 2015.
Group Company
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
US US US US
$ US $ $ US $ $ US $ $ US $
-------- ------------- ------ ---------------- ------ ------------ ------ -----------------
Financial assets
Security deposit - 22,008 - 22,008 - - - -
Prepaid expenses
and
other
receivables - 1,206,843 - 1,206,843 - 6,099,021 - 6,099,021
Cash and cash
equivalents - 936,981 - 936,981 - 883,074 - 883,074
- 2,165,832 - 2,165,832 - 6,982,095 - 6,982,095
-------- ------------- ------ ---------------- ------ ------------ ------ -----------------
Financial
liabilities
Trade and other
payables - 10,346,011 - 10,346,011 - 3,491,093 - 3,491,093
Current portion
of convertible
promissory
notes - 8,312,180 - 8,312,180 - 8,312,180 - 8,312,180
Current portion
of notes payable - 10,334,901 - 10,334,901 - 9,389,901 - 9,389,901
- 28,993,092 - 28,993,092 - 21,193,174 - 21,193,174
-------- ------------- ------ ---------------- ------ ------------ ------ -----------------
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. The Group has adopted a policy of only dealing with
creditworthy counterparties, as a means of mitigating the risk of
financial loss from defaults.
The credit risk on liquid funds is limited because the
counterparties are banks with high credit-ratings assigned by
international credit-rating agencies. All deposits are held with
banks with an S&P rating of AA- or higher. The maximum exposure
to credit risk for the financial asset investments designated at
fair value through the profit and loss is represented by their
carrying value.
The Group's exposure to counterparty credit risk also arises
from balances owed from Partner Companies relating to fees charged
for services provided by Amphion. Amphion seeks to mitigate the
risk noted above through its philosophy of working with a small
number of rigorously selected Partner Companies, assisting them to
grow by implementing a consistent and proven methodology developed
over the management team's 20 years of company building experience.
The Group's time tested model of company creation is built on a
risk management process that relies on proven, defensible
intellectual property sourced from some of the world's leading
corporations and universities.
16. Other financial assets and liabilities, (continued)
The following table is an analysis of the age of financial
assets:
Group
More than 3
Not past due Not more than months and not More than
or impaired 3 months more than 1 year 1 year Total
US $ US $ US $ US $ US $
2015
Fees
receivable
- gross - - - 2,720,000 2,720,000
Impairment - - - (2,690,000) (2,690,000)
Rebillable
expenses 537,949 - - - 537,949
Other
receivables 497,841 - - 2,361,224 2,859,065
Impairment - - - (2,256,763) (2,256,763)
Prepaid
expenses 36,592 - - - 36,592
1,072,382 - - 134,461 1,206,843
------------------------- --------------------------- ---------------------------------- --------------------------- ----------------
2014
Fees
receivable
- gross - 60,000 180,000 2,480,000 2,720,000
Impairment - (60,000) (180,000) (1,610,000) (1,850,000)
Rebillable
expenses 987,040 - - - 987,040
Other
receivables 624,773 - - 1,415,636 2,040,409
Impairment - - - (1,405,636) (1,405,636)
Prepaid
expenses 77,567 - - - 77,567
1,689,380 - - 880,000 2,569,380
------------------------- --------------------------- ---------------------------------- --------------------------- ----------------
The allowance account for fees receivable is used to record
impairment losses unless the Group is satisfied that no recovery of
the amount owing is possible; at that point the amounts considered
irrecoverable are written off against the fees receivable
directly.
16. Other financial assets and liabilities, (continued)
Company
More than
3
Not past Not more months and
due than not More than
more than
or impaired 3 months 1 year 1 year Total
US $ US $ US $ US $ US $
2015
Rebillable
expenses 525,427 - - - 525,427
Due from
subsidiaries 5,096,425 - - - 5,096,425
Other
receivables 347,027 - - 2,351,224 2,698,251
Impairment - - - (2,256,763) (2,256,763)
Prepaid
expenses 35,681 - - - 35,681
-------------------- ---------------------------- ----------------------------------- ------------------------------ ---------------
6,004,560 - - 94,461 6,099,021
-------------------- ---------------------------- ----------------------------------- ------------------------------ ---------------
2014
Rebillable
expenses 940,325 - - - 940,325
Due from
subsidiaries 3,803,622 - - - 3,803,622
Other
receivables 578,487 - - 1,405,636 1,984,123
Impairment - (1,405,636) (1,405,636)
Prepaid
expenses 43,326 - - - 43,326
-------------------- ---------------------------- ----------------------------------- ------------------------------ ---------------
5,365,760 - - - 5,365,760
-------------------- ---------------------------- ----------------------------------- ------------------------------ ---------------
Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. The principal risk
to which the Group is exposed is liquidity risk.
Amphion's investments are in Partner Companies that are often
development stage companies and will likely experience significant
negative cash flow. The Partner Companies may be unable to obtain
financing to fund their negative cash flows due to market
conditions or lack of operational progress. In these instances,
though Amphion is not obligated to do so, the Group may feel it
necessary to provide additional investment to the Partner Company
and also defer payment of the advisory fees due. Amphion may also
be required to spend additional management time on these
companies.
The Group's investments in private investments are generally
illiquid. As a result, the Group may not be able to liquidate these
investments in order to meet its liquidity requirements. The
Group's investments in listed securities are considered to be
readily realisable because they are traded readily on stock
exchanges.
Adverse market conditions may also delay liquidity events for
the Partner Companies, thereby requiring additional rounds of
financing in which Amphion may feel it necessary to participate.
During these adverse market conditions Amphion may also find it
difficult to raise additional capital.
Liquidity risk is managed on a regular basis by the Board. This
includes the preparation of cash flow forecasts to identity any
potential liquidity issues and consider potential options for
resolutions of issues identified. The Group maintains a line of
credit that can be used to meet liquidity needs subject to the
value of the collateral (see note 18). The Group may also issue
equity in order to meet liquidity needs.
16. Other financial assets and liabilities, (continued)
The following table is a maturity analysis that shows the
remaining contractual maturity for the Group and Company's
financial liabilities:
Group
Less
than 1-3 3 months Over
to 1
1 month months year 1 year Total
US US US US US
$ $ $ $ $
2015
Trade payables
& other payables 10,346,011 - - - 10,346,011
Current portion
of promissory
notes 81,301 433,333 9,820,267 - 10,334,901
Convertible promissory
notes - 8,312,180 - - 8,312,180
2014
Trade payables
& other payables 10,270,584 - - - 10,270,584
Current portion
of promissory
notes 447,968 733,333 7,783,600 - 8,964,901
Convertible promissory
notes - - 10,189,891 - 10,189,891
Notes payable - - - 982,000 982,000
Company
Less
than 1-3 3 months Over
to 1
1 month months year 1 year Total
US US US US US
$ $ $ $ $
2015
Trade payables
& other payables 3,491,093 - - - 3,491,093
Current portion
of promissory
notes 81,301 333,333 8,975,267 - 9,389,901
Convertible promissory
notes - 8,312,180 - - 8,312,180
2014
Trade payables
& other payables 3,307,920 - - - 3,307,920
Current portion
of promissory
notes 447,968 733,333 7,783,600 - 8,964,901
Convertible promissory
notes - - 10,189,891 - 10,189,891
Market risk
Market risk is the risk that changes in interest rates, foreign
exchange rates, equity prices, and other rates, prices,
volatilities, correlations, or other market conditions will have an
adverse impact on the Group's financial position or results. Thus
market risk comprises three elements - foreign currency risk,
interest rate risk, and other price risk. Information to enable an
evaluation of the nature and extent of these three elements of
market risk are shown below.
16. Other financial assets and liabilities, (continued)
Foreign currency risk
The Group undertakes certain transactions denominated in foreign
currencies. Hence, exposures to exchange rate fluctuations arise.
Exchange rate exposures are managed by minimising the balance of
foreign currencies to cover expected cash flows during periods
where there is strengthening in the value of the foreign currency.
The Group has two UK Partner Companies which are denominated in
GBP. The Group have convertible promissory notes issued in GBP. The
valuations of these two companies and the convertible promissory
notes fluctuate along with the US dollar/Sterling exchange rate. No
hedging of this risk is undertaken.
The carrying amounts of foreign currency denominated monetary
net assets at the reporting date are as follows:
Group Company
2015 2014 2015 2014
US $ US $ US $ US $
Sterling - Cash equivalent - - - -
Sterling - Investment 31,612,738 6,594,390 26,007,746 6,594,390
Convertible promissory notes (8,312,180) (10,189,891) (8,312,180) (10,189,891)
A 5% (2014: 5%) strengthening of the US dollar against the
British pound sterling at the reporting date would have decreased
profit or loss of the Group by approximately US $1.2 million (2014:
increased US $180,000). A 5% (2014: 5%) weakening of the US dollar
against the British pound sterling would have increased profit or
loss of the Group by approximately US $1.2 million (2014: decreased
US $180,000). A 5% (2014: 5%) strengthening of the US dollar
against the British pound sterling at the reporting date would have
decreased profit or loss of the Company by approximately US
$885,000 (2014: increased US $180,000). A 5% (2014: 5%) weakening
of the US dollar against the British pound sterling would have
increased profit or loss of the Company by approximately US
$885,000 (2014: decreased US $180,000). The GBP/USD rate used at 31
December 2015 was 1.4746 (2014: 1.5578). In management's opinion,
the sensitivity analysis is unrepresentative of the inherent
foreign exchange risk as the sensitivity analysis is based on
balances at the end of the year and does not reflect the exposure
during the year.
Interest rate risk
The Group's exposure to interest rate risk is restricted to the
cash and cash equivalent balance of US $936,981 (2014: US
$212,816). The Company's exposure to interest rate risk is
restricted to the cash and cash equivalent balance of US $883,074
(2014: US $192,807). At 31 December 2015, the Group's and Company's
bank accounts were in general not interest bearing due to the low
base rate. Changes in interest rates would have no significant
impact on the profit or losses of the Company.
Other price risks
The Group is exposed to equity price risks arising from equity
investments. Equity investments are held for strategic, rather than
trading purposes. The Group does not actively trade these
investments.
A reasonable movement in equity market prices of 10% would
increase/decrease profit or loss for the Group by US $3,165,545
(2014: US $668,898) and the Company by US $2,605,045 (2014: US
$668,898).
The amounts generated from the sensitivity analysis are
estimates of the impact of market risk assuming that specified
changes occur. Actual results in the future may differ materially
from these results due to developments in the global financial
markets which may cause exchange rates to vary from the
hypothetical amounts disclosed above, which therefore should not be
considered a projection of likely future events and losses.
17. Trade and other payables
Group
Trade and other payables principally comprise amounts
outstanding for purchases and ongoing costs.
Company
Trade and other payables principally comprise amounts
outstanding for trade purchases and ongoing costs.
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
In December 2012, Berkeley Research Group, LLC ("BRG"), an
expert consultant engaged by DataTern filed for arbitration
claiming US $1,142,478 was owed to them. DataTern opposed the
arbitration and vigorously contested the amount owed. In January
2015, the arbitrator found in favor of BRG and awarded them an
amount totaling US $2,090,865 for the balance due and legal costs.
DataTern contested the award and filed a lawsuit seeking to
overturn the award. In March 2016, the Company reached a settlement
with BRG for US $1,575,000. The payment terms are US $100,000 paid
upon signing the settlement agreement, and further payments of US
$400,000 on 30 April 2016, US $500,000 on 30 June 2016 and US
$575,000 on 31 December 2016. Should Amphion fail to make a
payment, the full amount of the judgement, US $2,236,286.49, will
be due less any amounts paid. As a consequence of this settlement,
the liability has been transferred from DataTern Inc. to Amphion
Innovations plc.
18. Promissory notes
Convertible promissory notes
During 2015, US $439,524 (GBP287,283) additional convertible
promissory notes were issued in payment of the accrued interest
payable on the notes as of 31 December 2014 and the quarters ended
31 March 2015, 30 June 2015, and 30 September 2015. In addition, US
$1,873,108 (GBP1,191,584) convertible promissory notes were
exchanged for Kromek Group plc ordinary shares as part of the
exercise of the exchange rights. At 31 December 2015, the
convertible promissory notes totaled US $8,312,180 (GBP5,636,905)
(2014: US $10,189,891; GBP6,541,206) and the warrants issued
totaled 11,273,813 (2014: 13,082,416).
The amended and restated Unsecured Convertible Promissory Notes
December 2008-December 2015 were convertible into ordinary shares
of the Company at any time at a conversion price of ten pence per
ordinary share, accrued interest at the rate of 7% if paid in
ordinary shares or 5% if paid in cash or additional notes on a
quarterly basis and were to mature on 31 December 2015. For every
GBP1 note, two warrants were issued with an exercise price of 12
pence per share with an expiration date of 31 December 2015. Each
noteholder had the right to exchange the whole or part of its
holding into Kromek shares. The exchange rights were exercisable
from 15 December 2014 to 30 December 2014. Holders of US $1,873,108
of the convertible promissory notes requested the exchange and in
June 2015 the Company issued 2,916,523 ordinary shares of Kromek
Group plc to the holders.
At a meeting of the holders of the convertible promissory notes
on 30 December 2015, the terms of the notes were amended to extend
the due date to 28 February 2016 rather than 31 December 2015. At a
meeting of the holders on 26 February 2016, the terms of the notes
were further amended. The notes will now be redeemed on 31 December
2017 unless previously converted. The notes will be convertible
into ordinary shares at a conversion price of 8 pence per share.
The notes may be converted at the option of the holder at any time
prior to the earlier of redemption or maturity. The interest terms
remain the same. For every GBP1 of note held, the Company will
issue two warrants to subscribe for shares. The exercise price of
the warrants will be 10 pence per share with an expiration date of
31 December 2017. Each note holder may serve at least 60 days'
notice on the Company to redeem up to a proportion of the notes
held by it on the following dates: 15% on 31 May 2016; 20% on 30
November 2016; 20% on 30 June 2017. The amounts are payable within
45 days. The balance of the notes will be redeemed in full on 31
December 2017. The Company has received redemption requests
totaling approximately GBP300,000 for the 31 May 2016 redemption
date. The amounts are payable by 15 July 2016.
The net proceeds received from the issue of the convertible
promissory notes and warrants are classified as a financial
liability due to the fact that the notes are denominated in a
currency other than the Company's functional currency and that on
any future conversion a fixed number of shares would be delivered
in exchange for a variable amount of cash (see note 2).
18. Promissory notes, (continued)
Promissory notes
In June 2014, the Company was granted a loan facility by an
institutional lender (the "Lender"). During 2014, the Company drew
down US $3 million with a further draw down facility of up to a
maximum of US $10 million, subject to the consent of each party.
The facility is secured by part of Amphion's holding in Kromek
Group PLC ("Kromek") and may be repaid at the Company's discretion
in cash, the issue of Amphion shares, or the payment of Kromek
shares. As part of the loan terms the lender received warrants to
purchase Amphion shares and Kromek simulated warrants. The interest
rate of the loan was 12% per annum of the gross amount provided to
the Company. The Company also paid a further 8% of the gross amount
provided as an implementation fee. During 2015, the Company drew
down an additional US $3,300,000. Under the terms of the November
2015 draw, the simulated warrants over Kromek Group plc were
cancelled, the interest rate on the facility was reduced to 10% and
no additional Amphion warrants were granted. The additional draw is
to be repaid in monthly installments starting 1 March 2016 with the
final monthly repayment due on 1 November 2016. The proceeds were
used to repay the existing amount due under the facility and for
working capital for Amphion and its Partner Companies. The balance
of the loan at 31 December 2015 is US $3,000,000 (2014: US
$2,575,000). As part of the loan facility, the Directors agreed to
a Deed of Postponement that regulates the Directors' rights in
respect to the repayment of any debt due to them from the Company.
The Directors agreed to defer payment of their debt by the Company
until the loan facility is repaid in full. The loan facility was
amended in April 2016 (see note 24 for full details).
In July 2014, the Company issued Richard Morgan, a Director of
the Company, a demand promissory note for US $81,301 for advances
he made to the Company. The promissory note has an interest rate of
5% per annum.
In February 2015, the Company cancelled US $6,308,600 of
promissory notes issued to the former Chairman of the Company and
his trust, which matured on 31 December 2014, and replaced them
with promissory notes that matured on 31 December 2015. The
promissory notes accrue interest at the rate of 7% per annum. In
addition, 3,500,000 warrants issued in connection with the original
notes were cancelled and replaced with warrants that expired on 31
December 2015 and had an exercise price of 8 pence per ordinary
share. The Company has agreed, in principle, to replace the US
$6,308,600 of notes payable, which expired on 31 December 2015,
with the issue of promissory notes that will now mature on 31
December 2016. The rate of interest on the new notes will remain
unchanged at 7%. The new notes will also contain certain provisions
for early repayment. Refer to note 23 for further details.
During 2013, Amphion Capital Management LLC, a related party,
advanced DataTern Inc., a subsidiary of the Company, US $222,000
under promissory notes. The promissory notes accrue interest at 5%
and are payable three years from issuance. Terms include a
requirement that 50% of the gross profits (defined as gross
settlement revenue, less direct expenses, contingency fees, and
FireStar's profit share) will be dedicated to repayment of the
note. There is an additional contingent return of 1.002% of the
gross profits up to 100% return on the note and thereafter 0.498%
of gross profits up to a total return of 300% on the note. The
balance of this note at 31 December 2015 is US $155,000 (2014: US
$192,000).
During 2013, Richard Morgan, a Director of the Company, advanced
DataTern Inc., a subsidiary of the Company, US $190,000 under
promissory notes. The promissory notes accrue interest at 5% and
are payable three years from issuance. Terms include a requirement
that 50% of the gross profits (defined as gross settlement revenue,
less direct expenses, contingency fees, and FireStar's profit
share) will be dedicated to repayment of the note. There is an
additional contingent return of 0.501% of the gross profits up to
100% return on the note and thereafter 0.249% of gross profits up
to a total return of 300% on the note. The balance of this note at
31 December 2015 is US $190,000 (2014: US $ 190,000).
During 2013, R. James Macaleer, the former Chairman of the
Company, advanced DataTern Inc., a subsidiary of the Company, US
$600,000 under promissory notes. The promissory notes accrue
interest at 5% and are payable three years from issuance. Terms
include a requirement that 50% of the gross profits (defined as
gross settlement revenue, less direct expenses, contingency fees,
and FireStar's profit share) will be dedicated to repayment of the
note. There is an additional contingent return of 2.00% of the
gross profits up to 100% return on the note and thereafter 1.00% of
gross profits up to a total return of 300% on the note. The balance
of this note at 31 December 2015 is US $600,000 (2014: US
$600,000).
19. Share capital
2015 2014
GBP GBP
Authorised:
500,000,000 ordinary
shares of 1p each 5,000,000 5,000,000
=============== ===========
Number GBP US $
Balance as at 31 December
2013 146,884,071 1,468,840 2,693,319
Issued for cash or services:
Ordinary shares of 1p
each 690,663 6,907 11,833
Ordinary shares of 1p
each 703,772 7,038 11,504
Balance as at 31 December
2014 148,278,506 1,482,785 2,716,656
Issued for cash or services:
Ordinary shares of 1p
each 344,471 3,445 5,288
Ordinary shares of 1p
each 2,148,243 21,482 33,060
Ordinary shares of 1p
each 1,298,646 12,986 19,599
Ordinary shares of 1p
each 15,239,477 152,395 225,904
Ordinary shares of 1p
each 29,311,230 293,112 451,087
Ordinary shares of 1p
each 598,850 5,989 9,286
Balance as at 31 December
2015 197,219,423 1,972,194 3,460,880
============ ============= ==========
The authorised share capital was increased to 500,000,000
ordinary shares upon the Company's re-registration under the
Companies Act 2006 in August 2014.
Holders of the ordinary shares are entitled to receive dividends
and other distributions and to attend and vote at any general
meeting.
During the year ended 31 December 2015, the following changes
occurred to the share capital of the Company:
On 16 February 2015, the Company issued 344,471 ordinary 1p
shares at a premium of 2.25p per share (US $11,896) to Directors in
payment of 2015 first quarter Directors' fees.
On 3 March 2015, the Company issued 2,148,243 ordinary 1p shares
at a premium of 2.14p per share (US $70,749) to an institutional
lender as a monthly payment on the loan.
On 1 April 2015, the Company issued 1,298,646 ordinary 1p shares
at a premium of 1.66p per share (US $32,535) to an institutional
lender as a monthly payment of the loan.
On 10 April 2015, the Company issued 15,239,477 ordinary 1p
shares at premiums ranging from 2.50p to 3.375p per share (US
$635,114) to an institutional lender in settlement of their
exercise of warrants that were issued in conjunction with the loan
facility.
On 10 June 2015, the Company issued 29,311,230 ordinary 1p
shares at a premium of 4.25p per share (US $1,917,118) in a
placing.
On 21 September 2015, the Company issued 598,850 ordinary 1p
shares at a premium of 5.25p per share (US $48,750) to Directors in
payment of 2015 second and third quarter Directors' fees.
20. Operating lease arrangements
At the balance sheet date, the Group has outstanding commitments
under non-cancellable operating leases, which fall due as
follows:
2015 2014
US
US $ $
Within one year 96,000 7,500
In the second to fifth years inclusive 40,000 -
After five years - -
136,000 7,500
======== ======
Operating lease payments represent rentals payable by the Group
for certain of its office properties. On 27 October 2015, the
Company entered into a license agreement for the New York office
for a term of 18 months beginning on 1 December 2015. The agreement
automatically renews for an additional term of one year unless
either party gives notice to the other that it elects not to renew
the agreement at least 60 days prior to the expiration date. The
Group recognised expenses of US $91,618 in respect of operating
lease arrangements in the year ended 31 December 2015.
21. Share-based payments
In 2006 the Group established the 2006 Unapproved Share Option
Plan ("the Plan") and it was adopted pursuant to a resolution
passed on 8 June 2006. Under this plan, the Compensation Committee
may grant share options to eligible employees, including Directors,
to subscribe for ordinary shares of the Company. The number of
shares over which options may be granted under the Plan cannot
exceed 10% of the ordinary share capital of the Company in issue on
a fully diluted basis. The Plan will be administered by the
Compensation Committee. The number of shares, terms, performance
targets, and exercise period will be determined by the Compensation
Committee.
The options issued under the Plan total 28,650,000 and
18,000,000 have been forfeited or expired. At 31 December 2015, a
total of 6,916,667 options under the Plan were vested (2014:
5,516,667).
No options were issued during 2015. During 2014, 7,000,000
options were issued under the Plan. Twenty percent of the options
vested on 31 December 2014 and the remaining 80% will vest ratably
and monthly over 4 years from 1 September 2014. They expire on 23
September 2024 and have an exercise price of GBP0.02225.
As of 31 December 2015, a total of 42,278,869 options and
warrants have been issued (2014: 42,278,869) and 29,828,869 have
been forfeited or expired (2014: 26,328,869).
2015 2014
Number of Weighted Number of Weighted
share options average share options average
exercise exercise
price (in GBP) price (in GBP)
Outstanding at beginning of
period 15,950,000 0.07 8,983,333 0.11
Granted during the period - - 10,500,000 0.04
Forfeited during the period - - - -
Expired during the period (3,500,000) 0.08 (3,533,333) 0.08
---------------------- ----------------------
Outstanding at the end of the
period 12,450,000 0.07 15,950,000 0.07
====================== ======================
Exercisable at the end of the
period 8,716,667 0.09 10,816,667 0.10
21. Share-based payments, (continued)
The options are recorded at fair value on the date of grant
using the Black-Scholes model. The inputs into the model are as
follows:
2015 2014
US $ US $
Weighted average share price - 0.03
Weighted average exercise price - 0.06
Expected volatility - 65-77%
Expected life - 1-10 years
Risk free rate - 0.25-2.60%
Expected dividends - -
Expected volatility was determined by calculating the historical
volatility of the Group's share price from the date listing to the
end of the year.
No options were granted in 2015. In 2014, options were granted
on 23 September 2014 and 31 December 2014. The aggregate of the
estimated fair value of the options granted is US $118,300.
The Company and Group recognised share based payments of US
$23,660 and US $47,044 relating to equity-settled share-based
payment transactions in 2015 and 2014 respectively.
22. Retirement benefit plans
The Company established a defined contribution plan under
Section 401(k) of the Internal Revenue Code. The plan enables
qualified employees to reduce their taxable income by contributing
up to 15% of their salary to the plan. The Company may elect to
make a matching contribution to the plan. The Company has elected
not to make a contribution for the years ended 31 December 2015 or
2014.
23. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties of the Company, have been eliminated on
consolidation and are not disclosed in this note. Details of
transactions between the Group and other related parties are
disclosed below.
During the year, the Group paid miscellaneous expenses on behalf
of Motif BioSciences, Inc. ("Motif") such as office expenses and
expenses related to their initial public offering. At 31 December
2015, the amount owed by Motif to the Group was US $1,599 (2014: US
$119,019).
Amphion Innovations US Inc., a subsidiary of the Company, has
entered into an agreement with Axcess International, Inc.
("Axcess") to provide advisory services. Richard Morgan and Robert
Bertoldi, Directors of the Company, are also Chairman and Director
of Axcess, respectively. Amphion Innovations US Inc. will receive a
monthly fee of US $10,000 pursuant to this agreement. The agreement
was effective until 1 March 2015 and will renew thereafter on an
annual basis until terminated by one of the parties. The monthly
fee is suspended for any month in which Axcess' cash balance falls
below US $500,000. Amphion Innovations US Inc. received US $nil for
the year ended 31 December 2015 (2014: US $nil) on the basis that
the cash has fallen below the US $500,000 level.
Amphion Innovations US Inc. entered into an agreement with Motif
BioSciences, Inc. ("Motif") to provide advisory and consulting
services. Richard Morgan, a Director of the Company, is also the
Chairman of Motif. The annual fee for the services is US $240,000.
The agreement was effective until 1 April 2015. Amphion Innovations
US Inc.'s fee for the period ended 31 December 2015 was US $60,000
(2014: US $240,000).
On 1 April 2015, Motif Bio plc entered into an advisory and
consultancy agreement with Amphion Innovations US Inc. Richard
Morgan, a Director of the Company, is also the Chairman of Motif
Bio plc and Robert Bertoldi, a Director of the Company, is also a
Director of Motif Bio plc. The consideration for the services is US
$120,000 per annum. In the event that Motif Bio plc raises a
23. Related party transactions, (continued)
minimum of GBP5,000,000 in gross proceeds on AIM admission or a
secondary raise, a one-time payment of US $300,000 will be paid to
Amphion Innovations US Inc. This amount was paid on 21 July 2015.
The agreement is for an initial period of twelve months and will
automatically renew each year on the anniversary date unless either
party notifies the other by giving 90 days written notice prior to
expiration. Amphion Innovations US Inc.'s fee for the period ended
31 December 2015 was US $399,904 (2014: US $nil).
On 1 April 2015, Motif Bio plc entered into a consultancy
agreement with Amphion Innovations plc for Robert Bertoldi, an
employee of Amphion Innovations plc, to provide services to Motif
Bio plc. The consideration for the services is US $5,000 per month.
On 1 November 2015, the consideration increased to US $180,000
annually. The agreement is for an initial period of twelve months
and will automatically renew each year on the anniversary date
unless either party notifies the other by giving 90 days written
notice prior to expiration.
Amphion Innovations US Inc. has entered into an agreement with
m2m Imaging Corp. ("m2m") to provide advisory and consulting
services. Robert Bertoldi, a Director of the Company, is also the
Chairman of m2m. The monthly fee under this agreement is US
$15,000. This agreement renews on an annual basis until terminated
by either party. Amphion Innovations US Inc.'s fee for the periods
ended 31 December 2015 and 2014 were suspended. At 31 December
2015, US $630,000 (2014: US $630,000) remains payable. This balance
has been reduced by a provision for doubtful debts in the amount of
US $600,000 (2014: US $600,000).
Amphion Innovations US Inc. has entered into an agreement with
WellGen, Inc. ("WellGen") to provide advisory and consulting
services. Richard Morgan and Robert Bertoldi, Directors of the
Company, are also Chairman and Directors of WellGen, respectively.
The fee under this agreement is US $60,000 per quarter. The
agreement renews annually until terminated by either party. The
subsidiary's fee for the year ended 31 December 2015 was suspended
(2014: US $240,000). At 31 December 2015 US $1,320,000 (2014: US
$1,320,000) remains payable. This balance has been reduced by a
provision for doubtful debts in the amount of US $1,320,000 (2014:
US $480,000).
Amphion Innovations US Inc. has entered into an agreement with
PrivateMarkets, Inc. ("PrivateMarkets") to provide advisory
services. Richard Morgan, a Director of the Company, is also the
Chairman of PrivateMarkets. The fee under this agreement is US
$30,000 per quarter until the successful sale of at least US
$3,000,000 of equity and thereafter, US $45,000 per quarter. This
agreement will renew annually unless terminated by either party.
The subsidiary's fee for the years ended 31 December 2015 and 2014
were suspended. At 31 December 2015, US $770,000 (2014: US
$770,000) remains payable by PrivateMarkets. This balance has been
reduced by a provision for doubtful debts in the amount of US
$770,000 (2014: US $770,000).
Amphion Innovations US Inc. has entered into an agreement with
DataTern, Inc. ("DataTern") (a wholly owned subsidiary of the
Company) to provide advisory and consulting services. Richard
Morgan and Robert Bertoldi, Directors of the Company, are also
Directors of DataTern. The quarterly fee under this agreement is US
$60,000 and renews annually unless terminated by either party. The
subsidiary's fee for the years ended 31 December 2015 and 2014 was
suspended.
During 2013 Richard Morgan, a Director of the Company, advanced
US $190,000 to a subsidiary of the Company under a promissory note.
The promissory note accrues interest at 5% per annum and is payable
March 2016. (See note 18). In 2010 Richard Morgan, a Director of
the Company, advanced US $352,500 to the Company. In July 2014, the
balance of this advance was converted into a demand note that
accrues interest at 5% per annum. At 31 December 2015, US $81,301
remains outstanding. The net amount payable by the Company at 31
December 2015 to Richard Morgan is US $2,249,714 (2014: US
$2,230,702). The amount payable includes a voluntary salary
reduction of US $1,753,533, US $341,779 of which will be payable at
the discretion of the Board at a later date.
On 31 December 2015, US $6,308,600 of promissory notes payable
issued to R. James Macaleer, the former Chairman of the Company,
and his trust matured and 3,500,000 warrants expired. The Company
has agreed, in principle, to replace the US $6,308,600 of notes
payable with the issue of promissory notes that will now mature on
31 December 2016. The rate of interest on the new notes will remain
unchanged at 7%. The new notes also contain certain provisions for
early repayment. In no case will any payment be made on the new
notes until the amounts outstanding under the Company's existing
loan facility are fully repaid. The final payment under the
facility is currently scheduled for 1 November 2016 (amended to 1
February 2017 in April 2016). During 2013, R. James Macaleer
advanced US $600,000 to a subsidiary of the Company under a
promissory note. The promissory note accrues interest at 5% per
annum and is payable three years from issuance. (See note 18). At
31 December 2015, Mr. Macaleer was due US $1,859,115 (2014: US
$1,387,513) for accrued interest on the promissory notes.
23. Related party transactions, (continued)
The Company entered into a consulting agreement with Fifth
Capital Limited for the term 1 January 2015 to 31 March 2015. The
term continues for subsequent periods of 90 days unless either the
consultant or Amphion terminates the agreement. Miroslaw Izienicki,
a Director of the Company, is also the Director of Fifth Capital
Limited. The fee under this agreement is GBP3,000 per month, GBP400
of which may be paid in the Company's stock.
At 31 December 2015, US $110,666 (2014: US $116,667) was due to
Gerard Moufflet, a Director of the Company, for Director's fees and
US $8,337 (2014: US $8,337) for expenses.
At 31 December 2015, US $6,672 (2014: US $6,917) was due to
Anthony Henfrey, a retired Director of the Company, for expenses.
Dr. Henfrey waived his entitlement to receive his director's fees
for 2014.
At 31 December 2015, US $23,535 (2014: US $23,535) was due to
Richard Mansell-Jones, a retired Director of the Company for
Director's fees.
At 31 December 2015, US $947,293 (2014: US $855,925) was due to
Robert Bertoldi, a Director of the Company, for voluntary salary
reductions in 2009 through 2015 of which US $188,769 is payable at
the discretion of the Board.
Directors' interests
The Directors' direct ownership in the Partner Companies is as
follows:
Fully diluted
%
owned by
Investment company Directors
----------------------- ----------------
2015 2014
Axcess International,
Inc. 5.46% 5.66%
FireStar Software,
Inc. 0.71% 1.49%
Kromek Group PLC 0.22% 0.96%
Motif Bio plc 0.80% 5.29%
m2m Imaging Corp. 1.66% 1.46%
Novacyt S.A. 0.00% 0.00%
PrivateMarkets, Inc. 2.92% 2.89%
WellGen, Inc. 3.10% 3.09%
The Directors who held office at 31 December 2015 had the
following interests in the Company's ordinary share capital:
2015 2014 2015 2014 2015 2014
Number Number
of of Convertible Convertible
Number Number
ordinary ordinary promissory promissory of of
shares shares notes notes warrants warrants
------------------------ ------------------- ------------------- ------------------- ------------------ ------------------
Richard
C.E.
Morgan 23,642,499 25,642,499 GBP981,666 GBP934,079 1,963,331 1,868,158
Robert J.
Bertoldi 6,436,431 6,436,431 - - - -
R. James
Macaleer - 25,595,535 - GBP12,408 - 4,024,817
Gerard
Moufflet 1,180,208 1,039,583 - - - -
Miroslaw
Izienicki 403,433 102,083 - - - -
23. Related party transactions, (continued)
Aggregate Directors' remuneration
The total amounts for Directors' remuneration was as
follows:
Year ended Year ended
31 December 2015 31 December 2014
US $ US $
Emoluments 1,014,987 775,030
Directors' emoluments and compensation
(1) Group
Fees/Basic
salary
accrued Year Period
Group Payment Group ended ended
not subject
Fees/Basic to Benefits 31 December 31 December
salary board In 2015 2014
paid discretion kind Bonuses total total
US
US $ US $ $ US $ US $ US $
Name of Director
Executive-salary
Richard C.E.
Morgan 200,477 149,523 18,895 110,000 478,895 370,881
Robert J.
Bertoldi 206,036 91,368 18,895 90,000 406,299 324,363
Non-executive
- fees
R. James
Macaleer 38,512 - - - 38,512 34,189
Anthony W.
Henfrey - - - - - -
Gerard Moufflet 36,461 - - - 36,461 30,741
Miroslaw
Izienicki 54,820 - - - 54,820 14,856
Aggregate
emoluments 536,306 240,891 37,790 200,000 1,014,987 775,030
================= ============================ ================== ======== ===================== =====================
(1) Deferred fees/basic salary refers to voluntary salary
reductions taken by the Executive Directors in 2015 which were
recorded as a liability in 2015 in the Group accounts, payment of
which is not subject to the discretion of the Board.
Directors' share options
Aggregate emoluments disclosed above do not include any amounts
for the value of options to acquire ordinary shares in the Company
granted to or held by the Directors. Details of options for
Directors who served during the year are as follows:
Date
1 31 from
Name of January December Exercise which Expiry
Director Scheme 2015 Granted 2015 price exercisable date
2006 Unapproved
Richard Share Option 24 Mar 24 Mar
Morgan Plan 500,000 - 500,000 GBP0.1075 2010 2019
2006 Unapproved
Richard Share Option 23 Sep 23 Sep
Morgan Plan 2,500,000 - 2,500,000 GBP0.02225 2014 2024
2006 Unapproved
Robert Share Option 24 Mar 24 Mar
Bertoldi Plan 350,000 - 350,000 GBP0.1075 2010 2019
2006 Unapproved
Robert Share Option 23 Sep 23 Sep
Bertoldi Plan 2,500,000 - 2,500,000 GBP0.02225 2014 2024
5,850,000 - 5,850,000
========== ============== ============
24. Subsequent events
In January 2016, the Company issued 291,806 ordinary shares to
certain of its Board members in consideration of their directors'
fees for the fourth quarter of 2015 and the first quarter of
2016.
In February 2016, a UCC Financing Statement was filed with the
Texas Secretary of State recording DataTern Inc.'s patents as
collateral to McCarter & English, LLP for any amounts due to
them.
At a meeting on 26 February 2016, the holders of GBP5,707,738 of
convertible promissory notes agreed to amend the terms of the note.
The notes will now be redeemed on 31 December 2017, will be
convertible into ordinary shares at 8 pence per share, and will pay
interest at 7% if paid in ordinary shares or 5% if paid in cash or
additional notes. In addition, for every GBP1 of note held, the
noteholder will be issued two warrants with an exercise price of 10
pence per share. Each note holder may serve at least 60 days'
notice on the Company to redeem up to a proportion of the notes
held by it on the following dates: 15% on 31 May 2016; 20% on 30
November 2016; 20% on 30 June 2017.
In April 2016, the Company reached a settlement with Berkeley
Research Group LLC, an expert consultant engaged by DataTern Inc,
for US $1,575,000. The payment terms are: US $100,000, paid on
signing of the settlement agreement; US $400,000 on 30 April 2016;
US $500,000 on 30 June 2016; and US $575,000 on 31 December 2016.
Should Amphion fail to make a payment, the full amount of the
judgement, US $2,236,286.49, will be due less any amounts paid. As
a consequence of the settlement, the liability has been transferred
from DataTern Inc. to Amphion.
In April 2016, the Company borrowed an additional US $1,765,000
under the YA Global Master SPV Ltd. Loan facility increasing the
amount borrowed under the facility to US $4.1 million. Under the
terms of the additional draw, the interest rate will be 10% with
repayments starting on 1 May 2016 and with the final repayment due
on 1 February 2017. The proceeds are to be used to repay the
existing amount due under the facility and for working capital for
Amphion and its Partner Companies. The loan is secured by the
pledge by the Company of 7,774,678 ordinary shares of Kromek Group
PLC and 14,906,145 ordinary shares of Motif Bio plc. Additional
terms of the facility allow the conversion of the drawn-down amount
into ordinary shares in the Company. Up to US $500,000 of the
facility may be converted at 6.5 pence per ordinary share and the
remainder of the amount drawn-down, approximately US $3.6 million,
may be converted at 8.0 pence per ordinary share.
In May 2016, the Company amended its financial advisor agreement
with Plumtree Capital Limited. The fee under this new agreement
will be a monthly retainer of GBP1,250, commission of five percent
on any investment in the Company by investors introduced by
Plumtree and five year warrants to subscribe for 300,000 ordinary
shares at an exercise price of 3.5p.
The Company has received redemption requests on its convertible
promissory notes totaling approximately GBP300,000 for the 31 May
2016 redemption date. The amounts are payable by 15 July 2016.
On 11 May 2016, DataTern Inc. entered into a Consulting Services
Agreement ("CSA") with Gerchen Keller Capital, LLC ("GKC"). The CSA
grants GKC exclusivity for sixty days to review the litigation
taking place in the District of Massachusetts for case numbers
11-11970 and 11 -12220.
Notice
The financial information set out above does not constitute the
Group's statutory accounts for the year ended 31 December 2015 or
2014, but is derived from those accounts. The auditors have
reported on those accounts; their report was unqualified, but did
draw attention to matters by way of emphasis relating to
significant uncertainty in respect of going concern and valuation
of Partner Company investments and other receivables from Partner
Companies for both the 2015 and 2014 year ends, and did not contain
statements under s. 15(4) or (6) Companies Act 1982 of the Isle of
Man.
Approval
This statement was approved by the Board of Directors on 23 June
2016.
Copies of the Annual Report and Accounts
Copies of the Annual Report and Accounts will be sent to all
shareholders. Further copies will be obtainable from the Company's
primary office: Amphion Innovations plc, Attn: Investor Relations,
125 Park Avenue, 25(th) Floor, New York, NY 10017, USA.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR AKBDQDBKBFAB
(END) Dow Jones Newswires
June 23, 2016 02:00 ET (06:00 GMT)
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