TIDMAMP
RNS Number : 3529J
Amphion Innovations PLC
28 June 2017
Amphion Innovations plc
("Amphion" or the "Company")
Final results
London and New York, 28 June 2017 - Amphion Innovations plc
(AIM: AMP), the developer of medical, life science, and technology
businesses, announces its audited results for the year ended 31
December 2016.
Financial Results:
-- Net Asset Value ("NAV") fell to US -$5,886,381 (2015: US
$10,892,072) as at year-end due almost entirely to the movement in
value of the Motif Bio plc share price
Partner Companies' Highlights:
-- Motif Bio completed treatment of patients in its Phase III trial (REVIVE-1) for its product
candidate iclaprim
-- Motif Bio listed on NASDAQ, raising GBP20.0 million (US $25.0 million)
Post Period Events:
-- Motif Bio released data readout from REVIVE-1, showing
iclaprim to be well tolerated and met the non-inferiority margin
mandated by the FDA
-- Motif Bio raised an additional GBP20.0 million (US $25.8
million) to fund its REVIVE-2 study through to completion and the
filing of a New Drug Application for iclaprim with the US FDA
-- m2m Imaging Corp. and Polarean Inc. merged to create Polarean
Imaging Limited, a clinical-stage, revenue generating, medical
imaging product company, in a cash and share merger
-- Polarean Imaging Limited announces the closing of its Pre-IPO financing of US $2.0 million
-- Sold the Company's remaining holding of Kromek Group plc
-- In May 2017, Richard Morgan and Robert Bertoldi, Directors of
the Company, entered into a Deed of Postponement where they have
agreed to postpone the repayment of the amounts owed to them, which
total US $4.3 million, until all other debts of the company are
repaid
-- As of 26 June 2017, the increase in Motif's share price to
29.75p has increased Amphion's Net Asset Value by approximately US
$3.2 million
-- Mr. Paul Kennedy resigned as a Non-executive Director on 27 June 2017, with immediate effect
Richard Morgan, CEO of Amphion Innovations plc, commented: "2016
was a difficult year for Motif with the Brexit vote disrupting the
company's funding plans. The sharp fall in sterling amplified the
decline in the share price which in turn hit the value of Amphion's
holding. The release of good data from the REVIVE-1 clinical trial
in 2017 confirmed our belief that Motif has a good programme and is
significantly undervalued. The formation of Polarean Imaging
Limited and the closing of the pre-IPO has put this exciting
company on track for a listing later this year. We look forward to
helping both companies achieve their full potential and to progress
the development of other assets in the Amphion portfolio. We would
also like to thank Paul Kennedy for his contribution to the board
and wish him well."
For further information please contact:
Amphion Innovations Tel: +1 (212) 210 6224
Charlie Morgan
Panmure Gordon Limited (Nominated Adviser Tel: +44 (0)20 7886
and Corporate Broker) 2500
Freddy Crossley / Duncan Monteith (Corporate
Finance)
Charlie Leigh-Pemberton (Corporate
Broking)
Northland Capital Partners Limited (Joint Tel: +44 (0)20 3861 6625
Corporate Broker)
Patrick Claridge / David Hignell (Corporate
Finance)
John Howes (Corporate Broking)
Walbrook PR Tel: +44 (0)20 7933 8780 or
Mike Wort/ Paul McManus amphion@walbrookpr.com
About Amphion Innovations plc - www.amphionplc.com
Amphion Innovations is a developer of medical, life science and
technology businesses. We use our extensive experience in company
building to invest and build shareholder value in high growth
companies in the US and UK. Amphion has significant shareholding in
seven partner companies developing proven technologies targeting
substantial commercial marketplaces. The Amphion model has been
refined to optimise the commercialisation of patents and other
intellectual property within the partner companies. The partner
companies collectively own or control over 200 separately
identified pieces of intellectual property, a number which grows
rapidly each year.
Chief Executive Officer's Statement
Financial Results and Net Asset Value
Revenue in 2016 was US $139,633 (2015: US $519,855) while total
administrative expenses were US $3,474,045 (2015: US $4,680,212).
As a result, the operating loss for the year was US $3,334,412
(2015: US $4,160,357).
Revenue was lower than in 2015 due mainly to a further reduction
in management fees from our Partner Companies. Total administrative
expenses were down sharply compared to the previous year despite
incurring costs associated with DataTern of US $841,055, roughly
similar to the previous year (2015: US $871,003).
The Net Asset Value ("NAV") fell sharply during the year from US
$10,892,072 at 31 December 2015 to
-US -$5,886,381 due nearly entirely to a large reduction in the
value of Amphion's holding in Motif Bio plc ("Motif"), the clinical
stage biopharmaceutical company specialising in developing novel
antibiotics. The share price of Motif fell from 51.7 pence at the
end of June 2016 to 24.7 pence at the end of December 2016. The
fall in the value of the pound, which started in late June
following the leave vote in the Brexit referendum, made the
reduction in the value of the holding in US dollars even more
severe. The pound fell from about US $1.50 just before the Brexit
vote to US $1.23 at the end of December 2016. As result of these
factors, the value of the holding fell by US $13.8 million over the
financial year. As a result, the NAV per Share was -3.0 cents at 31
December 2016 versus 5.5 cents at the end of 2015. In Pounds
Sterling, NAV per Share was -2.4 pence at the end of December 2016,
versus the 2015 year end figure of 3.8 pence.
As noted, the Brexit vote and resulting disruptions in the
financial markets had an adverse impact on Motif and as a result on
Amphion. Since the IPO on AIM in April 2015 Motif's intention was
always to seek a listing on NASDAQ on the assumption that it would
prove to be of value to the shareholders to be listed on the same
market as the other leading antibiotic companies. Unfortunately,
the biotech market experienced challenges in late 2015 and by the
time a recovery started in the spring the main biotech indices were
down over 40% from their highs in the summer of 2015. The
volatility within the biotech indices meant that Motif's board and
executives were forced to be flexible in achieving the goals of new
capital and a public listing in the US markets. During this time,
the Motif share price fell to around 30p, almost 30% below where it
had been just twelve months prior and more than 50% below where it
had been a year earlier in US dollars. The financing to raise GBP20
million (approximately US $26 million) was ultimately priced at
28p, which was disappointing, but necessary for Motif to continue
towards its goals and deliver significant shareholder value.
Amphion continues to have confidence in the underlying value of
Motif and despite the sharp fall in the market price late last year
we continue to expect the value to be significantly in the
short-to-medium term if the data readout from REVIVE-2, the second
of the two pivotal clinical trials, meets expectations. The data
readout for REVIVE-1, announced on 18 April 2017, did indeed meet
those expectations and we have every reason to expect the readout
from REVIVE-2, due in the next six months, to be very similar.
Since the period end, Motif raised an additional GBP20.0 million
(US $25.8 million) in June 2017 which is expected to be sufficient
to fund the company through the filing of a New Drug Application
("NDA") for its antibiotic product candidate iclaprim in the first
half of 2018. Historically, most antibiotic companies that have
reached the stage where the value of the drug is supported by good
data have traded in the stock market at valuations significantly
higher than Motif's current valuation. For example, Durata
Therapeutics was acquired for US $675 million in late 2014
following approval of its antibiotic a few months earlier. At the
time of writing, both Tetraphase Pharmaceuticals Inc. and Paratek
Pharmaceuticals have valuations considerably higher of US $270
million and US $680 million respectively) and the valuation of
Achaogen Inc. is approaching US $1 billion.
Motif Bio plc
Post period end, on 18 April 2017, Motif announced the data
readout from REVIVE-1, the first of the two Phase III trials under
way to provide the regulatory agencies with the information and
data required for Motif to seek marketing approval of the drug in
the US and Europe. The data show iclaprim to be well tolerated and
to meet the non-inferiority margin mandated by the FDA. Data
readout from REVIVE-2, the on-going second Phase III trial, is
expected in the second half of 2017. REVIVE-2 uses the same
protocol and trial design but at different sites and there is no
reason to believe the data readout from the second trial should be
materially different from the first. If REVIVE-2 is successful, as
we expect it to be, iclaprim will have been used in close to 1,000
patients and demonstrated a good safety profile and efficacy
comparable to other antibiotics in use today, many of which are
already seeing the onset of antimicrobial resistance. Subject to
the necessary regulatory approvals, Motif expects to begin
marketing the drug in 2019. Amphion currently owns approximately
16.5% of Motif.
Polarean Imaging Limited
Post period end, on 31 May 2017, we announced that Amphion
Partner Company, m2m Imaging Corp. ("m2m"), completed the merger
with Polarean Inc. to form Polarean Imaging Limited ("Polarean"), a
UK company, for which we plan to seek a listing on AIM later this
year. In addition to the merger, we announced the successful
completion of a pre-IPO placing which raised Polarean a total of US
$2 million. Approximately 20% of the total financing was subscribed
by Amphion. Polarean is a clinical-stage, revenue generating,
medical imaging product company that expects to gain clinical
approval for its drug/device combination product, which enables the
visualisation of hyperpolarised Xenon(129) via magnetic resonance
imaging technology, within three years. The protocol for the
clinical trials has been agreed with the FDA and, if successful,
should garner a broad clearance to market "for use in pulmonary
medicine." The FDA has recognised hyperpolarized Xenon(129) as
safe, given the history of use of Xenon gas in anesthesia. Polarean
has a growing installed base of 15 systems currently in use at
leading research institutions and the company expects to sell
additional units and consumables for research purposes during the
course of the next two years while the Phase III clinical trial is
under way. The FDA has indicated a broad marketing label for the
system if the trial is successful and launch of the system for
clinical use should follow in early 2020.
Polarean designs, develops, and manufactures the equipment
required to hyperpolarise the noble gas Xenon(129) , which is
visible in magnetic resonance imaging ("MRI") for the purpose of
quantitatively and non-invasively visualizing pulmonary function at
high levels of resolution, sensitivity, and reproducibility.
Polarean also designs, develops, and manufactures optimised high
performance Radio Frequency ("RF") coils specifically required for
the Xenon signal detection in MRI systems. Polarean has a
proprietary position in the technology and equipment that enables
all existing MRI systems to achieve a vastly improved level of
pulmonary functional imaging.
Polarean's products address an acute unmet medical need. Current
methods to diagnose and monitor lung disease are either imprecise
(e.g. spirometry and scintigraphy), and/or deliver radiation to
patients (scintigraphy, X-ray, computerised tomography ("CT")).
None are able to visualise the function of the smallest airways
where disease begins. Polarean's technology provides vastly
improved imaging quality and diagnostic benefit.
The potential market for Polarean's products is very large,
conditioned by the prevalence of pulmonary disease and by the over
10,000 MRI systems in operation in the US today (and a similar
number overseas). The company's proprietary technology is used in
conjunction with the existing installed base of MRI machines,
allowing MRI equipment to function more profitably and in novel
ways. Lung disease is widespread, costly, and growing. In the US
alone, it affects approximately 40 million Americans and costs the
healthcare delivery system more than US $150 billion annually. In
China, 100 million people suffer from chronic obstructive pulmonary
disease ("COPD"), 30 million from asthma, and respiratory disease
accounts for 12% of all deaths.
Amphion invested about US $400,000 in the pre-IPO financing, and
following the merger and pre-IPO raise, Amphion will own
approximately 26% of Polarean.
DataTern Inc. and the Intellectual Property Licensing
Programme
After a very long delay, DataTern Inc. ("DataTern"), a wholly
owned subsidiary of the Company, received a Markman ruling in the
MicroStrategy case that has been under review by DataTern's legal
team. This followed favourable rulings by the U.S. District Court
in Massachusetts (the "Court"), which earlier denied two motions
for summary judgment filed by MicroStrategy Inc. ("MicroStrategy")
seeking dismissal of DataTern's claims on the grounds of validity
and infringement. DataTern has since been conferring with legal
counsel on possible ways to move the programme forward.
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 which 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.
DataTern's legal team, supported by its extensive team of
technical and patent experts, has for many years expressed
confidence in the strength of the intellectual property. DataTern's
two 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. It remains the considered opinion of the team that
the two patents are both valid and being infringed by a wide range
of companies that are practicing this critical art. Ultimately
these opinions will be tested in the courts and the recent Markman
ruling has clarified certain aspects of the patent which will be
important as the case moves on to the next stage. In order to
pursue these claims DataTern needs to be able to fund the expenses
in the programme and efforts to find a suitable funding source are
continuing.
Amphion's holding of intellectual property ("IP") assets is
valued at amortised cost of US $119,932. In addition to the initial
purchase of these IP assets from our Partner Company, FireStar
Software Inc. ("FireStar"), 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 continue to believe that the
realisable value of the intellectual property assets held by
DataTern should be greater than the carrying value.
Under the revenue sharing agreement with DataTern, (as fully
described in Note 12 on page 43 of the Company's consolidated
financial statements) Amphion's Partner Company, FireStar, (where
the technology and patents were originally developed) would share
directly in the revenue stream.
Building Value in the Partner Companies
Since flotation, Amphion's business model has been to create 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
saw 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.
Although we continue to believe that the technology platform of
Kromek Group plc ("Kromek"), a former Partner Company, has
significant potential, the company has continued to lose money,
which led to the need for a further substantial fund raising in
early 2017. Amphion's shareholding in Kromek had already fallen to
2% by the end of 2016 and, following the financing and subsequent
rally in the share price, we decided to dispose of the remainder of
our holding. Over the life of the investment Amphion invested a
total of US $3.4 million dollars and realised a total gain of close
to US $5 million dollars. We are pleased to have been instrumental
in the development of the business and hope to see it do well in
the future.
Amphion has continued to work closely with the legal advisers of
Axcess International Inc. ("Axcess"), which provides
Micro-Wireless(TM) system solutions for real-time business activity
monitoring and control, to evaluate the extent to which all 13
patents in Axcess' 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, and a number of companies in the
transportation, security, and other sectors appear to be infringing
one or more of these patents. Axcess is currently discussing
litigation strategies and financing opportunities with several
legal and litigation financing firms. Axcess has already engaged
with one law firm which is currently asserting claims against
companies that are believed to be infringing one of the Company's
patents. A second law firm is conducting a protracted review of the
case for assisting Axcess in pursuing separate claims against
another large company that is thought to be infringing a second
patent.
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. FireStar is looking to
start a pilot programme with a small clinical trial sponsor with
the plan to create a product offering by the end of 2017. FireStar
was recently advised that another patent will be shortly issued,
bringing to five the total number of
patents issued to the company in support of its product
offering, and the company believes that there may also be
opportunities to license the technology.
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 in April 2015. Since then, the Company has
borrowed additional funds under this loan facility. The sale of
some of our holding in Kromek in 2016 provided US $0.9 million in
financing that was used to fund working capital, the further
development of m2m, and other Partner Companies. That has continued
into 2017 with the sale of the remainder of the holding of Kromek
shares. The support from the management team has continued but with
reduced prominence and the Company has managed to continue to
access the loan facility which has been secured by the holding of
shares in Motif.
The liabilities on the balance sheet stood at a total of US
$30,335,082 million at the end of the year, about US $1.2 million
higher than at mid-year. Total assets at the end of 2016 stood at
US $24,448,701 million. 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
2016), the remainder of the third-party payables at the DataTern
level stood at about US $1 million. Of the remainder of the
liabilities, US $14,356,476 were amounts owing to current or former
board members and US $5,936,197 were amounts due to the other
holders of the Company's Convertible Promissory Note ("CPN"), which
was extended in February of 2016 to a maturity date at the end of
2017. The Executive Directors of the Company have entered into a
Deed of Postponement with terms that postpone payments to these
individuals of approximately US $4.3 million until all other debts
of the Company are paid. 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.
Earlier in the 2016 financial year/post period end, the Company
entered into discussions with the estate of R. James Macaleer, the
former Chairman of the Company, and has reached an agreement to
extend the maturity of the Notes payable to the end of 2017, in
return for the grant of 3 million warrants (1 million at 8p, 1
million at 9p, and 1 million at 10p). However, in no case will any
payment be due on the Macaleer Notes until the amounts outstanding
under the Company's existing loan facility are fully repaid.
When the terms of the CPN were amended in March 2016 the holders
were offered an option to apply for early redemption on three
specified dates. A small quantity of the CPN was redeemed on 31 May
2016 and 30 November 2016 and the next redemption date is on 30
June 2017. The amount to be redeemed at that date is approximately
GBP55,000. The balance of the CPN is due to be repaid on 31
December 2017. The Notes are convertible into fully paid Ordinary
Shares at 8 pence per Ordinary Share and pay interest at 7% if the
respective Noteholder elects to be paid in Ordinary Shares, or 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 was issued two
warrants. Each warrant granted will entitle the holder to subscribe
for Shares at 10 pence per Ordinary Share.
Prospects for 2017 and Beyond
Despite the setback to the Motif share price, we continue to
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 recorded 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 of Amphion have supported the Company
through several lean years, and 2016 proved to be more difficult
than most. We are pleased to see our commitment to the development
of m2m starting to bear fruit. Polarean is an exciting company
addressing a major unmet medical need with an innovative,
proprietary, and clinically useful technology that has already
started to garner a following in the market.
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
further fall in the price of Motif's shares in the second half of
2016, we decided to raise more capital for Amphion in the
short-term via an increase in the use of our loan facility, rather
than attempt to approach the equity market for the time being. 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 loan
facility can be repaid at any time using Amphion shares, Motif
shares or cash.
The outlook for Amphion depends increasingly on the value we can
capture from our holdings in Motif and Polarean, now that we have
Polarean on the path to commercialisation. We are very actively
supporting the development of both Motif and Polarean and view the
future of both companies with optimism. In addition, we continue to
support FireStar, Axcess, and WellGen. We are excited by the
prospects for the development of FireStar's new product platform
and hope that we can get that on the runway in 2018. 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
2016
Notes
Year ended Year ended
31 December 31 December
2016 2015
------------------------- -------------------------
Continuing
operations US $ US $
Revenue 4 139,633 519,855
Cost of sales - -
Gross profit 139,633 519,855
Administrative
expenses (3,474,045) (4,680,212)
Operating loss (3,334,412) (4,160,357)
Fair value
(losses)/gains
on
investments 14 (12,702,464) 8,512,215
Realized
(losses)/gains
on sale
of investment 14 (1,642,029) 1,595,429
Interest income 8 776,244 678,824
Other gains and
losses 1,507,321 505,015
Finance costs 9 (1,446,659) (1,187,427)
(Loss)/profit
before tax 6 (16,841,999) 5,943,699
Tax on
(loss)/profit 10 (1,235) (1,900)
(Loss)/profit
for the year (16,843,234) 5,941,799
------------------------- -------------------------
Other
comprehensive
income
Exchange
differences
arising
on translation
of foreign
operations - -
Other
comprehensive
income for
the year - -
------------------------- -------------------------
Total comprehensive (loss)/income for
the year (16,843,234) 5,941,799
========================= =========================
The Directors consider that all results derive from
continuing activities.
(Loss)/profit
per share 11
Basic US $ (0.09) US $ 0.03
========================= =========================
Diluted US $ (0.09) US $ 0.02
========================= =========================
The notes on pages 28 - 59 are an integral part
of these financial statements.
Amphion
Innovations plc
Company statement of
Comprehensive
Income
For the year
ended 31
December
2016
Year ended Year ended
31 December 31 December
Notes 2016 2015
------------------------------- --------------------------------
US $ US $
Continuing
operations
Administrative
expenses (1,952,662) (2,068,530)
Operating loss (1,952,662) (2,068,530)
Fair value
(losses)/gains
on investments 14 (9,800,095) 5,654,608
Realized
(loss)/gain on
sale of
investments 14 (1,642,029) 1,595,429
Impairment of
subsidiary
investment (116,831) 114,540
Interest income 8 706,837 557,123
Other gains and
losses 1,507,126 505,015
Finance costs 9 (1,400,136) (1,138,455)
(Loss)/profit
before tax 6 (12,697,790) 5,219,730
Tax on
profit/(loss) 10 - -
(Loss)/profit
for the year (12,697,790) 5,219,730
------------------------------- --------------------------------
Other
Comprehensive
Income for
the year - -
Total comprehensive
(loss)/income for
the year (12,697,790) 5,219,730
=============================== ================================
The Directors consider that all results derive from
continuing activities.
The notes on pages 28 - 59 are an integral
part of these financial statements.
Amphion Innovations plc
Consolidated statement of Financial
Position
As at 31 December 2016
31 December 31 December
Notes 2016 2015
-------------------- ----------------------
US $ US $
Non-current assets
Intangible assets 12 119,932 275,016
Security deposit 15 20,000 22,008
Investments 14 22,844,324 37,444,316
22,984,256 37,741,340
-------------------- ----------------------
Current assets
Prepaid expenses and other receivables 15 1,150,619 1,206,843
Cash and cash equivalents 15 313,826 936,981
1,464,445 2,143,824
-------------------- ----------------------
Total assets 24,448,701 39,885,164
==================== ======================
Current liabilities
15,
Trade and other payables 16 10,148,353 10,346,011
15,
Notes payable 17 12,960,670 10,334,901
15,
Convertible promissory notes 17 7,226,059 8,312,180
30,335,082 28,993,092
-------------------- ----------------------
Total liabilities 30,335,082 28,993,092
==================== ======================
Net (liabilities)/assets (5,886,381) 10,892,072
==================== ======================
Equity
Share capital 18 3,465,082 3,460,880
Share premium account 38,677,056 38,667,074
Retained earnings (48,028,519) (31,235,882)
Total equity (5,886,381) 10,892,072
==================== ======================
The financial statements were approved by the Board of Directors and
authorised for issue on
27 June 2017. They were signed on its
behalf by:
Director Director
Richard C.E. Morgan Robert J. Bertoldi
The notes on pages 28 - 59 are an integral part
of these financial statements.
Amphion Innovations plc
Company statement of Financial
Position
At 31 December 2016
31 December 31 December
Notes 2016 2015
------------------------ ------------------------
US $ US $
Non-current assets
Security deposit - -
Investments 14 20,141,701 31,839,324
Investment in subsidiaries 13 525,153 641,984
20,666,854 32,481,308
------------------------ ------------------------
Current assets
Prepaid expenses and other receivables 15 8,097,236 6,099,021
Cash and cash equivalents 15 303,807 883,074
8,401,043 6,982,095
------------------------ ------------------------
Total assets 29,067,897 39,463,403
======================== ========================
Current liabilities
15,
Trade and other payables 16 4,149,448 3,491,093
15,
Notes payable 17 12,055,170 9,389,901
15,
Convertible promissory notes 17 7,226,059 8,312,180
23,430,677 21,193,174
------------------------ ------------------------
Total liabilities 23,430,677 21,193,174
======================== ========================
Net assets 5,637,220 18,270,229
======================== ========================
Equity
Share capital 18 3,465,082 3,460,880
Share premium account 38,677,056 38,667,074
Retained earnings (36,504,918) (23,857,725)
Total equity 5,637,220 18,270,229
======================== ========================
The financial statements were approved by the Board
of Directors and authorised
for issue on 27 June 2017. They were signed on its
behalf by:
Director Director
Richard C.E. Morgan Robert J. Bertoldi
The notes on pages 28 - 59 are an integral part
of these financial statements.
Amphion Innovations
plc
Consolidated statement of changes in
equity
For the year ended 31
December
2016
Share
Share premium Retained
Notes capital account earnings Total
-------------- ------------------- -------------------- ---------------------
US $ US $ US $ US $
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 18 744,224 2,596,210 - 3,340,434
Recognition of
share-based
payments 20 - - 23,660 23,660
Balance at 31
December
2015 3,460,880 38,667,074 (31,235,882) 10,892,072
Loss for the year - - (16,843,234) (16,843,234)
Other comprehensive income
for the year - - - -
--------------
Total comprehensive
loss
for the year - - (16,843,234) (16,843,234)
-------------- ------------------- -------------------- ---------------------
Issue of share
capital 18 4,202 9,982 - 14,184
Recognition of
share-based
payments 20 - - 50,597 50,597
Balance at 31
December
2016 3,465,082 38,677,056 (48,028,519) (5,886,381)
============== =================== ==================== =====================
Amphion
Innovations plc
Company statement of
changes
in equity
For the year ended
31 December
2016
Share
Share premium Retained
Notes capital account earnings Total
------------------ -------------------- -------------------- -----------------
US $ US $ US $ US $
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 18 744,224 2,596,210 - 3,340,434
Recognition of
share-based
payments 20 - - 23,660 23,660
Balance at 31
December
2015 3,460,880 38,667,074 (23,857,725) 18,270,229
Loss for the year - - (12,697,790) (12,697,790)
Total
comprehensive
loss
for the year - - (12,697,790) (12,697,790)
------------------ -------------------- -------------------- -----------------
Issue of share
capital 18 4,202 9,982 - 14,184
Recognition of
share-based
payments 20 - - 50,597 50,597
Balance at 31
December
2016 3,465,082 38,677,056 (36,504,918) 5,637,220
================== ==================== ==================== =================
Amphion Innovations plc
Consolidated cash flow statement
For the year ended 31 December 2016
Year ended Year ended
31 December 31 December
Notes 2016 2015
------------------------------- --------------------------------
US $ US $
Operating activities
(Loss)/profit (16,843,234) 5,941,799
Adjustments for:
Amortisation of intangible assets 12 155,084 155,084
Recognition of share-based payments 64,781 98,881
Receivables reclassified to
investments 14 - (432,420)
Change in fair value of investments 12,702,464 (8,512,215)
(Loss)/gain on sale of investments 1,642,029 (1,595,429)
Issue notes to settle interest
expense 395,687 439,524
Gain from change in foreign exchange
rate on convertible
promissory notes (1,392,038) (444,126)
Received investment shares for
interest
income (265,517) -
Transfer of assets to settle
interest
expense - 89,480
(Increase)/decrease in security
deposit 2,008 (8,408)
Decrease in prepaid & other
receivables 56,224 1,362,537
Increase/(decrease) in trade and
other
payables (197,658) 75,427
Net cash used in operating activities (3,680,170) (2,829,866)
------------------------------- --------------------------------
Investing activities
Purchases of investments 14 (395,015) (402,015)
Proceeds from disposition of
investment 916,031 -
Net cash provided by/(used in)
investing
activities 521,016 (402,015)
------------------------------- --------------------------------
Financing activities
Proceeds on issue of shares, net of
costs - 3,265,213
Proceeds on issue of promissory notes 17 4,865,000 3,300,000
Repayments of promissory notes 17 (2,329,001) (2,609,167)
Net cash from financing activities 2,535,999 3,956,046
------------------------------- --------------------------------
Net increase/(decrease) in cash and
cash equivalents (623,155) 724,165
Cash and cash equivalents at the
beginning
of the year 936,981 212,816
Cash and cash equivalents at the end
of the year 313,826 936,981
=============================== ================================
Interest received 314,205 43
=============================== ================================
Interest paid 316,447 245,079
=============================== ================================
Amphion Innovations plc
Company cash flow statement
For the year ended 31 December 2016
Year ended Year ended
31 December 31 December
Notes 2016 2015
-------------------------------- ---------------------------------
Operating activities US $ US $
(Loss)/profit (12,697,790) 5,219,730
Adjustments for:
Recognition of share-based
payments 64,781 98,881
Receivables reclassed to
investments 14 - (389,587)
Issue notes to settle interest
expense 395,687 439,524
Gain from change in foreign exchange rate
on convertible
promissory notes (1,392,038) (444,126)
Received investment shares for
interest
income (265,517) -
Transfer of assets to settle
interest
expense - 89,480
Increase in prepaid & other
receivables (1,998,215) (733,261)
Increase in trade and other
payables 658,357 183,172
Change in fair value of
investments 9,800,094 (5,654,608)
(Gain)/loss on sale of investments 1,642,028 (1,595,429)
Change in value subsidiary
investment 116,831 (114,540)
Net cash used in operating
activities (3,675,782) (2,900,764)
-------------------------------- ---------------------------------
Investing activities
Purchases of investments 14 (395,015) (402,015)
Proceeds from disposition of
investment 916,031 -
Net cash provided by/(used in)
investing
activities 521,016 (402,015)
-------------------------------- ---------------------------------
Financing activities
Proceeds on issue of shares, net of
costs - 3,265,213
Proceeds on issue of promissory
notes 17 4,865,000 3,300,000
Repayments of promissory notes 17 (2,289,501) (2,572,167)
Net cash from financing activities 2,575,499 3,993,046
-------------------------------- ---------------------------------
Net (decrease)/increase in cash and
cash equivalents (579,267) 690,267
Cash and cash equivalents at the
beginning
of the year 883,074 192,807
Cash and cash equivalents at the end
of the year 303,807 883,074
================================ =================================
Interest received 130,263 43
================================ =================================
Interest paid 316,443 244,414
================================ =================================
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 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.
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 15 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 with a negative net
asset 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 and
the more aggressive realisation of the Group's investments in
Partner Companies.
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,
convertible promissory notes ("CPNs") and promissory notes), 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 2016 and 2015 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 and non-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 22 for further
detail). The Group will need to continue to implement these
measures and seek further financing as required. The Group's
primary method of financing during 2016 and 2015 was through a
second loan facility, using its holdings in Kromek Group plc and
Motif Bio plc as security. Further access to additional funds under
the second loan facility will be dependent on a number of factors
including the appreciation in value of the ordinary shares of Motif
Bio plc. 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 17 for further details). This facility was
further extended in April 2016 to include Motif Bio plc shares as
security. As of the current date, 42,461,625 shares of Motif Bio
plc are pledged as security. No Kromek Group plc shares are pledged
as they have been disposed of post year end. 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.
-- As at 31 December 2016 the Group has US $20,186,729 (2015: US
$18,647,081) in notes payable including US $7,226,059 (2015: US
$8,312,180) of convertible promissory notes ("CPNs") that are due
to mature on 31 December 2017 and US $5,665,269 from a loan
facility payable in monthly installments from 1 March 2016 to 1
December 2017. The repayment of the amounts is subject to
uncertainty due to the factors noted above and below. The Group's
ability to extend repayment, if required, is also uncertain.
-- 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 and is confident of its ability to fund
near term cash requirements through this process if required.
-- 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. On 22 December 2016, there was an amendment to the
settlement agreement that extended the payment terms for the last
payment of US $575,000 on 31 December 2016. Under the new terms,
Amphion will pay US $650,000 in monthly payments from 23 December
2016 through 30 June 2017 plus interest at 10% per annum. At 31
December 2016, US $525,000 was due BRG under the new terms. As of
the date of this report, the balance has been repaid.
-- In May 2017, Richard Morgan and Robert Bertoldi, Directors of
the Company, entered into a deed of postponement where they have
agreed to postpone the repayment of the amounts owed to them, which
total US $4,300,000, until all other debts of the company are
repaid.
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"), 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
2016:
-- 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 2016 and
earlier application is permitted; however, the Group and Parent
Company has not early applied the following new or amended
standards in preparing these financial statements. The new
standards potentially relevant to the Group and Parent Company are
discussed below. The Group and Parent Company do not plan to adopt
these standards early.
New or amended Summary of the requirements Possible impact on
standards financial statements
----------------- ---------------------------------------- -----------------------------
IFRS 9 Financial IFRS 9, published in July 2014 Based on the initial
Instruments and expected to be adopted assessment, this standard
by the EU in H1 2016, replaces is not expected to
the existing guidance in IAS have a material impact
39 Financial Instruments: Recognition on the Group or Parent
and Measurement. IFRS 9 includes Company. This is because
revised guidance on the classification financial instruments
and measurement of financial currently measured
instruments, a new expected at FVTPL will continue
credit loss model for calculating to be measured at
impairment on financial assets, FVTPL under IFRS 9
and new general hedge accounting and those currently
requirements. It also carries measure at amortised
forward the guidance on recognition cost will continue
and recognition of financial to be measured at
instruments from IAS 39. amortised cost under
IFRS 9.
IFRS 9 is effective for annual
reporting periods beginning
on or after 1 January 2018,
with early adoption permitted.
----------------- ---------------------------------------- -----------------------------
IFRS 15, IFRS 15 establishes a comprehensive Based on the initial
Revenue from guideline for determining when assessment, this standard
Contracts to recognise revenue and how is not expected to
with Customers much revenue to recognise. have a significant
impact on the Group's
IFRS 15 is effective for annual net results or net
reporting periods beginning assets.
on or after 1 January 2018,
with early adoption permitted.
----------------- ---------------------------------------- -----------------------------
IFRS 16 Leases IFRS 16 will replace IAS 17. Based on the initial
It will eliminate the distinction assessment, this standard
between classification of leases is not expected to
as finance or operating leases have a significant
for leases. impact on the Group's
net results or net
IFRS 16 is effective for annual assets.
reporting periods beginning
on or after 1 January 2019,
with early adoption permitted.
----------------- ---------------------------------------- -----------------------------
Amendments The amendments require disclosures To satisfy the new
to IAS 7, that enable users of financial disclosure requirements,
Disclosure statements to evaluate changes the Group intends
Initiative in liabilities arising from to present a reconciliation
financing activities, including between the opening
both changes arising from cash and closing balances
flow and non-cash changes. for liabilities with
changes arising from
The Amendments are effective financing activities.
for annual reporting periods
beginning on or after 1 January
2017, 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.
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 or the average cost per share
when a capital change has occurred.
-- 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 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.
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.
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 Statement of Financial
Position 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
foreign 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 Statement of
Financial Position 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
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 14, 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
$7.9 million (2015: US $5.8 million) in the Group and US $7.9
million (2015: US $5.8 million) in the Company.
Fair value of other receivables
The valuation of the Private Investments and other receivables
from Partner Companies at 31 December 2016 assumes that the Partner
Companies continue to receive ongoing funding in accordance with
their 2017/2018 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 31
December 31 December December 31 December
2016 2016 2015 2015
----------- --------------------------------- ----------- ----------------------------------
US $ US $ US $ US $
Continuing
operations
Advisory
fees 139,633 - 459,904 -
License
fees - - 59,951 -
Fee income 139,633 - 519,855 -
=========== ================================= =========== ==================================
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 2016 and 2015
relating to the ME fee agreement and as a result no fees were paid
to ME.
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 2016, 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
2016 2016 2016 2016 2016
US $ US $ US $ US $ US $
REVENUE
External
advisory
fees 139,633 - - - 139,633
External
license fees - - - - -
Total revenue 139,633 - - - 139,633
Cost of sales - - - - -
Gross
profit/(loss) 139,633 - - - 139,633
Administrative
expenses (701,216) (1,952,662) (820,167) - (3,474,045)
Segment result (561,583) (1,952,662) (820,167) - (3,334,412)
Fair value
losses
on investments - (14,461,324) - 116,831 (14,344,493)
Interest income - 776,244 - - 776,244
Other gains and
losses 195 1,507,126 - - 1,507,321
Finance costs (4) (1,400,136) (46,519) - (1,446,659)
Gain/(loss)
before
tax (561,392) (15,530,752) (866,686) 116,831 (16,841,999)
Income taxes (1,448) - 213 - (1,235)
Gain/(loss)
after
tax (562,840) (15,530,752) (866,473) 116,831 (16,843,234)
OTHER
INFORMATION
Segment assets 4,577,294 29,182,098 152,839 (9,463,530) 24,448,701
Segment
liabilities 8,156,043 23,450,503 7,666,913 (8,938,377) 30,335,082
Amortisation - - 155,084 - 155,084
Recognition of
share-based -
payments - 64,781 - - 64,781
For management purposes for 2015, 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
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
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
----------------------------
2016 2015
US $ US $
United States - 60,000
United Kingdom 139,633 399,904
139,633 459,904
============= =============
The following table provides an analysis of the Group's external
license fees by geographical location:
External license
fees by
geographical location
--------------------------
2016 2015
US $ US $
United States - 50,551
Europe - 9,400
- 59,951
========= ===============
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:
Additions to fixtures,
Carrying amount fittings,
equipment, and intangible
of segment assets assets
-------------------------- ----------------------------
2016 2015 2016 2015
US $ US $ US $ US $
United States 9,530,095 8,229,718 - -
United Kingdom 14,918,606 31,655,446 - -
24,448,701 39,885,164 - -
============ ============ ============= =============
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
2016 2016 2015 2015
US $ US $ US $ US $
------------------------ ---------------------------- ------------------------ ----------------------------
Net foreign
exchange
gains 1,507,126 1,507,126 489,572 489,572
======================== ============================ ======================== ============================
Change in
fair value
of financial
assets
designated
as at fair
value
through
profit or
loss (14,344,493) (11,442,124) 10,107,644 7,250,037
======================== ============================ ======================== ============================
Amortisation
of
intangible
assets 155,084 - 155,084 -
======================== ============================ ======================== ============================
Auditors'
remuneration
- audit
services 127,760 58,151 129,388 55,474
======================== ============================ ======================== ============================
7. Staff costs
The average monthly number of employees (including Executive
Directors) was:
2016 2015
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
2016 2016 2015 2015
Their aggregate remuneration comprised: US $ US $ US $ US $
Wages and salaries 872,430 163,068 1,158,414 211,870
Social security costs 35,977 6,128 42,001 7,230
Other pension costs (see note 23) - - - -
908,407 169,196 1,200,415 219,100
=============== ======== ================ ========
8. Interest income
Group Company Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2016 2016 2015 2015
------------ ------------ ------------ ------------
US $ US $ US $ US $
Interest income:
Bank deposits 59 59 43 43
Investments 776,185 706,778 678,781 557,080
Other - - - -
776,244 706,837 678,824 557,123
============ ============ ============ ============
At 31 December 2016, the receivable for accrued interest income
from Partner Companies has been reduced by a provision for doubtful
debts of US $1,981,715 (2015: US $2,256,762).
9. Finance costs
Group Company Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2016 2016 2015 2015
------------ ------------ ------------ ------------
US $ US $ US $ US $
Interest on promissory
notes 1,446,656 1,400,136 1,187,427 1,138,455
============ ============ ============ ============
10. Income tax expense
Group Group
Year ended Year ended
31 December 31 December
2016 2015
------------------------------ ------------------------------
US $ US $
Isle of Man income
tax - -
Tax on US subsidiaries 1,235 1,900
Current tax 1,235 1,900
============================== ==============================
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 (2015: 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.
The Group charge for the year can be reconciled to the profit
per the consolidated income statement as follows:
2016 2015
US $ US $
Profit/(loss) before tax (16,841,999) 5,943,699
=========================== ===========================
Tax at the Isle of Man income tax rate of 0% - -
Effect of different tax rates of subsidiaries
operating in other jurisdictions 1,235 1,900
Current tax/(refund) 1,235 1,900
=========================== ===========================
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
2016 2015
------------- ------------
US $ US $
(Loss)/profit for the purposes of basic
and diluted earnings per share (16,843,234) 5,941,799
============= ============
Number of shares
Year ended Year ended
31 December 31 December
2016 2015
------------ ------------
Weighted average number of ordinary shares
for
the purposes of basic and diluted earnings
per share 197,502,435 179,083,069
============ ============
Loss per share
Year ended Year ended
31 December 31 December
2016 2015
---------------------------- --------------------------
US $ US $
Basic (0.09) 0.03
============================ ==========================
Diluted (0.09) 0.02
============================ ==========================
The following potentially dilutive securities outstanding at
December 31, 2016 and 2015 have been excluded from the computation
of diluted weighted average shares outstanding, as they would be
antidilutive:
Year ended Year ended
31 December 31 December
2016 2015
------------ ------------
Options 2,260,807 3,925,501
Convertible promissory notes 73,215,318 56,369,051
------------ ------------
75,476,125 60,294,552
============ ============
12. Intangible assets
Group
Patents, software,
trademark, and
copyright
--------------------------------------------
COST US $
At 1 January 2015 1,610,489
Additions -
At 1 January 2016 1,610,489
Additions -
At 31 December
2016 1,610,489
--------------------------------------------
AMORTISATION
At 1 January 2015 1,180,389
Charge for the
period 155,084
At 1 January 2016 1,335,473
Charge for the
period 155,084
At 31 December
2016 1,490,557
--------------------------------------------
CARRYING AMOUNT
At 31 December
2016 119,932
============================================
At 31 December
2015 275,016
============================================
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 (2015:
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 $163,000 at year end.
13. Investments in subsidiaries
Details of the Company's subsidiaries at 31 December 2016 and
2015 are as follows:
Place of
Proportion Proportion
incorporation of of
ownership voting power
Name of (or registration) interest held Share
Principal
subsidiary and operation 2016 2015 2016 2015 class activity
-------------- ------------------- -------- ----- ------- --------- --------- -------------
% % % %
Consolidated
Amphion
Innovations Delaware, Advisory
US Inc. USA 100 100 100 100 Common services
Intellectual
DataTern, Inc. Texas, USA 100 100 100 100 Common property
MSA Holding
Company Kingdom of
BSC 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 2016 and 2015.
14. 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
2016 31,655,446 - 5,788,870 37,444,316 26,050,454 - 5,788,870 31,839,324
Investments
during
the year 265,517 - 395,015 660,532 265,517 - 395,015 660,532
Disposals (916,031) - - (916,031) (916,031) - - (916,031)
Fair value
gains/(losses) (16,086,326) - 1,741,833 (14,344,493) (13,183,957) - 1,741,833 (11,442,124)
At 31 December
2016 14,918,606 - 7,925,718 22,844,324 12,215,983 - 7,925,718 20,141,701
============= ================= ===================== ================== ============= ================= ================== =============
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
============= ================= ===================== ================== ============= ================= ================== =============
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 decrease in fair value for the year of US
$14,344,493 (2015: increase of US $10,107,644) includes a net
increase of US $1,741,833 in Level 3 investments (2015: decrease of
US $3,828,581) that has been estimated using valuation techniques
in accordance with the International Private Equity and Venture
Capital Valuation Guidelines. The Company net decrease in fair
value for the year of US $11,442,124 (2015: increase of US
$7,250,037) includes a net increase of US $1,741,833 in Level 3
investments (2015: decrease of US $3,828,850) that has been
estimated using valuation techniques in accordance with the
International Private Equity and Venture Valuation Guidelines.
There were no transfers between levels in 2016. 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 2016 Group and Company disposals include the sale of
2,730,000 Kromek Group plc ordinary shares for US $913,777 that was
used to pay the monthly payments to the institutional lender, the
sale of 2,000 Novacyt S.A. shares for US $2,254, and the write off
of m2m Imaging Corp. equity with a cost of US $1,613,686 as a
result of the sale of all of m2m Imaging Corp.'s assets for the
forgiveness of debt and the subsequent dissolution and liquidation
of m2m Imaging Corp. As part of the transfer of assets between m2m
Imaging Corp. and m2m Acquisition Inc., m2m Imaging Corp. was
dissolved and the forgiveness of debt was used as consideration for
shares in m2m Acquisition Inc. 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).
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 2016 is set
out below:
Fair Unobservable
Level 3 value Methodology inputs
----------
US $
Multiple methods used in combination including:
Private investments 7,925,718 Discount to last market price, Discount (0%-100%),
discount to last financing round, price of price of fund
future financing round, third party raising.
valuation, and valuation of planned transaction.
-------------------- ---------- ------------------------------------------------- --------------------
Further information in relation to the directly held private
investment portfolio at 31 December 2015 is set out below:
Fair Unobservable
Level 3 value Methodology inputs
----------
US $
Multiple methods used in combination including:
Private investments 5,788,870 Discount to last market price, Discount (30%-100%),
discount to last financing round, price of price of fund
future financing round, and third party 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 (2015: US $nil) to
profit
or loss of the Group and the Company using more favourable
assumptions and an approximate decrease of US $2,300,000 (2014: US
$2,100,000 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:
2016 2015
Fully-diluted Fully-diluted
ownership ownership
Country of incorporation % %
United States
Axcess International, Inc. * of America 7.03 8.64
United States
FireStar Software, Inc. * of America 11.44 11.44
Kromek Group plc England & Wales 2.20 5.27
United States
Motif Bio plc * of America 16.83 29.21
m2m Acquisition Inc. (transferred assets United States
from m2m Imaging Corp.)* of America 84.50 15.62
Novacyt S.A. France 0.06 0.18
United States
PrivateMarkets, Inc. * of America 20.55 20.55
United States
WellGen, Inc. * of America 23.90 23.90
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
Company the Group is considered to have significant influence.
These are indicated above by an * above.
15. 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
2016 2015 2016 2015
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
Investments - designated
as such upon
initial
recognition 22,844,324 22,844,324 37,444,316 37,444,316 20,141,701 20,141,701 31,839,324 31,839,324
Currents assets
Loans and
receivables
Security deposit 20,000 20,000 22,008 22,008 - - - -
Prepaid expenses
and other
receivables 1,150,619 1,150,619 1,206,843 1,206,843 8,097,236 8,097,236 6,099,021 6,099,021
Cash and cash
equivalents 313,826 313,826 936,981 936,981 303,807 303,807 883,074 883,074
Financial
liabilities
Amortised cost
Trade and other
payables 10,148,353 10,148,353 10,346,011 10,346,011 4,149,448 4,149,448 3,491,093 3,491,093
Convertible
promissory
notes 7,226,059 7,226,059 8,312,180 8,312,180 7,226,059 7,226,059 8,312,180 8,312,180
Notes payable 12,960,670 12,960,670 10,334,901 10,334,901 12,055,170 12,055,170 9,389,901 9,389,901
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 2016 and 2015.
The financial instruments at 31 December 2016 are categorized as
Level 2 in the fair value hierarchy.
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.
The following table is an analysis of the age of financial
assets:
Group
Past due or impaired
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 $
2016
Fees
receivable
- gross - - - 2,090,000 2,090,000
Impairment - - - (2,090,000) (2,090,000)
Rebillable
expenses 523,961 - - - 523,961
Other
receivables 504,897 - - 2,086,177 2,591,074
Impairment - - - (1,981,715) (1,981,715)
Prepaid
expenses 17,299 - - - 17,299
1,046,157 - - 104,462 1,150,619
------------------------- --------------------------- ---------------------------------- --------------------------- -----------------
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
------------------------- --------------------------- ---------------------------------- --------------------------- -----------------
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.
Company
Past due or impaired
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 $
2016
Rebillable
expenses 513,216 - - - 513,216
Due from
subsidiaries 7,018,289 - - - 7,018,289
Other
receivables 468,617 - - 2,076,177 2,544,794
Impairment - - - (1,981,715) (1,981,715)
Prepaid
expenses 2,652 - - - 2,652
----------------------- ------------------------------ ----------------------------------- ---------------------------------- ----------------
8,002,774 - - 94,462 8,097,236
----------------------- ------------------------------ ----------------------------------- ---------------------------------- ----------------
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
----------------------- ------------------------------ ----------------------------------- ---------------------------------- ----------------
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 17). The Group may also issue
equity in order to meet liquidity needs.
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 $
2016
Trade payables & other
payables 10,148,353 - - - 10,148,353
Notes payable 7,989,636 895,300 4,075,734 - 12,960,670
Convertible promissory
notes - - 7,226,059 - 7,226,059
2015
Trade payables & other
payables 10,346,011 - - - 10,346,011
Notes payable 81,301 433,333 9,820,267 - 10,334,901
Convertible promissory
notes - 8,312,180 - - 8,312,180
Company
Less
than 1-3 3 months Over
to 1
1 month months year 1 year Total
US $ US $ US $ US $ US $
2016
Trade payables & other
payables 4,149,448 - - - 4,149,448
Notes payable 7,084,136 895,300 4,075,734 - 12,055,170
Convertible promissory
notes - - 7,226,059 - 7,226,059
2015
Trade payables & other
payables 3,491,093 - - - 3,491,093
Notes payable 81,301 333,333 8,975,267 - 9,389,901
Convertible promissory
notes - 8,312,180 - - 8,312,180
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.
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
2016 2015 2016 2015
US $ US $ US $ US $
Sterling - Cash equivalent - - - -
Sterling - Investment 14,905,730 31,612,738 12,203,107 26,007,746
Convertible promissory notes (7,226,059) (8,312,180) (7,226,059) (8,312,180)
A 5% (2015: 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 $384,000 (2015:
decreased US $1.2 million). A 5% (2015: 5%) weakening of the US
dollar against the British pound sterling would have increased
profit or loss of the Group by approximately US $384,000 (2015:
increased US $1.2 million). A 5% (2015: 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 $249,000 (2014: decreased US $885,000). A 5% (2015: 5%)
weakening of the US dollar against the British pound sterling would
have increased profit or loss of the Company by approximately US
$249,000 (2015: increased US $885,000). The GBP/USD rate used at 31
December 2016 was 1.2337 (2015: 1.4746). 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 $313,826 (2015: US
$936,981). The Company's exposure to interest rate risk is
restricted to the cash and cash equivalent balance of US $303,807
(2015: US $883,074). At 31 December 2016, 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 $1,491,861
(2015: US $3,165,545) and the Company by US $1,221,598 (2015: US
$2,605,045).
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.
16. 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. On 22 December 2016, there was an amendment to the
settlement agreement that extended the payment terms for the last
payment of US $575,000 on 31 December 2016. Under the new terms,
Amphion will pay US $650,000 in monthly payments plus interest at
10% per annum. The payments will be made as follows: US $125,000 on
23 December 2016; US $100,000 on each of 31 January 2017, 28
February 2017, 31 March 2017, 28 April 2017; US $125,000 on 31 May
2017 and the accrued interest on 30 June 2017. As of this date, the
US $650,000 has been paid.
17. Promissory notes
Convertible promissory notes
During 2016, US $395,687 (GBP275,378) additional convertible
promissory notes were issued in payment of the accrued interest
payable on the notes as of 31 December 2015 and the quarters ended
31 March 2016, 30 June 2016, and 30 September 2016. In addition, US
$89,771 (GBP66,549) of convertible promissory notes were redeemed
for cash as part of the exercise of the exchange rights. At 31
December 2016, the convertible promissory notes totaled US
$7,226,059 (GBP5,857,225) (2015: US $8,312,180; GBP5,636,905) and
the warrants issued totaled 11,714,453 (2015: 11,273,813).
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. In August 2016, the Company paid US $89,771
(GBP66,549) as part of the 31 May 2016 exercise of the exchange
rights. In January 2017, the Company paid US $30,736 (GBP23,952) as
part of the 30 November 2016 exercise of the exchange rights.
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).
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 holdings in Kromek
Group plc ("Kromek") and Motif Bio plc 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 proceeds were used to repay the existing amount due
under the facility and for working capital for Amphion and its
Partner Companies. During 2016, the Company drew down an additional
US $4,865,000. Under the terms of the additional draws, US
$3,000,000 plus interest is convertible into the ordinary shares of
the company at 6 pence and the remaining amount plus interest is
convertible at 8 pence. In addition, if on any trading day through
19 August 2018, the Company's closing price per share exceeds the
following hurdles of 9 pence, 10 pence, 11 pence or 12 pence, the
Company shall pay the Lender US $50,000 for each hurdle with the
maximum amount
payable as US $200,000. The repayments under the new terms began
on 1 May 2016 and the final repayment will be due on 1 December
2017. The balance of the loan at 31 December 2016 is US $5,665,269
(2015: US $3,000,000). 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 February 2017 (see note 23 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. In 2016, the Company issued new promissory notes to replace
the US $6,308,600 of notes payable, which expired on 31 December
2015, with notes that matured on 31 December 2016. The rate of
interest on the new notes remains unchanged at 7%. The new notes
contain certain provisions for early repayment. In 2017, the
Company reached an agreement with the estate of R. James Macaleer
to extend the maturity of the notes payable to the end of 2017 in
return for the grant of 3 million warrants (1 million at 8p, 1
million at 9p, and 1 million at 10p). 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 December
2017. Refer to note 22 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 2016 is US $115,500 (2015: US
$155,000).
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 2016 is US $190,000 (2015: 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 2016 is US $600,000 (2015: US
$600,000).
18. Share capital
2016 2015
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 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
Issued for cash or services:
Ordinary shares of 1p each 291,806 2,918 4,202
Balance as at 31 December 2016 197,511,229 1,975,112 3,465,082
============ ============= ==========
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 2016, the following changes
occurred to the share capital of the Company:
On 12 January 2016, the Company issued 291,806 ordinary 1p
shares at a premium of 2.375p per share (US $9,982) to Directors in
payment of 2015 fourth quarter and 2016 first quarter Directors'
fees.
19. Operating lease arrangements
At the balance sheet date, the Group has outstanding commitments
under non-cancellable operating leases, which fall due as
follows:
2016 2015
US $ US $
Within one year 50,000 96,000
In the second to fifth
years inclusive - 40,000
After five years - -
50,000 136,000
======= ========
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 $98,877 in respect of operating
lease arrangements in the year ended 31 December 2016.
20. Share-based payments
2006 Unapproved Share Option Plan
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 Plan ended on 8 June 2016.
The options issued under the Plan total 31,244,250 and
20,000,000 have been forfeited or expired. At 31 December 2016, a
total of 7,049,514 options under the Plan were vested (2015:
6,916,667). No options were issued in 2016 and 2015.
2016 Long Term Incentive Plan
On 31 October 2016, the Group established the 2016 Long Term
Incentive Plan ("LTIP") to replace the 2006 Unapproved Share Option
Plan that expired in June 2016. The LTIP's purpose is to increase
the interest of the employees in the Company's business goals and
results through share ownership. Under this plan, the Compensation
Committee may, at its discretion, grant an award in the form of
options or restricted stock to any eligible employee. An award may
be an invested shares award, a deferred bonus share award, a
performance award, or a matching award. The number of shares which
may be allocated under the LTIP shall not, when added to the
aggregate of the number of shares which have been allocated in the
previous 10 years under the LTIP and any other employees' share
scheme, exceed that number of shares that represents 10% of the
ordinary share capital of the Company in issue immediately prior to
that day.
Under the LTIP, the Company granted 1,913,000 options to certain
of its directors on 8 December 2016. The options have an exercise
price of 2.38 pence per share and expire ten years from the date of
grant. Vesting is monthly over a 36 month period for 600,000 of the
options and the remaining 1,313,000 options vest monthly over a 12
month period. On 15 December 2015, the Company granted 681,250
options to two of its directors. The options have an exercise price
of 2.12 pence per share and expire ten years from the date of
grant. Vesting is monthly over a 36 month period for 400,000 of the
options and monthly over a 30 month period for 281,250 of the
options.
On 28 July 2016, the Company issued 300,000 warrants to a
consultant with an exercise price of 3.5 pence per share that
expire 3 years from the date of grant.
As of 31 December 2016, a total of 45,173,119 options and
warrants have been issued (2015: 42,278,869) and 32,328,869 have
been forfeited or expired (2015: 29,828,869).
2016 2015
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 12,450,000 0.07 15,950,000 0.07
Granted during the period 2,894,250 0.02 - -
Forfeited during the period - - - -
Expired during the period (2,500,000) 0.08 (3,500,000) 0.08
---------------------- ----------------------
Outstanding at the end of the
period 12,844,250 0.07 12,450,000 0.07
====================== ======================
Exercisable at the end of the
period 8,649,514 0.06 8,716,667 0.09
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:
2016 2015
GBP GBP
Weighted average share price 0.024 -
Weighted average exercise price 0.024 -
Expected volatility 89%-111% -
Expected life 3-10 years -
Risk free rate 0.73%-2.40% -
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.
In 2016, options were granted on 8 December 2016 and 15 December
2016 and warrants were granted on 28 July 2016.
No options were granted in 2015. The aggregate of the estimated
fair value of the options granted is US $72,958.
The Company and Group recognised share based payments of US
$50,597 and US $23,660 relating to equity-settled share-based
payment transactions in 2016 and 2015 respectively.
21. 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 2016 or
2015.
22. 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
2016, the amount owed by Motif to the Group was US $190 (2015: US
$1,599).
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 2016 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 2016 (2015: 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 was 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.
On 1 April 2015, Motif Bio plc entered into an advisory and
consultancy agreement with Amphion Innovations US Inc. Richard
Morgan and Robert Bertoldi, Directors of the Company, are also
Chairman and 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 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. The agreement was amended in December 2016 so
that either party may terminate the agreement at any time, for any
reason, upon giving the other party 90 days advance written notice.
Amphion Innovations US Inc.'s fee for the period ended 31 December
2016 was US $120,000 (2015: US $399,904).
On 1 April 2015, Motif Bio plc entered into a consultancy
agreement with Amphion Innovations plc for Robert Bertoldi, a
Director of the Company, 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.
On 1 July 2016, the consideration decreased to US $75,000. The
agreement was for an initial period of twelve months and would
automatically renew each year on the anniversary date unless either
party notified the other by giving 90 days written notice prior to
expiration. The agreement was amended in December 2016 so that
either party may terminate the agreement at any time, for any
reason, upon giving the other party ninety days advance written
notice.
On September 7, 2016, Motif Bio plc entered into an Advisory and
Consultancy Agreement with Amphion Innovations US Inc., pursuant to
which Amphion Innovations US Inc. will, following and subject to
the closing of the November 2016 Motif Bio plc offering, provide
consultancy services in relation to Motif Bio plc's obligation as a
NASDAQ listed company. The consideration for the services is US
$15,500 per month. The agreement is for an initial period of 12
months, after which the agreement will terminate automatically
unless renewed by the parties by mutual agreement. The fee for the
period ended 31 December 2016 was US $19,633 (2015: US $nil).
Amphion Innovations US Inc. entered into an agreement with m2m
Imaging Corp. ("m2m") to provide advisory and consulting services.
Robert Bertoldi, a Director of the Company, was also the Chairman
of m2m. The monthly fee under this agreement was US $15,000. This
agreement renewed on an annual basis until terminated by either
party. Amphion Innovations US Inc.'s fee for the periods ended 31
December 2016 and 2015 were suspended. At 31 December 2016, Amphion
Innovations US Inc. wrote off the balance receivable of US $630,000
(2015: US $630,000). This balance was reduced by a provision for
doubtful debts in the amount of US $600,000 in 2015.
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 Director 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 2016 and 2015 was
suspended. At 31 December 2016 US $1,320,000 (2015: 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 (2015: US
$1,320,000).
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 2016 and 2015
were suspended. At 31 December 2016, US $770,000 (2015: 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 (2015: 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 2016 and 2015 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 2016, US $81,301
(2015: US $81,301) remains outstanding. The net amount payable by
the Company at 31 December 2016 to Richard Morgan is US $2,159,433
(2015: US $2,249,714). The amount payable includes a voluntary
salary reduction of US $1,849,687 (2015: 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
replaced the US $6,308,600 of notes payable with the issue of
promissory notes that matured 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 December 2017. 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 2016, the estate of Mr. Macaleer was due US $2,330,717
(2015: US $1,859,115) for accrued interest on the promissory
notes.
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. This agreement was
terminated on 31 July 2016.
At 31 December 2016, US $110,273 (2015: US $110,666) was due to
Gerard Moufflet, a retired Director of the Company, for Director's
fees and US $8,337 (2015: US $8,337) for expenses.
At 31 December 2016, US $5,962 (2015: US $6,672) was due to
Anthony Henfrey, a retired Director of the Company, for
expenses.
At 31 December 2016, US $23,535 (2015: US $23,535) was due to
Richard Mansell-Jones, a Director of the Company for Director's
fees.
At 31 December 2015, US $1,021,427 (2015: US $947,293) was due
to Robert Bertoldi, a Director of the Company, for voluntary salary
reductions in 2009 through 2016 of which US $188,769 is payable at
the discretion of the Board.
Directors' interests
The Directors' direct ownership in the Partner Companies is as
follows:
Fully diluted
%
Investment company owned by Directors
--------------------------------------- ---------------------
2016 2015
Axcess International, Inc. 6.45% 5.46%
FireStar Software, Inc. 0.71% 0.71%
Kromek Group plc 0.14% 0.22%
Motif Bio plc 0.44% 0.80%
m2m Acquisition Inc. 0.00% 0.00%
m2m Imaging Corp. (transferred assets
to m2m Acquisition Inc.) 0.00% 1.66%
Novacyt S.A. 0.00% 0.00%
PrivateMarkets, Inc. 2.92% 2.92%
WellGen, Inc. 1.21% 3.10%
The Directors who held office at 31 December 2016 had the
following interests in the Company's ordinary share capital:
2016 2015 2016 2015 2016 2015
Number of Number of Convertible Convertible
Number Number
ordinary ordinary promissory promissory of of
shares shares notes notes warrants warrants
------------------- ------------------- ------------------- ------------------- ------------------ ------------------
Richard C.E.
Morgan 23,642,499 23,642,499 GBP1,031,817 GBP981,666 2,063,633 1,963,331
Robert J.
Bertoldi 6,436,431 6,436,431 - - - -
Gerard Moufflet 1,273,958 1,180,208 - - - -
Miroslaw
Izienicki 601,489 403,433 - - - -
Richard
Mansell-Jones 3,785,530 - - - - -
Paul Kennedy - - - - - -
Aggregate Directors' remuneration
The total amounts for Directors' remuneration was as
follows:
Year ended Year ended
31 December 2016 31 December 2015
US $ US $
Emoluments 820,416 1,014,987
Directors' emoluments and compensation
Group (1) Group Group Year ended Year ended
Fees/Basic
Fees/Basic salary Benefits 31 December 31 December
salary
paid accrued In kind 2016 total 2015 total
US $ US $ US $ US $ US $
Name of Director
Executive-salary
Richard C.E.
Morgan 254,808 99,038 20,109 373,955 478,895
Robert J.
Bertoldi 229,327 74,134 20,109 323,570 406,299
Non-executive
- fees
R. James Macaleer - - - - 38,512
Gerard Moufflet 16,901 - - 16,901 36,461
Miroslaw
Izienicki 48,404 - - 48,404 54,820
Richard
Mansell-Jones 33,894 - - 33,894 -
Paul Kennedy 23,692 - - 23,692 -
Aggregate e
Aggregate
emoluments 607,026 173,172 40,218 820,416 1,014,987
============== ============================ ================== ================== ==================
(1) Deferred fees/basic salary refers to voluntary salary
reductions taken by the Executive Directors in 2016 which were
recorded as a liability in 2016 in the Group accounts and are
subject to the deed of postponement entered into in May 2017.
Directors' share options
Aggregate emoluments disclosed above do not include any amounts
for the value of options to acquire ordinary shares in the Company
granted to or held by the Directors. Details of options for
Directors who served during the year are as follows:
1 31 Date from
Name of January December Exercise which Expiry
Director Scheme 2016 Granted 2016 price exercisable date
2006
Unapproved
Share 24 Mar 24 Mar
Richard Morgan Option Plan 500,000 - 500,000 GBP0.1075 2010 2019
2006
Unapproved
Share 23 Sep 23 Sep
Richard Morgan Option Plan 2,500,000 - 2,500,000 GBP0.02225 2014 2024
2006
Unapproved
Robert Share 24 Mar 24 Mar
Bertoldi Option Plan 350,000 - 350,000 GBP0.1075 2010 2019
2006
Unapproved
Robert Share 23 Sep 23 Sep
Bertoldi Option Plan 2,500,000 - 2,500,000 GBP0.02225 2014 2024
2016 Long Term
Miroslaw Incentive 8 Dec
Izienicki Plan - 375,000 375,000 GBP0.0238 8 Dec 2016 2026
2016 Long Term
Miroslaw Incentive 15 Dec 15 Dec
Izienicki Plan - 281,250 281,250 GBP0.0212 2016 2026
2016 Long Term
Richard Incentive 8 Dec
Mansell-Jones Plan - 600,000 600,000 GBP0.0238 8 Dec 2016 2026
2016 Long Term
Richard Incentive 8 Dec
Mansell-Jones Plan - 563,000 563,000 GBP0.0238 8 Dec 2016 2026
2016 Long Term
Incentive 8 Dec
Paul Kennedy Plan - 375,000 375,000 GBP0.0238 8 Dec 2016 2026
2016 Long Term
Incentive 15 Dec 15 Dec
Paul Kennedy Plan - 400,000 400,000 GBP0.0212 2016 2026
5,850,000 2,594,250 8,444,250
========== ============== ===========
23. Subsequent events
In February 2017, the Company borrowed an additional US $500,000
under the YA Global Master SPV Ltd. Loan facility increasing the
amount borrowed under the facility to US $5.8 million. Under the
terms of the additional draw, the interest rate will be 10% with
repayment to be added to the outstanding balance and amortized over
the remaining life of the loan, which matures on 1 December 2017.
The proceeds are to be used for working capital for Amphion and its
Partner Companies. The additional draw may be converted into
ordinary shares of the Company in accordance with the additional
terms of the facility announced on 22 August 2016.
The Company has received redemption requests on its convertible
promissory notes totaling approximately GBP54,923 for the 30 June
2017 redemption date. The amounts are payable by 14 August
2017.
In May 2017, the Company drew-down an addition US $1,500,000
under the YA Global Master SPV Ltd. Loan facility. The draw-down is
in two tranches of US $750,000. The first tranche was received in
May 2017 and the second tranche will become available on 1 July
2017. The loan balance under the facility after both tranches of
the additional draw will be US $6,149,011. Of this total amount, US
$3,000,000 may be converted into ordinary shares in the Company at
6 pence per share and US $3,149,011 may be converted into ordinary
shares at 8 pence per share. The interest rate will be 10% with
repayment to be added to the outstanding balance and amortised over
the remaining life of the loan, which matures on 15 December 2017.
Under the terms of the additional draw, the Company issued
10,000,000 new ordinary shares to the lender for nil
consideration.
In May 2017, the Company's Partner Company, m2m Acquisition Inc.
signed a merger agreement with Polarean, Inc. in a cash and
share-based transaction to create Polarean Imaging Limited, a newly
incorporated company in England, UK. In addition to the merger,
Polarean Imaging Limited completed a pre-IPO fundraise of US $2
million. Following the merger and pre-IPO raise, Amphion will hold
approximately 26% of Polarean.
In May 2017, Richard Morgan and Robert Bertoldi, Directors of
the Company, entered into a deed of postponement where they have
agreed to postpone the repayment of the amounts owed to them, which
total US $4.3 million, until all other debts of the company are
repaid.
As of 26 June 2017, Motif Bio plc's share price has increased to
29.75 pence which has increased the Group's valuation by
approximately US $3.2 million.
On 27 June 2017, Paul Kennedy resigned as Non-executive Director
of the Company.
Notice
The financial information set out above does not constitute the
Group's statutory accounts for the year ended 31 December 2016 or
2015, 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 2016 and 2015 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 27 June
2017.
Copies of the Annual Report and Accounts
Copies of the Annual Report and Accounts will be sent to all
shareholders. Further copies will be obtainable from the Company's
primary office: Amphion Innovations plc, Attn: Investor Relations,
125 Park Avenue, 25th Floor, New York, NY 10017, USA.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKODNOBKDDAB
(END) Dow Jones Newswires
June 28, 2017 02:00 ET (06:00 GMT)
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